Cash provided by investing activities was $16.8 million for the year ended September 30, 2008, and is principally comprised of net sales and maturities of marketable securities of $39.4 million, the final escrow proceeds of $1.9 million from Applied Materials for the sale of our software division, which have been partially offset by $23.4 million in capital expenditures, including $13.4 million in expenditures related to our Oracle ERP implementation, and the final contingent payment of $1.0 million in connection with our Keystone Wuxi acquisition. Our Oracle ERP implementation is expected to cost approximately $26.5 million when fully implemented, of which $20.7 million has been incurred from inception through September 30, 2008. We completed the financial module portion of the Oracle ERP implementation during fiscal 2008, and placed in service $8.0 million of Oracle ERP costs. The remaining $12.7 million of costs incurred to date is included in construction in progress within property, plant and equipment. We will continue to make capital expenditures to support and maintain our operations, and may also use our resources to acquire companies, technologies or products that complement our business.
Cash used in financing activities were $87.8 million for the year ended September 30, 2008, primarily due to $90.2 million for treasury share purchases.
At September 30, 2007, we had cash, cash equivalents and marketable securities aggregating $274.6 million. This amount was comprised of $168.2 million of cash and cash equivalents, $80.1 million of investments in short-term marketable securities and $26.3 million of investments in long-term marketable securities.
Cash and cash equivalents were $168.2 million at September 30, 2007, an increase of $52.4 million from September 30, 2005.2006. This decreaseincrease in cash and cash equivalents was primarily due to proceeds received from the debt repaymentsale of $175.0 million, the net acquisitionssoftware division of Helix and Synetics of $41.4$130.4 million and the $18.0 million used for capital additions, partially offset by cash provided by operations of $65.2$72.9 million, thepartially offset by $110.8 million for treasury share purchases, $28.9 million of net sales/maturitiespurchases of marketable securities of $83.1and the $20.6 million and $3.7 million of net proceeds from the issuance of common stock.used for capital additions.
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Cash provided by operations was $65.2$72.9 million for the year ended September 30, 2006,2007, and was primarily attributable to our net income of $25.9$151.5 million, adjustments for non-cash depreciation and amortization of $31.7$32.8 million and stock-based compensation expense related to common stock and options of $8.3$8.7 million, partially offset by the gain on sale of the software division of $81.8 million, a non-cash gain on investment of $5.1 million and changes in our net working capital of $1.2 million, partially offset by discount of marketable securities of $3.0$32.7 million. The $1.2$32.7 million increasedecrease in working capital was primarily the result of increaseddecreased accounts payable levels of $22.5$14.8 million primarily as a result of higherlower inventory purchases, and increaseddecreased accrued compensation and benefitsexpenses of $9.6 million, primarily associated with variable compensation plans. Offsetting changes in working capital included increased accounts receivable balances of $20.5 million and net cash outlays of $10.4 million of restructuring-related spending. The increase in accounts receivable is a result of our increased level of business.$10.8 million.
Cash provided by investing activities was $19.1$81.0 million for the year ended September 30, 2006,2007, and is principally comprised of proceeds on the sale of the software division of $130.4 million, partially offset by net sales/maturitiespurchases of marketable securities of $83.1 million, offset by the net acquisitions of Helix and Synetics of $41.4$28.9 million and $18.0$20.6 million used for capital additions.
Cash used in financing activities was $171.4$103.2 million for the year ended September 30, 20062007 from the debt repaymenttreasury share repurchases of $175.0$110.8 million, partially offset by $3.6$9.3 million due to proceeds from the issuance of stock under our employee stock purchase plan and the exercise of options to purchase our common stock.
While we have no significant capital commitments, as we expand our product offerings, we anticipate that we will continue to make capital expenditures to support our business and improve our computer systems infrastructure. We may also use our resources to acquire companies, technologies or products that complement our business.
At September 30, 2006,2008, we had approximately $0.7 million of letters of credit outstanding.
Our contractual obligations consist of the following at September 30, 2008 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Less than
| | One to
| | Four to
| | | | | | | Less than
| | One to
| | Four to
| | | |
| | Total | | One Year | | Three Years | | Five Years | | Thereafter | | | Total | | One Year | | Three Years | | Five Years | | Thereafter | |
|
Contractual obligations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating leases — continuing | | $ | 36,766 | | | $ | 7,431 | | | $ | 15,987 | | | $ | 6,059 | | | $ | 7,289 | | | $ | 23,057 | | | $ | 5,974 | | | $ | 11,365 | | | $ | 4,690 | | | $ | 1,028 | |
Operating leases — exited facilities | | | 25,330 | | | | 5,180 | | | | 15,486 | | | | 4,664 | | | | — | | | | 16,042 | (1) | | | 5,864 | | | | 10,178 | | | | — | | | | — | |
Pension funding | | | | 1,000 | | | | 1,000 | | | | — | | | | — | | | | — | |
Purchase commitments | | | 99,427 | | | | 99,427 | | | | — | | | | — | | | | — | | | | 44,703 | | | | 44,703 | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | |
Total contractual obligations | | $ | 161,523 | | | $ | 112,038 | | | $ | 31,473 | | | $ | 10,723 | | | $ | 7,289 | | | $ | 84,802 | | | $ | 57,541 | | | $ | 21,543 | | | $ | 4,690 | | | $ | 1,028 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | |
(1) | | Amounts do not reflect approximately $4.9 million of contractual sublease income. |
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We adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes, as of October 1, 2007. As of September 30, 2008, the total amount of net unrecognized tax benefits for uncertain tax positions and the accrual for the related interest was $11.9 million. Although we anticipate that we will settle approximately $1.0 million of the $11.9 million within the next twelve months, we are unable to make a reasonably reliable estimate for the remaining $10.9 million as to when cash settlement, if any, will occur with a tax authority as the timing of examinations and ultimate resolution of those examinations is uncertain.
In addition, we are a guarantor on a lease in Mexico that expires in January 2013 for approximately $1.6 million.
On November 9, 2007 we announced that our Board of Directors authorized a stock repurchase plan to buy up to $200.0 million of our outstanding common stock. During the year ended September 30, 2008, we purchased 7,401,869 shares of our common stock for a total of $90.2 million in connection with the stock repurchase plan. Management and the Board of Directors will exercise discretion with respect to the timing and amount of any future shares repurchased, if any, based on their evaluation of a variety of factors, including current market conditions. Repurchases may be commenced or suspended at any time without prior notice. The repurchase program has been funded using our available cash resources. Any future repurchases would come from our available cash resources.
We believe that our existingwe have adequate resources will be adequate to fund our currently planned working capital and capital expenditure requirements for both the short and long-term. In addition, we expect to receive $125 million from the sale of the software division during the second fiscal quarter of 2007. However, the cyclical nature of the semiconductor industry and the current global economic downturn makes it difficult for us to predict future liquidity requirements with certainty. During the current capital market crisis, some companies have experienced difficulties accessing their cash equivalents and marketable securities. We invest our cash in highly rated marketable securities, and to date, we have not experienced any material issues accessing our funds. Further deterioration in the capital markets could impact our ability to access some of our cash resources. We may be unable to obtain any required additional financing on terms favorable to us, if at all. If adequate funds are not available on acceptable terms, we may be unable to fund our expansion, successfully develop or enhance products, respond to competitive pressure or take advantage of acquisition opportunities, any of which could have a material adverse effect on our business. In addition, we are subject to litigation related toindemnification obligations in connection with our stock-based compensation restatement with certain former executives which could have an adverse affect on our existing resources.
Recently Enacted Accounting Pronouncements
In May 2005,July 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements” (“SFAS 154”). SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. SFAS 154 also provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. The provisions of this Statement are effective for accounting changes and corrections of errors made in fiscal periods beginning after December 15, 2005.
43
In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN No. 48”). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASFASB Statement No. 109, “Accounting for Income Taxes.”Taxes”. FIN No. 48 prescribes a two-step process to determinerecognition threshold and measurement attribute for the amountfinancial statement recognition and measurement of a tax benefitposition taken or expected to be recognized. First, thetaken in a tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed “more-likely-than-not” to be sustained, the tax position is then assessed to determine the amount of benefit to recognizereturn. FIN No. 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement. The guidance will become effective as of the beginning of our fiscal year beginning after December 15, 2006.interim periods, disclosure, and transition. We are currently evaluating the potential impact ofadopted FIN No. 48 on October 1, 2007. The effect of the adoption did not materially affect our financial position andor results of operations.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”) expressing the Staff’s views regarding the process of quantifying financial statement misstatements. There have been two widely-recognized methods for quantifying the effects of financial statement errors: the “roll-over” method and the “iron curtain” method. The roll-over method focuses primarily on the impact of a misstatement on the income statement, including the reversing effect of prior year misstatements, but its use can lead to the accumulation of misstatements in the balance sheet. The iron-curtain method, on the other hand, focuses primarily on the effect of correcting the period-end balance sheet with less emphasis on the reversing effects of prior year errors on the income statement. SAB 108 establishes an approach that requires quantification of financial statement errors based on the effects of the error on each of our financial statements and the related financial statement disclosures. This model is commonly referred to as a “dual approach” because it essentially requires quantification of errors under both the iron-curtain and the roll-over methods. The provisions of SAB 108 should be applied to annual financial statements covering the first fiscal year ending after November 15, 2006. We are currently evaluating the provisions of SAB 108.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (’GAAP”) and expands disclosures about fair value measurements. In February 2008, the FASB issuedFSP 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13”(FSP 157-1) andFSP 157-2, “Effective Date of FASB Statement No. 157”(FSP 157-2).FSP 157-1 amends SFAS 157 applies under other accounting pronouncementsto remove certain leasing transactions from its scope.FSP 157-2 delays the effective date of SFAS 157 for all non-financial assets and non-financial liabilities, except for items that requireare recognized or permitdisclosed at fair value measurements,in the financial statements on a recurring basis (at least annually), until the beginning of
34
our first quarter of fiscal 2010. The measurement and disclosure requirements related to financial assets and financial liabilities are effective for us beginning in the first quarter of fiscal 2009. We do not believe that the adoption of SFAS 157 will have a material impact on our financial position or results of operations.
In February 2007, the FASB having previously concluded in those accounting pronouncements thatissued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value and is effective as of the relevant measurement attribute. Accordingly,beginning of the Company’s fiscal year beginning October 1, 2008. We do not believe that the adoption of SFAS 157 does159 will have a material impact on our financial position or results of operations.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R significantly changes the accounting for business combinations in a number of areas including the treatment of contingent consideration, pre-acquisition contingencies, transaction costs, restructuring costs and income taxes. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the fiscal year beginning after December 15, 2008. SFAS 141R will be effective for the Company on October 1, 2009, and will be applied to any business combination with an acquisition date, as defined therein, that is subsequent to the effective date.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — An amendment of ARB No. 51” (“SFAS 160”). SFAS 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. Statement 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not require any new fair value measurements.result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this Statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. SFAS 157160 is effective for fiscal years beginning after NovemberDecember 15, 2007, and interim periods within those fiscal years,2008. At this point in time, we believe that there will not be a material impact in connection with earlier adoption permitted. The provisionsSFAS 160 on our financial position or results of SFAS 157 should be applied prospectively as of the beginning of the fiscal year in which it is initially applied, with limited exceptions. We are currently evaluating the provisions of SFAS 157.operations.
In September 2006,March 2008, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension161, “Disclosures about Derivative Instruments and Other Postretirement Plans, anHedging Activities — An amendment of FASB StatementsStatement No. 87, 88, 106, and 132(R)”133” (“SFAS 158”161”). SFAS 158 requires161 amends and expands the disclosure requirements of SFAS 133 with the intent to provide users of financial statements with an employerenhanced understanding of (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. We do not believe that isthe adoption of SFAS 161 will have a business entity and sponsors onematerial impact on our financial position or more single-employer defined benefit plans to:results of operations.
a. RecognizeIn April 2008, the funded statusFASB issuedFSP 142-3, “Determination of the Useful Life of Intangible Assets” (“FSPSFAS 142-3”). FSPSFAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a benefit plan, measured asrecognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). FSPSFAS 142-3 improves the differenceconsistency between plan assets atthe useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141R and other applicable accounting literature. FSPSFAS 142-3 will be effective for us on October 1, 2009. We do not believe that the benefit obligation, in its statementadoption of FSPSFAS 142-3 will have a material impact on our financial position. For a pension plan, the benefit obligation is the projected benefit obligation; for any other postretirement benefit plan, such as a retiree health care plan, the benefit obligation is the accumulated postretirement benefit obligation.
b. Recognize as a componentposition or results of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost pursuant to SFAS No. 87, “Employers’ Accounting for Pensions”,or SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions”. Amounts recognized in accumulated other comprehensive income, including the gains or losses, prior service costs or credits, and the transition asset or obligation remaining from the initial application of SFAS No. 87 and SFAS No. 106, are adjusted as they are subsequently recognized as components of net periodic benefit cost pursuant to the recognition and amortization provisions of those Statements.operations.
4435
c. Measure defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end statement of financial position (with limited exceptions).
d. Disclose in the notes to financial statements additional information about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation.
An employer with publicly traded equity securities is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. Retrospective application is not permitted. We are currently evaluating the provisions of SFAS 158.
| |
Item 7A. | Quantitative and Qualitative DisclosureDisclosures About Market Risk |
Our primaryWe are exposed to a variety of market risk exposures are torisks, including changes in interest rates affecting the return on our cash and cash equivalents, short-term and long-term investments and fluctuations in foreign currency exchange rates.
Interest Rate Exposure
As our cash and cash equivalents consist principally of money market securities, which are short-term in nature, our exposure to market risk related to interest rate fluctuations for these investments is not significant. Our short-term and long-term investments consist mostly of highly rated corporate debt securities, and as such, market risk to these investments is not significant. During the year ended September 30, 2008, the unrealized loss on marketable securities, excluding our investment in a Swiss public company, was $1.1 million. A portionhypothetical 100 basis point change in interest rates would result in an annual change of our business is conducted outside the United States through foreign subsidiaries which maintain accounting recordsapproximately $1.9 million in their local currencies. Consequently, some of our assetsinterest income earned.
Currency Rate Exposure
We have transactions and liabilities arebalances denominated in currencies other than the U.S. dollar. Most of these transactions or balances are denominated in Euros and a variety of Asian currencies. Sales in currencies other than the U.S. dollar were 15.7% of our total sales for year ended September 30, 2008. We also purchase materials from some suppliers outside of the United StatedStates that is transacted in currencies other than the U.S. dollar. FluctuationsIn the year ended September 30, 2008, we recorded foreign exchange losses related to receivables of $0.7 million, and foreign exchange losses of $2.8 million related to payables due to the general weakening of the U.S. dollar in foreignthis period. If currency exchange rates affecthad been 10% different throughout the carrying amountyear ended September 30, 2008 compared to the currency exchange rates actually experienced, the impact on our loss for the year would have been approximately $2.9 million. The changes in currency exchange rates relative to the U.S. dollar during the year ended September 30, 2008 compared to the currency exchange rates at September 30, 2007 resulted in a decrease in net assets of these assets and liabilities and our operating results. We do$0.1 million that we reported as a separate component of comprehensive income. The impact of a hypothetical 10% change in foreign exchange rates at September 30, 2008 is not enter into market risk sensitive instruments to hedge these exposures.considered material.
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| |
Item 8. | Financial Statements and Supplementary Data |
| | | | |
| | | 4738 | |
| | | 4939 | |
| | | 5040 | |
| | | 5141 | |
| | | 5242 | |
| | | 5343 | |
4637
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
of Brooks Automation, Inc.:
We have completed integrated audits of Brooks Automation, Inc.’s 2006 and 2005 consolidated financial statements and of its internal control over financial reporting as of September 30, 2006 and an audit of its 2004 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.
Consolidated financial statements
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Brooks Automation, Inc. and its subsidiaries at September 30, 20062008 and 2005,2007, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 20062008 in conformity with accounting principles generally accepted in the United States of America. TheseAlso in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2008, based on criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, are the responsibilityfor maintaining effective internal control over financial reporting and for its assessment of the Company’s management.effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express an opinionopinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An auditmisstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements includesincluded examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.opinions.
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for share-based compensation in fiscal 2006.
Internal control over financial reporting
Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of September 30, 2006 based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2006, based on criteria established inInternal Control — Integrated Frameworkissued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made
47
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded Helix Technology Corporation (“Helix”) and Synetics Solutions Inc. (“Synetics”) from its assessment of internal control over financial reporting as of September 30, 2006 because those entities were acquired by the Company in purchase business combinations during fiscal 2006. We have also excluded Helix and Synetics from our audit of internal control over financial reporting. The total assets and total revenues of the acquired businesses of Helix and Synetics represent 18% and 30%, respectively, of the related consolidated financial statement amounts as of and for the year ended September 30, 2006.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 13, 2006November 26, 2008
4838
BROOKS AUTOMATION, INC.
| | | | | | | | | | | | | | | | |
| | September 30,
| | September 30,
| | | September 30,
| | September 30,
| |
| | 2006 | | 2005 | | | 2008 | | 2007 | |
| | (In thousands, except share and per share data) | | | (In thousands, except share and per share data) | |
|
ASSETS | ASSETS | ASSETS |
Current assets | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 115,773 | | | $ | 202,462 | | | $ | 110,269 | | | $ | 168,232 | |
Marketable securities | | | 68,280 | | | | 121,561 | | | | 33,077 | | | | 80,102 | |
Accounts receivable, net | | | 127,195 | | | | 77,555 | | | | 66,844 | | | | 105,904 | |
Insurance receivable for litigation | | | | 8,772 | | | | — | |
Inventories, net | | | 99,854 | | | | 48,434 | | | | 105,901 | | | | 104,794 | |
Current assets from discontinued operations | | | — | | | | 55 | | |
Prepaid expenses and other current assets | | | 21,710 | | | | 18,259 | | | | 13,783 | | | | 20,489 | |
| | | | | | | | | | |
Total current assets | | | 432,812 | | | | 468,326 | | | | 338,646 | | | | 479,521 | |
Property, plant and equipment, net | | | 78,833 | | | | 54,165 | | | | 81,604 | | | | 80,747 | |
Long-term marketable securities | | | 7,307 | | | | 32,935 | | | | 33,935 | | | | 26,283 | |
Goodwill | | | 351,444 | | | | 62,094 | | | | 119,979 | | | | 319,302 | |
Intangible assets, net | | | 94,067 | | | | 3,828 | | | | 58,452 | | | | 76,964 | |
Equity investment in Ulvac Cryogenics, Inc. | | | 21,489 | | | | — | | |
Equity investment in joint ventures | | | | 26,309 | | | | 24,007 | |
Other assets | | | 6,625 | | | | 2,732 | | | | 4,713 | | | | 8,014 | |
| | | | | | | | | | |
Total assets | | $ | 992,577 | | | $ | 624,080 | | | $ | 663,638 | | | $ | 1,014,838 | |
| | | | | | | | | | |
| LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS’ EQUITY | LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS’ EQUITY | LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS’ EQUITY |
Current liabilities | | | | | | | | | | | | | | | | |
Current portion of long-term debt | | $ | 11 | | | $ | 12 | | |
Short-term debt | | | — | | | | 175,000 | | |
Accounts payable | | | 69,392 | | | | 30,820 | | | $ | 37,248 | | | $ | 57,758 | |
Deferred revenue | | | 26,119 | | | | 22,143 | | | | 3,553 | | | | 5,424 | |
Accrued warranty and retrofit costs | | | 11,608 | | | | 9,782 | | | | 8,174 | | | | 10,986 | |
Accrued compensation and benefits | | | 27,712 | | | | 15,886 | | | | 18,174 | | | | 23,850 | |
Accrued restructuring costs | | | 7,254 | | | | 12,171 | | | | 7,167 | | | | 6,778 | |
Accrued income taxes payable | | | 17,773 | | | | 17,331 | | | | 3,151 | | | | 5,934 | |
Current liabilities from discontinued operations | | | — | | | | 399 | | |
Accrual for litigation settlement | | | | 7,750 | | | | — | |
Accrued expenses and other current liabilities | | | 20,310 | | | | 16,551 | | | | 17,634 | | | | 21,908 | |
| | | | | | | | | | |
Total current liabilities | | | 180,179 | | | | 300,095 | | | | 102,851 | | | | 132,638 | |
Long-term debt | | | 2 | | | | 2 | | |
Accrued long-term restructuring | | | 9,289 | | | | 10,959 | | | | 5,496 | | | | 8,933 | |
Income taxes payable | | | | 10,649 | | | | 10,159 | |
Other long-term liabilities | | | 3,579 | | | | 2,129 | | | | 2,238 | | | | 2,866 | |
| | | | | | | | | | |
Total liabilities | | | 193,049 | | | | 313,185 | | | | 121,234 | | | | 154,596 | |
| | | | | | | | | | |
Commitments and contingencies (Note 19) | | | | | | | | | | | | | | | | |
Minority interests | | | 394 | | | | 1,060 | | | | 409 | | | | 463 | |
| | | | | | | | | | |
Stockholders’ equity | | | | | | | | | | | | | | | | |
Preferred stock, $0.01 par value, 1,000,000 shares authorized, no shares issued and outstanding at September 30, 2006 and 2005, respectively | | | — | | | | — | | |
Common stock, $0.01 par value, 125,000,000 shares authorized, 75,431,592 and 45,434,709 shares issued and outstanding at September 30, 2006 and 2005, respectively | | | 754 | | | | 454 | | |
Preferred stock, $0.01 par value, 1,000,000 shares authorized, no shares issued and outstanding at September 30, 2008 and 2007 | | | | — | | | | — | |
Common stock, $0.01 par value, 125,000,000 shares authorized, 77,044,737 shares issued and 63,582,868 shares outstanding at September 30, 2008, 76,483,603 shares issued and 70,423,603 shares outstanding at September 30, 2007 | | | | 770 | | | | 765 | |
Additional paid-in capital | | | 1,763,247 | | | | 1,307,145 | | | | 1,788,891 | | | | 1,780,401 | |
Deferred compensation | | | — | | | | (3,493 | ) | |
Accumulated other comprehensive income | | | 15,432 | | | | 11,958 | | | | 18,063 | | | | 18,202 | |
Treasury stock at cost, 13,461,869 shares and 6,060,000 shares at September 30, 2008 and 2007, respectively | | | | (200,956 | ) | | | (110,762 | ) |
Accumulated deficit | | | (980,299 | ) | | | (1,006,229 | ) | | | (1,064,773 | ) | | | (828,827 | ) |
| | | | | | | | | | |
Total stockholders’ equity | | | 799,134 | | | | 309,835 | | | | 541,995 | | | | 859,779 | |
| | | | | | | | | | |
Total liabilities, minority interests and stockholders’ equity | | $ | 992,577 | | | $ | 624,080 | | | $ | 663,638 | | | $ | 1,014,838 | |
| | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
4939
BROOKS AUTOMATION, INC.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, | | | Year Ended September 30, | |
| | 2006 | | 2005 | | 2004 | | | 2008 | | 2007 | | 2006 | |
| | (In thousands, except per share data) | | | (In thousands, except per share data) | |
|
Revenues | | | | | | | | | | | | | | | | | | | | | | | | |
Product | | $ | 514,294 | | | $ | 338,072 | | | $ | 402,252 | | | $ | 411,653 | | | $ | 625,405 | | | $ | 494,797 | |
Services | | | 178,576 | | | | 125,674 | | | | 132,801 | | | | 114,713 | | | | 117,853 | | | | 112,697 | |
| | | | | | | | | | | | | | |
Total revenues | | | 692,870 | | | | 463,746 | | | | 535,053 | | | | 526,366 | | | | 743,258 | | | | 607,494 | |
| | | | | | | | | | | | | | |
Cost of revenues | | | | | | | | | | | | | | | | | | | | | | | | |
Product | | | 345,592 | | | | 239,024 | | | | 244,894 | | | | 304,961 | | | | 431,586 | | | | 329,658 | |
Services | | | 102,494 | | | | 64,586 | | | | 90,493 | | | | 94,577 | | | | 92,077 | | | | 91,186 | |
| | | | | | | | | | | | | | |
Total cost of revenues | | | 448,086 | | | | 303,610 | | | | 335,387 | | | | 399,538 | | | | 523,663 | | | | 420,844 | |
| | | | | | | | | | | | | | |
Gross profit | | | 244,784 | | | | 160,136 | | | | 199,666 | | | | 126,828 | | | | 219,595 | | | | 186,650 | |
| | | | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | | | | | | | | | | | | | |
Research and development | | | 70,671 | | | | 63,115 | | | | 66,266 | | | | 42,924 | | | | 51,715 | | | | 45,643 | |
Selling, general and administrative | | | 141,032 | | | | 84,797 | | | | 90,227 | | | | 110,516 | | | | 120,421 | | | | 117,221 | |
Impairment charges | | | | 203,570 | | | | — | | | | — | |
Restructuring charges | | | 5,297 | | | | 16,542 | | | | 5,356 | | | | 7,287 | | | | 7,108 | | | | 4,257 | |
| | | | | | | | | | | | | | |
Total operating expenses | | | 217,000 | | | | 164,454 | | | | 161,849 | | | | 364,297 | | | | 179,244 | | | | 167,121 | |
| | | | | | | | | | | | | | |
Income (loss) from continuing operations | | | 27,784 | | | | (4,318 | ) | | | 37,817 | | |
Operating income (loss) from continuing operations | | | | (237,469 | ) | | | 40,351 | | | | 19,529 | |
Interest income | | | 13,715 | | | | 9,284 | | | | 4,984 | | | | 7,403 | | | | 11,897 | | | | 13,715 | |
Interest expense | | | 9,384 | | | | 9,469 | | | | 9,492 | | | | 407 | | | | 583 | | | | 9,384 | |
Equity in earnings of Ulvac Cryogenics, Inc. | | | 985 | | | | — | | | | — | | |
Gain (loss) on investment | | | | (3,940 | ) | | | 5,110 | | | | — | |
Other (income) expense, net | | | 3,193 | | | | (1,752 | ) | | | 911 | | | | 1,739 | | | | 1,139 | | | | (207 | ) |
| | | | | | | | | | | | | | |
Income (loss) from continuing operations before income taxes and minority interests | | | 29,907 | | | | (2,751 | ) | | | 32,398 | | |
Income (loss) from continuing operations before income taxes, minority interests and equity in earnings of joint ventures | | | | (236,152 | ) | | | 55,636 | | | | 24,067 | |
Income tax provision | | | 4,732 | | | | 5,204 | | | | 8,053 | | | | 1,233 | | | | 2,287 | | | | 3,372 | |
| | | | | | | | | | | | | | |
Income (loss) from continuing operations before minority interests | | | 25,175 | | | | (7,955 | ) | | | 24,345 | | |
Minority interests in income (loss) of consolidated subsidiary | | | (666 | ) | | | 141 | | | | 211 | | |
Income (loss) from continuing operations before minority interests and equity in earnings of joint ventures | | | | (237,385 | ) | | | 53,349 | | | | 20,695 | |
Minority interests in income (loss) of consolidated subsidiaries | | | | (53 | ) | | | 68 | | | | (666 | ) |
Equity in earnings of joint ventures | | | | 707 | | | | 1,020 | | | | 985 | |
| | | | | | | | | | | | | | |
Income (loss) from continuing operations | | | 25,841 | | | | (8,096 | ) | | | 24,134 | | | | (236,625 | ) | | | 54,301 | | | | 22,346 | |
Discontinued operations: | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from operations | | | 89 | | | | (3,492 | ) | | | (9,475 | ) | |
Loss on disposal | | | — | | | | (24 | ) | | | — | | |
Income from discontinued operations, net of income taxes | | | | — | | | | 13,273 | | | | 3,584 | |
Gain on sale of discontinued operations, net of income taxes | | | | 679 | | | | 83,898 | | | | — | |
| | | | | | | | | | | | | | |
Income (loss) from discontinued operations, net of income taxes | | | 89 | | | | (3,516 | ) | | | (9,475 | ) | |
Income from discontinued operations, net of income taxes | | | | 679 | | | | 97,171 | | | | 3,584 | |
| | | | | | | | | | | | | | |
Net income (loss) | | $ | 25,930 | | | $ | (11,612 | ) | | $ | 14,659 | | | $ | (235,946 | ) | | $ | 151,472 | | | $ | 25,930 | |
| | | | | | | | | | | | | | |
Basic income (loss) per share from continuing operations | | $ | 0.36 | | | $ | (0.18 | ) | | $ | 0.56 | | | $ | (3.67 | ) | | $ | 0.74 | | | $ | 0.31 | |
Basic income (loss) per share from discontinued operations | | | 0.00 | | | | (0.08 | ) | | | (0.22 | ) | |
Basic income per share from discontinued operations | | | | 0.01 | | | | 1.32 | | | | 0.05 | |
| | | | | | | | | | | | | | |
Basic net income (loss) per share | | $ | 0.36 | | | $ | (0.26 | ) | | $ | 0.34 | | | $ | (3.66 | ) | | $ | 2.06 | | | $ | 0.36 | |
| | | | | | | | | | | | | | |
Diluted income (loss) per share from continuing operations | | $ | 0.36 | | | $ | (0.18 | ) | | $ | 0.55 | | | $ | (3.67 | ) | | $ | 0.73 | | | $ | 0.31 | |
Diluted income (loss) per share from discontinued operations | | | 0.00 | | | | (0.08 | ) | | | (0.22 | ) | |
Diluted income per share from discontinued operations | | | | 0.01 | | | | 1.31 | | | | 0.05 | |
| | | | | | | | | | | | | | |
Diluted net income (loss) per share | | $ | 0.36 | | | $ | (0.26 | ) | | $ | 0.34 | | | $ | (3.66 | ) | | $ | 2.04 | | | $ | 0.36 | |
| | | | | | | | | | | | | | |
Shares used in computing earnings (loss) per share | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | | 72,323 | | | | 44,919 | | | | 43,006 | | | | 64,542 | | | | 73,492 | | | | 72,323 | |
Diluted | | | 72,533 | | | | 44,919 | | | | 43,573 | | | | 64,542 | | | | 74,074 | | | | 72,533 | |
The accompanying notes are an integral part of these consolidated financial statements.
