10-K 1 brks10-k2014.htm 10-K BRKS 10-K 2014
 
 UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
  
 
þ
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For fiscal year ended September 30, 2014
 
 
or
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from                 to                 .
Commission File Number: 0-25434
Brooks Automation, Inc.
(Exact name of Registrant as Specified in Its Charter)
Delaware
  
04-3040660
(State or Other Jurisdiction of
Incorporation or Organization)
  
(I.R.S. Employer
Identification No.)
 
 
15 Elizabeth Drive
Chelmsford, Massachusetts
(Address of Principal Executive Offices)
  
01824
(Zip Code)
978-262-2400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Each Exchange on Which Registered
Common Stock, $0.01 par value
 
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨       No  þ
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes   ¨         No   þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   þ         No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   þ         No   ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K.     þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
 
 
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).    Yes  ¨         No  þ
The aggregate market value of the registrant's Common Stock, $0.01 par value, held by non-affiliates of the registrant as of March 31, 2014, was approximately $706,764,000 based on the closing price per share of $10.93 on that date on the Nasdaq Stock Market. As of March 31, 2014, 66,806,263 shares of the registrant's Common Stock, $0.01 par value, were outstanding. As of November 5, 2014, 66,927,388 shares of the registrant's Common Stock, $0.01, par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement involving the election of directors, which is expected to be filed within 120 days after the end of the registrant's fiscal year, are incorporated by reference in Part III of this Report.



BROOKS AUTOMATION, INC.
TABLE OF CONTENTS
 
 
PAGE NUMBER
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.

 



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PART I
Item 1.
Business
We are a leading worldwide provider of automation and cryogenic solutions for multiple markets including semiconductor manufacturing and life sciences. Our technologies, engineering competencies and global service capabilities provide customers speed to market and ensure high uptime and rapid response, which equate to superior value in our customers' mission-critical controlled environments. Since 1978, we have been a leading partner to the global semiconductor manufacturing markets and through product development initiatives and strategic business acquisitions we have expanded our products and services to meet the needs of customers in technology markets adjacent to semiconductor manufacturing and life sciences. We are headquartered in Chelmsford, Massachusetts and have full service operations in North America, Europe and Asia.
Our company initially developed and marketed automated handling equipment for front-end semiconductor manufacturing tools and became a publicly traded company in February 1995. Through both internal product development and business acquisitions we became the leading provider of these automation solutions in this market. Since that time, we have expanded both the markets we serve as well as our core product capabilities. A notable step in our expansion was the acquisition of Helix Technology Corporation in 2005, which provided us with leading technology solutions in vacuum equipment and allowed us to serve a broader set of markets. In 2011, we divested our contract manufacturing business to better focus on our core technology solutions.
In 2011, we identified life sciences as an underserved strategic market where our core competencies in automation and cryogenic solutions could provide enabling products and services to the market and favorable opportunities for growth of our business. Since 2011, we have made several strategic acquisitions to penetrate the automated sample storage system market, and we now are a leading worldwide provider of these solutions. In addition to automated sample management, our life sciences business offers related services, along with consumables and complementary bench-top instruments.
In addition to the acquisitions made to expand the non-semiconductor portions of our business, we have continued to make investments to maintain and grow our semiconductor product and service offerings. In 2012, we acquired Crossing Automation Inc., a Fremont, CA-based provider of automation solutions for the global semiconductor front-end market. In April 2014, we acquired Dynamic Micro Systems Semiconductor Equipment GmbH, or DMS, a German provider of automated contamination control solutions for front opening unified pod, or "FOUP," carriers and reticle storage.
In March 2014, we entered into an agreement to sell the Granville-Phillips Gas Analysis & Vacuum Measurement, or Granville-Phillips, business unit to MKS Instruments, Inc. for $87.0 million in cash and we completed this sale in May 2014. Unless otherwise noted, the description of our business relates solely to our continuing operations and does not include the operations of our former Granville-Phillips business unit.
We expect to continue our internal development efforts and seek acquisitions where we can expand or enhance our product and service offerings.
Markets
Our fiscal years 2014, 2013 and 2012 percentage of revenue by end market was as follows:
 
2014
 
2013
 
2012
Semiconductor capital equipment
46
%
 
46
%
 
51
%
Service and spares
19
%
 
21
%
 
17
%
Industrial capital equipment
11
%
 
12
%
 
11
%
Other adjacent technology markets
11
%
 
11
%
 
10
%
Life sciences
13
%
 
10
%
 
11
%
 
100
%
 
100
%
 
100
%
The proportion of our revenue by end market is changing as a result of our internal product and sales initiatives, our acquisitions and divestitures and the cyclical nature of the semiconductor capital equipment market. Over time, we expect the percentage of revenue from our life science business to increase given its higher expected growth rate. Changes from year to year, however, will depend on a variety of factors, including the cyclicality of the semiconductor market.
Semiconductor capital equipment
The global semiconductor capital equipment industry is cyclical with a long term growth profile driven by the expanded use of semiconductor devices and the increase in device complexity, each necessitating incremental equipment purchases by manufacturers. This growth is increasingly focused in Asia. The production of advanced semiconductor chips is a complex and logistically challenging manufacturing activity. To create the tens of millions of microscopic transistors and connect them both


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horizontally and in vertical layers in order to produce a functioning integrated circuit chip, or IC chip, silicon wafers must go through hundreds of process steps performed by complex processing equipment, or tools. A large production fabrication plant, or fab, may have more than 70 different types of process and metrology tools, totaling as many as 500 tools or more. Up to 40% of these tools perform processes in a vacuum, such as removing, depositing, or measuring material on wafer surfaces. Wafers can go through as many as 400 different process steps before fabrication is complete. These steps, which comprise the initial fabrication of the integrated circuit and are referred to in the industry as front-end processes, are repeated many times to create the desired pattern on the silicon wafer. As the complexity of semiconductors continues to increase, the number of process steps that occur in a vacuum environment have also increased, resulting in a greater need for both automation and vacuum technology solutions due to the sensitive handling requirements and increased number of tools. The requirement for efficient, higher throughput and extremely clean manufacturing for semiconductor wafer fabs and other high performance electronic-based products has created a substantial market for substrate handling automation (moving the wafers around and between tools in a semiconductor fab), tool automation (the use of robots and modules used in conjunction with and inside process tools that move wafers from station-to-station), and vacuum systems technology to create and sustain the clean environment necessary to fabricate various products. The use of advanced processing to form three dimensional structures of the previously patterned integrated circuits is emerging in the industry. This processing, often referred to as Wafer Level Packaging, or WLP, is typically performed at what would be considered the back-end processing of an IC chip. Some traditional front-end processes are being used in this back-end advance packaging, thereby increasing the market for automation solutions.
Service and spares
Whereas sales for production equipment are typically made to original equipment manufacturers (“OEMs”), the service and spares support of that equipment can be provided in collaboration with the OEMs, or through a relationship with the end-user manufacturer who is using that equipment in a productive capacity. While the majority of the market that we currently address with our service and spares activities is the semiconductor manufacturing market, we are actively looking to increase our service and spares offerings in the life science market.
Industrial capital equipment
In addition to semiconductor manufacturing, there are a variety of industrial manufacturing operations that require either a vacuum or significant cooling for effective deposition of films or coatings during the production process. The expansion of the use of mobile devices such as smart phones, tablets, and wearable technologies, and the resulting increase in the need for associated manufacturing equipment continues to drive demand for the use of vacuum solutions we provide. These deposition processes are typically performed on equipment that cycle from an uncontrolled atmospheric environment for loading and unloading to a controlled vacuum environment for processing. The transition to the controlled vacuum environment requires removal of large amounts of moisture inherent in the air by deep cooling of coils within the vacuum chamber. The increased need for the equipment necessary to deliver refrigerant to these coils has resulted in increased demand for our products.
Other adjacent technology markets
There are a variety of markets that have adopted, or are adopting, similar manufacturing methods to those utilized by the semiconductor industry. Frequently, these markets have common customers but technology applications in the end markets are still maturing. We serve a variety of these evolving markets including light emitting diode, or LED, applications. High Brightness LED, or HBLED, is a potential clean energy solution replacing incandescent lighting sources. We believe that the application of HBLED solutions will expand as manufacturing processes for these products advance, resulting in lower costs of production and more attractive pricing for these products. Organic LED, or OLED, solutions provide lower power consumption for high clarity still and video images. OLED applications are gaining traction in the mobile computing and telecommunications device markets. Other evolving markets which utilize our products include Micro-Electro-Mechanical Systems, or MEMS, manufacturing and solar panel manufacturing. MEMS applications, which include accelerometers, self tuning antennae and pressure gauges, are expanding in automotive, mobile computing and telecommunications device markets. We believe that solar panel production is also expanding, and our products are used in the production of thin film solar panels which require cooling to effectuate deposition and adhesion of the film on and to the panel.
Life Sciences
There is a broad market of devices, systems and consumables that support the pharmaceutical, biotechnology, healthcare research and diagnostics industries in the advanced handling, processing, storage and distribution of biological and compound samples. At the core of these activities is sample storage. Automated sample stores are generally more effective in maintaining a controlled environment, tracking samples, reliably processing and quickly handling samples, than are manual systems. These automated sample storage management systems are at the center of the complete sample handling process. With the advent of personalized medicine linking DNA to optimal treatment regimens, the expansion of mass storage of key biological material to support rapidly expanding comparative and longitudinal studies, and the accumulation of samples taken from surgical and other