5040
BROOKS AUTOMATION, INC.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, | | | Year Ended September 30, | |
| | 2006 | | 2005 | | 2004 | | | 2008 | | 2007 | | 2006 | |
| | (In thousands) | | | (In thousands) | |
|
Cash flows from operating activities | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 25,930 | | | $ | (11,612 | ) | | $ | 14,659 | | | $ | (235,946 | ) | | $ | 151,472 | | | $ | 25,930 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 31,664 | | | | 16,351 | | | | 17,541 | | | | 34,538 | | | | 32,801 | | | | 31,664 | |
Impairment of assets | | | — | | | | — | | | | 7,421 | | | | 203,570 | | | | — | | | | — | |
Stock-based compensation | | | 8,287 | | | | 3,640 | | | | 4,824 | | | | 6,909 | | | | 8,743 | | | | 8,287 | |
Discount on marketable securities | | | (3,012 | ) | | | (1,936 | ) | | | — | | |
Amortization of discount on marketable securities | | | | (830 | ) | | | (1,531 | ) | | | (3,012 | ) |
Amortization of debt issuance costs | | | 2,237 | | | | 839 | | | | 839 | | | | — | | | | — | | | | 2,237 | |
Undistributed earnings of joint venture | | | (985 | ) | | | — | | | | — | | |
Undistributed earnings of joint ventures | | | | (707 | ) | | | (1,020 | ) | | | (985 | ) |
Dividends from equity investment | | | | — | | | | 286 | | | | — | |
Minority interests | | | (666 | ) | | | 141 | | | | 211 | | | | (53 | ) | | | 68 | | | | (666 | ) |
Loss on disposal of long-lived assets | | | 534 | | | | 178 | | | | 505 | | | | 1,070 | | | | 1,672 | | | | 534 | |
Changes in operating assets and liabilities, net of acquired assets and liabilities: | | | | | | | | | | | | | |
Gain on sale of software division, net | | | | (679 | ) | | | (81,813 | ) | | | — | |
(Gain) loss on investment | | | | 3,940 | | | | (5,110 | ) | | | — | |
Changes in operating assets and liabilities, net of acquisitions and disposals: | | | | | | | | | | | | | |
Accounts receivable | | | (20,466 | ) | | | 47,922 | | | | (53,960 | ) | | | 38,612 | | | | (841 | ) | | | (20,466 | ) |
Inventories | | | (1,459 | ) | | | 23,933 | | | | (17,744 | ) | | | (610 | ) | | | (4,473 | ) | | | (1,459 | ) |
Prepaid expenses and other assets | | | 2,575 | | | | (3,048 | ) | | | 8,376 | | |
Prepaid expenses and other current assets | | | | 5,790 | | | | (4,096 | ) | | | 2,575 | |
Accounts payable | | | 22,513 | | | | (14,202 | ) | | | 17,967 | | | | (20,601 | ) | | | (14,759 | ) | | | 22,513 | |
Deferred revenue | | | 3,705 | | | | (12,718 | ) | | | (91 | ) | | | (1,892 | ) | | | 2,295 | | | | 3,705 | |
Accrued warranty and retrofit costs | | | 540 | | | | (2,104 | ) | | | 231 | | | | (2,772 | ) | | | (646 | ) | | | 540 | |
Accrued compensation and benefits | | | 9,553 | | | | (9,847 | ) | | | 10,621 | | | | (5,839 | ) | | | (2,724 | ) | | | 9,553 | |
Accrued restructuring costs | | | (10,364 | ) | | | 3,300 | | | | (9,123 | ) | | | (3,089 | ) | | | (882 | ) | | | (10,364 | ) |
Accrued expenses and other liabilities | | | (5,394 | ) | | | (9,723 | ) | | | 6,578 | | |
Accrued expenses and other current liabilities | | | | (7,755 | ) | | | (6,569 | ) | | | (5,394 | ) |
| | | | | | | | | | | | | | |
Net cash provided by operating activities | | | 65,192 | | | | 31,114 | | | | 8,855 | | | | 13,656 | | | | 72,873 | | | | 65,192 | |
| | | | | | | | | | | | | | |
Cash flows from investing activities | | | | | | | | | | | | | | | | | | | | | | | | |
Purchases of property, plant and equipment | | | (17,954 | ) | | | (11,704 | ) | | | (8,203 | ) | | | (23,439 | ) | | | (20,618 | ) | | | (17,954 | ) |
Purchases of intangible assets | | | (3,000 | ) | | | — | | | | — | | | | (75 | ) | | | (15 | ) | | | (3,000 | ) |
Proceeds from the sale of software division | | | | 1,918 | | | | 130,393 | | | | — | |
Acquisition of Helix Technology Corporation, cash acquired net of expenses | | | 8,805 | | | | — | | | | — | | | | — | | | | — | | | | 8,805 | |
Acquisition of Synetics Solutions Inc., net of cash acquired | | | (50,182 | ) | | | — | | | | — | | | | — | | | | (38 | ) | | | (50,182 | ) |
Acquisition of Keystone Electronics (Wuxi) Co., cash acquired net of expenses | | | | (1,000 | ) | | | 162 | | | | — | |
Investment in Yaskawa Brooks Automation, Inc. joint venture | | | (1,955 | ) | | | — | | | | — | | | | — | | | | — | | | | (1,955 | ) |
Purchases of marketable securities | | | (851,884 | ) | | | (635,683 | ) | | | (231,687 | ) | | | (151,231 | ) | | | (391,748 | ) | | | (851,884 | ) |
Sale/maturity of marketable securities | | | 934,961 | | | | 618,453 | | | | 169,141 | | | | 190,592 | | | | 362,833 | | | | 934,961 | |
Dividends from equity investment | | | 281 | | | | — | | | | — | | |
Proceeds from sale of long-lived assets | | | — | | | | 1,294 | | | | — | | |
Other | | | | — | | | | — | | | | 281 | |
| | | | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | | 19,072 | | | | (27,640 | ) | | | (70,749 | ) | |
Net cash provided by investing activities | | | | 16,765 | | | | 80,969 | | | | 19,072 | |
| | | | | | | | | | | | | | |
Cash flows from financing activities | | | | | | | | | | | | | | | | | | | | | | | | |
Treasury stock purchases | | | | (90,194 | ) | | | (110,762 | ) | | | — | |
Payments of short- and long-term debt and capital lease obligations | | | (175,015 | ) | | | (11 | ) | | | (98 | ) | | | — | | | | (1,740 | ) | | | (175,015 | ) |
Proceeds from issuance of common stock, net of issuance costs | | | 3,659 | | | | 5,313 | | | | 130,203 | | |
Issuance of common stock under stock option and stock purchase plans | | | | 2,391 | | | | 9,303 | | | | 3,659 | |
| | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | (171,356 | ) | | | 5,302 | | | | 130,105 | | |
Net cash used in financing activities | | | | (87,803 | ) | | | (103,199 | ) | | | (171,356 | ) |
| | | | | | | | | | | | | | |
Effects of exchange rate changes on cash and cash equivalents | | | 403 | | | | 405 | | | | 71 | | | | (581 | ) | | | 1,816 | | | | 403 | |
| | | | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | (86,689 | ) | | | 9,181 | | | | 68,282 | | | | (57,963 | ) | | | 52,459 | | | | (86,689 | ) |
Cash and cash equivalents, beginning of year | | | 202,462 | | | | 193,281 | | | | 124,999 | | | | 168,232 | | | | 115,773 | | | | 202,462 | |
| | | | | | | | | | | | | | |
Cash and cash equivalents, end of year | | $ | 115,773 | | | $ | 202,462 | | | $ | 193,281 | | | $ | 110,269 | | | $ | 168,232 | | | $ | 115,773 | |
| | | | | | | | | | | | | | |
Supplemental disclosures: | | | | | | | | | | | | | | | | | | | | | | | | |
Cash paid during the year for interest | | $ | 9,932 | | | $ | 8,603 | | | $ | 8,653 | | | $ | 407 | | | $ | 724 | | | $ | 9,932 | |
Cash paid during the year for income taxes, net of refunds | | $ | 6,280 | | | $ | 3,696 | | | $ | 2,237 | | | $ | 2,167 | | | $ | 5,760 | | | $ | 6,280 | |
Non-cash transactions: | | | | | | | | | | | | | | | | | | | | | | | | |
Acquisition of Helix Technology, net of transaction costs | | $ | 447,949 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 447,949 | |
| | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
5141
BROOKS AUTOMATION, INC.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Accumulated
| | | | | | | | | | | | | | | | | Accumulated
| | | | | | | |
| | | | | | | | | | | | Other
| | | | | | | | | | | | | | | | | Other
| | | | | | | |
| | Common
| | Common
| | Additional
| | | | | | Comprehensive
| | | | Total
| | | Common
| | Common
| | Additional
| | | | | | Comprehensive
| | | | | | Total
| |
| | Stock
| | Stock at
| | Paid-In
| | Deferred
| | Comprehensive
| | Income
| | Accumulated
| | Stockholders’
| | | Stock
| | Stock at
| | Paid-In
| | Deferred
| | Comprehensive
| | Income
| | Accumulated
| | Treasury
| | Stockholders’
| |
| | Shares | | par Value | | Capital | | Compensation | | Income (Loss) | | (Loss) | | Deficit | | Equity | | | Shares | | par Value | | Capital | | Compensation | | Income (Loss) | | (Loss) | | Deficit | | Stock | | Equity | |
| | (In thousands, except share data) | | | (In thousands, except share data) | |
|
Balance September 30, 2003 | | | 37,266,181 | | | $ | 373 | | | $ | 1,165,427 | | | $ | (6,084 | ) | | | | | | $ | 12,390 | | | $ | (1,009,276 | ) | | $ | 162,830 | | |
Shares issued under stock option and purchase plans | | | 487,161 | | | | 5 | | | | 5,917 | | | | | | | | | | | | | | | | | | | | 5,922 | | |
Common stock offering | | | 6,900,000 | | | | 69 | | | | 124,213 | | | | | | | | | | | | | | | | | | | | 124,282 | | |
Common stock issued in acquisitions | | | 38,502 | | | | — | | | | 1,181 | | | | | | | | | | | | | | | | | | | | 1,181 | | |
Deferred compensation, net of forfeitures | | | | | | | | | | | (188 | ) | | | 188 | | | | | | | | | | | | | | | | — | | |
Amortization of deferred compensation | | | | | | | | | | | | | | | 4,052 | | | | | | | | | | | | | | | | 4,052 | | |
Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | | | | | | | | $ | 14,659 | | | | | | | | 14,659 | | | | 14,659 | | |
Currency translation adjustments | | | | | | | | | | | | | | | | | | | 928 | | | | 928 | | | | | | | | 928 | | |
Unrealized loss on marketable securities | | | | | | | | | | | | | | | | | | | (959 | ) | | | (959 | ) | | | | | | | (959 | ) | |
| | | | |
Comprehensive income | | | | | | | | | | | | | | | | | | $ | 14,628 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Balance September 30, 2004 | | | 44,691,844 | | | | 447 | | | | 1,296,550 | | | | (1,844 | ) | | | | | | | 12,359 | | | | (994,617 | ) | | | 312,895 | | |
Shares issued under stock option and purchase plans | | | 708,432 | | | | 7 | | | | 5,306 | | | | | | | | | | | | | | | | | | | | 5,313 | | |
Common stock issued in acquisitions | | | 34,433 | | | | — | | | | 628 | | | | | | | | | | | | | | | | | | | | 628 | | |
Deferred compensation, net of forfeitures | | | | | | | | | | | 4,661 | | | | (4,661 | ) | | | | | | | | | | | | | | | — | | |
Amortization of deferred compensation | | | | | | | | | | | | | | | 3,012 | | | | | | | | | | | | | | | | 3,012 | | |
Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | | | | | | | | | | | | | | | | $ | (11,612 | ) | | | | | | | (11,612 | ) | | | (11,612 | ) | |
Currency translation adjustments | | | | | | | | | | | | | | | | | | | 353 | | | | 353 | | | | | | | | 353 | | |
Unrealized loss on marketable securities | | | | | | | | | | | | | | | | | | | (754 | ) | | | (754 | ) | | | | | | | (754 | ) | |
| | | | |
Comprehensive loss | | | | | | | | | | | | | | | | | | $ | (12,013 | ) | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Balance September 30, 2005 | | | 45,434,709 | | | | 454 | | | | 1,307,145 | | | | (3,493 | ) | | | | | | | 11,958 | | | | (1,006,229 | ) | | | 309,835 | | | | 45,434,709 | | | $ | 454 | | | $ | 1,307,145 | | | $ | (3,493 | ) | | | | | | $ | 11,958 | | | $ | (1,006,229 | ) | | $ | — | | | $ | 309,835 | |
Shares issued under stock option and purchase plans | | | 975,519 | | | | 10 | | | | 3,649 | | | | | | | | | | | | | | | | | | | | 3,659 | | |
Shares issued under stock option and purchase plans, net | | | | 975,519 | | | | 10 | | | | 3,649 | | | | | | | | | | | | | | | | | | | | | | | | 3,659 | |
Common stock issued in acquisitions | | | 29,021,364 | | | | 290 | | | | 447,659 | | | | | | | | | | | | | | | | | | | | 447,949 | | | | 29,021,364 | | | | 290 | | | | 447,659 | | | | | | | | | | | | | | | | | | | | | | | | 447,949 | |
Reclassification of deferred compensation upon adoption of SFAS 123R | | | | | | | | | | | (3,493 | ) | | | 3,493 | | | | | | | | | | | | | | | | — | | | | | | | | | | | | (3,493 | ) | | | 3,493 | | | | | | | | | | | | | | | | | | | | — | |
Stock-based compensation | | | | | | | | | | | 8,287 | | | | | | | | | | | | | | | | | | | | 8,287 | | | | | | | | | | | | 8,287 | | | | | | | | | | | | | | | | | | | | | | | | 8,287 | |
Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | | | | | | | | $ | 25,930 | | | | | | | | 25,930 | | | | 25,930 | | | | | | | | | | | | | | | | | | | $ | 25,930 | | | | | | | | 25,930 | | | | | | | | 25,930 | |
Currency translation adjustments | | | | | | | | | | | | | | | | | | | 2,626 | | | | 2,626 | | | | | | | | 2,626 | | | | | | | | | | | | | | | | | | | | 2,626 | | | | 2,626 | | | | | | | | | | | | 2,626 | |
Unrealized gain on marketable securities | | | | | | | | | | | | | | | | | | | 848 | | | | 848 | | | | | | | | 848 | | |
Changes in unrealized gain on marketable securities | | | | | | | | | | | | | | | | | | | | 848 | | | | 848 | | | | | | | | | | | | 848 | |
| | | | | | |
Comprehensive income | | | | | | | | | | | | | | | | | | $ | 29,404 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 29,404 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance September 30, 2006 | | | 75,431,592 | | | $ | 754 | | | $ | 1,763,247 | | | $ | — | | | | | | | $ | 15,432 | | | $ | (980,299 | ) | | $ | 799,134 | | | | 75,431,592 | | | | 754 | | | | 1,763,247 | | | | — | | | | | | | | 15,432 | | | | (980,299 | ) | | | — | | | | 799,134 | |
Shares issued under stock option, restricted stock and purchase plans, net | | | | 1,052,011 | | | | 11 | | | | 8,411 | | | | | | | | | | | | | | | | | | | | | | | | 8,422 | |
Stock-based compensation | | | | | | | | | | | | 8,743 | | | | | | | | | | | | | | | | | | | | | | | | 8,743 | |
Repurchase of stock | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (110,762 | ) | | | (110,762 | ) |
Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | | | | | | | | | $ | 151,472 | | | | | | | | 151,472 | | | | | | | | 151,472 | |
Currency translation adjustments | | | | | | | | | | | | | | | | | | | | 3,482 | | | | 3,482 | | | | | | | | | | | | 3,482 | |
Changes in unrealized loss on marketable securities | | | | | | | | | | | | | | | | | | | | (824 | ) | | | (824 | ) | | | | | | | | | | | (824 | ) |
Adjustment to adopt SFAS No. 158 | | | | | | | | | | | | | | | | | | | | | | | | 112 | | | | | | | | | | | | 112 | |
| | | | | | | | | | | | | | | | | | |
Comprehensive income | | | | | | | | | | | | | | | | | | | $ | 154,130 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Balance September 30, 2007 | | | | 76,483,603 | | | | 765 | | | | 1,780,401 | | | | — | | | | | | | | 18,202 | | | | (828,827 | ) | | | (110,762 | ) | | | 859,779 | |
Shares issued under stock option, restricted stock and purchase plans, net | | | | 561,134 | | | | 5 | | | | 1,581 | | | | | | | | | | | | | | | | | | | | | | | | 1,586 | |
Stock-based compensation | | | | | | | | | | | | 6,909 | | | | | | | | | | | | | | | | | | | | | | | | 6,909 | |
Repurchase of stock | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (90,194 | ) | | | (90,194 | ) |
Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | | | | | | | | | | | | | | | | | $ | (235,946 | ) | | | | | | | (235,946 | ) | | | | | | | (235,946 | ) |
Currency translation adjustments | | | | | | | | | | | | | | | | | | | | (125 | ) | | | (125 | ) | | | | | | | | | | | (125 | ) |
Changes in unrealized gain on marketable securities | | | | | | | | | | | | | | | | | | | | 962 | | | | 962 | | | | | | | | | | | | 962 | |
Actuarial loss arising in the year | | | | | | | | | | | | | | | | | | | | | | | | (976 | ) | | | | | | | | | | | (976 | ) |
| | | | |
Comprehensive loss | | | | | | | | | | | | | | | | | | | $ | (235,109 | ) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Balance September 30, 2008 | | | | 77,044,737 | | | $ | 770 | | | $ | 1,788,891 | | | $ | — | | | | | | | $ | 18,063 | | | $ | (1,064,773 | ) | | $ | (200,956 | ) | | $ | 541,995 | |
| | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
5242
BROOKS AUTOMATION, INC.
| |
1. | Nature of the Business |
Brooks Automation, Inc. (“Brooks” or the “Company”) is a leading supplierprovider of technology productsautomation, vacuum and instrumentation solutions primarily serving the worldwide semiconductor market. Brooks supplies hardware, software and servicesis a highly valued business partner to both chip manufacturers and original equipment manufacturers or OEMs, who make(OEM) and equipment users throughout the world. The Company serves markets where equipment productivity and availability is a critical factor for its customers’ success. The Company’s largest served market is the semiconductor device manufacturing equipment. Brooks has offerings ranging from individual hardware and software modulesindustry. The Company also provides unique solutions to fully integrated systems as well as services to install and support our products world-wide. Although Brooks’ core business addresses the increasingly complex automation and integrated subsystems requirements of the global semiconductor industry, Brooks provides solutions for a number of related industries, including the flat panel display manufacturing,customers in data storage, advanced display, analytical instruments and certain other industries which have complexsolar markets. The Company develops and delivers differentiated solutions that range from proprietary products to highly respected manufacturing environments.services.
| |
2. | Summary of Significant Accounting Policies |
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. All intercompany accounts and transactions are eliminated. Equity investments in which we exercisethe Company exercises significant influence but dodoes not control and areis not the primary beneficiary are accounted for using the equity method.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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 revenues and expenses during the reporting period. Significant estimates are associated with accounts receivable, inventories, intangible assets, goodwill, deferred income taxes and warranty obligations. 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.
Foreign Currency Translation
Some transactions of the Company and its subsidiaries are made in currencies different from their functional currency. Foreign currency gains (losses) on these transactions or balances are recorded in “Other (income) expense, net” when incurred. Net foreign currency transaction gains (losses)losses included in income (loss) before income taxes and minority interest totaled $(0.5)$3.5 million, $0.4$3.2 million and $(0.4)$0.5 million for the years ended September 30, 2006, 20052008, 2007 and 2004,2006, respectively. Fornon-U.S. subsidiaries, assets and liabilities are translated at period-end exchange rates, and income statement items are translated at the average exchange rates for the period. The local currency for all foreign subsidiaries is considered to be the functional currency and, accordingly, translation adjustments are reported in “Accumulated other comprehensive income”. Foreign currency translation adjustments are one of the components added to the Company’s net income (loss) in the calculation of comprehensive net income (loss).
Cash and Cash Equivalents
Cash and cash equivalents include cash and highly liquid investments with original maturities of three months or less. At September 30, 20062008 and 2005,2007, cash equivalents were $16.5$37.3 million and $111.3$58.7 million, respectively. Cash equivalents are held at cost which approximates fair value.value due to their short-term maturities and varying interest rates.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of trade receivables and temporary and long-term cash investments in treasury bills and commercial paper. The
5343
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
paper. The Company restricts its investments to repurchase agreements with major banks, U.S. government and corporate securities, and mutual funds that invest in U.S. government securities, which are subject to minimal credit and market risk.securities. The Company’s customers are concentrated in the semiconductor industry, and relatively few customers account for a significant portion of the Company’s revenues. The Company’s top twentyten largest customers account for approximately 55%52% of revenues.revenues for the year ended September 30, 2008. The Company regularly monitors the creditworthiness of its customers and believes that it has adequately provided for exposure to potential credit losses.
Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company determines the allowance based on historical write-off experience by customer. The Company reviews its allowance for doubtful accounts quarterly. Past due balances over 90 days and over a specified amount are reviewed individually for collectibility. All other balances are reviewed on a pooled basis by type of receivable. Account balances are charged off against the allowance when the Company feels it is probable the receivable will not be recovered. The Company does not have any off-balance-sheet credit exposure related to its customers.
Inventories
Inventories are stated at the lower of cost or market, cost being determined using thea standard costing system which approximates cost based on afirst-in, first-out method. The Company provides inventory reserves for excess, obsolete or damaged inventory based on changes in customer demand, technology and other economic factors.
Fixed Assets and Impairment of Long-lived Assets
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method. Depreciable lives are summarized below:
| | | | |
Buildings | | | 20 - 40 years | |
Computer equipment and software | | | 2 - 67 years | |
Machinery and equipment | | | 2 - 10 years | |
Furniture and fixtures | | | 3 - 10 years | |
Leasehold improvements and equipment held under capital leases are amortized over the shorter of their estimated useful lives or the term of the respective leases. Equipment used for demonstrations to customers is included in machinery and equipment and is depreciated over its estimated useful life. Repair and maintenance costs are expensed as incurred.
The Company periodically evaluates the recoverability of long-lived assets, including its intangible assets, whenever events and changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. This periodic review may result in an adjustment of estimated depreciable lives or an asset impairment. When indicators of impairment are present, the carrying values of the asset are evaluated in relation to their operating performance and future undiscounted cash flows of the underlying business. If the future undiscounted cash flows are less than their book value, an impairment exists. The impairment is measured as the difference between the book value and the fair value of the underlying asset. Fair values are based on estimates of market prices and assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk. See Note 5.
44
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
When an asset is retired, the cost of the asset disposed of and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is included in the determination of operating profit (loss).
54
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Intangible Assets and Goodwill
Patents include capitalized direct costs associated with obtaining patents as well as assets that were acquired as a part of purchase business combinations. Capitalized patent costs are amortized using the straight-line method over the estimated economic life of the patents. As of September 30, 20062008 and 2005,2007, the net book value of the Company’s patents was $3.1$0.1 million and $0.2$2.7 million, respectively.
Goodwill represents the excess of purchase price over the fair value of net tangible and identifiable intangible assets of the businesses the Company acquired. The Company performs an annual impairment test of its goodwill as required under the provisions of FAS 142 on September 30 of each fiscal year unless interim indicators of impairment exist (see Note 6).
The amortizable lives of intangible assets, including those identified as a result of purchase accounting, are summarized as follows:
| | | | |
Patents | | | 3 - 8 years | |
Completed technology | | | 2 - 10 years | |
License agreements | | | 5 years | |
Trademarks and trade names | | | 3 - 6 years | |
Non-competition agreements | | | 3 - 5 years | |
Customer relationships | | | 4 - 11 years | |
Revenue Recognition
Product revenues are associated with the sale of hardware systems, components and componentsspare parts as well as software licenses.product license revenue. Service revenues are associated with hardware-relatedservice contracts, repairs, upgrades and field service, training, software maintenance and software-related consulting and integration services.service.
Revenue from product sales that do not include significant customization is recorded upon delivery and transfer of risk of loss to the customer provided there is evidence of an arrangement, fees are fixed or determinable, collection of the related receivable is reasonably assured and, if applicable, customer acceptance criteria have been successfully demonstrated. Customer acceptance provisions include final testing and acceptance carried out prior to shipment. These pre-shipment testing and acceptance procedures ensure that the product meets the published specification requirements before the product is shipped. In the limited situations where the arrangement contains extended payment terms, revenue is recognized as the payments become due. Shipping terms are customarily FCA shipping point. Amounts charged to customers for costs incurred for shipping and handling are credited to cost of revenues where the associated costs are charged. When significant on site customer acceptance provisions are present in the arrangement, revenue is recognized upon completion of customer acceptance testing.
Revenue from the sale ofoff-the-shelf software licensesassociated with service agreements is recognized upon delivery to the customer provided there is evidence of an arrangement, fees are fixed or determinable, collection of the related receivable is probable, and there are no unusual acceptance criteria or extended payment terms. If the arrangement contains acceptance criteria or testing, then revenue is recognized upon acceptance or the successful completion of the testing. If the arrangement contains extended payment terms, revenue is recognized as the payments become due. Revenue related to post-contract support is deferred and recognized ratably over the contract period.
For tailored software contracts, we provide significant consulting services to tailor the software to the customer’s environment. If we are able to reasonably estimate the level of effort and related costs to complete the contract, we recognize revenue using thepercentage-of-completion method, which compares costs incurred to total estimated project costs. Revisions in revenue and cost estimates are recorded in the period in which the facts that require such revisions become known. If our ability to complete the tailored software is uncertain or if we cannot reasonably estimate the level of effort and related costs, completed contract accounting is applied. Losses, if any, are provided for in the period in which such losses are first identified by management. Generally, the terms of long-term
55
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
contracts provide for progress billing based on completion of certain phases of work. For maintenance contracts, service revenue is deferred based on vendor specific objective evidence of its fair value and isgenerally recognized ratably over the term of the maintenance contract. Deferred revenue primarily relates toRevenue from repair services and maintenance agreements and billings in excessor upgrades of revenuecustomer-owned equipment is recognized on long term contracts accounted for using thepercentage-of-completion method and contracts awaiting final customer acceptance.
In transactions that include multiple productsand/or services, such as tailored software arrangements, described above, or software sales with post-contract support, we allocate the sales value among eachupon completion of the elements based on their relative fair valuesrepair effort and recognize such revenue when each element is delivered. If these relative fair values are not known,upon the Company uses the residual method to recognize revenue from arrangements with one or more elements to be delivered at a future date, when evidenceshipment of the fair value of all undelivered elements exist. Underrepaired item back to the residual method,customer. In instances where the fair value of any the undelivered elements at the date of delivery, such as post-contract support, are deferred and the remaining portion of the total arrangement feerepair or upgrade includes installation, revenue is recognized as revenue. The Company determines fair value of undelivered services based on the prices that are charged when the same elementinstallation is sold separately to customers.completed.
Warranty
The Company offers warranties on the sales of certain of its products and records an accrual for estimated future claims. Such accruals are based upon historical experience and management’s estimate of the level of future claims.
45
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Research and Development Expenses
Research and development costs are charged to expense when incurred, except for certain software development costs. Software development costs are expensed prior to establishing technological feasibility and capitalized thereafter until the product is available for general release to customers. Capitalized software development costs are amortized to cost of sales on aproduct-by-product basis over the estimated lives of the related products, typically three years. The Company did not capitalize any such costs during fiscal 2006, 2005 or 2004.incurred.
Stock-Based Compensation
Effect of Adoption of SFAS 123R, Share-Based Payment
Prior to October 1, 2005, the Company’s employee stock compensation plans were accounted for in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations. Under this method, no compensation expense was recognized as long as the exercise price equaled or exceeded the market price of the underlying stock on the measurement date of the grant. The Company elected the disclosure-only alternative permitted under SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” (SFAS 148”), for fixed stock-based awards to employees.
On December 23, 2004, the Company accelerated the vesting of certain unvested stock options awarded to employees, officers and other eligible participants under the Company’s various stock option plans, other than its 1993 Non-Employee Director Stock Option Plan. As such, the Company fully vested options to purchase 1,229,239 shares of the Company’s common stock with exercise prices greater than or equal to $24.00 per share. The acceleration of the vesting of these options resulted in a charge based on generally accepted accounting principles of approximately $1.0 million. The Company took this action because it produced a more favorable impact on the Company’s results from operations in light of the effective date of SFAS 123R, which took place in the Company’s first fiscal quarter of 2006.
As of October 1, 2005, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R123R”) using the modified prospective method, which requires measurement of compensation cost for all stock awards at fair value on date of grant and recognition of
56
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
compensation over the service period for awards expected to vest. The fair value of restricted stock is determined based on the number of shares granted and the excess of the quoted price of the Company’s common stock over the exercise price of the restricted stock on the date of grant, and the fair value of stock options is determined using the Black-Scholes valuation model, which is consistent with our valuation techniques previously utilized for options in footnote disclosures required under SFAS 123, as amended by SFAS 148. Such value is recognized as expense over the service period, net of estimated forfeitures. The estimation of stock awards that will ultimately vest requires significant judgment. We considerThe Company considers many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience. Actual results, and future changes in estimates, may differ substantially from our current estimates. Prior periods have not been restated to incorporate the stock-based compensation charge.Restricted stock with market-based vesting criteria is valued using a lattice model.
The following table reflects compensation expense recorded during the yearyears ended September 30, 2008, 2007 and 2006 in accordance with SFAS 123R, which includes activity related to the discontinued software and SELS divisions (in thousands):
| | | | | | | | | | | | | | | | |
| | Year Ended
| | | Year Ended September 30, | |
| | September 30, 2006 | | | 2008 | | 2007 | | 2006 | |
|
Stock options | | $ | 4,769 | | | $ | 837 | | | $ | 2,266 | | | $ | 4,769 | |
Restricted stock | | | 2,714 | | | | 5,443 | | | | 5,763 | | | | 2,714 | |
Employee stock purchase plan | | | 804 | | | | 629 | | | | 714 | | | | 804 | |
| | | | | | | | | | |
| | $ | 8,287 | | | $ | 6,909 | | | $ | 8,743 | | | $ | 8,287 | |
| | | | | | | | | | |
46
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Valuation Assumptions for Stock Options and Employee Stock Purchase Plans
ForNo stock options were granted for the years ended September 30, 2008 and 2007. For the year ended September 30, 2006, 2005 and 2004, 217,000 652,250 and 2,486,159 stock options were granted, respectively.granted. The fair value of each option was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
| | | | | | | | | | | | |
| | Year Ended September 30, | |
| | 2006 | | | 2005 | | | 2004 | |
|
Risk-free interest rate | | | 4.4 | % | | | 3.3% - 4.0% | | | | 2.6% - 3.3% | |
Volatility | | | 55 | % | | | 65 | % | | | 60 | % |
Expected life (years) | | | 4.9 | | | | 4.0 | | | | 4.0 | |
Dividend yield | | | 0 | % | | | 0 | % | | | 0 | % |
| | | | |
| | Year Ended
| |
| | September 30,
| |
| | 2006 | |
|
Risk-free interest rate | | | 4.4 | % |
Volatility | | | 55 | % |
Expected life (years) | | | 4.9 | |
Dividend yield | | | 0 | % |
The fair value of shares issued under the employee stock purchase plan was estimated on the commencement date of each offering period using the Black-Scholes option-pricing model with the following assumptions:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, | | | Year Ended September 30, | |
| | 2006 | | 2005 | | 2004 | | | 2008 | | 2007 | | 2006 | |
|
Risk-free interest rate | | | 4.5 | % | | | 3.2 | % | | | 1.6 | % | | | 2.8 | % | | | 5.1 | % | | | 4.5 | % |
Volatility | | | 39 | % | | | 39 | % | | | 55 | % | | | 46 | % | | | 34 | % | | | 39 | % |
Expected life | | | 6 months | | | | 6 months | | | | 6 months | | | | 6 months | | | | 6 months | | | | 6 months | |
Dividend yield | | | 0 | % | | | 0 | % | | | 0 | % | | | 0 | % | | | 0 | % | | | 0 | % |
Expected volatilities are based on historical volatilities of our common stock; the expected life represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and our historical exercise patterns; and the risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option.
57
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fair Value Disclosures — Prior to SFAS 123R Adoption
The following table provides supplemental information for the years ended September 30, 2005 and 2004 as if stock-based compensation had been computed under SFAS 123 (in thousands, except per share data):
| | | | | | | | |
| | Year Ended September 30, | |
| | 2005 | | | 2004 | |
|
Net income (loss), as reported | | $ | (11,612 | ) | | $ | 14,659 | |
Add stock-based employee compensation expense included in reported net income (loss) | | | 3,012 | | | | 4,052 | |
Deduct pro forma stock-based compensation expense | | | 24,319 | | | | 21,889 | |
| | | | | | | | |
Pro forma net loss | | $ | (32,919 | ) | | $ | (3,178 | ) |
| | | | | | | | |
Earnings (loss) per share | | | | | | | | |
Basic earnings (loss) per share, as reported | | $ | (0.26 | ) | | $ | 0.34 | |
| | | | | | | | |
Diluted earnings (loss) per share, as reported | | $ | (0.26 | ) | | $ | 0.34 | |
| | | | | | | | |
Basic loss per share, pro forma | | $ | (0.73 | ) | | $ | (0.07 | ) |
| | | | | | | | |
Diluted loss per share, pro forma | | $ | (0.73 | ) | | $ | (0.07 | ) |
| | | | | | | | |
Equity Incentive Plans
The Company’s equity incentive plans are intended to attract and retain employees and to provide an incentive for them to assist the Company to achieve long-range performance goals and to enable them to participate in the long-term growth of the Company. The equity incentive plans consist of plans under which employees may be granted options to purchase shares of the Company’s stock, restricted stock and other equity incentives. Stock options generally have a vesting period of 4four years and are exercisable for a period not to exceed 7seven years from the date of issuance. Restricted stock awards generally vest over onetwo to four years.years, with certain restricted stock awards vesting immediately. At September 30, 2006,2008, a total of 5,972,0776,708,594 shares were reserved and available for the issuance of stock and restricted stock, which reflects an increase of 3,000,000 shares approved byawards under the shareholders in March 2006.plans.
Income Taxes
The Company records income taxes using the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and operating loss and tax credit carryforwards. The Company’s consolidated financial statements contain certain deferred tax assets which have arisen primarily as a result of operating losses, as well as other temporary differences between financial and tax accounting. Statement of Financial Accounting Standards No. 109 “Accounting for Income Taxes,” requires the Company to establish a valuation allowance if the likelihood of realization of the deferred tax assets is reduced based on an evaluation of objective verifiable evidence. Significant management judgment is required in determining the Company’s provision for income taxes, the
47
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Company’s deferred tax assets and liabilities and any valuation allowance recorded against those net deferred tax assets. The Company evaluates the weight of all available evidence to determine whether it is more likely than not that some portion or all of the net deferred income tax assets will not be realized.
Earnings (Loss) Per Share
Basic earnings (loss) per share is calculated based on the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is calculated based on the weighted average number
58
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
of common shares and dilutive common equivalent shares assumed outstanding during the period. Shares used to compute diluted earnings (loss) per share exclude common share equivalents if their inclusion would have an anti-dilutive effect.
Fair Value of Financial Instruments
The Company’s financial instruments consist ofinclude cash and cash equivalents, investments in long- and short-term debt securities, accounts receivable, accounts payable and accrued expenses. The carrying amounts of these items reported in the balance sheets approximate their fair value at September 30, 20062008 and 2005. The Company’s financial instruments2007. Investments in marketable securities are carried at September 30, 2005 also included its convertible notes, which were paid in full in July 2006. At September 30, 2005, the estimated fair value of the Company’s convertible notes was approximately $169.3 million compared to the carrying value of $175.0 million. The estimated fair value of the convertible notes isand are measured based on the quoted market price of the convertible notes on September 30, 2005.prices.
Reclassifications
Certain reclassifications have been made in the 20052007 and 2004 Consolidated Financial Statements2006 consolidated financial statements to conform to the 20062008 presentation.
Recent Accounting Pronouncements
In May 2005,July 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements” (“SFAS 154”). SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. SFAS 154 also provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. The provisions of this Statement are effective for accounting changes and corrections of errors made in fiscal periods beginning after December 15, 2005.
In June 2006, the FASB issued FASB InterpretationFIN No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN No. 48”). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASFASB Statement No. 109, “Accounting for Income Taxes.”Taxes”. FIN No. 48 prescribes a two-step process to determinerecognition threshold and measurement attribute for the amountfinancial statement recognition and measurement of a tax benefitposition taken or expected to be recognized. First, thetaken in a tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed “more-likely-than-not” to be sustained, the tax position is then assessed to determine the amount of benefit to recognizereturn. FIN No. 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement. The guidance will become effective as of the beginning of the Company’s fiscal year beginning after December 15, 2006.interim periods, disclosure, and transition. The Company is currently evaluating the potential impact ofadopted FIN No. 48 on its financial position and results of operations.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”) expressing the Staff’s views regarding the process of quantifying financial statement misstatements. There have been two widely-recognized methods for quantifying the effects of financial statement errors: the “roll-over” method and the “iron curtain” method.October 1, 2007. The roll-over method focuses primarily on the impact of a misstatement on the income statement, including the reversing effect of prior year misstatements, but its use can lead to the accumulation of misstatements in the balance sheet. The iron-curtain method, on the other hand, focuses primarily on the effect of correcting the period-end balance sheet with less emphasis on the reversing effects of prior year errors on the income statement.
59
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
SAB 108 establishes an approach that requires quantification of financial statement errors based on the effects of the error on each ofadoption did not materially affect the Company’s financial statements and the related financial statement disclosures. This model is commonly referred to as a “dual approach” because it essentially requires quantificationposition or results of errors under both the iron-curtain and the roll-over methods. The provisions of SAB 108 should be applied to annual financial statements covering the first fiscal year ending after November 15, 2006. The Company is currently evaluating the provisions of SAB 108.operations.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”) and expands disclosures about fair value measurements. In February 2008, the FASB issuedFSP 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13”(FSP 157-1) andFSP 157-2, “Effective Date of FASB Statement No. 157”(FSP 157-2).FSP 157-1 amends SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements,to remove certain leasing transactions from its scope.FSP 157-2 delays the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS 157 does not require any new fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, with earlier adoption permitted. The provisionsdate of SFAS 157 should be applied prospectively as offor all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until the beginning of the Company’s first quarter of fiscal year2010. The measurement and disclosure requirements related to financial assets and financial liabilities are effective for the Company beginning in which it is initially applied, with limited exceptions.the first quarter of fiscal 2009. The Company is currently evaluatingdoes not believe that the provisionsadoption of SFAS 157.157 will have a material impact on its financial position or results of operations.
In September 2006,February 2007, the FASB issued SFAS No. 158, “Employers’ Accounting159, “The Fair Value Option for Defined Benefit PensionFinancial Assets and Other Postretirement Plans,Financial Liabilities — Including an amendmentAmendment of FASB StatementsStatement No. 87, 88, 106, and 132(R)”115” (“SFAS 158”159”). SFAS 158 requires an employer that is a business entity159 permits entities to choose to measure many financial instruments and sponsors one or more single-employer defined benefit plans to:
a. Recognize the funded status of a benefit plan, measured as the difference between plan assetscertain other items at fair value and the benefit obligation, in its statement of financial position. For a pension plan, the benefit obligation is the projected benefit obligation; for any other postretirement benefit plan, such as a retiree health care plan, the benefit obligation is the accumulated postretirement benefit obligation.
b. Recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost pursuant to SFAS No. 87, “Employers’ Accounting for Pensions”,or SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions”. Amounts recognized in accumulated other comprehensive income, including the gains or losses, prior service costs or credits, and the transition asset or obligation remaining from the initial application of SFAS No. 87 and SFAS No. 106, are adjusted as they are subsequently recognized as components of net periodic benefit cost pursuant to the recognition and amortization provisions of those Statements.
c. Measure defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end statement of financial position (with limited exceptions).
d. Disclose in the notes to financial statements additional information about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation.
An employer with publicly traded equity securities is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. Retrospective application is not permitted. The Company is currently evaluating the provisions of SFAS 158.
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BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
effective as of the beginning of the Company’s fiscal year beginning October 1, 2008. The Company does not believe that the adoption of SFAS 159 will have a material impact on its financial position or results of operations.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R significantly changes the accounting for business combinations in a number of areas including the treatment of contingent consideration, pre-acquisition contingencies, transaction costs, restructuring costs and income taxes. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the fiscal year beginning after December 15, 2008. SFAS 141R will be effective for the Company on October 1, 2009, and will be applied to any business combination with an acquisition date, as defined therein, that is subsequent to the effective date.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — An amendment of ARB No. 51” (“SFAS 160”). SFAS 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. Statement 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this Statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. SFAS 160 is effective for fiscal years beginning after December 15, 2008. At this point in time, the Company believes that there will not be a material impact in connection with SFAS 160 on its financial position or results of operations.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — An amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 amends and expands the disclosure requirements of SFAS 133 with the intent to provide users of financial statements with an enhanced understanding of (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. The Company does not believe that the adoption of SFAS 161 will have a material impact on its financial position or results of operations.
In April 2008, the FASB issuedFSP 142-3, “Determination of the Useful Life of Intangible Assets” (“FSPSFAS 142-3”). FSPSFAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). FSPSFAS 142-3 improves the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141R and other applicable accounting literature. FSPSFAS 142-3 will be effective for the Company on October 1, 2009. The Company does not believe that the adoption of FSPSFAS 142-3 will have a material impact on its financial position or results of operations.
Helix Technology Corporation
On October 26, 2005, the Company acquired all the issued and outstanding stock of Helix Technology Corporation (“Helix”). Helix develops and manufactures vacuum technology solutions for the semiconductor, data storage, and flat panel display markets. The Company believes that the acquisition of Helix enables it to better serve its current market, increase its addressable market, reduce the volatility that both businesses have historically faced and positions the Company to enhance its financial performance. The aggregate purchase price, net of cash acquired, was approximately $458.1 million, consisting of 29.0 million shares of common stock valued at $444.6 million, the fair value of assumed Helix options of $3.3 million and transaction costs of $10.2 million. The market price used to value the Brooks’ shares issued as consideration for Helix was $15.32, which represents the average of the closing market price of Brooks common stock for the period beginning two trading days before and ending two trading days after the merger agreement was announced. The actual number of shares of Brooks common stock issued was determined based on the actual number of shares of Helix common stock outstanding immediately prior to the completion of the merger, based on an exchange ratio of 1.11 shares of Brooks common stock for each outstanding share of Helix common stock. The Helix business operates in the Company’s hardware segment. This transaction qualified as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended.
The consolidated financial statements include the results of Helix from the date of acquisition.
The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition based upon a third-party valuation (in millions):
| | | | |
Current assets | | $ | 79.9 | |
Property, plant and equipment | | | 15.4 | |
Intangible assets | | | 84.4 | |
Goodwill | | | 276.8 | |
Other assets | | | 20.8 | |
| | | | |
Total assets acquired | | | 477.3 | |
| | | | |
Current liabilities | | | 18.1 | |
Other liabilities | | | 1.1 | |
| | | | |
Total liabilities assumed | | | 19.2 | |
| | | | |
Total purchase price including acquisition costs | | $ | 458.1 | |
| | | | |
Of the $84.4 million of acquired intangible assets, the following table reflects the allocation of the acquired intangible assets and related estimates of useful lives (in millions):
| | | | | | |
Completed and core technology | | $ | 56.4 | | | 6.9 years weighted average estimated useful life |
Customer and contract relationships | | | 23.3 | | | 6.9 years weighted average estimated economic consumption life |
Trade names and trademarks | | | 4.7 | | | 6 year weighted average estimated useful life |
| | | | | | |
| | $ | 84.4 | | | |
| | | | | | |
Synetics Solutions Inc.Keystone Electronics (Wuxi) Co., Ltd.
On May 8, 2006,Effective July 1, 2007, the Company entered into an Equity Purchase Agreement and Plan of Merger (the “Merger“Equity Purchase Agreement”) with Synetics Solutions Inc. (“Synetics”). Brooks completed its acquisition of Synetics from Yaskawa Electric Corporation (“Yaskawa”),Keystone Technology Limited, a corporation duly organized and existingincorporated under the lawsCompanies Ordinance of Japan, through a merger thatHong Kong (“Keystone HK”), to purchase all of the equity of Keystone Electronics (Wuxi) Co., Ltd.
6149
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
became effective as
(“Keystone Wuxi”), an enterprise organized under the laws of June 30, 2006. Synetics provides customized manufactured solutions for the North American semiconductor equipment industry. Peoples Republic of China and engaged in manufacturing services in China.
Pursuant to the merger agreement, SyneticsEquity Purchase Agreement, the Company became a wholly owned subsidiarythe owner of Brooks.all the equity of Keystone Wuxi. The aggregate purchase price of Synetics, netKeystone Wuxi was $1.1 million including a minimum earn-out arrangement and acquisition costs. Goodwill of cash acquired,$4.0 million was approximately $50.2 million consisting of a $28.6 million cash payment to Yaskawa, repayment of outstanding debt of $19.9 million and transaction costs of $1.7 million.recognized in conjunction with the Keystone Wuxi acquisition. The acquisition of Synetics will provideKeystone Wuxi provides the Company with the opportunity to enhance its existing capabilities with respect to manufacturing customer designedits automation systems. The Synetics business operatessystems and components in the Company’s hardware segment.