4


procedures, we believe that the numbers of samples in storage is expanding between 25 and 30% per annum on a global basis. We believe that this expansion, together with the problems associated with traditional manual storage systems, will drive consistent growth in automated sample management equipment.
Products
In the semiconductor industry, wafer handling robotics have emerged as a critical technology in determining the efficacy and productivity of complex production tools in the world's most advanced 300mm wafer fabs. A tool is designed and built around a process chamber using automation technology to move wafers into and out of the chamber. Today, OEMs design and build their tools using a cluster architecture, whereby several process chambers are mounted to one central transfer module. High wafer throughput and new materials require advanced automation solutions to address the challenging equipment needs for multiple substrate sizes, including the emerging sub 20nm technology nodes, Thru Silicon Via, EUV Lithography and 450mm substrates. We specialize in developing and building the handling systems, as well as the vacuum technologies used in these tools. Our products can be utilized as individual components or as complete integrated handling systems. In addition, our automation products support both atmospheric and vacuum based processes and are designed to improve performance and productivity of the manufacturing process. The majority of our product revenue is derived from sales to OEMs and end-user semiconductor device manufacturers.
We provide high vacuum pumps which are required in certain process steps to create and to optimize the process environment by maintaining pressure consistency of the known process gas. To achieve optimal production yields, semiconductor manufacturers must ensure that each process operates at carefully controlled pressure levels. Impurities or incorrect pressure levels can lower production yields, thereby significantly increasing the cost per usable IC chip produced. Some key vacuum processes include: dry etching and dry stripping, chemical vapor deposition, or CVD, physical vapor deposition, or PVD, and ion implantation. Our cryogenic vacuum pumps are considered the industry standard by many leading semiconductor device manufacturers for ion implant and PVD applications.
In the HBLED market we have worked with leading manufacturers to develop advanced automation solutions that improve the productivity of processes that were previously manual. These LEDs are also made using vacuum processes for certain production steps, very similar to the steps used in semiconductor manufacturing. We have been successful in capturing LED market share for our vacuum product offerings and for high payload automated tool architectures. In other markets, such as MEMS and WLP applications, unique wafer handling and automation solutions are required to accommodate increasingly thinner and sometimes bowed substrates. We are developing differentiated solutions to address the requirements in these high growth market segments.
For the life science markets we provide automated sample management platforms that store samples (e.g., nucleic acid, blood, drug compounds, biological tissue, etc.) in a controlled environment and automate the process (vials are typically stored in racks or plates) of subsequently retrieving specifically selected samples from those racks or plates. The controlled storage environments ensure that samples are preserved within a narrow temperature band to maintain their integrity for long periods while providing absolute accuracy in the identification and selection of samples during the storage and retrieval processes.
In providing comprehensive solutions to the life science markets we also provide equipment for sealing and de-sealing samples stored on plates and automated cappers and de-cappers for samples stored in tubes. We also provide consumables in the form of sample plates, micro-plates and tubes and support services for many of the customers who have purchased our equipment.
Segments
We report financial results in three segments: Brooks Product Solutions; Brooks Global Services; and Brooks Life Science Systems.
The Brooks Product Solutions segment provides a variety of products and solutions that enable improved throughput and yield in controlled operating environments. Those products include atmospheric and vacuum robots, robotic modules, and tool automation systems that provide precision handling and clean wafer environments as well as vacuum pumping and thermal management solutions used to create and control critical process vacuum applications.
The Brooks Global Services segment provides an extensive range of support services, including repair services, diagnostic support services, and installation services in support of the base equipment installed by our Brooks Product Solutions segment, which enable our customers to maximize process tool uptime and productivity. This segment also provides end-user customers with spare parts to maximize customer tool productivity.
The Brooks Life Science Systems segment provides automated sample management systems for automated cold sample storage, equipment for sample preparation and handling, consumables, and parts and support services to a wide range of life science customers including pharmaceutical companies, biotechnology companies, national laboratories, research institutes and research hospitals.


5


Customers
Within the semiconductor industry, we sell our products and services to most of the major semiconductor chip manufacturers and semiconductor equipment OEMs in the world. Our customers outside the semiconductor industry are broadly diversified. We have major customers in North America, Europe and Asia. Additionally, although much of our equipment sales ship to OEMs in the United States, many of our products are incorporated into equipment that is ultimately utilized outside of North America. See Part I, Item 1A, “Risk Factors” for a discussion of the risks related to foreign operations. The Brooks Global Services business provides support to leading OEMs, fabs and foundries across the globe.
 
Our life sciences systems solutions are used by pharmaceutical companies, biotechnology companies, national laboratories, research institutes and research hospitals. There is no continuing concentration of customers for the Brooks Life Science Systems segment although given the size of particular projects, an individual customer may be significant to the life science segment in a given quarter or fiscal year.
Relatively few customers account for a substantial portion of our revenue, with the top 10 customers accounting for approximately 37% of our business in fiscal year 2014. We have one customer, Applied Materials, Inc., that accounted for 11% of our overall revenue for the year.
For purposes of determining the percentage of revenue from any OEM customer, we do not include revenue from products sold to a contract manufacturer customer which in turn sells to the OEM. If we did include revenue from products sold to contract manufacturer customers supporting our OEM customers, the percentage of our total revenue derived from certain OEM customers would be higher.
Sales, Marketing and Customer Support
We market and sell most of our semiconductor, industrial and other adjacent technology market products and services in Asia, Europe, the Middle East and North America through our direct sales organization. The sales process for our products is often multilevel, involving a team comprised of individuals from sales, marketing, engineering, operations and senior management. In many cases we assign a team to a customer and that team engages the customer at different levels of its organization to facilitate planning, provide product customization when required, and ensure open communication and support. Some of our vacuum products and services are sold through local country distributors. Additionally, we serve the Japanese market for our robotics and automation products through Yaskawa Brooks Automation, our joint venture with Yaskawa Electric Corporation of Japan.
Much of our life sciences sales are completed through our direct Brooks Life Science Systems sales force, particularly our store systems and services. In addition, we facilitate the sale of consumables and instruments with distributors which reach a broader range of customers. In regions with emerging life science industries such as China, India and the Middle East, we leverage local distributors to assist in the sales process of stores. The sales process for our larger sample management systems may take 6-18 months to complete and it involves a team typically comprised of individuals from sales, marketing, engineering and senior management.
We typically provide warranties from one to two years, depending upon the type of product, with the average warranty on our products lasting for 15 months.
Our marketing activities include participation in trade shows, delivery of seminars, participation in industry forums, distribution of sales literature, publication of press releases and articles in business and industry publications. To enhance communication and support, particularly with our international customers, we maintain sales and service centers in Asia, Europe, the Middle East and North America. These facilities, together with our headquarters, maintain local support capabilities and demonstration equipment for customers to evaluate. Customers are encouraged to discuss features and applications of our demonstration equipment with our engineers located at these facilities.
Net revenue for the fiscal years ended September 30, 2014, 2013 and 2012 based upon the source of the order by geographic area is as follows (in thousands):
 
 
Year Ended September 30,
 
2014
 
2013
 
2012
North America
$
174,343

 
$
177,779

 
$
214,060

Asia/Pacific
198,695

 
154,358

 
183,406

Europe
109,810

 
90,303

 
91,517

 
$
482,848

 
$
422,440

 
$
488,983

The geographic location of an OEM is not indicative of where our products will eventually be used. The geographic area for our orders is determined by the onward sale of an OEM system which incorporates our sub-systems and/or components.


6


Our property, plant and equipment as of September 30, 2014 and 2013 by geographic area is as follows (in thousands):
 
 
September 30,
 
2014
 
2013
North America
$
40,232

 
$
38,505

Asia/Pacific
870

 
1,646

Europe/Middle East
9,081

 
7,355

 
$
50,183

 
$
47,506

Competition
We operate in a variety of niches of varying breadth and with differing competitors and competitive dynamics. The semiconductor and adjacent technology markets, and process equipment manufacturing industries are highly competitive and characterized by continual changes and improvements in technology. A significant portion of equipment automation is still done in-house by OEMs. Our competitors among external vacuum automation suppliers are primarily Japanese companies such as Daihen Corporation, Daikin Industries, Ltd. and Rorze Corporation. Our competitors among vacuum components suppliers include Sumitomo Heavy Industries and Telemark, Inc. Atmospheric tool automation is typically less demanding, has fewer barriers to entry and has a larger field of competitors. We compete directly with other equipment automation suppliers of atmospheric modules and systems such as Hirata Corporation, Kawasaki Heavy Industries, Ltd., Genmark Automation, Inc., Rorze Corporation, Sankyo Seisakusho Co., Ltd., TDK Corporation and Sinfonia Technology Co., Ltd. Contract manufacturers such as Celestica Inc. and Flextronics International Ltd. also provide assembly and manufacturing services for atmospheric systems.
Our Life Science Systems business unit competes with a number of private companies in providing automated sample management systems. These competitors include Hamilton Company, Liconic AG and TTP LabTech, Ltd.
We believe our customers will purchase our equipment automation products and vacuum subsystems as long as our products continue to provide the necessary throughput, reliability, contamination control and accuracy at an acceptable price. We believe that we have competitive offerings with respect to all of these factors. We cannot guarantee, however, that we will be successful in selling our products to OEMs who currently satisfy a portion of their automation needs in-house or from other independent suppliers, regardless of the performance or price of our products.
Research and Development
Our research and development efforts are focused on developing new products and also enhancing the functionality, degree of integration, reliability and performance of our existing products. Our engineering, marketing, operations and management personnel leverage their close collaborative relationships with many of their counterparts in customer organizations in an effort to proactively identify market demands which helps us refocus our research and development investment to meet our customers' demands. With the rapid pace of change that characterizes the markets we serve, it is essential for us to provide high-performance and reliable products in order for us to maintain our leadership position.
Our research and development spending for fiscal years 2014, 2013 and 2012 was $52.6 million, $46.2 million and $44.7 million, respectively. The expansion in research and development spending primarily reflects our investment in life sciences as we have developed the Twinbank platform and continue to develop automated bio-sample storage solutions for environments operating at ultra-low temperatures.
Manufacturing
Our manufacturing operations are used for product assembly, integration and testing. We have implemented quality assurance procedures that include standard design practices including reliability testing and analysis, supplier and component selection procedures, vendor controls, manufacturing process controls, and service processes that ensure high-quality performance of our products. Our major manufacturing facilities are located in Chelmsford, Massachusetts; Poway, California; Spokane, Washington; Monterrey, Mexico; Yongin-City, South Korea; Manchester, UK; and Jena, Germany. We also provide service and spare parts support to end-users throughout the world. Many of our service customers are based outside of the United States, with many in Asia. We have service and support locations close to these customers to provide rapid response to their service needs. We have service and support locations in Chelmsford, Massachusetts; Poway, California; Fremont, California; Spokane, Washington; Chu Bei City, Taiwan; Yongin-City, South Korea; Yokohama, Japan; Shanghai, China; Singapore; Jena, Germany; Oberdiessbach, Switzerland; Manchester, UK; and Kiryat-Gat, Israel.
Our manufacturing operations are designed to provide high quality, low cost, differentiated products to our customers in short lead times through responsive and flexible processes and sourcing strategies. We utilize lean manufacturing techniques for a large portion of our manufacturing capabilities. This includes the outsourcing of assemblies and products to competitive regions, including Asia. We expect to continue to broaden our sourcing of certain portions of our manufacturing process to


7


ensure we continue to provide high quality products at competitive costs. We also believe the continued sourcing of portions of our manufacturing processes in these regions allows us to better serve our customers in these regions. 
Patents and Proprietary Rights
We rely on patents, trade secret laws, confidentiality procedures, copyrights, trademarks and licensing agreements to protect our technology. Due to the rapid technological change that characterizes the life sciences, semiconductor, adjacent technology markets and related process equipment industries, we believe that the improvement of existing technology, reliance upon trade secrets and unpatented proprietary know-how and the development of new products may be as important as patent protection in establishing and maintaining a competitive advantage. To protect trade secrets and know-how, it is our policy to require all employees to enter into proprietary information and nondisclosure agreements. We cannot guarantee that these efforts will meaningfully protect our trade secrets.
As of September 30, 2014, we owned approximately 480 issued U.S. patents, with various corresponding patents issued in foreign jurisdictions. We also had approximately 140 pending U.S. patent applications, with foreign counterparts of certain of these applications having been filed or may be filed at the appropriate time. Our patents will expire at various dates through 2032.
Backlog
Total backlog for our products as of September 30, 2014, totaled $126.9 million as compared to $107.2 million at September 30, 2013. Backlog or total backlog, includes all purchase orders for which a customer has scheduled delivery, regardless of the expected delivery date, and consists principally of orders for products and service agreements. The backlog for our products within the next 12 months was $113.6 million and $104.9 million at September 30, 2014 and 2013, respectively. Twelve-month backlog includes orders scheduled to be delivered within the next 12 months. Backlog for products with scheduled deliveries beyond one year relate primarily to our life science products.
Backlog as of any particular date should not be relied upon as indicative of our revenue for any future period. A substantial percentage of current business generates no backlog because we deliver our products and services in the same period in which the order is received. The orders included in our backlog may also be canceled or rescheduled by customers without significant penalty. 
Environmental Matters
We are subject to federal, state, and local environmental laws and regulations, as well as the environmental laws and regulations of the foreign national and local jurisdictions in which we have manufacturing facilities. We believe we are in material compliance with all such laws and regulations.
Compliance with foreign, federal, state, and local laws and regulations has not had, and is not expected to have, an adverse effect on our capital expenditures, competitive position, financial condition or results of operations.
Employees
At September 30, 2014, we had 1,455 full time employees. In addition, we employ part time workers and contractors. Approximately 45 employees in our facility in Jena, Germany are covered by a collective bargaining agreement. We consider our relationships with these and all employees to be good.
Available Information
We file annual, quarterly, and current reports, proxy statements, and other documents with the Securities and Exchange Commission, or SEC, under the Securities Exchange Act of 1934, as amended, or the Exchange Act. The public may read and copy any materials that we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers, including Brooks Automation, Inc., that file electronically with the SEC. The public can obtain any documents that we file with the SEC at www.sec.gov.
Our internet website address is http://www.brooks.com. Through our website, we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after such materials are electronically filed, or furnished to, the SEC. These SEC reports can be accessed through the investors section of our website. The information found on our website is not part of this or any other report we file with or furnish to the SEC.


8


Item 1A.
Risk Factors
Factors That May Affect Future Results
You should carefully consider the risks described below and the other information in this report before deciding to invest in shares of our common stock. These are the risks and uncertainties we believe are most important for you to consider. Additional risks and uncertainties not presently known to us, which we currently deem immaterial or which are similar to those faced by other companies in our industry or business in general, may also impair our business operations. If any of the following risks or uncertainties actually occurs, our business, financial condition and operating results would likely suffer. In that event, the market price of our common stock could decline and you could lose all or part of your investment.
Risks Relating to Our Industry
Due in part to the cyclical nature of the semiconductor manufacturing industry and related industries, as well as due to volatility in worldwide capital and equity markets, we have previously incurred operating losses and may have future losses.
Our business is largely dependent on capital expenditures in the semiconductor manufacturing industry and other businesses employing similar manufacturing technologies. The semiconductor manufacturing industry in turn depends on current and anticipated demand for integrated circuits and the products that use them. In recent years, these businesses have experienced unpredictable and volatile business cycles due in large part to rapid changes in demand and manufacturing capacity for semiconductors, and these cycles have had an impact on our business, sometimes causing declining revenue and operating losses. We could experience future operating losses during an industry downturn. If an industry downturn continues for an extended period of time, our business could be materially harmed. Conversely, in periods of rapidly increasing demand, we could have insufficient inventory and manufacturing capacity to meet our customers' needs on a timely basis, which could result in the loss of customers and various other expenses that could reduce gross margins and profitability.
We face competition which may lead to price pressure and otherwise adversely affect our sales.
We face competition throughout the world in each of our product and service areas, including from the competitors discussed in Part I, Item 1, “Business - Competition” as well as from internal automation capabilities at larger OEMs. Many of our competitors have substantial engineering, manufacturing, marketing and customer support capabilities. We expect our competitors to continue to improve the performance of their current products and services and to introduce new products, services and technologies that could adversely affect sales of our current and future products and services. New products, services and technologies developed by our competitors or more efficient production of their products or provisions of their services could require us to make significant price reductions or decide not to compete for certain orders. If we fail to respond adequately to pricing pressures or fail to develop products with improved performance or developments or better quality services with respect to the other factors on which we compete, we could lose customers or orders. If we are unable to compete effectively, our business and prospects could be materially harmed.
Risks Relating to Our Operations
Our operating results could fluctuate significantly, which could negatively impact our business.
Our revenue, operating margins and other operating results could fluctuate significantly from quarter to quarter depending upon a variety of factors, including:
demand for our products as a result of the cyclical nature of the semiconductor manufacturing industry and the markets upon which the industry depends or otherwise;
changes in the timing and terms of product orders by our customers as a result of our customer concentration or otherwise;
changes in the mix of products and services that we offer;
changes in the demand for the mix of products and services that we offer;
timing and market acceptance of our new product and services introductions;
delays or problems in the planned introduction of new products or service, or in the performance of any such products following delivery to customers or the quality of such services;
new products, services or technological innovations by our competitors, which can, among other things, render our products less competitive due to the rapid technological changes in the markets in which we provide products and services;
the timing and related costs of any acquisitions, divestitures or other strategic transactions;