Also on May 8, 2006, the Company agreed to enter into a Joint Venture Agreement (the “Agreement”) with Yaskawa to form a 50/50 joint venture 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. This Agreement was executed on June 30, 2006. YBA began operations on September 21, 2006.
The consolidated financial statements include the results of Synetics from the date of acquisition.
The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition based upon a third-party valuation (in millions):
| | | | |
Current assets | | $ | 19.8 | |
Property, plant and equipment | | | 8.6 | |
Intangible assets | | | 17.4 | |
Goodwill | | | 12.6 | |
Other assets | | | 0.1 | |
| | | | |
Total assets acquired | | | 58.5 | |
| | | | |
Current liabilities | | | 8.3 | |
| | | | |
Total purchase price including acquisition costs | | $ | 50.2 | |
| | | | |
Of the $17.4 million of acquired intangible assets, the following table reflects the allocation of the acquired intangible assets and related estimates of useful lives (in millions):
| | | | |
Core technology | | $4.2 | | 7 years weighted average estimated useful life |
Customer and contract relationships | | 4.8 | | 7 years weighted average estimated economic consumption life |
Customer supply agreement | | 8.4 | | 10 year weighted average estimated useful life |
| | | | |
| | $17.4 | | |
| | | | |
Proforma Information of Acquisitions
The following unaudited proforma information gives effect to the acquisition of Helix and Synetics as if the acquisitions occurred at the beginning of the years presented (in thousands, except per share data):
| | | | | | | | |
| | September 30, | |
| | 2006 | | | 2005 | |
|
Revenues | | $ | 756,325 | | | $ | 669,377 | |
| | | | | | | | |
Net income (loss) | | $ | 20,576 | | | $ | (36,932 | ) |
| | | | | | | | |
Basic income (loss) per share | | $ | 0.28 | | | $ | (0.50 | ) |
| | | | | | | | |
Diluted income (loss) per share | | $ | 0.28 | | | $ | (0.50 | ) |
| | | | | | | | |
62
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Proforma information above includes adjustments to reflect increased amortization expense, the write-off of the entire fair valuestep-up in inventory, and a full valuation allowance for deferred tax assets.China.
The Company invests its cash in marketable debt securities and classifies them asavailable-for-sale. The Company records these securities at fair value in accordance with Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (“FAS 115”). 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.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.
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 September 30, 20062008 and 20052007 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Gross
| | Gross
| | | | | | | Gross
| | Gross
| | | |
| | Amortized
| | Unrealized
| | Unrealized
| | | | | Amortized
| | Unrealized
| | Unrealized
| | | |
| | Cost | | Gains | | Losses | | Fair Value | | | Cost | | Gains | | Losses | | Fair Value | |
|
September 30, 2006: | | | | | | | | | | | | | | | | | |
September 30, 2008: | | | | | | | | | | | | | | | | | |
U.S. Treasury securities and obligations of U.S. government agencies | | $ | 62,220 | | | $ | 1 | | | $ | (80 | ) | | $ | 62,141 | | | $ | 44,371 | | | $ | 18 | | | $ | (71 | ) | | $ | 44,318 | |
U.S. corporate securities | | | 5,871 | | | | — | | | | (54 | ) | | | 5,817 | | | | 7,276 | | | | — | | | | (102 | ) | | | 7,174 | |
Mortgage-backed securities | | | 3,640 | | | | — | | | | (110 | ) | | | 3,530 | | |
Mortgage-backed securities(1) | | | | 3,395 | | | | 1 | | | | (94 | ) | | | 3,302 | |
Other debt securities | | | 4,167 | | | | — | | | | (68 | ) | | | 4,099 | | | | 12,152 | | | | 66 | | | | — | | | | 12,218 | |
| | | | | | | | | | | | | | | | | | |
| | $ | 75,898 | | | $ | 1 | | | $ | (312 | ) | | $ | 75,587 | | | $ | 67,194 | | | $ | 85 | | | $ | (267 | ) | | $ | 67,012 | |
| | | | | | | | | | | | | | | | | | |
September 30, 2005: | | | | | | | | | | | | | | | | | |
September 30, 2007: | | | | | | | | | | | | | | | | | |
U.S. Treasury securities and obligations of U.S. government agencies | | $ | 108,083 | | | $ | 1 | | | $ | (545 | ) | | $ | 107,539 | | | $ | 49,788 | | | $ | 45 | | | $ | — | | | $ | 49,833 | |
U.S. corporate securities | | | 29,428 | | | | 12 | | | | (240 | ) | | | 29,200 | | | | 50,495 | | | | 39 | | | | (12 | ) | | | 50,522 | |
Mortgage-backed securities | | | 5,004 | | | | — | | | | (108 | ) | | | 4,896 | | |
Mortgage-backed securities(2) | | | | 2,623 | | | | — | | | | (64 | ) | | | 2,559 | |
Other debt securities | | | 13,140 | | | | — | | | | (279 | ) | | | 12,861 | | | | 3,526 | | | | — | | | | (55 | ) | | | 3,471 | |
| | | | | | | | | | | | | | | | | | |
| | $ | 155,655 | | | $ | 13 | | | $ | (1,172 | ) | | $ | 154,496 | | | $ | 106,432 | | | $ | 84 | | | $ | (131 | ) | | $ | 106,385 | |
| | | | | | | | | | | | | | | | | | |
Gross realized gains and losses realized on sales ofavailable-for-sale marketable securities included in “Other (income) expense” in the Consolidated Statements of Operations for the years ended September 30, 2006, 2005 and 2004 are as follows (in thousands):
| | | | | | | | | | | | |
| | Year Ended September 30, | |
| | 2006 | | | 2005 | | | 2004 | |
|
Gross realized gains | | $ | 226 | | | $ | — | | | $ | 148 | |
Gross realized losses | | | — | | | | — | | | | (111 | ) |
| | | | | | | | | | | | |
Net realized gains | | $ | 226 | | | $ | — | | | $ | 37 | |
| | | | | | | | | | | | |
| | |
(1) | | Fair value amounts include approximately $1.9 million of investments in the Federal Home Loan Mortgage and Federal National Mortgage Association. |
|
(2) | | Fair value amounts consist of investments in the Federal Home Loan Mortgage and Federal National Mortgage Association. |
6350
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
From April 2004 through September 2005, the Company held its
Gross realized gains on sales ofavailable-for-sale marketable securities until maturity and, as such, did not incur anyincluded in “Other (income) expense” in the Consolidated Statements of Operations was $21,000 for the year ended September 30, 2008. There were no gross realized gains or losses.for the years ended September 30, 2007 and 2006. Gross realized losses on sales ofavailable-for-sale marketable securities included in “Other (income) expense” in the Consolidated Statements of Operations was $226,000 for the year ended September 30, 2006. There were no gross realized losses for the years ended September 30, 2008 and 2007.
The fair value of the marketable securities at September 30, 2006,2008 by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties (in thousands).
| | | | | | | | |
| | Fair Value | | | Fair Value | |
|
Due in one year or less | | $ | 68,280 | | | $ | 33,077 | |
Due after one year through five years | | | 794 | | | | 28,461 | |
Due after ten years | | | 6,513 | | | | 5,474 | |
| | | | | | |
| | $ | 75,587 | | | $ | 67,012 | |
| | | | | | |
Gain (Loss) on Investment
During the three months ended June 30, 2007, a company in which Brooks held a minority equity interest was acquired by a closely-held Swiss public company. Brooks’ minority equity investment had been previously written down to zero in 2003. As a result, Brooks received shares of common stock from the acquirer in exchange for its minority equity interest and recorded a gain of $5.1 million.
During fiscal 2008, the Company recorded a charge of $3.9 million to write-down its minority equity investment in this Swiss public company to its fair value as of the balance sheet date. This write-down reflects an other than temporary impairment of this investment. The remaining balance of this investment at September 30, 2008 after giving effect to foreign exchange was $1.7 million.
| |
5. | Property, Plant and Equipment |
Property, plant and equipment as of September 30, 20062008 and 20052007 were as follows (in thousands):
| | | | | | | | | | | | | | | | |
| | September 30, | | | September 30, | |
| | 2006 | | 2005 | | | 2008 | | 2007 | |
|
Buildings and land | | $ | 44,961 | | | $ | 40,019 | | | $ | 44,161 | | | $ | 44,678 | |
Computer equipment and software | | | 67,759 | | | | 62,190 | | | | 47,397 | | | | 37,680 | |
Machinery and equipment | | | 40,584 | | | | 27,572 | | | | 47,777 | | | | 45,082 | |
Furniture and fixtures | | | 14,648 | | | | 12,471 | | | | 11,015 | | | | 11,986 | |
Leasehold improvements | | | 24,233 | | | | 16,093 | | | | 25,550 | | | | 28,951 | |
Construction in progress | | | 5,382 | | | | 2,682 | | | | 17,977 | | | | 10,295 | |
| | | | | | | | | | |
| | | 197,567 | | | | 161,027 | | | | 193,877 | | | | 178,672 | |
Less accumulated depreciation and amortization | | | (118,734 | ) | | | (106,862 | ) | | | (112,273 | ) | | | (97,925 | ) |
| | | | | | | | | | |
Property, plant and equipment, net | | $ | 78,833 | | | $ | 54,165 | | | $ | 81,604 | | | $ | 80,747 | |
| | | | | | | | | | |
Depreciation expense was $17.1$18.2 million, $13.3$17.5 million and $13.8$15.8 million for the years ended September 30, 2008, 2007 and 2006, 2005 and 2004, respectively.
51
BROOKS AUTOMATION, INC.
InNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company recorded an impairment charge of $3.5 million to write-down certain buildings and leasehold improvements to fair value in the fourth fiscal quarter of fiscal 2005, the Company accelerated the depreciation on its existing Customer Relations Management system which was phased out2008 as a result of underlying circumstances discussed in December 31, 2005. The impact of this accelerated depreciation was $1.3 million during the fourth quarter of fiscal 2005.Note 6.
| |
6. | Goodwill and Intangible Assets |
The Company performs an annual impairment test of its goodwill as required under the provisions of FAS 142 on September 30 of each fiscal year unless interim indicators of impairment exist. Goodwill is considered to be impaired when the net book value of a reporting unit exceeds its estimated fair value. Fair values are estimated using a discounted cash flow methodology. Discounted cash flows are based on the businesses’ strategic plans and management’s best estimate of revenue growth and gross profit by each reporting unit. In the fourth quarter of fiscal year 2005, the Company’s equipment automation and factory automation segments were combined into the hardware segment, which reflects how management now evaluates its business (see Note 16).
In fiscal 2004,2007 and 2006, the Company performed its annual impairment test for goodwill at the reporting unit level and determined that no adjustment to goodwill was necessary. Although the Company experienced a cyclical slowdown in connection withdemand during fiscal 2008, external market forecasts available to the Company throughout this period indicated that demand would improve in 2009. These external market forecasts changed abruptly at the end of fiscal 2008 and into early fiscal 2009. The downturn experienced in the semiconductor capital equipment market during 2008 has been worsened by the global economic slowdown. The Company does not expect a third party letterrecovery in demand for semiconductor capital equipment in the near term. This abrupt change in Brooks’ outlook has resulted in an expectation of intent to purchase the assetslower cash flows from all three of the SELS,Company’s operating segments, which made uphas led to a non-cash impairment of the Company’s “Other” segment,goodwill of $197.9 million as of September 30, 2008.
The changes in the Company assessed the potential impairmentcarrying amount of goodwill by reportable segment for this segment (See Note 20). The Company considered the offer in the letter of intentyears ended September 30, 2008 and 2007 are as an indication of fair value. Based on its analysis, the Company determined that the implied fair value of the then “Other” segment’s goodwill wasfollows (in thousands):
| | | | | | | | | | | | | | | | |
| | | | | | | | Global
| | | | |
| | Automation
| | | Critical
| | | Customer
| | | | |
| | Systems | | | Components | | | Operations | | | Total | |
|
Balance at September 30, 2006 | | $ | 37,651 | | | $ | 124,560 | | | $ | 152,241 | | | $ | 314,452 | |
Acquisitions: | | | | | | | | | | | | | | | | |
Keystone Wuxi | | | 4,035 | | | | — | | | | — | | | | 4,035 | |
Purchase accounting adjustments on prior period acquisitions | | | 1,858 | | | | (469 | ) | | | (574 | ) | | | 815 | |
| | | | | | | | | | | | | | | | |
Balance at September 30, 2007 | | | 43,544 | | | | 124,091 | | | | 151,667 | | | | 319,302 | |
Adjustments to goodwill: | | | | | | | | | | | | | | | | |
Resolution of tax contingencies | | | (661 | ) | | | (350 | ) | | | (429 | ) | | | (1,440 | ) |
Impairment | | | (42,883 | ) | | | (68,000 | ) | | | (87,000 | ) | | | (197,883 | ) |
| | | | | | | | | | | | | | | | |
Balance at September 30, 2008 | | $ | — | | | $ | 55,741 | | | $ | 64,238 | | | $ | 119,979 | |
| | | | | | | | | | | | | | | | |
6452
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
$7.4 million less than its book value and therefore recorded a charge to write-down the value of this goodwill in the fourth quarter, which has been recorded as a component of the loss from discontinued operations for fiscal year 2004. As there were no interim indicators of potential impairment of goodwill in the Company’s other segments, the Company performed its annual impairment test under FAS 142 in the fourth quarter of fiscal 2004 using the present value of expected cash flows. The Company’s analysis indicated no impairment of the goodwill in these segments.
In fiscal 2005 and 2006, the Company performed its annual impairment test for goodwill and determined that no adjustment to goodwill was necessary.
The changes in the carrying amount of goodwill by segment for the years ended September 30, 2006 and 2005 are as follows (in thousands):
| | | | | | | | | | | | |
| | Hardware | | | Software | | | Total | |
|
Balance at September 30, 2004 | | $ | 25,020 | | | $ | 37,014 | | | $ | 62,034 | |
Adjustments to goodwill: | | | | | | | | | | | | |
Foreign currency translation | | | — | | | | 60 | | | | 60 | |
| | | | | | | | | | | | |
Balance at September 30, 2005 | | | 25,020 | | | | 37,074 | | | | 62,094 | |
Adjustments to goodwill: | | | | | | | | | | | | |
Acquisitions: | | | | | | | | | | | | |
Helix | | | 276,801 | | | | — | | | | 276,801 | |
Synetics | | | 12,631 | | | | — | | | | 12,631 | |
Purchase accounting adjustments on prior period acquisitions | | | — | | | | (232 | ) | | | (232 | ) |
Foreign currency translation | | | — | | | | 150 | | | | 150 | |
| | | | | | | | | | | | |
Balance at September 30, 2006 | | $ | 314,452 | | | $ | 36,992 | | | $ | 351,444 | |
| | | | | | | | | | | | |
Components of the Company’s identifiable intangible assets are as follows (in thousands):
| | | | | | | | | | | | | | | | | �� | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2006 | | September 30, 2005 | | | September 30, 2008 | | September 30, 2007 | |
| | | | Accumulated
| | Net Book
| | | | Accumulated
| | Net Book
| | | | | Accumulated
| | Net Book
| | | | Accumulated
| | Net Book
| |
| | Cost | | Amortization | | Value | | Cost | | Amortization | | Value | | | Cost | | Amortization | | Value | | Cost | | Amortization | | Value | |
|
Patents | | $ | 10,024 | | | $ | 6,899 | | | $ | 3,125 | | | $ | 7,179 | | | $ | 6,934 | | | $ | 245 | | | $ | 6,877 | | | $ | 6,753 | | | $ | 124 | | | $ | 9,802 | | | $ | 7,093 | | | $ | 2,709 | |
Completed technology | | | 90,585 | | | | 38,386 | | | | 52,199 | | | | 30,385 | | | | 29,120 | | | | 1,265 | | | | 64,761 | | | | 31,357 | | | | 33,404 | | | | 64,761 | | | | 22,033 | | | | 42,728 | |
License agreements | | | 305 | | | | 305 | | | | — | | | | 305 | | | | 305 | | | | — | | |
Trademark and trade names | | | 7,232 | | | | 3,120 | | | | 4,112 | | | | 2,532 | | | | 2,336 | | | | 196 | | |
Trademarks and trade names | | | | 4,925 | | | | 2,509 | | | | 2,416 | | | | 4,925 | | | | 1,726 | | | | 3,199 | |
Non-competition agreements | | | 1,726 | | | | 1,721 | | | | 5 | | | | 1,726 | | | | 1,716 | | | | 10 | | | | — | | | | — | | | | — | | | | 50 | | | | 50 | | | | — | |
Customer relationships | | | 43,017 | | | | 8,391 | | | | 34,626 | | | | 6,517 | | | | 4,405 | | | | 2,112 | | | | 36,500 | | | | 13,992 | | | | 22,508 | | | | 36,500 | | | | 8,172 | | | | 28,328 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 152,889 | | | $ | 58,822 | | | $ | 94,067 | | | $ | 48,644 | | | $ | 44,816 | | | $ | 3,828 | | | $ | 113,063 | | | $ | 54,611 | | | $ | 58,452 | | | $ | 116,038 | | | $ | 39,074 | | | $ | 76,964 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
The Company determined that the adverse business climate experienced during the end of the fiscal year ended September 30, 2008 was a significant event that indicated that the carrying amount of certain long-lived asset groups might not be recoverable. A review of future cash flows identified an asset group within the Automation Systems segment which had carrying values in excess of future cash flows. The Company reviewed the fair value of the long-lived assets for this asset group and determined that an intangible asset related to a patent had a fair value that was $2.2 million above carrying value, and an impairment charge of $2.2 million was recorded. The fair value was based on a relief from royalty approach. Further, certain buildings and leasehold improvements were determined to have fair values that were $3.5 million below their carrying value, resulting in an additional impairment charge of $3.5 million.
Amortization expense for intangible assets was $14.6$16.4 million, $3.1$15.3 million and $3.7$12.4 million for the years ended September 30, 2008, 2007 and 2006, 2005 and 2004, respectively.
65
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Estimated future amortization expense for the intangible assets recorded by the Company as of September 30, 20062008 is as follows (in millions):
| | | | | | | | |
Year ended September 30, | | | | | | | | |
2007 | | $ | 16.0 | | |
2008 | | | 17.0 | | |
2009 | | | 18.1 | | | $ | 17.2 | |
2010 | | | 14.9 | | | | 14.5 | |
2011 | | | 9.9 | | | | 9.5 | |
2012 | | | | 8.0 | |
2013 | | | | 3.7 | |
Thereafter | | | 18.2 | | | | 5.6 | |
| |
7. | Investment in Affiliates |
Joint Ventures
The Company participates in a joint venture, ULVAC Cryogenics, Inc., or UCI, with ULVAC Corporation of Chigasaki, Japan, which was part of the acquired operations of Helix in October 2005. The joint venture was formed in 1981 by Helix and ULVAC Corporation. UCI manufactures and sells cryogenic vacuum pumps, principally to ULVAC Corporation, one of the largest semiconductor and flat panel OEM’s in Japan. Each company owns 50% of UCI. The joint venture arrangement includes a license and technologymanagement agreement exclusively involving technology previously owned by Helix.cryogenic vacuum pumps.
The Company owns 50% of the outstanding common stock of UCI. This investment is accounted for using the equity method. Under this method of accounting, the Company records in income its proportionate share of the earnings of UCI with a corresponding increase in the carrying value of the investment.
66
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On May 8, 2006, the Company entered into a Joint Venture Agreement (the “Agreement”) with Yaskawa Electric Corporation (Yaskawa) to form a 50/50 joint venture 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. This Agreement was executed on June 30, 2006. The Company invested $1,955,000$2.0 million into this joint venture. YBA began operations on September 21, 2006.
53
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company owns 50% of the outstanding common stock of each of its joint ventures and these investments are accounted for using the equity method. Under this method of accounting, the Company records in income its proportionate share of the earnings of the joint ventures with a corresponding increase in the carrying value of the investment.
For the years ended September 30, 2008 and 2007, revenues from YBA were $20.9 million and $10.5 million, respectively. There were no revenues from YBA for the year ended September 30, 2006. The amount due from YBA included in accounts receivable at September 30, 2008 and 2007 was $8.6 million and $4.2 million, respectively. For the years ended September 30, 2008 and 2007, the Company incurred $1.5 million and $0.5 million, respectively, for products and services provided by YBA. At September 30, 2008 the Company owed YBA $0.2 million in connection with accounts payable for unpaid products and services. The Company had no accounts payable with YBA at September 30, 2007.
For the years ended September 30, 2008, 2007 and 2006, royalty payments received from UCI were $0.9 million, $0.7 million and $0.6 million, respectively.
| |
8. | Earnings (Loss) Per Share |
Below is a reconciliation of earnings (loss) per share and weighted average common shares outstanding for purposes of calculating basic and diluted earnings (loss) per share (in thousands, except per share data):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, | | | Year Ended September 30, | |
| | 2006 | | 2005 | | 2004 | | | 2008 | | 2007 | | 2006 | |
|
Net income (loss) | | $ | 25,930 | | | $ | (11,612 | ) | | $ | 14,659 | | | $ | (235,946 | ) | | $ | 151,472 | | | $ | 25,930 | |
| | | | | | | | | | | | | | |
Weighted average common shares outstanding used in computing basic earnings (loss) per share | | | 72,323 | | | | 44,919 | | | | 43,006 | | | | 64,542 | | | | 73,492 | | | | 72,323 | |
Dilutive common stock options | | | 210 | | | | — | | | | 567 | | |
Dilutive common stock options and restricted stock awards | | | | — | | | | 582 | | | | 210 | |
| | | | | | | | | | | | | | |
Weighted average common shares outstanding for purposes of computing diluted earnings (loss) per share | | | 72,533 | | | | 44,919 | | | | 43,573 | | | | 64,542 | | | | 74,074 | | | | 72,533 | |
| | | | | | | | | | | | | | |
Basic earnings (loss) per share | | $ | 0.36 | | | $ | (0.26 | ) | | $ | 0.34 | | | $ | (3.66 | ) | | $ | 2.06 | | | $ | 0.36 | |
| | | | | | | | | | | | | | |
Diluted earnings (loss) per share | | $ | 0.36 | | | $ | (0.26 | ) | | $ | 0.34 | | | $ | (3.66 | ) | | $ | 2.04 | | | $ | 0.36 | |
| | | | | | | | | | | | | | |
Approximately 4,796,000, 5,374,0002,092,000, 3,011,000 and 4,985,0004,796,000 options to purchase common stock and 1,000, 21,0001,091,000, 89,000 and 01,000 shares of restricted stock were excluded from the computation of diluted earnings (loss) per share attributable to common stockholders for the years ended September 30, 2006, 20052008, 2007 and 2004,2006, respectively, as their effect would be anti-dilutive. The 4,796,0003,011,000 and 4,985,0004,796,000 options for the years ended September 30, 2007 and 2006, and 2004respectively, had an exercise price greater than the average market price of the common stock. These options and restricted stock awards could, however, become dilutive in future periods. In addition, 1,980,000 2,492,000 and 2,492,000 shares of common stock for the assumed conversion of the Company’s convertible debt were excluded from this calculation for the yearsyear ended September 30, 2006, 2005 and 2004, respectively, as the effect of conversion would be anti-dilutive. On July 17, 2006, theanti-dilutive based on a conversion price of $70.23. The Company paid off the convertible debt in full.full on July 17, 2006.
54
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The components of the income tax provision are as follows (in thousands):
| | | | | | | | | | | | |
| | Year Ended September 30, | |
| | 2006 | | | 2005 | | | 2004 | |
|
Current: | | | | | | | | | | | | |
Federal | | $ | 680 | | | $ | — | | | $ | — | |
State | | | 6 | | | | 6 | | | | 6 | |
Foreign | | | 4,046 | | | | 5,198 | | | | 8,047 | |
| | | | | | | | | | | | |
| | | 4,732 | | | | 5,204 | | | | 8,053 | |
| | | | | | | | | | | | |
67
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended September 30, | |
| | | 2008 | | 2007 | | 2006 | |
| |
Current: | | | | | | | | | | | | | |
Federal | | | $ | 197 | | | $ | 1,312 | | | $ | 779 | |
State | | | | 25 | | | | 154 | | | | 5 | |
Foreign | | | | 1,011 | | | | 821 | | | | 2,588 | |
| | Year Ended September 30, | | | | | | | | |
| | 2006 | | 2004 | | 2003 | | | | 1,233 | | | | 2,287 | | | | 3,372 | |
| | | | | | | |
Deferred: | | | | | | | | | | | | | | | | | | | | | | | | |
Federal | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
State | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Foreign | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | |
| | $ | 4,732 | | | $ | 5,204 | | | $ | 8,053 | | | $ | 1,233 | | | $ | 2,287 | | | $ | 3,372 | |
| | | | | | | | | | | | | | |
The components of income (loss) from continuing operations before income taxes, and minority interests and equity in earnings of joint ventures are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, | | | Year Ended September 30, | |
| | 2006 | | 2005 | | 2004 | | | 2008 | | 2007 | | 2006 | |
|
Domestic | | $ | 19,562 | | | $ | (7,015 | ) | | $ | 10,820 | | | $ | (222,193 | ) | | $ | 51,277 | | | $ | 19,506 | |
Foreign | | | 10,345 | | | | 4,264 | | | | 21,578 | | | | (13,959 | ) | | | 4,359 | | | | 4,561 | |
| | | | | | | | | | | | | | |
| | $ | 29,907 | | | $ | (2,751 | ) | | $ | 32,398 | | | $ | (236,152 | ) | | $ | 55,636 | | | $ | 24,067 | |
| | | | | | | | | | | | | | |
The differences between the income tax provision (benefit) and income taxes computed using the applicable U.S. statutory federal tax rate areis as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, | | | Year Ended September 30, | |
| | 2006 | | 2005 | | 2004 | | | 2008 | | 2007 | | 2006 | |
|
Income tax provision (benefit) computed at federal statutory rate | | $ | 10,467 | | | $ | (963 | ) | | $ | 11,339 | | | $ | (82,653 | ) | | $ | 19,472 | | | $ | 8,423 | |
State income taxes, net of federal benefit | | | 4 | | | | (643 | ) | | | 286 | | | | (766 | ) | | | 815 | | | | (217 | ) |
Research and development tax credits | | | — | | | | — | | | | (1,079 | ) | | | (211 | ) | | | (1,003 | ) | | | — | |
ETI tax benefit/Sec. 199 manufacturing deduction | | | (1,009 | ) | | | (357 | ) | | | (621 | ) | | | — | | | | (632 | ) | | | (861 | ) |
Impairments | | | | 68,069 | | | | — | | | | — | |
Foreign income taxed at different rates | | | 1,661 | | | | 2,035 | | | | (3,090 | ) | | | 2,497 | | | | (2,351 | ) | | | 456 | |
Dividends | | | 1,148 | | | | 3,531 | | | | 223 | | | | 1,526 | | | | 993 | | | | 1,281 | |
Change in deferred tax asset valuation allowance | | | (9,289 | ) | | | (1,164 | ) | | | (4,618 | ) | | | 13,697 | | | | (15,635 | ) | | | (6,510 | ) |
Other permanent differences | | | 135 | | | | 56 | | | | 45 | | |
Deferred compensation | | | 117 | | | | 636 | | | | 1,124 | | |
Nondeductible meals and entertainment | | | 259 | | | | 220 | | | | 254 | | |
Withholding taxes | | | 1,540 | | | | 3,328 | | | | 3,895 | | |
Foreign taxes deducted | | | (539 | ) | | | (1,475 | ) | | | — | | |
Other | | | 238 | | | | — | | | | 295 | | | | (926 | ) | | | 628 | | | | 800 | |
| | | | | | | | | | | | | | |
Income tax provision | | $ | 4,732 | | | $ | 5,204 | | | $ | 8,053 | | | $ | 1,233 | | | $ | 2,287 | | | $ | 3,372 | |
| | | | | | | | | | | | | | |
The Company does not provide for U.S. income taxes applicable to undistributed earnings of its foreign subsidiaries since these earnings are indefinitely reinvested.
68
55
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The significant components of the net deferred tax assets are as follows (in thousands):
| | | | | | | | | | | | | | | | |
| | Year Ended September 30, | | | Year Ended September 30, | |
| | 2006 | | 2005 | | | 2008 | | 2007 | |
|
Reserves not currently deductible | | $ | 30,151 | | | $ | 25,630 | | | $ | 28,387 | | | $ | 25,462 | |
Federal, state and foreign tax credits | | | 14,700 | | | | 13,546 | | | | 17,666 | | | | 15,328 | |
Amortization | | | — | | | | 27,370 | | |
Depreciation | | | 8,505 | | | | 8,399 | | | | 9,761 | | | | 5,490 | |
Stock-based compensation | | | 4,866 | | | | 6,749 | | | | 6,888 | | | | 5,566 | |
Net operating loss carryforwards | | | 157,721 | | | | 166,079 | | | | 114,076 | | | | 114,528 | |
| | | | | | | | | | |
Deferred tax assets | | | 215,943 | | | | 247,773 | | | | 176,778 | | | | 166,374 | |
| | | | | | | | | | |
Amortization | | | 7,706 | | | | — | | | | 10,743 | | | | 15,885 | |
Other liabilities | | | 2,877 | | | | 2,054 | | | | 2,732 | | | | 883 | |
| | | | | | | | | | |
Deferred tax liabilities | | | 10,583 | | | | 2,054 | | | | 13,475 | | | | 16,768 | |
| | | | | | | | | | |
Valuation allowance | | | 205,360 | | | | 245,719 | | | | 163,303 | | | | 149,606 | |
| | | | | | | | | | |
Net deferred tax assets | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | |
AsIn accordance with SFAS 109, management has considered the weight of all available evidence in determining whether a result of recognizing substantial operating losses in prior years, including the year endedvaluation allowance remains to be required against its deferred tax assets at September 30, 2005, and2008. Given the continuinglosses incurred in fiscal 2008 combined with the near term uncertainty inwith regard to the outlook of the semiconductor sector, the Company has determined that it is more likely than not that the net deferred tax assets will not be realized and has maintained a full valuation allowance against its net deferred tax assets from continuing operations at September 30, 2006 and 2005.realized. The amount of the deferred tax asset considered realizable is subject to change based on future events, including generating taxable income in future periods. The Company continues to assess the need for the valuation allowance at each balance sheet date based on all available evidence. However, it is possible that the “more likely than not” criterion could be met in fiscal 2007 or a future period, which could result in the reversal of a significant portion or all of the valuation allowance, which, at that time, would be recorded as a tax benefit in the consolidated statements of operations.
The approximate $40.4 million decrease in the valuation allowance at September 30, 2006 compared to September 30, 2005 is principally due to the recording of deferred tax liabilities due to acquired identified intangibles, utilization of net operating losses, expiring tax credits and changes in state and foreign tax rates.
As of September 30, 2006,2008, the Company had federal, state and foreign net operating loss carryforwards from continuing and discontinued operations of approximately $721.6$445.0 million and federal and state research and development tax credit carryforwards of approximately $14.7$17.7 million available to reduce future tax liabilities, which expire at various dates through 2026.2028. Included in the net operating loss carryforwards are stock option deductions of approximately $19.5 million. The benefits of these tax deductions approximate $7.0 million of which approximately $4.0 million will be credited to additional paid-in capital upon being realized or recognized.
We are subject to income taxes in various jurisdictions. Significant judgment is required in determining the world-wide provision for income taxes. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe that the tax reserves reflect the probable outcome of known contingencies. Tax reserves established include, but are not limited to, business combinations, transfer pricing, withholding taxes, and various state and foreign audit matters, some of which may be resolved in the near future resulting in an adjustment to the reserve.
6956
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A reconciliation of the beginning and ending amount of the consolidated liability for unrecognized income tax benefits during the fiscal year ended September 30, 2008 is as follows (in thousands):
| | | | | | | | | | | | |
| | Unrecognized
| | | Interest and
| | | | |
| | Tax Benefit | | | Penalties | | | Total | |
|
Balance at October 1, 2007 | | $ | 13,119 | | | $ | 1,354 | | | $ | 14,473 | |
Additions for tax positions of prior years | | | 216 | | | | 607 | | | | 823 | |
Additions for tax positions related to current year | | | 291 | | | | 13 | | | | 304 | |
Reduction for tax positions related to acquired entities in prior years, offset to goodwill | | | (1,184 | ) | | | (226 | ) | | | (1,410 | ) |
Reductions for tax positions of prior years | | | — | | | | (205 | ) | | | (205 | ) |
Reductions from lapses in statutes of limitations | | | (994 | ) | | | — | | | | (994 | ) |
Reductions from settlements with taxing authorities | | | (1,228 | ) | | | (91 | ) | | | (1,319 | ) |
Foreign exchange rate adjustment | | | 243 | | | | — | | | | 243 | |
| | | | | | | | | | | | |
Balance at September 30, 2008 | | $ | 10,463 | | | $ | 1,452 | | | $ | 11,915 | |
| | | | | | | | | | | | |
As of September 30, 2008, the Company had approximately $11.9 million of unrecognized tax benefits, of which approximately $11.6 million, if recognized, would affect the effective tax rate and the remaining $0.3 million, if recognized, would affect goodwill. The Company recognizes interest related to unrecognized benefits as a component of tax expense, of which $0.4 million was recognized in the current year.
The Company is subject to U.S. federal income tax and various state, local and international income taxes in various jurisdictions. The amount of income taxes paid is subject to the Company’s interpretation of applicable tax laws in the jurisdictions in which it files. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The Company has income tax audits in progress in various state and international jurisdictions in which it operates. In the Company’s U.S. and international jurisdictions, the years that may be examined vary, with the earliest tax year being 2001. Based on the outcome of these examinations, or the expiration of statutes of limitations for specific jurisdictions, it is reasonably possible that the related unrecognized tax benefits could change from those recorded in the Company’s statement of financial position. The Company currently anticipates that several of these audits will be completed during the next twelve months and the unrecognized tax benefit will be reduced by approximately $1.0 million in settlements as a result of the finalization of certainnon-U.S. audits.
| |
10. | Tender Offer of the Company’s Common Stock Offering |
On December 16, 2003,May 31, 2007, the Company completedannounced that its Board of Directors (the “Board”) had authorized a public offering of 6,900,000modified “Dutch Auction” self-tender offer to purchase up to 6,060,000 shares of its common stock.stock, representing approximately 8% of its approximately 75.8 million outstanding shares as of April 30, 2007. This transaction closed on July 5, 2007. In the tender offer, shareholders had the opportunity to tender some or all of their shares at a price not less than $16.50 per share or more than $19.00 per share, net to the seller in cash, without interest. The tender offer commenced on June 1, 2007 and expired on June 28, 2007. This action followed the closing of the Company’s recent sale of the Brooks Software Division, which generated proceeds to the Company received proceeds, net of $6.8 million of issuance costs, of $124.3 million onthat strengthened its cash assets. Following the sale of the Brooks Software Division, the Board determined that the best use for much of the cash generated in that transaction was to invest in Brooks through a share repurchase returning money to its shareholders.
On July 5, 2007, the Company announced the final results of its modified “Dutch Auction” tender offer. In accordance with the terms and conditions of the tender offer, the Company accepted for purchase 6,060,000 shares of its common stock at a purchase price of $18.20 per share, for a total cost of approximately $110.3 million. The total shares tendered before proration was approximately 7,400,000 common shares. Since
57
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the offer was oversubscribed, the number of shares that the Company accepted for purchase from each tendering shareholder was prorated, based upon the proration procedures described in the Offer to Purchase mailed to shareholders and certain other limited exceptions. Shareholders who validly tendered shares at a price equal to or below $18.20 per share had approximately 82% of those shares accepted for purchase. The depositary promptly issued payment for the shares accepted for purchase in the tender. Any shares properly tendered and not properly withdrawn, but not purchased, were returned promptly to stockholders by the depositary. Brooks financed the tender offer with available cash on hand.
On November 9, 2007 the Company announced that its Board of Directors authorized a stock repurchase plan to buy up to $200.0 million of the Company’s outstanding common stock. Stock repurchase transactions authorized under the plan will occur from time to time in the open market, through block trades or otherwise. Management and the Board of Directors will exercise discretion with respect to the timing and amount of any shares repurchased, based on their evaluation of a variety of factors, including current market conditions. Repurchases may be commenced or suspended at any time without prior notice. Additionally, Brooks may initiate repurchases under aRule 10b5-1 plan, which would permit shares to be repurchased when Brooks would otherwise be precluded from doing so under insider-trading laws. Any repurchased shares will be available for use in connection with its stock plans and for other corporate purposes. The repurchase program will be funded using the Company’s available cash resources. During the year ended September 30, 2008, the Company purchased 7,401,869 shares of its common stock for a total of $90.2 million in connection with the stock repurchase plan.
| |
11. | Financing Arrangements |
On May 23, 2001, the Company completed the private placement of $175.0 million aggregate principal amount of 4.75% Convertible Subordinated Notes due in 2008. The Company received net proceeds of $169.5 million from the sale. Interest on the notes was paid on June 1 and December 1 of each year. The notes were scheduled to mature on June 1, 2008.
The Company did not file its quarterly report onForm 10-Q for the period ended March 31, 2006 by the prescribed due date. As a result of this delay, the Company was not in compliance with its obligation under Section 6.2 of the indenture with respect to its 4.75% Convertible Subordinated Notes due 2008 to timely file with the SEC all reports and other information and documents which the Company is required to file with the SEC pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934. On May 15, 2006, the Company received a notice from holders of more than 25% in aggregate principal amount of notes outstanding that the Company was in default of Section 6.2 of the indenture based on its failure to file itsForm 10-Q. On Friday July 14, 2006, the Company received a further notice from holders of more than 25% of the aggregate outstanding principal amount of the notes accelerating the Company’s obligation to repay the unpaid principal on the notes because its Report onForm 10-Q for the quarter ended March 31, 2006 had not yet been filed. On Monday, July 17, 2006, the Company paid the outstanding $175.0 million principal balance to the trustee and subsequently paid all accrued interest. The notes are now retired, having been paid in full.
At September 30, 2006,2008, the Company had $0.7 million of an uncommitted demand promissory note facility still in use, all of it foroutstanding letters of credit.
58
Debt consists of the following (in thousands):
| | | | | | | | |
| | September 30, | |
| | 2006 | | | 2005 | |
|
Convertible subordinated notes at 4.75%, due on June 1, 2008 | | $ | — | | | $ | 175,000 | |
Other | | | 13 | | | | 14 | |
| | | | | | | | |
| | | 13 | | | | 175,014 | |
Less current portion | | | 11 | | | | 175,012 | |
| | | | | | | | |
Long-term debt | | $ | 2 | | | $ | 2 | |
| | | | | | | | |
BROOKS AUTOMATION, INC.
The Company’s debt repayments are due as follows (in thousands):
| | | | |
Year ended September 30, 2007 | | $ | 11 | |
2008 | | | 2 | |
| | | | |
| | $ | 13 | |
| | | | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
12. | Postretirement Benefits |
The Company adopted the funded status recognition provision of SFAS 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”), effective September 30, 2007. This standard amends SFAS 87, 88, 106, and 132(R). SFAS 158 requires an employer with defined benefit plans or other postretirement benefit plans to recognize an asset or a liability on its balance sheet for the overfunded or underfunded status of the plans as defined by SFAS 158. The pension asset or liability represents a difference between the fair value of the pension plan’s assets and the projected benefit obligation as of September 30. For other postretirement benefit plans, the liability is the difference between the fair value of the plan’s assets and the accumulated postretirement benefit obligation as of September 30. The following table illustrates the effect on the individual financial statement line items of applying this standard for the year ended September 30, 2007 (in thousands):
| | | | | | | | | | | | |
| | Before
| | | Adjustment for
| | | After
| |
| | Application of
| | | Application of
| | | Application of
| |
| | SFAS 158 | | | SFAS 158 | | | SFAS 158 | |
|
Long term pension liabilities | | $ | 132 | | | $ | (112 | ) | | $ | 20 | |
Accumulated other comprehensive income | | | — | | | | 112 | | | | 112 | |
Defined Benefit Pension Plans
On October 26, 2005, the Company purchased Helix and assumed responsibility for the liabilities and assets of the Helix Employees’ Pension Plan (“Plan”). The Plan is a final average pay pension plan. The Company’s funding policy is to contribute an amount equal to the minimum required employer contribution under the Employee
70
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Retirement Income Security Act of 1974. In May 2006, the Company’s Board of Directors approved the freezing of benefit accruals and future participation in the Plan effective October 31, 2006.
The Company uses a September 30th measurement date in the determination of net periodic benefit costs, benefit obligations and the value of plan assets. The following tables set forth the funded status and amounts recognized in the Company’s consolidated balance sheets at September 30, 20062008 and 2007 for the Plan (in thousands):
| | | | |
| | Year Ended
| |
| | September 30, 2006 | |
|
Benefit obligation at October 1, 2005 | | $ | — | |
Benefit obligation assumed at date of acquisition | | | 13,777 | |
Service cost | | | 1,740 | |
Interest cost | | | 821 | |
Actuarial gain | | | (567 | ) |
Disbursements | | | (3,444 | ) |
| | | | |
Benefit obligation at September 30, 2006 | | $ | 12,327 | |
| | | | |
| | | | | | | | |
| | Year Ended
| |
| | September 30, | |
| | 2008 | | | 2007 | |
|
Benefit obligation at beginning of year | | $ | 12,397 | | | $ | 12,327 | |
Service cost | | | 146 | | | | 252 | |
Interest cost | | | 731 | | | | 698 | |
Actuarial (gain)/loss | | | (1,541 | ) | | | 1,191 | |
Benefits paid | | | (2,324 | ) | | | (2,071 | ) |
| | | | | | | | |
Benefit obligation at end of year | | $ | 9,409 | | | $ | 12,397 | |
| | | | | | | | |
| | | | |
| | Year Ended
| |
| | September 30, 2006 | |
|
Fair value of assets at October 1, 2005 | | $ | — | |
Fair value assumed at date of acquisition | | | 11,865 | |
Actual return on plan assets | | | 1,637 | |
Company contributions | | | 3,000 | |
Disbursements | | | (3,444 | ) |
| | | | |
Fair value of assets at September 30, 2006 | | $ | 13,058 | |
| | | | |
| | | | | | | | |
| | Year Ended
| |
| | September 30, | |
| | 2008 | | | 2007 | |
|
Fair value of assets at beginning of year | | $ | 12,377 | | | $ | 13,058 | |
Actual return (loss) on plan assets | | | (1,611 | ) | | | 1,390 | |
Disbursements | | | (2,324 | ) | | | (2,071 | ) |
| | | | | | | | |
Fair value of assets at end of year | | $ | 8,442 | | | $ | 12,377 | |
| | | | | | | | |
| | | | |
| | Year Ended
| |
| | September 30, 2006 | |
|
Funded status at September 30, 2006 | | $ | 731 | |
Unrecognized net actuarial gain | | | (915 | ) |
| | | | |
Accrued benefit liability | | $ | (184 | ) |
| | | | |
59
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | | | |
| | September 30, | |
| | 2008 | | | 2007 | |
|
Funded status/accrued benefit liability | | $ | (967 | ) | | $ | (20 | ) |
| | | | | | | | |
The Company’s investment strategy with respect to Plan assets is to maximize return while protecting principal. These investments are primarily in equity and debt securities. The expected long term rate of return on Plan assets was 8.25% for the yearyears ended September 30, 2006.2008 and 2007, respectively. The expected rate of return was developed through analysis of historical market returns, current market conditions and the Plans’ past experience.
Net periodic benefitpension (benefit) cost consisted of the following (in thousands):
| | | | | | | | | | | | | | | | |
| | Year Ended
| | | Year Ended September 30, | |
| | September 30, 2006 | | | 2008 | | 2007 | | 2006 | |
|
Service cost | | $ | 1,740 | | | $ | 146 | | | $ | 252 | | | $ | 1,740 | |
Interest cost | | | 821 | | | | 731 | | | | 698 | | | | 821 | |
Expected return on assets | | | (1,000 | ) | | | (906 | ) | | | (1,002 | ) | | | (1,000 | ) |
Settlement gain | | | (289 | ) | | | — | | | | — | | | | (289 | ) |
| | | | | | | | | | |
Net periodic pension cost | | $ | 1,272 | | |
Net periodic pension (benefit) cost | | | $ | (29 | ) | | $ | (52 | ) | | $ | 1,272 | |
| | | | | | | | | | |
Certain information for the Plan with respect to accumulated benefit obligations follows (in thousands):
| | | | | | | | |
| | September 30, | |
| | 2008 | | | 2007 | |
|
Projected benefit obligation | | $ | 9,409 | | | $ | 12,397 | |
Accumulated benefit obligation | | | 9,409 | | | | 12,397 | |
Fair value of plan assets | | | 8,442 | | | | 12,377 | |
Weighted-average assumptions used to determine net cost at September 30, 2008, 2007 and 2006 follows:
| | | | | | | | | | | | |
| | Year Ended September 30, | |
| | 2008 | | | 2007 | | | 2006 | |
|
Discount rate | | | 6.00 | % | | | 6.00 | % | | | 5.75 | % |
Expected return on plan assets | | | 8.25 | % | | | 8.25 | % | | | 8.25 | % |
Rate of compensation increase | | | N/A | | | | N/A | | | | 4.00 | % |
Plan Assets
The Company’s weighted average asset allocation at September 30, 2008 and target allocation at September 30, 2009, by asset category is as follows:
| | | | | | | | |
| | Percentage of
| | | Target
| |
| | Plan Assets at
| | | Allocation at
| |
| | September 30,
| | | September 30,
| |
| | 2008 | | | 2009 | |
|
Equity securities | | | 66 | % | | | 40% - 70% | |
Debt securities | | | 31 | | | | 35% - 55% | |
Cash | | | 3 | | | | 0% - 10% | |
| | | | | | | | |
| | | 100 | % | | | | |
| | | | | | | | |
The Company expects to contribute $1.0 million to the Plan in fiscal 2009 to meet certain funding targets.
7160
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The accumulated benefit obligation for the Plan was $12.3 million at September 30, 2006. Certain information for the Plan with accumulated benefit obligations follows (in thousands):
| | | | |
| | September 30, 2006 | |
|
Projected benefit obligation | | $ | 12,327 | |
Accumulated benefit obligation | | | 12,327 | |
Fair value of plan assets | | | 13,058 | |
Weighted-average assumptions used to determine net cost at September 30, 2006 follows:
| | | | |
| | September 30, 2006 | |
|
Discount rate | | | 5.75 | % |
Expected return on plan assets | | | 8.25 | % |
Rate of compensation increase | | | 4.00 | % |
The Company does not expect to make a contribution to the Plan in fiscal 2007.
Expected benefit payments over the next ten years are expected to be paid as follows (in thousands):
| | | | | | | | |
2007 | | $ | 290 | | |
2008 | | | 1,175 | | |
2009 | | | 550 | | | $ | 544 | |
2010 | | | 1,153 | | | | 531 | |
2011 | | | 1,135 | | | | 391 | |
Thereafter | | | 8,633 | | |
2012 | | | | 546 | |
2013 | | | | 745 | |
2014-2018 | | | | 4,410 | |
The Company sponsors defined contribution plans that meet the requirements of Section 401(k) of the Internal Revenue Code. All United States employees of the Company who meet minimum age and service requirements are eligible to participate in the plan. The plan allows employees to invest, on a pre-tax basis, a percentage of their annual salary subject to statutory limitations.
The Company’s contribution expense for worldwide defined contribution plans was $2.8$3.5 million, $1.9$3.6 million and $0.9$2.8 million for the years ended September 30, 2008, 2007 and 2006, 2005 and 2004, respectively.
The Company had an accrual of $9.9 million related to the retirement benefit to be paid to its former Chief Executive Officer under the terms of his employment agreement as of September 30, 2004. The amount payable was earned over time and due upon his retirement. In accordance with his employment contract, the full retirement benefit as determined by the employment agreement of $10.1 million was paid in January 2005.
The Company has a Supplemental Key Executive Retirement Plan (acquired with Helix) which is designed to supplement benefits paid to participants under Company-funded, tax-qualified retirement plans. The Company recordeddid not record additional retirement costs of $59,000 for the yearyears ended September 30, 20062008 and 2007, in connection with this plan. At September 30, 2006,2008, the Company had $641,000$0 accrued for benefits payable under the Supplemental Key Executive Retirement Plan.
| |
13. | Stockholders’ Equity and Convertible Redeemable Preferred Stock |
Preferred Stock
At September 30, 20062008 and 20052007 there were one million shares of preferred stock, $0.01 par value per share authorized; no shares were issued and outstanding at September 30, 20062008 and 2005,2007, respectively. Preferred stock may be issued at the discretion of the Board of Directors without stockholder approval with such designations, rights and preferences as the Board of Directors may determine.
72
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Rights Distribution
Brooks is a party to a rights agreement between itself and EquiServe Trust Company, N.A. Pursuant to this agreement, Brooks declared a dividend to its stockholders as of August 12, 1997 of the right to initially purchase Brooks common stock or 1/1,000 of a share of Series A Junior Participating Preferred Stock. The preferred stock purchase rights are attached to the shares of Brooks common stock until a triggering event occurs. The preferred stock purchase rights are triggered by the acquisition by a person or group, an “acquiring person” as defined in the rights agreement, other than Brooks or any of Brooks’ subsidiaries or employee benefit plans, of 15% or more of the outstanding shares of Brooks common stock. In such event, the holder of a preferred stock purchase right paying the exercise price would be able to purchase, instead of a fraction of a share of Series A Junior Participating Preferred Stock, a number of shares of Brooks common stock having a market value equal to twice the exercise price. In the event of specified mergers and similar transactions involving Brooks, shares of the other party to the transaction or its parent could be purchased at half of the market price of such shares by the holders of the preferred stock purchase rights. The preferred stock purchase rights are redeemable in whole, but not in part, by Brooks for $0.001 per right and expire July 31, 2007. Subject to restrictions, the preferred stock purchase rights may be exchanged for one share of Brooks common stock upon election by Brooks’ board of directors. An “acquiring person” would not be permitted to exercise a preferred stock purchase right. The intended effect of the rights agreement is to deter any person or group from becoming an “acquiring person” without negotiating the acquisition with Brooks’ board of directors.