9


our ability to reduce our costs in response to decreased demand for our products and services;
our ability to accurately estimate customer demand, including the accuracy of demand forecasts used by us;
disruptions in our manufacturing process or in the supply of components to us;
write-offs for excess or obsolete inventory; and
competitive pricing pressures.
As a result of these risks, we believe that quarter-to-quarter comparisons of our revenue and operating results may not be meaningful, and that these comparisons may not be an accurate indicator of our future performance.
If we do not continue to introduce new products and services that reflect advances in technology in a timely and effective manner, our products and services may become obsolete and our operating results will suffer.
Our success is dependent on our ability to respond to the technological change present in the markets we serve. The success of our product development and introduction depends on our ability to:
accurately identify and define new market opportunities, products and services;
obtain market acceptance of our products and services;
timely innovate, develop and commercialize new technologies and applications;
adjust to changing market conditions;
differentiate our offerings from our competitors' offerings;
obtain and maintain intellectual property rights where necessary;
continue to develop a comprehensive, integrated product and service strategy;
properly price our products and services; and
design our products to high standards of manufacturability so that they meet customer requirements.
If we cannot succeed in responding in a timely manner to technological and/or market changes or if the new products and services that we introduce do not achieve market acceptance, our competitive position would diminish which could materially harm our business and our prospects.
The global nature of our business exposes us to multiple risks.
For the fiscal years ended September 30, 2014 and 2013, approximately 64% and 58%, respectively, of our revenue was derived from sales outside North America. We expect that international sales, including increased sales in Asia, will continue to account for a significant portion of our revenue. We maintain a global footprint of sales, service and repair operations. As a result of our international operations, we are exposed to many risks and uncertainties, including:
longer sales-cycles and time to collection;
tariff and international trade barriers;
fewer or less certain legal protections for intellectual property and contract rights abroad;
different and changing legal and regulatory requirements in the jurisdictions in which we operate;
government currency control and restrictions on repatriation of earnings;
fluctuations in foreign currency exchange and interest rates, particularly in Asia and Europe; and
political and economic instability, changes, hostilities and other disruptions in regions where we operate.
Negative developments in any of these areas in one or more countries could result in a reduction in demand for our products, the cancellation or delay of orders already placed, threats to our intellectual property, difficulty in collecting receivables, and a higher cost of doing business, any of which could materially harm our business and profitability.
Our business could be materially harmed if we fail to adequately integrate the operations of the businesses that we have acquired or may acquire.
We have made in the past, and may make in the future, acquisitions or significant investments in businesses with complementary products, services and/or technologies. Our acquisitions present numerous risks, including:
difficulties in integrating the operations, technologies, products and personnel of the acquired companies and realizing the anticipated synergies of the combined businesses;
defining and executing a comprehensive product strategy;
managing the risks of entering markets or types of businesses in which we have limited or no direct experience;


10


the potential loss of key employees, customers and strategic partners of ours or of acquired companies;
unanticipated problems or latent liabilities, such as problems with the quality of the installed base of the target company's products or infringement of another company's intellectual property by a target company's activities or products;
problems associated with compliance with the acquired company's existing contracts;
difficulties in managing geographically dispersed operations; and
the diversion of management's attention from normal daily operations of the business.
If we acquire a new business, we may be required to expend significant funds, incur additional debt or issue additional securities, which may negatively affect our operations and be dilutive to our stockholders. In periods following an acquisition, we will be required to evaluate goodwill and acquisition-related intangible assets for impairment. When such assets are found to be impaired, they will be written down to estimated fair value, with a charge against earnings. The failure to adequately address these risks or the impairment of any assets could materially harm our business and financial results.
Entering new markets introduces new competitors and commercial risks.
A key part of our growth strategy is to continue expanding beyond the semiconductor manufacturing market into semiconductor adjacent and life sciences markets. As part of this strategy, we expect to diversify our product sales and service revenue by leveraging our core technologies, which requires investments and resources which may not be available as needed. We cannot guarantee that we will be successful in leveraging our capabilities into the life sciences market to meet all the needs of these new customers and to compete favorably. Because a significant portion of our growth potential may be dependent on our ability to increase sales to markets beyond semiconductor manufacturing, our inability to successfully enter new markets may adversely impact future financial results.
Changes in key personnel could impair our ability to execute our business strategy.
The continuing service of our executive officers and essential engineering, technical and management personnel, together with our ability to attract and retain such personnel, is an important factor in our continuing ability to execute our strategy. There is substantial competition to attract such employees and the loss of any such key employees could have a material adverse effect on our business and operating results. The same could be true if we were to experience a high turnover rate among engineering and technical personnel and we were unable to replace them.
Our failure to protect our intellectual property could adversely affect our future operations.
Our ability to compete is significantly affected by our ability to protect our intellectual property. We rely upon patents, trade secret laws, confidentiality procedures, copyrights, trademarks and licensing agreements to protect our technology. Existing trade secret, trademark and copyright laws offer only limited protection. Our success depends in part on our ability to obtain and enforce patent protection for our products both in the United States and in other countries. We own numerous U.S. and foreign patents, and we intend to file additional applications, as appropriate, for patents covering our products and technology. Any issued patents owned by or licensed to us may be challenged, invalidated or circumvented, and the rights under these patents may not provide us with competitive advantages. In addition, the laws of some countries in which our products are or may be developed, manufactured or sold may not fully protect our products. Due to the rapid technological change that characterizes the semiconductor and adjacent technology markets, we believe that the improvement of existing technology, reliance upon trade secrets and unpatented proprietary know-how and the development of new products may be as important as patent protection in establishing and maintaining competitive advantage. To protect trade secrets and know-how, it is our policy to require all technical and management personnel to enter into nondisclosure agreements.
We cannot guarantee that the steps we have taken to protect our intellectual property will be adequate to prevent the misappropriation of our technology. Other companies could independently develop similar or superior technology without violating our intellectual property rights. In the future, it may be necessary to engage in litigation or like activities to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of proprietary rights of others, including our customers. This could require us to incur significant expenses and to divert the efforts and attention of our management and technical personnel from our business operations.
The expiration of our patents over time could lead to an increase of competition and a decline in our revenue.
One of our main competitive strengths is our technology and we are dependent on our patent rights and other intellectual property rights to maintain our competitive position. While our current patents will expire from time to time through 2032, certain significant patents will expire within two years, including a patent related to technology in one of our core automation products expiring in 2015 and patents which we license to third parties in exchange for agreed upon royalties expiring in 2016. In addition to the loss of revenue from royalties, the expiration of patents could result in increased competition and declines in product and service revenue.