Amended and Restated 2000 Equity Incentive Plan
The purposes of the Amended and Restated 2000 Equity Incentive Plan (the “2000 Plan”), are to attract and retain employees and to provide an incentive for them to assist the Company to achieve long-range performance goals and to enable them to participate in the long-term growth of the Company. Under the 2000 Plan the Company may grant (i) incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended, and (ii) options that are not qualified as incentive stock options (“nonqualified stock options”) and (iii) stock appreciation rights, performance awards and restricted stock. All employees of the Company or any affiliate of the Company, independent directors, consultants and advisors are eligible to participate in the 2000 Plan. Options under the 2000 Plan generally vest over four years and expire seven years from the date of grant. At the Company’s March 2006 Annual Meeting, stockholders approved an amendment to the 2000 Plan to increase the numberA total of 9,000,000 shares authorizedof common stock were reserved for issuance under the plan by 3,000,000 shares, for a total of 9,000,000 shares.2000 Plan. As of September 30, 2006,2008, 1,141,658 options to purchase 2,436,029 shares are outstanding and 5,527,4506,013,665 shares remain available for grant.
During the year ended September 30, 2006,2008, the Company issued 699,50052,655 shares of restricted stock or units under the Amended and Restated 2000 Equity Incentive Plan, net of cancellations. These restricted stock awards generally have the following vesting schedules: two year vesting in which 25% vest immediately, 25% vest in Year 1 and 50% vest in Year 2; two-year cliff vesting; three year vesting in which one-third vest in Year 1, one-third vest in Year 2 and one-third vest in Year 3; and three year vesting in which 25% vest in Year
61
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
1, 25% vest in Year 2 and 50% vest in Year 3; four year vesting in which 50% vest in Year 2, 25% vest in Year 3 and 25% vest in Year 4: and four year cliff vesting.3. Compensation expense related to these awards is being recognized on a straight line basis over the vesting period, based on the difference between the fair market value of the Company’s common stock on the date of grant and the amount received from the employee. In addition, in fiscal 2008, the Company granted 300,000 restricted stock awards to an executive officer with market and performance-based vesting criteria. Due to the market-based vesting criteria component, the Company has valued these restricted stock awards using a lattice model. These awards have a two-year life and have a grant date fair value of $10.40 per share.
1998 Employee Equity Incentive Plan
The purposes of the 1998 Employee Equity Incentive Plan (the “1998 Plan”), adopted by the Board of Directors of the Company in April 1998, are to attract and retain employees and provide an incentive for them to assist the Company in achieving long-range performance goals, and to enable them to participate in the long-term growth of the Company. All employees of the Company, other than its officers and directors, (including contractors, consultants, service providers or others) who are in a position to contribute to the long-term success and growth of
73
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the Company, are eligible to participate in the 1998 Plan. Options under the 1998 Plan generally vest over a period of four years and generally expire seven years from the date of grant. On February 26, 2003, the Board of Directors voted to cancel and not return to the reserve any 1998 Plan forfeited options. From February 26, 2003 through September 30, 2006, 1,780,4052008, 2,705,969 options were forfeited due to employee terminations. A total of 1,560,039509,051 options are outstanding and 291,032 shares remain available for grant under the 1998 Plan as of September 30, 2006.2008.
1993 Non-Employee Director Stock Option Plan
The purpose of the 1993 Non-Employee Director Stock Option Plan (the “Directors Plan”) was to attract and retain the services of experienced and knowledgeable independent directors of the Company for the benefit of the Company and its stockholders and to provide additional incentives for such independent directors to continue to work for the best interests of the Company and its stockholders through continuing ownership of its common stock. The Directors Plan expired in 2003, although some options issued under that plan remain outstanding. Under its terms, each director who was not an employee of the Company or any of its subsidiaries was eligible to receive options under the Directors Plan. Under the Directors Plan, each eligible director received an automatic grant of an option to purchase 25,000 shares of common stock upon becoming a director of the Company and an option to purchase 10,000 shares on July 1 each year thereafter. Options granted under the Directors Plan generally vested over a period of five years and generally expired ten years from the date of grant. A total of 10,000 options are outstanding and no shares remain available for grant under the Directors Plan as of September 30, 2006.2008.
1992 Combination Stock Option Plan
Under the Company’s 1992 Stock Option Plan (the “1992 Plan”), the Company may grant both incentive stock options and nonqualified stock options. Incentive stock options may only be granted to persons who are employees of the Company at the time of grant, which may include officers and directors who are also employees. Nonqualified stock options may be granted to persons who are officers, directors or employees of or consultants or advisors to the Company or persons who are in a position to contribute to the long-term success and growth of the Company at the time of grant. Options granted under the 1992 Plan generally vest over a period of four years and generally expire ten years from the date of grant. A total of 115,59656,444 options are outstanding and no shares remain available for grant under the 1992 Plan as of September 30, 2006.2008.
62
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Stock Options of Acquired Companies
In connection with the acquisition of PRI on May 14, 2002, the Company assumed the outstanding options of multiple stock option plans that were adopted by PRI. At acquisition, 6,382,329 options to purchase PRI common stock were outstanding and converted into 3,319,103 options to purchase the Company’s Common Stock. There wereA total of 520 options to purchase 120,554are outstanding and no shares granted under this plan that were outstanding at September 30, 2006. The Company does not intend to issue any additional optionsremain available for grant under the PRI stock option plan.Plans as of September 30, 2008.
In connection with the acquisition of Helix on October 26, 2005, the Company assumed the outstanding options of multiple stock option plans that were adopted by Helix. At acquisition, 689,622 options to purchase Helix common stock were outstanding and converted into 765,480 options to purchase the Company’s Common Stock. A total of 574,977114,048 options are outstanding and 153,595403,897 shares remain available for grant under the Helix plans as of September 30, 2006.2008. The Company does not intend to issue any additional options under the Helix stock option plan.
74
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Stock Option Activity
Aggregate stock option activity for all the above plans for the yearsyear ended September 30, 2006, 2005 and 20042008 is as follows:
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | 2008 | |
| | Year Ended September 30, | | | | | Weighted-
| | | | | |
| | 2006 | | 2005 | | 2004 | | | | | Average
| | | | Aggregate
| |
| | | | Weighted
| | | | Weighted
| | | | Weighted
| | | | | Remaining
| | Weighted
| | Intrinsic
| |
| | | | Average
| | | | Average
| | | | Average
| | | | | Contractual
| | Average
| | Value (In
| |
| | Shares | | Price | | Shares | | Price | | Shares | | Price | | | Shares | | Term | | Price | | Thousands) | |
|
Options outstanding at beginning of year | | | 5,205,354 | | | $ | 23.92 | | | | 5,709,626 | | | $ | 25.43 | | | | 4,639,910 | | | $ | 28.93 | | | | 2,512,059 | | | | | | | $ | 20.11 | | | | | |
Granted | | | 217,000 | | | $ | 12.82 | | | | 652,250 | | | $ | 16.38 | | | | 2,486,159 | | | $ | 23.84 | | |
Assumed from Helix Technology acquisition | | | 765,480 | | | $ | 16.42 | | | | — | | | $ | — | | | | — | | | $ | — | | |
Exercised | | | (108,104 | ) | | $ | 10.69 | | | | (179,694 | ) | | $ | 12.77 | | | | (157,730 | ) | | $ | 15.51 | | | | (42,130 | ) | | | | | | $ | 9.32 | | | | | |
Forfeited/expired | | | (1,289,253 | ) | | $ | 27.56 | | | | (976,828 | ) | | $ | 29.77 | | | | (1,258,713 | ) | | $ | 36.95 | | | | (653,904 | ) | | | | | | $ | 21.35 | | | | | |
| | | | | | | | | | |
Options outstanding at end of year | | | 4,790,477 | | | $ | 21.51 | | | | 5,205,354 | | | $ | 23.92 | | | | 5,709,626 | | | $ | 25.43 | | | | 1,816,025 | | | | 2.1 years | | | $ | 19.92 | | | $ | 23 | |
| | | | | | | | | | |
Vested and unvested expected to vest at end of year | | | | 1,810,101 | | | | 2.0 years | | | $ | 19.94 | | | $ | 23 | |
| | | | |
Options exercisable at end of year | | | 4,008,600 | | | $ | 22.82 | | | | 4,120,400 | | | $ | 25.83 | | | | 3,234,428 | | | $ | 27.75 | | | | 1,693,549 | | | | 2.0 years | | | $ | 20.38 | | | $ | 23 | |
| | | | | | | | | | |
Weighted average fair value of options granted at market value during the year | | | | | | $ | 6.84 | | | | | | | $ | 7.39 | | | | | | | $ | 10.40 | | |
Weighted average fair value of options granted below market value during the year | | | | | | $ | 6.81 | | | | | | | $ | 6.20 | | | | | | | $ | 12.37 | | |
Options available for future grant | | | 5,972,077 | | | | | | | | | | | | | | | | | | | | | | | | 6,708,594 | | | | | | | | | | | | | |
| | | | | | |
The following table summarizes information about stock options outstanding at September 30, 2006:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Options Outstanding | | | | | | | | | | | | | |
| | | | | Weighted-
| | | | | | | | | | | | | | | | |
| | | | | Average
| | | | | | | | | Options Exercisable | |
| | | | | Remaining
| | | | | | Aggregate
| | | | | | | | | Aggregate
| |
| | | | | Contractual
| | | Weighted-
| | | Intrinsic
| | | | | | Weighted-
| | | Intrinsic
| |
| | | | | Life
| | | Average
| | | Value (In
| | | | | | Average
| | | Value (In
| |
Range of Exercise Prices | | Shares | | | (Years) | | | Exercise Price | | | Thousands) | | | Shares | | | Exercise Price | | | Thousands) | |
|
$3.62 — $13.05 | | | 1,028,780 | | | | 4.44 | | | $ | 11.07 | | | $ | 2,038 | | | | 708,468 | | | $ | 10.74 | | | $ | 1,635 | |
$13.06 — $24.02 | | | 1,218,225 | | | | 4.69 | | | $ | 17.95 | | | $ | — | | | | 766,103 | | | $ | 18.62 | | | $ | — | |
$24.30 — $24.30 | | | 1,328,279 | | | | 3.13 | | | $ | 24.30 | | | $ | — | | | | 1,318,836 | | | $ | 24.30 | | | $ | — | |
$24.78 — $59.44 | | | 1,215,193 | | | | 1.86 | | | $ | 30.89 | | | $ | — | | | | 1,215,193 | | | $ | 30.89 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$3.62 — $59.44 | | | 4,790,477 | | | | 3.49 | | | $ | 21.51 | | | $ | 2,038 | | | | 4,008,600 | | | $ | 22.82 | | | $ | 1,635 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The weighted average remaining contractual life of options exercisable at September 30, 2006 was 3.1 years.
The aggregate intrinsic value in the table above represents the total intrinsic value, based on the Company’s closing stock price of $13.05$8.36 as of September 30, 2006,2008, which would have been received by the option holders had all option holders exercised their options as of that date. The total number ofin-the-money options exercisable as of September 30, 2006 was 708,468.
75
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The weighted average grant date fair value of stock options, as determined under SFAS No. 123R, granted during fiscal 2006 2005 and 2004 was $6.82 $7.30, and $10.81 per share, respectively.share. No stock options were granted in fiscal 2008 or fiscal 2007. The total intrinsic value of options exercised during fiscal 2008, 2007 and 2006 was $35,000, $2,576,000 and 2005 was $371,000, and $718,000, respectively. The total cash received from employees as a result of employee stock option exercises during fiscal 2008, 2007 and 2006 was $392,000, $7,005,000 and 2005 was $1,155,000, and $2,294,000, respectively.
As of September 30, 20062008 future compensation cost related to nonvested stock options is approximately $6.0$0.8 million and will be recognized over an estimated weighted average period of 2.31.6 years.
The Company settles employee stock option exercises with newly issued common shares.
Based on information currently available, the Company believes that, although certain options may have been granted in violation of our applicable option plans, those options are valid and enforceable obligations of the Company.
63
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Restricted Stock Activity
Restricted stock for the year ended September 30, 20062008 was determined using the fair value method. A summary of the status of the Company’s restricted stock as of September 30, 20062008 and changes during the year ended September 30, 2006 is as follows:
| | | | | | | | | |
| | Year Ended
| | | | | | | | | |
| | September 30, 2006 | | | 2008 | |
| | | | Weighted
| | | | | Weighted
| |
| | | | Average
| | | | | Average
| |
| | | | Grant-Date
| | | | | Grant-Date
| |
| | Shares | | Fair Value | | | Shares | | Fair Value | |
|
Outstanding at beginning of year | | | 288,000 | | | $ | 16.40 | | | | 961,875 | | | $ | 14.42 | |
Awards granted | | | 828,000 | | | | 13.15 | | | | 614,500 | | | | 12.06 | |
Awards vested | | | (91,750 | ) | | | 16.10 | | | | (330,030 | ) | | | 13.37 | |
Awards canceled | | | (128,500 | ) | | | 13.94 | | | | (261,845 | ) | | | 14.27 | |
| | | | | | | | |
Outstanding at end of year | | | 895,750 | | | $ | 13.79 | | | | 984,500 | | | $ | 13.33 | |
| | | | | | |
The weighted average grant date fair value of restricted stock, as determined under SFAS No. 123R, granted during fiscal 2007 and fiscal 2006 was $16.11 and $13.15 per share, respectively. The fair value of restricted stock awards vested during fiscal 2008, 2007 and 2006 was $4.4 million, $4.2 million and $1.5 million. No restricted stock awards vested during fiscal 2005.million, respectively.
As of September 30, 2006,2008, the unrecognized compensation cost related to nonvested restricted stock is $8.9$8.8 million and will be recognized over an estimated weighted average amortization period of 3.01.6 years.
1995 Employee Stock Purchase Plan
On February 22, 1996, the stockholders approved the 1995 Employee Stock Purchase Plan (the “1995 Plan”) which enables eligible employees to purchase shares of the Company’s common stock. Under the 1995 Plan, eligible employees may purchase up to an aggregate of 2,250,0003,000,000 shares during six-month offering periods commencing on February 1 and August 1 of each year at a price per share of 85% of the lower of the fair market value price per share on the first or last day of each six-month offering period. Participating employees may elect to have up to 10% of their base pay withheld and applied toward the purchase of such shares. The rights of participating employees under the 1995 Plan terminate upon voluntary withdrawal from the plan at any time or upon termination of employment. At the Company’s March 2006 Annual Meeting, stockholders approved an amendment to the 1995 Plan to increase the number of shares authorized for issuance under the plan by 750,000 shares. As of September 30, 2006, 1,551,7622008, 1,988,259 shares of common stock have been purchased under the 1995 Plan and 1,448,2381,011,741 shares remain available for purchase.
76
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
15. | Acquisition-Related and Restructuring Costs and Accruals |
Fiscal 20062008 Activities
The Company recorded a charge to continuing operations of $5.3$7.3 million in the year ended September 30, 20062008 for restructuring costs.
Restructuring Costs
Based on estimates of its near term future revenues and operating costs, in fiscal 2006,2008, the Company took additional cost reduction actions. Accordingly, charges of $5.3$7.3 million were recorded for these actions. Of this amount, $3.3$6.8 million related to workforce reductions and $2.0$0.5 million related to costs to vacate excess facilities primarily related to a vacant facility in Billerica, Massachusetts due to a longer period than initially estimated to sublease the facility.San Jose, California and South Korea. The workforce reductions consisted of $2.4$6.8 million of severance costs associated with the terminationworkforce reductions of approximately 40 legacy Brooks230 employees worldwide in sales,operations, service operations and administrative functions whose positionsacross all the main geographies in which the Company operates. The restructuring charges by segment for fiscal 2008 were: Global Customer Operations — $2.7 million, Automated Systems — $2.2 million
64
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
and Critical Components — $0.4 million. In addition, the Company incurred $2.0 million of restructuring charges in fiscal 2008 that were made redundant as a resultrelated to general corporate functions that support all of the Helix acquisition and further downsizing in the Company’s software segment, and $1.8 million for retention bonuses earned in the period by employees who have been notified of their termination in the current and prior periods, offset by the $0.9 million reversal of previously accrued termination costs to employees who will no longer be terminated or whose termination was settled at a reduced cost.our segments. The accruals for workforce reductions are expected to be paid over the next twelve months. The impactCompany estimates that the annual salary and benefit savings as a result of these actions will be approximately $14.0 million. The cost reductions on the Company’s liquidity is notsavings resulting from these restructuring actions are expected to be significant, as these cost savings yield actual cash savings, net of the related costs, within twelve months.
The Company is expanding its cost reduction efforts in response to the global economic slowdown and expects to take further restructuring charges during fiscal 2009. The Company continues to review and align its cost structure to attain profitable operations amid the changing semiconductor cycles.
Fiscal 20052007 Activities
The Company recorded a charge to continuing operations of $16.5$7.1 million in the year ended September 30, 20052007 for restructuring costs.
Restructuring Costs
Based on estimates of its near term future revenues and operating costs, in fiscal 2007, the Company took additional cost reduction actions. Accordingly, charges of $7.1 million were recorded for these actions. Of this amount, $4.0 million related to workforce reductions and $3.1 million related to fully recognizing the remaining obligation on the lease associated with the Company’s vacant facility in Billerica, Massachusetts. The workforce reductions consisted of $4.0 million of severance costs associated with the termination of approximately 90 employees in operations, service and administrative functions principally in the U.S., Germany and Korea.
Fiscal 2006 Activities
The Company recorded a charge to continuing operations of $4.3 million in the year ended September 30, 2006 for restructuring costs. The Company also recorded a charge of $1.0 million in the year ended September 30, 20052006 related to the discontinued SELSsoftware division, which is included in the loss from discontinued operations.
Restructuring Costs
Based on estimates of its near term future revenues and operating costs, the Company announced in fiscal 20052006 plans to take additional cost reduction actions. Accordingly, charges of $17.5$4.3 million of which $1.0 million related to, and is classified within discontinued operations, were recorded for these actions. Of this amount, $14.3This charge consisted of $2.0 million of excess facilities charges primarily related to workforce reductions of approximately 270 employees world wide, across all functions of the business and $3.2 million related to excess facilities. Of the $3.2 million of facilities charges, $1.5 million represents an additional accrual on a previous vacatedvacant facility in Billerica Massachusetts due to a longer period than initially estimated tosub-lease the facility. Workforce reduction charges included $4.3facility, $2.5 million for headcount reductioncosts incurred related to the termination of approximately 100 individuals associated with our software segment, $3.6 million for reductions of approximately 6530 employees in our Jena, Germany facility and $6.4 million related to various other actions undertaken in fiscal 2005. Excess facility charges consistworldwide whose positions were made redundant as a result of the present valueHelix acquisition, offset by the $0.2 million reversal of remaining lease obligations on facilities vacated in fiscal 2005. The impact of these cost reductions on the Company’s liquidity is not expectedpreviously accrued termination costs to employees who will no longer be significant, as these actions yield equivalent actual cash savings within twelve months.
Fiscal 2004 Activities
terminated or whose termination was settled at a reduced cost. The Company recorded a charge to operations of $5.4$1.0 million in thefiscal year ended September 30, 2004 of which $0.1 million2006 for workforce reductions related to acquisitions and $5.3 million related to restructuring costs.its discontinued software division which is included in the loss from discontinued operations.
7765
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Acquisition-Related Costs
The $0.1 million related to acquisitions is comprised of legal and consulting costs to integrate and consolidate acquired entities into existing Brooks entities.
Restructuring Costs
Based on estimates of its near term future revenues and operating costs, the Company announced in fiscal 2004 several plans to take additional cost reduction actions. Accordingly, charges of $5.3 million were recorded for these actions. Of this amount, $3.9 million related to workforce reductions of approximately 60 employees world wide, across all functions of the business and $1.4 million related to excess facilities. Excess facilities charges of $1.4 million consisted of $0.2 million for excess facilities identified in fiscal 2004 that were recorded to recognize the amount of the remaining lease obligations. These costs have been estimated from the time when the space is vacant and there are no plans to utilize the facility. Costs incurred prior to vacating the facilities were charged to operations. Final exit costs for facilities abandoned in previous restructurings amounted to $0.7 million. The remaining $0.5 million represents a reevaluation of the assumptions used in determining the fair value of certain lease obligations related to facilities abandoned in a previous restructuring. The revised assumptions, including lower estimates of expectedsub-rental income over the remainder of the lease terms, are based on management’s evaluation of the rental space available. The Company believes that the cost reduction programs implemented will align costs with revenues. In the event the Company is unable to achieve this alignment, additional cost cutting programs may be required in the future. The facilities charges are expected to be paid over the remaining lease periods, expiring in fiscal 2011. These charges helped better align the Company’s cost structure. The impact of these cost reductions on the Company’s liquidity is not expected to be significant, as these actions yield equivalent actual cash savings within twelve months.
The activity related to the Company’s restructuring accruals is below, which includes activity related to ourthe discontinued SELSsoftware division (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2006 Activity | | | Fiscal 2008 Activity | |
| | Balance
| | | | | | | | | | Balance
| | | Balance
| | | | | | Balance
| |
| | September 30,
| | | | | | | | | | September 30,
| | | September 30,
| | | | | | September 30,
| |
| | 2005 | | Expense | | Helix Acquisition | | Reversals | | Utilization | | 2006 | | | 2007 | | Expense | | Utilization | | 2008 | |
|
Facilities | | $ | 15,045 | | | $ | 1,966 | | | $ | 580 | | | $ | — | | | $ | (3,894 | ) | | $ | 13,697 | | | $ | 12,804 | | | $ | 540 | | | $ | (3,686 | ) | | $ | 9,658 | |
Workforce-related | | | 8,429 | | | | 4,321 | | | | 2,756 | | | | (990 | ) | | | (11,670 | ) | | | 2,846 | | | | 2,907 | | | | 6,747 | | | | (6,649 | ) | | | 3,005 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | $ | 23,474 | | | $ | 6,287 | | | $ | 3,336 | | | $ | (990 | ) | | $ | (15,564 | ) | | $ | 16,543 | | | $ | 15,711 | | | $ | 7,287 | | | $ | (10,335 | ) | | $ | 12,663 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2005 Activity | | | Fiscal 2007 Activity | |
| | Balance
| | | | | | | | | | Balance
| | | Balance
| | | | | | | | Balance
| |
| | September 30,
| | | | | | | | | | September 30,
| | | September 30,
| | | | | | | | September 30,
| |
| | 2004 | | Expense | | Adjustments | | Reversals | | Utilization | | 2005 | | | 2006 | | Expense | | Reversals | | Utilization | | 2007 | |
|
Facilities | | $ | 17,730 | | | $ | 1,680 | | | $ | 1,542 | | | $ | — | | | $ | (5,907 | ) | | $ | 15,045 | | | $ | 13,697 | | | $ | 3,131 | | | $ | (62 | ) | | $ | (3,962 | ) | | $ | 12,804 | |
Workforce-related | | | 2,460 | | | | 14,451 | | | | — | | | | (184 | ) | | | (8,298 | ) | | | 8,429 | | | | 2,846 | | | | 4,039 | | | | — | | | | (3,978 | ) | | | 2,907 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 20,190 | | | $ | 16,131 | | | $ | 1,542 | | | $ | (184 | ) | | $ | (14,205 | ) | | $ | 23,474 | | | $ | 16,543 | | | $ | 7,170 | | | $ | (62 | ) | | $ | (7,940 | ) | | $ | 15,711 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
78
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2004 Activity | | | Fiscal 2006 Activity | |
| | Balance
| | | | | | | | | | Balance
| | | Balance
| | | | | | | | | | Balance
| |
| | September 30,
| | | | | | | | | | September 30,
| | | September 30,
| | | | | | | | | | September 30,
| |
| | 2003 | | Expense | | Adjustments | | Reversals | | Utilization | | 2004 | | | 2005 | | Expense | | Helix Acquisition | | Reversals | | Utilization | | 2006 | |
|
Facilities | | $ | 24,312 | | | $ | 192 | | | $ | 1,216 | | | $ | — | | | $ | (7,990 | ) | | $ | 17,730 | | | $ | 15,045 | | | $ | 1,966 | | | $ | 580 | | | $ | — | | | $ | (3,894 | ) | | $ | 13,697 | |
Workforce-related | | | 4,955 | | | | 3,922 | | | | — | | | | — | | | | (6,417 | ) | | | 2,460 | | | | 8,429 | | | | 4,321 | | | | 2,756 | | | | (990 | ) | | | (11,670 | ) | | | 2,846 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 29,267 | | | $ | 4,114 | | | $ | 1,216 | | | $ | — | | | $ | (14,407 | ) | | $ | 20,190 | | | $ | 23,474 | | | $ | 6,287 | | | $ | 3,336 | | | $ | (990 | ) | | $ | (15,564 | ) | | $ | 16,543 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
16. | Segment and Geographic Information |
The Company has two reportable segments: hardware and software. In the fourth quarter of fiscal year 2005,2007 the Company’s equipment automationCompany made changes to its internal reporting structure and factory automationbegan reporting results in three segments: Automation Systems; Critical Components; and Global Customer Operations. In the second quarter of fiscal 2008 these segment disclosures were refined to reflect the results of a comprehensive review of operations conducted subsequent to the appointment of a new CEO and CFO. These refinements resulted in minor changes to the previously disclosed split of revenues and gross margins among segments were combined into the hardware segment, which reflects how management now evaluates its business.and between products and services.