11


We may be subject to claims of infringement of third-party intellectual property rights, or demands that we license third-party technology, which could result in significant expense and prevent us from using our technology.
There has been substantial litigation regarding patent and other intellectual property rights in the semiconductor-related industries. We have in the past been, and may in the future be, notified that we may be infringing intellectual property rights possessed by third parties. We cannot guarantee that infringement claims by third parties or other claims for indemnification by customers or end-users of our products resulting from infringement claims will not be asserted in the future or that such assertions, whether or not proven to be true, will not materially and adversely affect our business, financial condition and results of operations.
We cannot predict the extent to which we might be required to seek licenses or alter our products so that they no longer infringe the rights of others. We also cannot guarantee that licenses will be available or the terms of any licenses we may be required to obtain will be reasonable. Similarly, changing our products or processes to avoid infringing the rights of others may be costly or impractical and could detract from the value of our products. If a judgment of infringement were obtained against us, we could be required to pay substantial damages and a court could issue an order preventing us from selling one or more of our products. Further, the cost and diversion of management attention brought about by such litigation could be substantial, even if we were to prevail. Any of these events could result in significant expense to us and may materially harm our business and our prospects.
If our manufacturing sites were to experience a significant disruption in operations, our business could be materially harmed, while the failure to estimate customer demand accurately could result in excess or obsolete inventory.
We have a limited number of manufacturing facilities for our products and we have moved portions of our manufacturing to third parties, including some in lesser developed countries. If the operations at any one of these facilities were disrupted as a result of a natural disaster, fire, power or other utility outage, work stoppage or other similar event, our business could be seriously harmed because we may be unable to manufacture and ship products and parts to our customers in a timely fashion. The impact of any disruption at one of our facilities may be exacerbated if the disruption occurs at a time when we need to rapidly increase our manufacturing capabilities to meet increased demand or expedited shipment schedules.
Moreover, if actual demand for our products is different than expected, we may purchase more/fewer component parts than necessary or incur costs for canceling, postponing or expediting delivery of such parts. If we purchase inventory in anticipation of customer demand that does not materialize, or if our customers reduce or delay orders, we may incur excess inventory charges. Any or all of these factors could materially and adversely affect our business, financial condition and results of operations.
Our business could be materially harmed if one or more key suppliers fail to continuously deliver key components of acceptable cost and quality.
We currently obtain many of our key components on an as-needed, purchase order basis from numerous suppliers. In some cases we have only a single source of supply for necessary components and materials used in the manufacturing of our products. Further, we are increasing our sourcing of products in Asia, and particularly in China, and we do not have a previous course of dealing with many of these suppliers. We do not generally have long-term supply contracts with any of these suppliers, and many of them underwent cost-containment measures in light of the last significant industry downturn in 2008 and 2009. As the industry has recovered, these suppliers have faced challenges in delivering components on a timely basis. The volatility in demand of these components has led some of our vendors to exit the semiconductor market, and other vendors may also decide to exit this market. Our inability to obtain components or materials in required quantities or of acceptable cost and quality and with the necessary continuity of supply could result in delays or reductions in product shipments to our customers. In addition, if a supplier or sub-supplier suffers a production stoppage or delay for any reason, including natural disasters such as the tsunamis that affected Japan and Thailand, this could result in a delay or reduction in our product shipments to our customers. Any of these contingencies could cause us to lose customers, result in delayed or lost revenue and otherwise materially harm our business.
Our outsource providers may fail to perform as we expect.
Outsource providers have played and will continue to play a key role in our manufacturing operations and in many of our transactional and administrative functions, such as information technology and facilities management. Although we attempt to select reputable providers and secure their performance on terms documented in written contracts, it is possible that one or more of these providers could fail to perform as we expect and such failure could have an adverse impact on our business.


12


Our business relies on certain critical information systems and a failure or breach of such a system could harm our business and results of operations and, in the event of unauthorized access to a customer’s data or our data, incur significant legal and financial exposure and liabilities.
We maintain and rely upon certain critical information systems for the effective operation of our business. These information systems include telecommunications, the internet, our corporate intranet, various computer hardware and software applications, network communications and e-mail. These information systems may be owned and maintained by us, our outsource providers or third parties such as vendors and contractors. These information systems are subject to attacks, failures, and access denials from a number of potential sources including viruses, destructive or inadequate code, power failures, and physical damage to computers, hard drives, communication lines and networking equipment. To the extent that these information systems are under our control, we have implemented security procedures, such as virus protection software and emergency recovery processes, to mitigate the outlined risks. However, security procedures for information systems cannot be guaranteed to be failsafe and our inability to use or access these information systems at critical points in time, or unauthorized releases of confidential information, could unfavorably impact the timely and efficient operation of our business.
Confidential information stored on these information systems could also be compromised. If a third party gains unauthorized access to our data, including any information regarding our customers, such security breach could expose us to a risk of loss of this information, loss of business, litigation and possible liability. These security measures may be breached as a result of third-party action, including intentional misconduct by computer hackers, employee error, malfeasance or otherwise. Additionally, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information in order to gain access to our customers' data or our data, including our intellectual property and other confidential business information, or our information technology systems. Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Any security breach could result in a loss of confidence by our customers, damage our reputation, disrupt our business, lead to legal liability and negatively impact our future sales.
Our intangible assets may become impaired.
As of September 30, 3014, we had $109.5 million of goodwill and $59.6 million in net intangible assets as a result of our acquisitions. We periodically review our goodwill and the estimated useful lives of our identifiable intangible assets, taking into consideration any events or circumstances that might result in either a diminished fair value, or for intangible assets, a revised useful life. These events and circumstances include significant changes in the business climate, legal factors, operating performance indicators, advances in technology and competition. Any impairment or revised useful life could have a material and adverse effect on our financial position and results of operations, and could harm the trading price of our common stock.
Changes in tax rates or tax regulation could affect results of operations.
As a global company, we are subject to taxation in the United States and various other countries. Significant judgment is required to determine and estimate worldwide tax liabilities. Our future annual and quarterly effective tax rates could be affected by numerous factors, including changes in the: applicable tax laws; composition of pre-tax income in countries with differing tax rates; and/or valuation of our deferred tax assets and liabilities. In addition, we are subject to regular examination by the Internal Revenue Service and state, local and foreign tax authorities. We regularly assess the likelihood of favorable or unfavorable outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. Although we believe our tax estimates are reasonable, there can be no assurance that any final determination will not be materially different from the treatment reflected in our historical income tax provisions and accruals, which could materially and adversely affect our financial condition and results of operations.
We are subject to numerous governmental regulations.
We are subject to federal, state, local and foreign regulations, including environmental regulations and regulations relating to the design and operation of our products and control systems. We might incur significant costs as we seek to ensure that our products meet safety and emissions standards, many of which vary across the states and countries in which our products are used. In the past, we have invested significant resources to redesign our products to comply with these directives. Compliance with future regulations, directives, and standards could require us to modify or redesign some products, make capital expenditures, or incur substantial costs. If we do not comply with current or future regulations, directives, and standards:
we could be subject to fines;
our production or shipments could be suspended; and
we could be prohibited from offering particular products in specified markets.
Any of these events could materially and adversely affect our business, financial condition and results of operations.


13


New regulations and customer demands related to conflict minerals may adversely affect us.
The Dodd-Frank Wall Street Reform and Consumer Protection Act imposes new disclosure requirements regarding the use in our products of “conflict minerals” mined from the Democratic Republic of Congo and adjoining countries, whether or not the components of our products are manufactured by us or third parties. This new requirement could affect the pricing, sourcing and availability of minerals used in the manufacture of components we use in our products. In addition, there are additional costs associated with complying with the disclosure requirements and customer requests, such as costs related to our due diligence to determine the source of any conflict minerals used in our products. We may face difficulties in satisfying customers who may require that all of the components of our products are certified as conflict mineral free and/or free of numerous other hazardous materials.
Unfavorable currency exchange rate fluctuations may lead to lower operating margins, or may cause us to raise prices, which could result in reduced sales.
Currency exchange rate fluctuations could have an adverse effect on our sales and results of operations and we could experience losses with respect to forward exchange contracts into which we may enter. Unfavorable currency fluctuations could require us to increase prices to foreign customers, which could result in lower net sales by us to such customers. Alternatively, if we do not adjust the prices for our products in response to unfavorable currency fluctuations, our results of operations could be materially and adversely affected. In addition, most sales made by our foreign subsidiaries are denominated in the currency of the country in which these products are sold and the currency they receive in payment for such sales could be less valuable as compared to the U.S. dollar at the time of receipt as a result of exchange rate fluctuations. From time to time, we enter into forward exchange contracts to reduce currency exposure. However, we cannot be certain that our efforts will be adequate to protect us against significant currency fluctuations or that such efforts will not expose us to additional exchange rate risks, which could materially and adversely affect our results of operations.
Risks Relating to Our Customers
Because we rely on a limited number of customers for a large portion of our revenue, the loss of one or more of these customers could materially harm our business.
We receive a significant portion of our revenue in each fiscal period from a relatively limited number of customers, and that trend is likely to continue. Sales to our ten largest customers accounted for approximately 37%, 40% and 45% of our total revenue in the fiscal years ended September 30, 2014, 2013 and 2012, respectively. The loss of one or more of these major customers, a significant decrease in orders from one of these customers, or the inability of one or more customers to make payments to us when they are due could materially affect our revenue, business and reputation. In addition, there has been and may continue to be significant consolidation among some of our largest OEM customers, which could lead to increased pressure to reduce the price of our products and/or decreased market share of our products with the combined companies.
Because of the lengthy sales cycles of many of our products, we may incur significant expenses before we generate any revenue related to those products.
Our customers may need several months to test and evaluate our products. This increases the possibility that a customer may decide to cancel an order or change its plans, which could reduce or eliminate our sales to that customer. The impact of this risk can be magnified during the periods in which we introduce a number of new products, as has been the case in recent years. As a result of this lengthy sales cycle, we may incur significant research and development expenses, and selling, general and administrative expenses before we generate the related revenue for these products, and we may never generate the anticipated revenue if our customer cancels an order or changes its plans.
In addition, many of our products will not be sold directly to the end-user but will be components of other products manufactured by OEMs. As a result, we rely on OEMs to select our products from among alternative offerings to be incorporated into their equipment at the design stage; so-called design-ins. The OEMs' decisions often precede the generation of volume sales, if any, by a year or more. Moreover, if we are unable to achieve these design-ins from an OEM, we would have difficulty selling our products to that OEM because changing suppliers after design-ins involves significant cost, time, effort and risk on the part of that OEM.
Customers generally do not make long term commitments to purchase our products and our customers may cease purchasing our products at any time.
Sales of our products are often made pursuant to individual purchase orders and not under long-term commitments and contracts. Our customers frequently do not provide any assurance of minimum or future sales and are not prohibited from purchasing products from our competitors at any time. Accordingly, we are exposed to competitive pricing pressures on each order. Our customers also engage in the practice of purchasing products from more than one manufacturer to avoid dependence on sole-source suppliers for certain of their needs. The existence of these practices makes it more difficult for us to increase price, gain new customers and win repeat business from existing customers.