The hardwareAutomation Systems segment providesconsists of a range of wafer handling products and components for use within semiconductorsystems that support both atmospheric and vacuum process equipment. These systems automate the movement of wafers into and out of semiconductor manufacturing process chambers and provide an integration point between factory automation systems and process tools. The products offeredtechnology used by the Company include vacuum and atmospheric systems and robots, subsystems, and related components. Also offered are assembly and manufacturing of customer designed automation systems, or contract automation systems. The primary customers for these solutions are manufacturers of process tool equipment. Other hardware products include Brooks’ automated material handling systems, or AMHS, and equipment for lithography automation that manage the storage, inspection and transport of photomasks, or reticles.Company’s customers.
The softwareCritical Components segment addresses the need for productionincludes cryogenic vacuum pumping, thermal management systems driven by the extensive tracking and tracing requirementsvacuum measurement solutions used to create, measure and control critical process vacuum applications. The pump, gauge and chiller products serve various markets that use vacuum as a critical enabler to overall system performance.
The Global Customer Operations segment consists of the semiconductor industry. At the coreCompany’s after market activities including an extensive range of these production systems is the manufacturing execution system (“MES”) that is primarily responsible for tracking the movementservice support to its customers to address theiron-site needs, spare parts and repair services, and support of production wafers in a fab, and managing the data and actions for every wafer, equipment, operator and other resources in the fab. These mission-critical systems provide real time information primarily to production operators, supervisors and fab managers. Also provided is other important software applications to meet the critical requirements of the fab, such as real time dispatching and scheduling, equipment communications, advanced process control, material control using the AMHS, activity execution and control, automated maintenance management of equipment, and other applications. Customers often purchase more than one of these software products from Brooks for a single fab, often driving the need for consulting and integration services. These software products enable semiconductor manufacturers to increase their return on investment by maximizing production efficiency, and may be sold as part of an integrated solution or on a stand-alone basis. These software products and services are also used in many similar manufacturing industries as semiconductor, including flat panel display, data storage, and electronic assembly.legacy product lines.
The Company evaluates performance and allocates resources based on revenues, and operating income (loss). and returns on invested assets. Operating income (loss) for each segment includes selling, general and administrative expenses directly attributable to the segment. Amortization of acquired intangible assets including impairment of these assets and of goodwill and acquisition-related and restructuring charges are excluded from the segments’ operating income (loss). The Company’s non-allocable overhead costs, which include corporate general and administrative expenses, are allocated between the segments based upon segment revenues. Segment assets exclude deferred tax assets, acquired intangible assets, goodwill, marketable securities and cash equivalents.
79
66
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(excluding completed technology) and restructuring charges are excluded from the segments’ operating income (loss). The Company’s non-allocable overhead costs, which include various general and administrative expenses, are allocated among the segments based upon segment revenues. Segment assets exclude acquired intangible assets, goodwill, investments in joint ventures, marketable securities and cash equivalents.
The Company has reclassified prior year data due to the changes made in its reportable segments.
Financial information for the Company’s business segments is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Hardware | | Software | | Total | | | | | | | Global
| | | |
| | Automation
| | Critical
| | Customer
| | | |
| | | Systems | | Components | | Operations | | Total | |
| |
Year ended September 30, 2008 | | | | | | | | | | | | | | | | | |
Revenues | | | | | | | | | | | | | | | | | |
Product | | | $ | 273,294 | | | $ | 127,035 | | | $ | 11,324 | | | $ | 411,653 | |
Services | | | | — | | | | — | | | | 114,713 | | | | 114,713 | |
| | | | | | | | | | |
| | | $ | 273,294 | | | $ | 127,035 | | | $ | 126,037 | | | $ | 526,366 | |
| | | | | | | | | | |
Gross profit | | | $ | 54,714 | | | $ | 47,871 | | | $ | 24,243 | | | $ | 126,828 | |
Segment operating income (loss) | | | $ | (32,052 | ) | | $ | 11,654 | | | $ | 830 | | | $ | (19,568 | ) |
Depreciation | | | $ | 11,192 | | | $ | 3,359 | | | $ | 3,625 | | | $ | 18,176 | |
Assets | | | $ | 159,975 | | | $ | 49,710 | | | $ | 60,762 | | | $ | 270,447 | |
Year ended September 30, 2007 | | | | | | | | | | | | | | | | | |
Revenues | | | | | | | | | | | | | | | | | |
Product | | | $ | 443,501 | | | $ | 165,225 | | | $ | 16,679 | | | $ | 625,405 | |
Services | | | | — | | | | — | | | | 117,853 | | | | 117,853 | |
| | | | | | | | | | |
| | | $ | 443,501 | | | $ | 165,225 | | | $ | 134,532 | | | $ | 743,258 | |
| | | | | | | | | | |
Gross profit | | | $ | 119,456 | | | $ | 66,235 | | | $ | 33,904 | | | $ | 219,595 | |
Segment operating income | | | $ | 15,046 | | | $ | 29,016 | | | $ | 9,336 | | | $ | 53,398 | |
Depreciation | | | $ | 10,402 | | | $ | 4,090 | | | $ | 2,989 | | | $ | 17,481 | |
Assets | | | $ | 270,401 | | | $ | 72,771 | | | $ | 82,020 | | | $ | 425,192 | |
Year ended September 30, 2006 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenues | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Product | | $ | 488,827 | | | $ | 25,467 | | | $ | 514,294 | | | $ | 336,923 | | | $ | 143,543 | | | $ | 14,331 | | | $ | 494,797 | |
Services | | | 118,667 | | | | 59,909 | | | | 178,576 | | | | — | | | | — | | | | 112,697 | | | | 112,697 | |
| | | | | | | | | | | | | | | | |
| | $ | 607,494 | | | $ | 85,376 | | | $ | 692,870 | | | $ | 336,923 | | | $ | 143,543 | | | $ | 127,028 | | | $ | 607,494 | |
| | | | | | | | | | | | | | | | |
Gross profit | | $ | 186,650 | | | $ | 58,134 | | | $ | 244,784 | | | $ | 104,642 | | | $ | 55,390 | | | $ | 26,618 | | | $ | 186,650 | |
Segment operating income | | $ | 34,921 | | | $ | 3,054 | | | $ | 37,975 | | | $ | 8,412 | | | $ | 18,288 | | | $ | 1,337 | | | $ | 28,037 | |
Depreciation | | $ | 15,362 | | | $ | 1,742 | | | $ | 17,104 | | | $ | 8,218 | | | $ | 4,740 | | | $ | 2,822 | | | $ | 15,780 | |
Assets | | $ | 418,296 | | | $ | 36,707 | | | $ | 455,003 | | | $ | 243,051 | | | $ | 82,535 | | | $ | 87,495 | | | $ | 413,081 | |
Year ended September 30, 2005 | | | | | | | | | | | | | |
Revenues | | | | | | | | | | | | | |
Product | | $ | 310,025 | | | $ | 28,047 | | | $ | 338,072 | | |
Services | | | 59,753 | | | | 65,921 | | | | 125,674 | | |
| | | | | | | | |
| | $ | 369,778 | | | $ | 93,968 | | | $ | 463,746 | | |
| | | | | | | | |
Gross profit | | $ | 99,786 | | | $ | 60,350 | | | $ | 160,136 | | |
Segment operating income | | $ | 12,481 | | | $ | 547 | | | $ | 13,028 | | |
Depreciation | | $ | 9,899 | | | $ | 3,352 | | | $ | 13,251 | | |
Assets | | $ | 237,676 | | | $ | 54,675 | | | $ | 292,351 | | |
Year ended September 30, 2004 | | | | | | | | | | | | | |
Revenues | | | | | | | | | | | | | |
Product | | $ | 357,280 | | | $ | 44,972 | | | $ | 402,252 | | |
Services | | | 58,194 | | | | 74,607 | | | | 132,801 | | |
| | | | | | | | |
| | $ | 415,474 | | | $ | 119,579 | | | $ | 535,053 | | |
| | | | | | | | |
Gross profit | | $ | 130,124 | | | $ | 69,542 | | | $ | 199,666 | | |
Segment operating income | | $ | 35,231 | | | $ | 8,995 | | | $ | 44,226 | | |
Depreciation | | $ | 8,817 | | | $ | 4,940 | | | $ | 13,757 | | |
Assets | | $ | 296,115 | | | $ | 79,647 | | | $ | 375,762 | | |
8067
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A reconciliation of the Company’s reportable segment operating income (loss) and segment assets to the corresponding consolidated amounts as of and for the yearyears ended September 30, 2006, 20052008, 2007 and 20042006 is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | As of and for the Year Ended
| | | As of and for the Year Ended
| |
| | September 30, | | | September 30, | |
| | 2006 | | 2005 | | 2004 | | | 2008 | | 2007 | | 2006 | |
|
Segment income (loss) from continuing operations | | $ | 37,975 | | | $ | 13,028 | | | $ | 44,226 | | |
Segment operating income (loss) from continuing operations | | | $ | (19,568 | ) | | $ | 53,398 | | | $ | 28,037 | |
Amortization of acquired intangible assets | | | 4,894 | | | | 804 | | | | 1,053 | | | | 7,044 | | | | 5,939 | | | | 4,251 | |
Restructuring and acquisition-related charges | | | 5,297 | | | | 16,542 | | | | 5,356 | | |
Impairment charges | | | | 203,570 | | | | — | | | | — | |
Restructuring charges | | | | 7,287 | | | | 7,108 | | | | 4,257 | |
| | | | | | | | | | | | | | |
Total income (loss) from continuing operations | | $ | 27,784 | | | $ | (4,318 | ) | | $ | 37,817 | | |
Total operating income (loss) from continuing operations | | | $ | (237,469 | ) | | $ | 40,351 | | | $ | 19,529 | |
| | | | | | | | | | | | | | |
Segment assets | | $ | 455,003 | | | $ | 292,351 | | | $ | 375,762 | | | $ | 270,447 | | | $ | 425,192 | | | $ | 413,081 | |
Assets from discontinued operations | | | — | | | | 55 | | | | 1,706 | | | | — | | | | — | | | | 57,324 | |
Goodwill | | | 351,444 | | | | 62,094 | | | | 62,034 | | | | 119,979 | | | | 319,302 | | | | 314,452 | |
Intangible assets | | | 94,067 | | | | 3,828 | | | | 6,929 | | | | 58,452 | | | | 76,964 | | | | 92,213 | |
Investments in marketable securities and cash equivalents | | | 92,063 | | | | 265,752 | | | | 224,608 | | |
Investments in cash equivalents, marketable securities and joint ventures | | | | 205,988 | | | | 193,380 | | | | 115,507 | |
Insurance receivable | | | | 8,772 | | | | — | | | | — | |
| | | | | | | | | | | | | | |
Total assets | | $ | 992,577 | | | $ | 624,080 | | | $ | 671,039 | | | $ | 663,638 | | | $ | 1,014,838 | | | $ | 992,577 | |
| | | | | | | | | | | | | | |
Net revenues based upon the source of the order by geographic area are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, | | | Year Ended September 30, | |
| | 2006 | | 2005 | | 2004 | | | 2008 | | 2007 | | 2006 | |
|
North America | | $ | 412,941 | | | $ | 241,681 | | | $ | 272,694 | | | $ | 340,214 | | | $ | 496,254 | | | $ | 379,719 | |
Asia/Pacific | | | 157,379 | | | | 141,703 | | | | 141,697 | | | | 108,786 | | | | 148,140 | | | | 126,556 | |
Europe | | | 122,550 | | | | 80,362 | | | | 120,662 | | | | 77,366 | | | | 98,864 | | | | 101,219 | |
| | | | | | | | | | | | | | |
| | $ | 692,870 | | | $ | 463,746 | | | $ | 535,053 | | | $ | 526,366 | | | $ | 743,258 | | | $ | 607,494 | |
| | | | | | | | | | | | | | |
Long-lived assets, includingconsisting of property, plant and equipment by geographic area are as follows (in thousands):
| | | | | | | | | | | | | | | | |
| | September 30, | | | September 30, | |
| | 2006 | | 2005 | | | 2008 | | 2007 | |
|
North America | | $ | 73,142 | | | $ | 51,115 | | | $ | 76,306 | | | $ | 73,561 | |
Asia/Pacific | | | 5,076 | | | | 2,357 | | | | 4,835 | | | | 6,625 | |
Europe | | | 615 | | | | 693 | | | | 463 | | | | 561 | |
| | | | | | | | | | |
| | $ | 78,833 | | | $ | 54,165 | | | $ | 81,604 | | | $ | 80,747 | |
| | | | | | | | | | |
| |
17. | Significant Customers and Related Party Information |
On June 11, 2001, theThe Company appointed a new member to its Boardhad two customers that accounted for more than 10% of Directors. This individual served as a director of one of the Company’s customers until May 3, 2006. Accordingly, this customer is considered a related party for the period from June 11, 2001 through May 3, 2006. Revenues from this customer from October 1, 2005 to March 31, 2006 were approximately $205,000 and forrevenues in the years ended September 30, 20052008 and 2004 were approximately $319,000 and $409,000, respectively.2007. The amounts due from thisCompany had one customer includedthat accounted for more than 10% of revenues in the year ended September 30, 2006. The Company had two customers that accounted for more than 10% of its accounts receivable balance at March 31, 2006 and September 30, 2005 were $40,0002008 and $33,000, respectively. Related party transactions and amounts included in accounts receivable are on standard pricing and contractual terms and manner of settlement for products and services of similar types and at comparable volumes.2007.
8168
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company had no customer that accounted for more than 10% of revenues in the years ended September 30, 2006, 2005 and 2004. The Company had two customers that accounted for more than 10% of its accounts receivable balance at September 30, 2006 and one customer that accounted for 10% of its accounts receivable balance at September 30, 2005.
| |
18. | Other Balance Sheet Information |
Components of other selected captions in the Consolidated Balance Sheets are as follows (in thousands):
| | | | | | | | | | | | | | | | |
| | September 30, | | | September 30, | |
| | 2006 | | 2005 | | | 2008 | | 2007 | |
|
Accounts receivable | | $ | 128,904 | | | $ | 80,352 | | | $ | 68,210 | | | $ | 107,373 | |
Less allowance for doubtful accounts | | | 1,709 | | | | 2,797 | | | | 1,366 | | | | 1,469 | |
| | | | | | | | | | |
| | $ | 127,195 | | | $ | 77,555 | | | $ | 66,844 | | | $ | 105,904 | |
| | | | | | | | | | |
The allowance for doubtful accounts activity for the years ended September 30, 2006, 20052008, 2007 and 20042006 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Balance at
| | | | | | | | | | | | | Balance at
| | | | | | | | | | | |
| | Beginning of
| | Acquisition
| | | | Reversals of
| | Write-offs and
| | Balance at
| | | Beginning of
| | Acquisition
| | | | Reversals of
| | Write-offs and
| | Balance at
| |
Description | | Period | | Reserves | | Provisions | | Bad Debt Expense | | Adjustments | | End of Period | | | Period | | Reserves | | Provisions | | Bad Debt Expense | | Adjustments | | End of Period | |
|
2008 Allowance for doubtful accounts | | | $ | 1,469 | | | $ | — | | | $ | 720 | | | $ | (255 | ) | | $ | (568 | ) | | $ | 1,366 | |
2007 Allowance for doubtful accounts | | | | 1,709 | | | | 267 | | | | 100 | | | | (31 | ) | | | (576 | ) | | | 1,469 | |
2006 Allowance for doubtful accounts | | $ | 2,797 | | | $ | 579 | | | $ | — | | | $ | (842 | ) | | $ | (825 | ) | | $ | 1,709 | | | | 2,648 | | | | 579 | | | | — | | | | (842 | ) | | | (676 | ) | | | 1,709 | |
2005 Allowance for doubtful accounts | | | 3,230 | | | | — | | | | — | | | | — | | | | (433 | ) | | | 2,797 | | |
2004 Allowance for doubtful accounts | | | 6,499 | | | | — | | | | 225 | | | | (2,050 | ) | | | (1,444 | ) | | | 3,230 | | |
| | | | | | | | | | | | | | | | |
| | September 30, | | | September 30, | |
| | 2006 | | 2005 | | | 2008 | | 2007 | |
|
Inventories | | | | | | | | | |
Inventories, net | | | | | | | | | |
Raw materials and purchased parts | | $ | 48,996 | | | $ | 24,612 | | | $ | 64,651 | | | $ | 50,304 | |
Work-in-process | | | 25,064 | | | | 12,043 | | | | 26,789 | | | | 31,555 | |
Finished goods | | | 25,794 | | | | 11,779 | | | | 14,461 | | | | 22,935 | |
| | | | | | | | | | |
| | $ | 99,854 | | | $ | 48,434 | | | $ | 105,901 | | | $ | 104,794 | |
| | | | | | | | | | |
Reserves for excess and obsolete inventory were $12,707,000, $12,707,000$17.4 million, $18.7 million and $14,520,000$12.7 million at September 30, 2006, 20052008, 2007 and 2004,2006, respectively. The Company recorded additions to reserves for excess and obsolete inventory of $2,917,000 (including net acquired reserves of $1,686,000), $8,902,000$4.9 million, $11.4 million and $9,259,000$2.9 million in fiscal 2008, 2007 and 2006, 2005respectively, including $5.2 million, $8.5 million and 2004, respectively, comprised of $1,231,000, $8,752,000 and $7,340,000$1.2 million charged to expense in fiscal 2006, 20052008, 2007 and 2004, respectively, and $8,000, $150,000 and $421,000 of foreign exchange differences charged to other accounts in fiscal 2006, 2005 and 2004, respectively. The Company reduced the reserves for excess and obsolete inventory by $2,917,000, $10,715,000$6.3 million, $5.4 million and $10,244,000,$2.9 million, in fiscal 2006, 20052008, 2007 and 2004,2006, respectively, for write-offsdisposals of inventory.
8269
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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. While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers, 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 years ended September 30, 2006, 2005,2008, 2007 and 20042006 is as follows (in thousands):
| | | | | | | | |
Balance September 30, 2003 | | $ | 11,809 | | |
Accruals for warranties during the year | | | 3,980 | | |
Settlements made during the year | | | (3,843 | ) | |
| | | | |
Balance September 30, 2004 | | | 11,946 | | |
Accruals for warranties during the year | | | 3,786 | | |
Settlements made during the year | | | (5,950 | ) | |
| | | | |
Balance September 30, 2005 | | | 9,782 | | |
Balance at September 30, 2005 | | | $ | 9,782 | |
Acquisitions | | | 1,586 | | | | 1,586 | |
Accruals for warranties during the year | | | 13,040 | | | | 13,040 | |
Settlements made during the year | | | (12,800 | ) | | | (12,800 | ) |
| | | | | | |
Balance September 30, 2006 | | $ | 11,608 | | |
Balance at September 30, 2006 | | | | 11,608 | |
Accruals for warranties during the year | | | | 13,387 | |
Settlements made during the year | | | | (14,009 | ) |
| | | | | | |
Balance at September 30, 2007 | | | | 10,986 | |
Accruals for warranties during the year | | | | 10,344 | |
Settlements made during the year | | | | (13,156 | ) |
| | | | |
Balance at September 30, 2008 | | | $ | 8,174 | |
| | | | |
| |
19. | Commitments and Contingencies |
Lease Commitments
The Company leases manufacturing and office facilities and certain equipment under operating leases that expire through 2015. Rental expense under operating leases, excluding expense recorded as a component of restructuring, for the years ended September 30, 2008, 2007 and 2006 2005 and 2004 was $5.6$5.4 million, $4.7$4.5 million and $6.5$5.1 million, respectively. Future minimum lease commitments on non-cancelable operating leases, lease income and sublease income are as follows (in thousands):
| | | | | | | | | | | | | | | | |
| | | | Lease and
| | | | | Lease and
| |
| | Operating
| | Sublease
| | | Operating
| | Sublease
| |
| | Leases | | Income | | | Leases | | Income | |
|
Year ended September 30, 2007 | | $ | 12,611 | | | $ | 1,220 | | |
2008 | | | 10,787 | | | | 1,230 | | |
2009 | | | 10,528 | | | | 1,245 | | |
Year ended September 30, 2009 | | | $ | 11,838 | | | $ | 1,797 | |
2010 | | | 10,158 | | | | 1,261 | | | | 10,845 | | | | 1,563 | |
2011 | | | 8,184 | | | | 1,277 | | | | 8,384 | | | | 1,450 | |
2012 | | | | 2,314 | | | | 61 | |
2013 | | | | 2,407 | | | | — | |
Thereafter | | | 9,828 | | | | — | | | | 3,311 | | | | — | |
| | | | | | | | | | |
| | $ | 62,096 | | | $ | 6,233 | | | $ | 39,099 | | | $ | 4,871 | |
| | | | | | | | | | |
These future minimum lease commitments include approximately $25.3$16.0 million related to facilities the Company has elected to abandon in connection with its restructuring initiatives. In addition, the Company is a guarantor on a 7 year lease in Mexico that expires in January 2013 for approximately $2.5$1.6 million.
Purchase Commitments
The Company has non-cancelable contracts and purchase orders for inventory of $99.4$44.7 million at September 30, 2006.2008.
8370
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Contingencies
There has been substantial litigation regarding patent and other intellectual property rights in the semiconductor and related industries. The Company has in the past been, and may in the future be, notified that it may be infringing intellectual property rights possessed by other third parties. The Company cannot guarantee that infringement claims by third parties or other claims for indemnification by customers or end users of its products resulting from infringement claims will not be asserted in the future or that such assertions, if proven to be true, will not materially and adversely affect the Company’s’Company’s business, financial condition and results of operations. If any such claims are asserted against the Company’s intellectual property rights, the Company may seek to enter into a royalty or licensing arrangement. The Company cannot guarantee, however, that a license will be available on reasonable terms or at all. The Company could decide in the alternative to resort to litigation to challenge such claims or to attempt to design around the patented technology. Litigation or an attempted design around could be costly and would divert the Company’s management’s attention and resources. In addition, if the Company does not prevail in such litigation or succeed in an attempted design around, the Company could be forced to pay significant damages or amounts in settlement. Even if a design around is effective, the functional value of the product in question could be greatly diminished.
ITI Lawsuit
On or about April 21, 2005, the Company was served with a third-party complaint seeking to join the Company as a party to a patent lawsuit brought by an entity named Information Technology Innovation, LLC based in Northbrook, Illinois (“ITI”) against Motorola, Inc. (“Motorola”) and Freescale Semiconductor, Inc. (“Freescale”). In the lawsuit (the “ITI Lawsuit”), ITI claimed that Motorola and Freescale had infringed a U.S. patent that ITI asserts covers processes used to model a semiconductor manufacturing plant. ITI asserted that the Company has induced and contributed to the infringement of the patent. Subsequently Intel Corporation (“Intel”) filed a lawsuit against ITI seeking a declaratory judgment that Intel has not infringed and is not infringing the patent (the “Intel Lawsuit”) and notified the Company that Intel believed that the Company had an indemnification obligation to Intel, but that, at that time, Intel was not seeking to have those obligations determined and enforced in the Intel Lawsuit.
Freescale alleged that the Company had a duty to indemnify Freescale and Motorola from any infringement claims asserted against them based on their use of our AutoSched software program by paying all costs and expenses and all or part of any damages that either of them might incur as a result of the ITI Lawsuit brought by ITI.
Pursuant to an agreement executed on April 28, 2006, the Company settled and concluded with ITI and the other parties all of the matters that were or might have been raised in this litigation. In exchange for a cash payment, the settlement affords a license, releases and covenants from ITI not to sue the Company, the other parties named above, and all users of certain of our factory modeling software products such as the “Autosched” product. The Intel Lawsuit was also dismissed as a result of this settlement. In addition, the Company settled the claim for indemnification brought against Brooks by Freescale by the payment to Freescale of $400,000 to defray a portion of the legal expenses borne by Freescale in the defense of the ITI litigation.
Other Commercial Litigation Matters
In January 2006 a ruling was issued against the Company by a Massachusetts state court in a commercial litigation matter involving the Company and BlueShift Technologies, Inc. Awards of damages and costs were assessed against Brooks in January and April 2006 in the amount of approximately $1.6 million, which had been accrued for at December 31, 2005. Brooks has filed a notice of appeal in the case with the Massachusetts Appeals Court and that appeal is now pending.
84
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Regulatory Proceedings Relating to Equity Incentive Practices and the Restatement
All pending inquiries and investigations of the Company by agencies of the United States Government pertaining to the Company’s past equity incentive-related practices have now been concluded, as described more fully below.