14



We may face claims for liability related to damages of customer materials attributed to the failure of our products, exposing us to significant financial or reputational harm.
Our automation products for the semiconductor manufacturing market are used in the handling and movement of silicon wafers at various points in the production process, and our automated cold storage systems for the life sciences market are used in the handling, movement and storage of biological and chemical samples. In either case, damage to our customers' materials may be attributed to a failure of our products which could lead to claims for damages made by our customers and could also harm our relationship with our customers and damage our reputation in each of these industries, resulting in material harm to our business.
Risks Relating to Owning Our Securities
Our stock price is volatile.
The market price of our common stock has fluctuated widely. From the beginning of fiscal year 2013 through the end of fiscal year 2014, our stock price fluctuated between a high of $11.64 per share and a low of $7.00 per share. Consequently, the current market price of our common stock may not be indicative of future market prices, and we may be unable to sustain or increase the value of an investment in our common stock. Factors affecting our stock price may include:
variations in operating results from quarter to quarter;
changes in earnings estimates by analysts or our failure to meet analysts' expectations;
changes in the market price per share of our public company customers;
market conditions in the semiconductor and other industries into which we sell products and services;
global economic conditions;
political changes, hostilities or natural disasters such as hurricanes and floods;
low trading volume of our common stock; and
the number of firms making a market in our common stock.
In addition, the stock market has in the past experienced significant price and volume fluctuations. These fluctuations have particularly affected the market prices of the securities of high technology companies like ours. These market fluctuations could adversely affect the market price of our common stock.
We may not pay dividends on our common stock.
Holders of our common stock are only entitled to receive dividends when and if they are declared by our Board of Directors. Although we have declared cash dividends on our common stock for the past few years, we are not required to do so and may reduce or eliminate our cash dividends in the future. This could adversely affect the market price of our common stock.
Provisions in our charter documents and, Delaware law may delay or prevent an acquisition of us, which could decrease the value of your shares.
Our restated certificate of incorporation and by-laws and Delaware law contain provisions that could make it harder for a third party to acquire us without the consent of our Board of Directors. These provisions include limitations on actions by our stockholders by written consent, the inability of stockholders to call special meetings and the potential for super majority votes of our stockholders in certain circumstances. In addition, our Board of Directors has the right to issue preferred stock without stockholder approval, which could be used to dilute the stock ownership of a potential hostile acquirer.
Our restated certificate of incorporation makes us subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits publicly held Delaware corporations to which it applies from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. This provision could discourage others from bidding for our shares of common stock and could, as a result, reduce the likelihood of an increase in the price of our common stock that would otherwise occur if a bidder sought to buy our common stock.
Delaware law also imposes restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock. Although we believe these provisions provide for an opportunity to receive a higher bid by requiring potential acquirers to negotiate with our Board of Directors, these provisions apply even if the offer may be considered beneficial by stockholders. If a change of control or change in management is delayed or prevented, the market price of our common stock could decline.


15


Our certificate of incorporation authorizes the issuance of shares of blank check preferred stock.
Our certificate of incorporation provides that our Board of Directors is authorized to issue from time to time, without further stockholder approval, up to 1,000,000 shares of preferred stock in one or more series and to fix and designate the rights, preferences, privileges and restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, redemption rights and terms of redemption and liquidation preferences. Such shares of preferred stock could have preferences over our common stock with respect to dividends and liquidation rights. Our issuance of preferred stock may have the effect of delaying or preventing a change in control. Our issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of common stock or could adversely affect the rights and powers, including voting rights, of the holders of common stock. The issuance of preferred stock could have the effect of decreasing the market price of our common stock.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
Our corporate headquarters and primary manufacturing/research and development facilities are currently located in three buildings in Chelmsford, Massachusetts, where we own two buildings and are committed to purchase the third under a long term purchase option. In summary, we maintain the following active principal facilities:
Location
 
Functions
 
Square Footage
(Approx.)
 
Ownership Status/Lease
Expiration
Chelmsford, Massachusetts
 
Corporate headquarters, training, manufacturing, R&D and sales & support
 
201,000

 
Owned
Chelmsford, Massachusetts
 
Manufacturing
 
97,000

 
Committed to purchase
Poway, California
 
Manufacturing, R&D and sales & support
 
67,600

 
July 2015
Fremont, California
 
R&D and sales & support
 
44,900

 
August 2018
Manchester, UK
 
Manufacturing, R&D and sales & support
 
42,000

 
December 2019
Yongin-City, South Korea
 
Manufacturing, R&D and sales & support
 
34,100

 
August 2019
Jena, Germany
 
Manufacturing, R&D and sales & support
 
30,100

 
January 2017
Chu Bei City, Taiwan
 
Sales & support
 
28,600

 
June 2016
Our Brooks Product Solutions segment utilizes the facilities in Massachusetts, Fremont, California, South Korea and Germany. Our Brooks Global Services segment utilizes the facilities in Massachusetts, South Korea, Germany and Taiwan. Our Brooks Life Science Systems segment utilizes the facilities in Poway, California and the UK as well as an additional facility in Spokane, Washington.
We maintain additional sales and support and training offices in Texas and overseas in Europe (France, Germany and Switzerland), as well as in Asia (Japan, China, Singapore and Taiwan) and the Middle East (Israel).
We utilize a third party to manage our manufacturing operation in Mexico. As part of our arrangement with this third party, we guarantee a lease for a 56,100 square foot manufacturing facility. The remaining payments under this lease, which expires in 2018, are approximately $1.4 million.
Item 3.
Legal Proceedings
We are subject to various legal proceedings, both asserted and unasserted, that arise in the ordinary course of business. We cannot predict the ultimate outcome of such legal proceedings or in certain instances provide reasonable ranges of potential losses. However, as of the date of this report, we believe that none of these claims will have a material adverse effect on our consolidated financial condition or results of operations. In the event of unexpected subsequent developments and given the inherent unpredictability of these legal proceedings, there can be no assurance that our assessment of any claim will reflect the ultimate outcome and an adverse outcome in certain matters could, from time-to-time, have a material adverse effect on our consolidated financial condition or results of operations in particular quarterly or annual periods.


16


Item 4.
Mine Safety Disclosures
Not applicable.
PART II
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is traded on the NASDAQ Stock Market LLC under the symbol “BRKS.” The following table sets forth the high and low intraday sales prices per share of our common stock as reported by the NASDAQ Stock Market LLC and the cash dividends declared per common share for the periods indicated:  
 
Market Price
 
Dividends
Declared
 
High
 
Low
 
Fiscal year ended September 30, 2014
 
 
 
 
 
  First quarter
$
10.75

 
$
9.01

 
$
0.08

  Second quarter
11.64

 
9.43

 
0.08

  Third quarter
11.50

 
8.75

 
0.08

  Fourth quarter
11.53

 
9.86

 
0.10

Fiscal year ended September 30, 2013
 
 
 
 
 
  First quarter
$
8.24

 
$
7.00

 
$
0.08

  Second quarter
10.50

 
8.23

 
0.08

  Third quarter
10.97

 
8.78

 
0.08

  Fourth quarter
10.56

 
8.74

 
0.08

Number of Holders
As of November 5, 2014, there were 672 holders of record of our common stock.
Dividend Policy
Dividends are declared at the discretion of our Board of Directors and depend on actual cash from operations, our financial condition and capital requirements and any other factors our Board of Directors may consider relevant. Future dividend declarations, as well as the record and payment dates for such dividends, will be determined by our Board of Directors on a quarterly basis.
On November 5, 2014, our Board of Directors approved a cash dividend of $0.10 per share payable on December 26, 2014 to common stockholders of record on December 5, 2014.


17


Comparative Stock Performance
The following graph compares the cumulative total shareholder return (assuming reinvestment of dividends) from investing $100 on September 30, 2009, and plotted at the last trading day of each of the fiscal years ended September 30, 2010, 2011, 2012, 2013 and 2014, in each of (i) our Common Stock; (ii) the NASDAQ/NYSE MKT/NYSE Index of companies; and (iii) a peer group comprised of: Advanced Energy Industries, Inc., Bruker Corp., Entegris, Inc., FEI Company, Formfactor Inc., MKS Instruments, Inc., Photronics, Inc., Teradyne Inc., Ultra Clean Technology, Inc., Veeco Instruments Inc. and Xcerra Corp. The stock price performance on the graph below is not necessarily indicative of future price performance.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Brooks Automation, Inc., the NASDAQ/NYSE MKT/NYSE Index,
and a Peer Group

* $100 invested on September 30, 2009 in stock or index, including reinvestment of dividends.
 
9/30/09
 
9/30/10
 
9/30/11
 
9/30/12
 
9/30/13
 
9/30/14
Brooks Automation, Inc.
100.00

 
86.80
 
106.38
 
108.40
 
130.06
 
151.69
NASDAQ/NYSE MKT/NYSE
100.00

 
109.28
 
105.09
 
132.49
 
158.51
 
181.57
Peer Group
100.00

 
102.67
 
101.89
 
125.13
 
167.58
 
173.52
The information included under the heading “Comparative Stock Performance” in Item 5 of "this report" shall not be deemed to be “soliciting material” or subject to Regulation 14A, shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act.
Unregistered Sales of Securities
Not applicable.
Issuer's Purchases of Equity Securities
As part of our equity compensation program, we offer recipients of restricted stock awards the opportunity to elect to sell their shares at the time of vesting to satisfy tax obligations in connection with such vesting. The following table provides


18


information concerning shares of our Common Stock, $0.01 par value, purchased in connection with the forfeiture of shares to satisfy the employees' obligations with respect to withholding taxes in connection with the vesting of certain shares of restricted stock during the three months ended September 30, 2014. Upon purchase, these shares are immediately retired.  
Period
 
Total
Number
of Shares
Purchased
 
Average Price
Paid
per Share
 
Total Number of
Shares  Purchased as
Part of Publicly
Announced Plans
or Programs
 
Maximum
Number (or
Approximate
Dollar Value) of
Shares that  May Yet
be Purchased Under
the Plans or
Programs
July 1 - 31, 2014
 

 
$

 

 
$

August 1 - 31, 2014
 
8,608

 
10.56

 
8,608

 

September 1 - 30, 2014
 

 

 

 

Total
 
8,608

 
$
10.56

 
8,608

 
$

Item 6.
Selected Financial Data
The selected consolidated financial data set forth below should be read in conjunction with our consolidated financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” appearing elsewhere in this report.
 
Year Ended September 30,
 
2014(1)(2)(3) 
 
2013(1)(4)(5) 
 
2012(1)(6)(7)(8) 
 
2011(1)(9)(10)
 
2010(1)(11)
 
(In thousands, except per share data)
Revenue
$
482,848

 
$
422,440

 
$
488,983

 
$
653,299

 
$
562,744

Gross profit
$
167,337

 
$
132,307

 
$
159,453

 
$
207,012

 
$
152,605

Operating income (loss)
$
(2,699
)
 
$
(16,798
)
 
$
1,642

 
$
70,301

 
$
39,295

Income (loss) from continuing operations
$
1,520

 
$
(7,114
)
 
$
131,835

 
$
121,141

 
$
52,172

Income from discontinued operations, net of tax
$
30,002

 
$
4,964

 
$
5,000

 
$
9,296

 
$
7,712

Net income (loss) attributable to Brooks Automation, Inc.
$
31,361

 
$
(2,215
)
 
$
136,789

 
$
130,385

 
$
59,841

Basic net income (loss) per share attributable to Brooks Automation, Inc. common stockholders:
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
0.02

 
$
(0.11
)
 
$
2.02

 
$
1.88

 
$
0.82

Income from discontinued operations, net of tax
0.45

 
0.08

 
0.08

 
0.14

 
0.12

Basic net income (loss) per share attributable to Brooks Automation, Inc.
$
0.47

 
$
(0.03
)
 
$
2.10

 
$
2.02

 
$
0.94

Diluted net income (loss) per share attributable to Brooks Automation, Inc. common stockholders:
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
0.02

 
$
(0.11
)
 
$
2.01

 
$
1.86

 
$
0.81

Income from discontinued operations, net of tax
0.44

 
0.08

 
0.08

 
0.14

 
0.12

Diluted net income (loss) per share attributable to Brooks Automation, Inc.
$
0.46

 
$
(0.03
)
 
$
2.08

 
$
2.01

 
$
0.93

Dividend declared per share
$
0.34

 
$
0.32

 
$
0.32

 
$
0.08

 
$


 
As of September 30,
 
2014
 
2013
 
2012
 
2011
 
2010
 
(In thousands)
Cash and cash equivalents and marketable securities
$
245,456

 
$
173,362

 
$
200,231

 
$
205,818

 
$
142,427

Working capital(12)
$
98,228

 
$
105,511

 
$
121,709

 
$
95,579

 
$
107,064

Total assets
$
778,038

 
$
736,763

 
$
741,960

 
$
636,958

 
$
517,040

Total capital lease obligation
$
8,298

 
$

 
$

 
$

 
$

Total equity
$
642,889

 
$
632,656

 
$
649,301

 
$
518,936

 
$
388,168



19




 
Year Ended September 30, 2014
 
First
Quarter(1)
 
Second
Quarter
 
Third
Quarter(2)(3)
 
Fourth
Quarter(3)
 
(In thousands, except per share data)
Revenue
$
117,072

 
$
125,900

 
$
117,359

 
$
122,517

Gross profit
$
40,891

 
$
44,298

 
$
40,746

 
$
41,402

Operating income (loss)
$
1,458

 
$
2,396

 
$
(5,910
)
 
$
(643
)
Income (loss) from continuing operations
$
1,919

 
$
2,103

 
$
(2,764
)
 
$
262

Income from discontinued operations, net of tax
$
1,577

 
$
1,162

 
$
27,263

 
$

Net income attributable to Brooks Automation, Inc.
$
3,448

 
$
3,189

 
$
24,476

 
$
248

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

 
$
0.03

 
$
(0.04
)
 
$
0.00

Income from discontinued operations, net of tax
0.02

 
0.02

 
0.41

 

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

 
$
0.05

 
$
0.37

 
$
0.00

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

 
$
0.03

 
$
(0.04
)
 
$
0.00

Income from discontinued operations, net of tax
0.02

 
0.02

 
0.40

 

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

 
$
0.05

 
$
0.36

 
$
0.00

 
 
Year Ended September 30, 2013
 
First
Quarter(5)
 
Second
Quarter(5)
 
Third
Quarter(5)
 
Fourth
Quarter(4)(5)
 
(In thousands, except per share data)
Revenue
$
91,506

 
$
109,482

 
$
110,771

 
$
110,681

Gross profit
$
26,281

 
$
33,083

 
$
36,075

 
$
36,868

Operating income (loss)
$
(14,468
)
 
$
(3,170
)
 
$
2,133

 
$
(1,293
)
Income (loss) from continuing operations
$
(10,407
)
 
$
(3,165
)
 
$
4,549

 
$
1,909

Income (loss) from discontinued operations, net of tax
$
1,188

 
$
2,654

 
$
(2,981
)
 
$
4,103

Net income (loss) attributable to Brooks Automation, Inc.
$
(9,236
)
 
$
(538
)
 
$
1,544

 
$
6,015

Basic net income (loss) per share attributable to Brooks Automation, Inc. common stockholders:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
(0.16
)
 
$
(0.05
)
 
$
0.07

 
$
0.03

Income (loss) from discontinued operations, net of tax
0.02

 
0.04

 
(0.05
)
 
0.06

Basic net income (loss) per share attributable to Brooks Automation, Inc.
$
(0.14
)
 
$
(0.01
)
 
$
0.02

 
$
0.09

Diluted net income (loss) per share attributable to Brooks Automation, Inc. common stockholders:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
(0.16
)
 
$
(0.05
)
 
$
0.07

 
$
0.03

Income (loss) from discontinued operations, net of tax
0.02

 
0.04

 
(0.04
)
 
0.06

Diluted net income (loss) per share attributable to Brooks Automation, Inc.
$
(0.14
)
 
$
(0.01
)
 
$
0.02

 
$
0.09

 
 
 
 
 
 
(1)
In March 2014, we entered into an agreement to sell the Granville-Phillips Gas Analysis & Vacuum Measurement, or Granville-Phillips, business unit for $87.0 million in cash. In the second quarter of fiscal year 2014, we determined that the Granville-Phillips business met the criteria to be reported as a discontinued operation. As a result, the selected financial data presented for periods prior to the second quarter of fiscal year 2014 has been revised to present the