On May 12, 2006, wethe Company announced that the Companyit had received notice that the Boston Office of the United States Securities and Exchange Commission (the “SEC”) was conducting an informal inquiry concerning stock option grant practices to determine whether violations of the securities laws had occurred. On June 2, 2006, the SEC issued a voluntary request for information to us in connection with an informal inquiry by that office regarding a loan wethe Company previously reported had been made to former Chairman and CEO Robert Therrien in connection with the exercise by him of stock options in 1999. On June 23, 2006, we werethe Company was informed that the SEC had opened a formal investigation into this matter and on the general topic of the timing of stock option grants. On June 28, 2006, the SEC issued subpoenas to the Company and to the Special Committee of the Board of Directors, which had previously been formed on March 8, 2006, requesting documents related to the Company’s stock option grant practices and to the loan to Mr. Therrien.
On May 19, 2006, wethe Company received a grand jury subpoena from the United States Attorney (the “DOJ”) for the Eastern District of New York requesting documents relating to stock option grants. Responsibility for the DOJ’s investigation was subsequently assumed by the United States Attorney for the District of Massachusetts. On June 22, 2006 the United States Attorney’s Office for the District of Massachusetts issued a grand jury subpoena to usthe Company in connection with an investigation by that office into the timing of stock option grants by usthe Company and the loan to Mr. Therrien mentioned above. On May 9, 2007, the Company received afollow-up grand jury subpoena from the United States Attorney’s Office for the District of Massachusetts in connection with the same matters.
TheOn July 25, 2007, a criminal indictment was filed in the United States District Court for the District of Massachusetts charging Robert J. Therrien, the former Chief Executive Officer and Chairman of the Company, is cooperating fully with the investigations being conductedincome tax evasion. A separate civil complaint was filed by the SEC on July 25, 2007 against Mr. Therrien in the United States District Court for the District of Massachusetts charging him with violations of federal securities laws.
On May 19, 2008, the Company entered into a settlement with the SEC relating to its historical stock option granting processes. The Company agreed to settle with the SEC, without admitting or denying the
71
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
allegations in the Commission’s complaint, by consenting to the entry of a judgment enjoining future violations of the reporting, books and records, and internal controls provisions of the federal securities laws. The Company was not charged by the SEC with fraud nor was the Company required to pay any civil penalty or other money damages as part of the settlement. The option grants to which the SEC refers in its complaint were made between 1999 and 2001. The settlement completely resolves the previously disclosed SEC investigation into the Company’s historical stock option granting practices. As the Company disclosed previously, Brooks was not charged in the criminal indictment against Mr. Therrien, and the DOJ.United States Attorney’s Office has informed the Company that it has closed this matter as it relates to the Company.
Private Litigation
All private class action and derivative action matters commenced against the Company relating to past equity incentive-related practices have been concluded or dismissed, as described more fully below.
On May 22, 2006, a derivative action was filed nominally on ourthe Company’s behalf in the Superior Court for Middlesex County, Massachusetts, captioned asMollie Gedell, Derivatively on Behalf of Nominal Defendant Brooks Automation, Inc. v. A. Clinton Allen,et al. The Defendants named in the complaint are: A. Clinton Allen, Director of the Company; Roger D. Emerick, former Director of the Company; Edward C. Grady, Director, President and CEO of the Company; Amin J. Khoury, former Director of the Company; Joseph R. Martin, Director of the Company; John K. McGillicuddy, Director of the Company; and Robert J. Therrien, former Director, President and CEO of the Company.
On May 26, 2006, aanother derivative action was filed in the Superior Court for Middlesex County, Massachusetts nominally on ourthe Company’s behalf, captioned asRalph Gorgone, Derivatively on Behalf of Nominal Defendant Brooks Automation, Inc. v. Edward C. Grady,et al. The Defendants named in the complaint are: Mr. Grady; Mr. Allen; Mr. Emerick; Mr. Khoury; Robert J. Lepofsky, Director of the Company; Mr. Martin; Mr. McGillicuddy; Krishna G. Palepu, Director of the Company; Alfred Woollacott, III, Director of the Company; Mark S. Wrighton, Director of the Company; and Marvin Schorr, Director Emeritus of the Company.
On August 4, 2006 the Superior Court for Middlesex County, Massachusetts, entered an order consolidating the above state derivative actions under docket number06-1808 and the captionIn re Brooks Automation, Inc. Derivative Litigation.On September 5, 2006, the Plaintiffsplaintiffs filed a Consolidated Shareholder Derivative Complaint; the DefendantsComplaint, which named therein are: Mr. Allen, Mr. Martin, Mr. Grady, Mr. McGillicuddy, Mr. Therrien, Mr. Emerick,several current and Mr. Khoury; Robert W. Woodbury, Jr., the Company’s Chief Financial Officer; Joseph Bellini, and Thomas S. Grilk, Secretary and General Counsel of the Company, current Officers of the Company; Stanley D. Piekos and Ellen B. Richstone, the Company’s former Chief Financial Officers; and David R. Beaulieu, Jeffrey A. Cassis, Santo DiNaro, Peter Frasso, Robert A. McEachern, Dr. Charles M. McKenna, James A. Pelusi, Michael W. Pippins and Michael F. Werner, former Officersdirectors, officers, and employees of the Company.Brooks as defendants. The Consolidated Shareholder Derivative Complaint allegesalleged that certain current and former directors and officers breached fiduciary duties owed to Brooks by backdating stock option grants, issuing inaccurate financial results and false or misleading public filings, and that Messrs. Therrien, Emerick and Khoury breached their fiduciary duties, and Mr. Therrien was unjustly enriched, as a result of the loan to and stock option exercise by Mr. Therrien mentioned above, and seeks,sought, on our behalf,
85
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
damages for breaches of fiduciary duty and unjust enrichment, disgorgement to the Company of all profits from allegedly backdated stock option grants, equitable relief, and Plaintiffs’plaintiffs’ costs and disbursements, including attorneys’ fees, accountants’ and experts’ fees, costs, and expenses. The Defendants havedefendants served motions to dismiss and, in response, plaintiffs moved for leave to amend their complaint. The Proposed Amended Complaint made allegations substantially similar to those in the Consolidated Shareholder Derivative Complaint.Complaint, and named additional directors and officers as defendants. On May 4, 2007, the court granted plaintiffs leave to file an amended complaint. On June 22, 2007, the defendants served plaintiffs with motions to dismiss the amended complaint. The parties completed briefing the motions to dismiss on September 27, 2007, and oral argument was heard on December 4, 2007. On August 1, 2008, the court granted the Company’s motion to dismiss the case, and entered an order dismissing the amended consolidated shareholder derivative complaint in its entirety.
On May 30, 2006, a derivative action was filed in the United States District Court for the District of Massachusetts, captioned asMark Collins, Derivatively on Behalf of Nominal Defendant Brooks Automation, Inc. v. Robert J. Therrien,et al. The defendants in the action are: Mr. Therrien; Mr. Allen; Mr. Emerick; Mr. Grady; Mr. Khoury; Mr. Martin; and Mr. McGillicuddy.
On June 7, 2006, a derivative action was filed in the United States District Court for the District of Massachusetts, captioned asCity of Pontiac General Employees’ Retirement System, Derivatively on Behalf of Brooks Automation, Inc. v. Robert J. Therrien,et al. The Defendants in this action are: Mr. Therrien; Mr. Emerick; Mr. Khoury; Mr. Allen; Mr. Grady; Mr. Lepofsky; Mr. Martin; Mr. McGillicuddy; Mr. Palepu; Mr. Woollacott, III; Mr. Wrighton; and Mr. Schorr.
The District Court issued an Orderorder consolidating the above federal derivative actions on August 15, 2006, and a Consolidated Verified Shareholder Derivative Complaint was filed on October 6, 2006; the Defendants2006, which named therein are: Mr. Allen, Mr. Grady, Mr. Lepofsky, Mr. Martin, Mr. McGillicuddy, Mr. Palepu, Mr. Schorr, Mr. Woollacott, Mr. Wrighton, Mr. Woodbury, Mr. Therrien, Mr. Emerick, Mr. Khoury,several current and Mr. Werner.former directors, officers, and employees of Brooks as defendants. The Consolidated Verified Shareholder Derivative Complaint allegesalleged violations of Section 10(b) andRule 10b-5 of the Exchange
72
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
act; Section 14(a) of the Exchange Act; Section 20(a) of the Exchange Act; breach of fiduciary duty; corporate waste; and unjust enrichment, and seeks,sought, on behalf of Brooks, damages, extraordinary equitable relief including disgorgement and a constructive trust for improvidently granted stock options or proceeds from alleged insider trading by certain defendants, Plaintiffs’plaintiffs’ costs and disbursements including attorneys’ fees, accountants’ and experts’ fees, costs and expenses. The Defendants have filedcourt held a hearing on defendants’ motions to dismiss on August 6, 2008. On September 26, 2008, the Consolidated Verified Shareholder Derivative Complaint and to Stay thiscourt entered an order approving the plaintiffs’ voluntary dismissal of the action pending the outcome of motions to dismiss in the state derivative action described above.without prejudice.
On June 19, 2006, a putative class action was filed in the United States District Court, District of Massachusetts, captioned asCharles E. G. Leech Sr. v. Brooks Automation, Inc.,et al. The defendants in this action are: the Company; Mr. Therrien; Ellen Richstone, the Company’s former Chief Financial Officer; Mr. Emerick; Mr. Khoury; Robert W. Woodbury, Jr., the Company’s Chief Financial Officer; and Mr. Grady. The complaint alleges violations of Section 10(b) of the Exchange Act andRule 10b-5 against us and the individual defendants; Section 20(a) of the Exchange Act against the individual defendants; Section 11 of the Securities Act against us and Messrs. Grady, Woodbury, Emerick, Khoury and Therrien; Section 12 of the Securities Act against us and Messrs. Grady, Woodbury, Emerick, Khoury and Therrien; and Section 15 of the Securities Act against Messrs. Grady, Woodbury, Emerick, Khoury and Therrien. The complaint seeks,inter alia, damages, including interest, and plaintiff’s costs. The Defendants have filed motions to dismiss theLeechcomplaint.
On July 19, 2006, a second putative class action was filed in the United States District Court for the District of Massachusetts, captioned asJames R. Shaw v. Brooks Automation, Inc. et al.al.,No. 06-11239-RWZ. On December 13, 2006, the court issued an order consolidating theShawaction with theLeechaction described above and appointing a lead plaintiff and lead counsel. The Defendants in the case arelead plaintiff filed a Consolidated Amended Complaint, which named as defendants current and former directors and officers of the Company, Mr. Therrien, Ms Richstone, Mr. Emerick, Mr. Khoury, Mr. Woodbury, and Mr. Grady. As of this date,as well as PricewaterhouseCoopers LLP, the Company has not been served with the complaint.Company’s auditor. The complaint allegesConsolidated Amended Complaint alleged violations of SectionSections 10(b) and 20(a) of the Exchange Act andRule 10b-5 againstand Sections 11, 12(a)(2), and 15 of the Securities Act.
Motions to dismiss were filed by all defendants in the case. In partial response to defendants’ motions to dismiss, the lead plaintiff filed a motion to amend the complaint to add a named plaintiff on May 10, 2007. Defendants filed an opposition to this motion. On June 26, 2007, the court heard argument on defendants’ motions to dismiss and violationslead plaintiff’s motion to amend the complaint. On November 6, 2007, the court granted in part and denied in part defendants’ motions to dismiss, and allowed lead plaintiff’s motion to add a named plaintiff. The claims against PricewaterhouseCoopers LLP were dismissed. On June 24, 2008, a Stipulation and Agreement of Section 20(a)Settlement Between All Parties was filed, pursuant to which the parties proposed a final settlement. The terms of the Exchange Actsettlement, which includes no admission of liability or wrong doing by Brooks, provide for a full and complete release of all claims in the litigation, a bar order against all individual defendants. The complaint seeks,inter alia, damages, including interest,claims in the nature of contribution, and plaintiff’s costs. Competing plaintiffsa payment of $7.75 million to be paid directly by the Company’s insurance carrier into a settlement fund, pending final documentation and their counsel have movedapproval by the court of a plan of distribution. As of September 30, 2008, the Company recorded a receivable from its liability insurers of $8.8 million within current assets on its audited consolidated balance sheets which includes the settlement fund obligation of $7.75 million and a reimbursement of professional fees of $1.0 million. On October 3, 2008, the court entered orders granting the parties’ motion for consolidation withsettlement and closed theLeechaction described above, and for appointment as lead counsel. case.
On August 22, 2006, an action captioned asMark Levy v. Robert J. Therrien and Brooks Automation, Inc., was filed in the United States District Court for the District of Delaware, seeking recovery, on behalf of the Company, from Mr. Therrien under Section 16(b) of the Securities Exchange Act of 1934 for alleged “short-swing” profits
86
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
earned by Mr. Therrien due to the loan and stock option exercise in November 1999 referenced above, and a sale by Mr. Therrien of Brooks stock in March 2000. The Complaintcomplaint seeks disgorgement of all profits earned by Mr. Therrien on the transactions, attorneys’ fees and other expenses. Defendants haveOn February 20, 2007, a second Section 16(b) action, concerning the same loan and stock option exercise in November 1999 discussed above and seeking the same remedy, was filed motionsin the United States District Court of the District of Delaware, captionedAron Rosenberg v. Robert J. Therrien and Brooks Automation, Inc. On April 4, 2007, the court issued an order consolidating theLevyandRosenbergactions. Brooks is a nominal defendant in the consolidated action and any recovery in this action, less attorneys’ fees, would go to dismiss.the Company. On July 14, 2008, the court denied Mr. Therrien’s motion to dismiss this action.
The Company is aware of additional proposed classOn August 15, 2007, two actions postedwere filed in Massachusetts Superior Court for Middlesex County, nominally on the websites of various law firms. Company’s behalf, captionedDarr v. Grady et al.andMilton v. Grady et al.The Company is not yet aware of the filing of any suchtwo plaintiffs in these actions and have not been served with a complaint or any other process in any of these matters.
| |
20. | Discontinued Operations |
In June 2005,purported to be shareholders who had previously demanded that the Company signed definitive purchase and sale agreements to sell substantially all the assets of the Company’s Specialty Equipment and Life Sciences division (“SELS”), formerly known as IAS, which provided standard and custom automation technology and products for the semiconductor, photonics, life sciences and certain other industries. This sale was completed and all activities of SELS have ceased during the fourth quarter of fiscal 2005. Effective June 2005, the Company’s consolidated financial statements and notes have been reclassified to reflect this business as a discontinued operation in accordance with Financial Accounting Standards Board Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”take
The summary of operating results from discontinued operations is as follows (in thousands):
| | | | | | | | | | | | |
| | Year Ended September 30, | |
| | 2006 | | | 2005 | | | 2004 | |
|
Revenues | | $ | 90 | | | $ | 626 | | | $ | 4,716 | |
| | | | | | | | | | | | |
Gross profit | | $ | 89 | | | $ | (691 | ) | | $ | 1,531 | |
| | | | | | | | | | | | |
Gain (loss) from discontinued operations, net of tax | | $ | 89 | | | $ | (3,516 | ) | | $ | (9,475 | ) |
| | | | | | | | | | | | |
The loss from discontinued operations, net of tax of $3.5 million for the year ended September 30, 2005 includes a loss on disposal, net of tax of $24,000.
Due to the losses incurred since acquisition, no tax benefit is reflected for the losses incurred. The Company recorded impairment charges related to SELS of $7.4 million in 2004.
Assets and liabilities from discontinued operations are as follows (in thousands):
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| | September 30, | |
| | 2006 | | | 2005 | |
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Current assets | | $ | 0 | | | $ | 55 | |
Non-current assets | | | — | | | | — | |
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Assets from discontinued operations | | $ | 0 | | | $ | 55 | |
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Current liabilities from discontinued operations | | $ | 0 | | | $ | 399 | |
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Current assets include accounts receivable and inventory. Non-current assets include property, plant and equipment. Current liabilities include accounts payable and other current liabilities.
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BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
action against individuals who allegedly had involvement with backdated stock options, and to which the Company had responded. The defendants in these actions were several current and former officers, directors, and employees of Brooks. These actions alleged several claims against the defendants based on granting or receiving backdated stock options, including breach of fiduciary duties, corporate waste, and unjust enrichment. The complaint sought on the Company’s behalf,inter alia, damages, extraordinary equitableand/or injunctive relief, an accounting, a constructive trust, disgorgement, and plaintiff’s costs and disbursements, including attorneys’ fees, accountants’ and experts’ fees, costs, and expenses. On September 20, 2007, the court granted defendants’ motion to consolidate the two matters. On June 5, 2008, the court granted plaintiffs’ motion for appointment as lead counsel, and on July 3, 2008, plaintiffs filed a consolidated amended complaint. On September 9, 2008, plaintiffs moved for voluntary dismissal, and on September 16, 2008, the court entered an order approving the plaintiffs’ motion for voluntary dismissal.
Matter to which the Company is Not a Party
Jenoptik-Asyst Litigation
The Company acquired certain assets, including a transport system known as IridNet, from the Infab division of Jenoptik AG on September 30, 1999. Asyst Technologies, Inc. had previously filed suit against Jenoptik AG and other defendants, or collectively, the defendants, in the Northern District of California charging that products of the defendants, including IridNet, infringe Asyst’s U.S. Patent Nos. 4,974,166, or the ’166 patent, and 5,097,421, or the ’421 patent. Asyst later withdrew its claims related to the ’166 patent from the case. Summary judgment of noninfringement was granted in that case by the District Court and judgment was issued in favor of Jenoptik on the ground that the product at issue did not infringe the asserted claims of the ’421 patent. Following certain rulings and findings adverse to Jenoptik, on August 3, 2007 the District Court issued final judgment in favor of Jenoptik. Asyst appealed, and on October 10, 2008, the United States Court of Appeals for the Federal Circuit entered an order affirming the District Court’s final judgment in favor of Jenoptik.
The Company had received notice that Asyst might amend its complaint in this Jenoptik litigation to name Brooks as an additional defendant, but no such action was ever taken. Based on the Company’s investigation of Asyst’s allegations, the Company does not believe it is infringing any claims of Asyst’s patents. Asyst may decide to seek to prohibit the Company from developing, marketing and using the IridNet product without a license. The Company cannot guarantee that a license would be available to Brooks on reasonable terms, if at all. In any case, the Company could face litigation with Asyst. Jenoptik has agreed to indemnify the Company for any loss Brooks may incur in this action.
Litigation is inherently unpredictable and the Company cannot predict the outcome of the legal proceedings described above with any certainty. Should there be an adverse judgment against the Company, it may have a material adverse impact on its financial statements. Because of uncertainties related to both the amount and range of losses in the event of an unfavorable outcome in the lawsuits listed above or in certain other pending proceedings for which loss estimates have not been recorded, the Company is unable to make a reasonable estimate of the losses that could result from these matters and hence has recorded no accrual in its financial statements as of September 30, 2008.
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21.20. | Subsequent EventsDiscontinued Operations |
On November 3, 2006, the Company’s Board of Directors committed to a formal plan of disposal of its software division, Brooks Software and entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Applied Materials, Inc. (“Applied”), a Delaware corporation. Under the terms of the Purchase Agreement,March 30, 2007, the Company will divest and sellcompleted the sale of its software division, Brooks Software, to Applied Materials, Inc., a Delaware corporation (“Applied”) for $125 millioncash consideration and the assumption of certain liabilities related to Brooks Software. Brooks Software provided real-time applications for greater efficiency and productivity in cash consideration.collaborative, complex manufacturing environments. The Company will transfertransferred to Applied substantially all of its assets primarily related to Brooks Software, including the stock of several
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BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
subsidiaries engaged only in the business of Brooks Software, and Applied will assumeassumed certain liabilities related to Brooks Software.
The Company recorded a gain of $83.9 million in the second quarter of fiscal year 2007 on the sale of its discontinued software business. This gain reflects the proceeds of $132.5 million of cash consideration, offset by expenses of $7.7 million, a tax provision of $1.9 million, and the write-off of net assets totaling $39.0 million. In the second and fourth quarters of fiscal year 2008, the Company resolved certain contingencies which arose from the sale of its software division resulting in an additional gain of $0.7 million, net of tax of $0 during fiscal year 2008, and the receipt of $1.9 million of additional proceeds during fiscal year 2008.
The sale was consummated pursuant to the terms of an Asset Purchase Agreement dated as of November 3, 2006 by and between the Company and Applied. Applied is sellingamong the Company’s largest customers for tool automation products. Following a bidding process in which multiple possible purchasers participated, the purchase price for Brooks Software was determined by arm’s-length negotiations between the Company and Applied. The Company sold its software division in order to focus on its core semiconductor-related hardware businesses.
Effective October 1, 2006, the Company’s consolidated financial statements and notes have been reclassified to reflect this business as a discontinued operation in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”).
The Company expects to recognize a gain on disposalsummary of operating results from discontinued operations of the software division for the years ended September 30, 2008, 2007 and to reclassify this division2006 is as discontinued operations in fiscal 2007.follows (in thousands):
| | | | | | | | | | | | |
| | Year Ended September 30, | |
| | 2008 | | | 2007 | | | 2006 | |
|
Revenues | | $ | — | | | $ | 47,712 | | | $ | 85,376 | |
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Gross profit | | $ | — | | | $ | 34,048 | | | $ | 58,134 | |
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Income from discontinued operations before income taxes | | $ | — | | | $ | 12,578 | | | $ | 4,855 | |
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Income from discontinued operations, net of tax | | $ | — | | | $ | 13,273 | | | $ | 3,495 | |
| | | | | | | | | | | | |
CompletionThe income of $13.3 million for the transaction is subject to several conditions, including expiration or terminationyear ended September 30, 2007 includes the recognition of applicable waiting periods under theHart-Scott-Rodino Antitrust Improvements Act of 1976 and clearance under any applicable foreign antitrust laws, and other customary closing conditions. The Company expects to close the transaction during the second fiscal quarter of 2007.
Applied Materials purchases significant amounts of manufacturing equipmenta tax benefit resulting from the Company and is among Brooks’ largest customers for such products.reversal of tax reserves due to an audit settlement of $2.1 million.
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Item 9. | Changes In and Disagreements With Accountants on Financial Accounting and Financial Disclosure |
Not applicable.
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Item 9A. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined underRule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported on a timely basis and that such information is accumulated and communicated to management, including the chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon this evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined inRules 13a-15(f) and15d-15(f) under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of our chief executive and chief financial officers and effected by our board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
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| • | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of our assets; |
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| • | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and |
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| • | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an assessment of the effectiveness of our internal control over financial reporting as of September 30, 2006.2008. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) anInternal Control-Integrated Framework.Based on our assessment, we concluded that, as of September 30, 2006,2008, our internal control over financial reporting was effective.
Management has excludedThe effectiveness of the operations of Helix Technology Corporation (“Helix”) and Synetics Solutions Inc. (“Synetics”) from its assessment ofCompany’s internal control over financial reporting as of September 30, 2006 because those entities were acquired by the Company in purchase business combinations during fiscal 2006. The total assets and total revenues of the acquired businesses of Helix and Synetics represent 18% and 30%, respectively, of the related consolidated financial statement amounts as of and for the year ended September 30, 2006.
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Our management’s assessment of the effectiveness of our internal control over financial reporting as of September 30, 2006,2008 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included in Item 8 of this report.appears herein.
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Changes in Internal Control Over Financial Reporting
There were no changes in internal control over financial reporting during the fiscal fourth quarter ended September 30, 2006,2008, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Item 9B. | Other Information |
On December 8, 2006, we entered into an employment agreement with Robert W. Woodbury, Jr., our Senior Vice President and Chief Financial Officer, that replaces Mr. Woodbury’s former employment agreement. The agreement provides for, among other things, an annual base salary of $305,000 and an annual management bonus of 0% to 150% of 70% of base salary. The agreement also provides that Mr. Woodbury will be entitled to severance, including one year’s base salary and continued participation in benefit plans, if he is terminated without “cause” or if he resigns for “good reason.” Cause is defined to include willful failure or refusal to perform the duties pertaining to his job, engagement in conduct that is fraudulent, dishonest, unlawful or otherwise in violation of our standards of conduct or a material breach of the employment agreement or related agreements. Good reason is defined to include diminution of Mr. Woodbury’s responsibility or position, our breach of the agreement or relocation of Mr. Woodbury. Payment of base salary and continued participation in benefit plans may be extended for up to one additional year if Mr. Woodbury is engaged in an ongoing search for replacement employment.Not applicable.
PART III
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Item 10. | Directors and Executive Officers of the Registrant |
The information required by this Item 10 is hereby incorporated by reference to the Company’sBrooks’ definitive proxy statement to be filed by the Company within 120 days after the close of its fiscal year.
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Item 11. | Executive Compensation |
The information required by this Item 11 is hereby incorporated by reference to the Company’sBrooks’ definitive proxy statement to be filed by the Company within 120 days after the close of its fiscal year.
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Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The information required by this Item 12 is hereby incorporated by reference to the Company’sBrooks’ definitive proxy statement to be filed by the Company within 120 days after the close of its fiscal year.
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Item 13. | Certain Relationships and Related Transactions |
The information required by this Item 13 is hereby incorporated by reference to the Company’sBrooks’ definitive proxy statement to be filed by the Company within 120 days after the close of its fiscal year.
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Item 14. | Principal Accountant Fees and Services |
The information required by this Item 14 is hereby incorporated by reference to the Company’sBrooks’ definitive proxy statement to be filed by the Company within 120 days after the close of its fiscal year.
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