20


operating results of the Granville-Phillips business as a discontinued operation. Refer to Note 3, “Discontinued Operations” in the Notes to the Consolidated Financial Statements for additional information regarding this transaction.
(2)
We completed the sale of the Granville-Phillips business in May 2014. We realized a pre-tax gain of $56.8 million and an after-tax gain of $26.9 million in connection with the sale. The tax charge of $29.9 million on the gain is substantially non-cash as it is offset by our net operating losses in the United States.
(3)
We acquired Dynamic Micro Systems Semiconductor Equipment GmbH, or DMS, in April 2014. The results of DMS have been included in our results of operations from the date of acquisition. Refer to Note 4, “Acquisitions” in the Notes to the Consolidated Financial Statements for additional information regarding this transaction.
(4)
We acquired certain assets and assumed certain liabilities of Matrical, Inc.’s life science businesses, collectively referred to as Matrical, in August 2013. The results of Matrical have been included in our results of operations from the date of acquisition. Refer to Note 4, “Acquisitions” in the Notes to the Consolidated Financial Statements for additional information regarding this transaction.
(5)
We acquired Crossing Automation Inc., or Crossing, in October 2012. The results of Crossing have been included in our results of operations from the date of acquisition. Refer to Note 4, “Acquisitions” in the Notes to the Consolidated Financial Statements for additional information regarding this transaction.
(6)
We acquired the Celigo® product line in December 2011. The results from the Celigo® product line were included in our results of operations from the date of acquisition through March 2014, when we completed the sale of this product line. Refer to Note 4, “Acquisitions” in the Notes to the Consolidated Financial Statements for additional information regarding this transaction.
(7)
Income (loss) from continuing operations and net income (loss) attributable to Brooks Automation, Inc. includes a $121.8 million deferred income tax benefit in connection with a reversal of a majority of the valuation allowance against our net deferred tax assets.
(8)
Income (loss) from continuing operations and net income (loss) attributable to Brooks Automation, Inc. includes an $8.9 million charge in connection with the settlement of our U.S. defined benefit pension plan.
(9)
We acquired RTS Life Science Limited, or RTS, in April 2011 and Nexus Biosystems, Inc., or Nexus, in July 2011. The results of RTS and Nexus have been included in our results of operations from the date of each acquisition.
(10)
On June 28, 2011, we disposed of our contract manufacturing business which did not qualify as discontinued operations because of the significance of the ongoing commercial arrangements between us and the buyer. As such, the operations prior to the divestiture are included in our results of operations. Income (loss) from continuing operations and net income (loss) attributable to Brooks Automation, Inc. includes a $45.0 million pre-tax gain on the sale of our contract manufacturing business.
(11)
Income (loss) from continuing operations and net income (loss) attributable to Brooks Automation, Inc. includes a $7.8 million gain on the sale of certain patents and patents pending related to a legacy product line.
(12)
The calculation of working capital excludes "Cash and cash equivalents" and "Marketable securities," as well as assets and liabilities identifiable within the Granville-Phillips business reported as “Assets held for sale” and “Liabilities held for sale,” respectively, in the Consolidated Balance Sheets.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Certain statements in this Form 10-K, and in particular in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” constitute forward-looking statements, which are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Certain, but not all, of the forward-looking statements in this report are specifically identified as forward-looking, by use of phrases and words such as “we believe,” “we estimate,” “we expect,” “may,” “should,” “could,” “intend,” “likely,” and other future-oriented terms. The identification of certain statements as “forward-looking” is not intended to mean that other statements not specifically identified are not forward-looking. Forward-looking statements include, but are not limited to, statements that relate to our future revenue, margin, costs, earnings, product development, demand, acceptance and market share, competitiveness, market opportunities and performance, levels of research and development, or R&D, the success of our marketing, sales and service efforts, outsourced activities and operating expenses, anticipated manufacturing, customer and technical requirements, the ongoing viability of the solutions that we offer and our customers’ success, tax expenses, our management’s plans and objectives for our current and future operations and business focus, the levels of customer spending, general economic conditions, the sufficiency of financial resources to support future operations, and capital expenditures. Such statements are based on current expectations and are subject to risks, uncertainties, and changes in condition, significance, value and effect, including without limitation those discussed above under the heading “Risk Factors” within Item 1A and elsewhere in this report and other documents we file from time to time with the Securities and Exchange Commission (the “SEC”), such as our quarterly reports on Form 10-Q and our current reports on Form 8-K. Such risks, uncertainties and changes in condition, significance, value and effect could cause our actual results, performance or achievements to differ materially from those expressed in this report and in ways we cannot readily foresee. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and are based on information currently and reasonably known to us. We do not undertake any obligation to release the results of any


21


revisions to these forward-looking statements, which may be made to reflect events or circumstances that occur after the date of this report or to reflect the occurrence or effect of anticipated or unanticipated events. Precautionary statements made herein should be read as being applicable to all related forward-looking statements wherever they appear in this report.
Overview
We are a leading provider of automation and cryogenic solutions for multiple markets including semiconductor manufacturing and life sciences and are a valued business partner to original equipment manufacturers, or OEMs, and equipment users throughout the world. We serve markets where equipment productivity and availability is a critical factor for our customers’ success, typically in demanding temperature and/or pressure environments. Our largest served market is the semiconductor capital equipment industry, for which products sold through our Brooks Product Solutions segment represented approximately 51%, 52% and 56% of our consolidated revenue for fiscal years 2014, 2013 and 2012, respectively. The decrease in the portion of our total revenues represented by products sold through our Brooks Product Solutions segment is due in part to the cyclical nature of the demand from the customer for semiconductor capital equipment combined with the growth of sales of our Brooks Life Science Systems segment. The non-semiconductor markets served by us also includes industrial capital equipment and other adjacent technology markets.
We expect the semiconductor equipment market will continue to be a key end market for our products, and we continue to make investments to maintain and grow our semiconductor product and service offerings. We acquired DMS Dynamic Micro Systems Semiconductor Equipment GmbH, or DMS, in April 2014 for approximately $31.6 million. DMS is a German based provider of automated contamination control solutions for front opening unified pod, or FOUP, carriers and reticle storage, for improving yield of semiconductor processes at semiconductor fabrication plants. In October 2012, we acquired Crossing Automation Inc., or Crossing, a U.S. based provider of automation solutions for the global semiconductor front-end markets. The purchase price was $59.0 million. The acquisition of these businesses provides us with the opportunity to enhance our existing capabilities with respect to manufacturing of atmospheric and vacuum automation solutions within the semiconductor front-end market.
We also intend to continue development and acquisition of technologies that create opportunities outside of the semiconductor market. In fiscal year 2014, our Brooks Life Science Systems segment began shipping our Twinbank platform of automated systems for compound and biological sample storage. In addition, in the last eighteen months we completed two acquisitions that expanded our offerings to our life science customers. In August 2013 we acquired certain assets related to biological sample preparation, management and storage solutions from Matrical, Inc. for $9.3 million. In October 2014, subsequent to the reporting period of this filing, we announced the acquisition of FluidX Ltd., or FluidX, a UK based provider of biological sample storage tubes and complementary bench-top instruments for approximately $16.0 million.
In September 2014, we acquired the remaining interest in the equity of our majority owned subsidiary, Brooks Automation Asia, Ltd., or BAA, for $3.2 million. We have historically consolidated the financial position and results of operations from BAA and presented the portion of the income attributable to the minority shareholders in the Consolidated Statements of Operations. The acquisition of this additional interest has been accounted for as an equity transaction, and as a result, no additional assets or liabilities were recognized related to the additional interest acquired. We will no longer report a noncontrolling interest.
In March 2014, we entered into an agreement to sell the Granville-Phillips Gas Analysis & Vacuum Measurement, or Granville-Phillips, business unit to MKS Instruments, Inc. for $87.0 million in cash. We completed the sale on May 30, 2014. We recorded a pre-tax gain of $56.8 million and an after-tax gain of $26.9 million. The tax charge of $29.9 million on the gain is substantially non-cash as it is offset by our net operating losses in the U.S. Our historical financial statements have been revised to present the operating results of the Granville-Phillips business as a discontinued operation.
We report financial results in three segments:
The Brooks Product Solutions segment provides a variety of products and solutions that enable improved throughput and yield in controlled operating environments. Those products include atmospheric and vacuum robots, robotic modules, and tool automation systems that provide precision handling and clean wafer environments as well as vacuum pumping and thermal management solutions used to create and control critical process vacuum applications.
The Brooks Global Services segment provides an extensive range of support services, including repair services, diagnostic support services, and installation services in support of the base equipment installed by our Brooks Product Solutions segment, which enable our customers to maximize process tool uptime and productivity. This segment also provides end-user customers with spare parts to maximize customer tool productivity.
The Brooks Life Science Systems segment provides automated cold sample management systems for compound and bio sample storage, equipment for sample preparation and handling, consumables, and parts and support services to a wide range of life science customers including pharmaceutical companies, biotechnology companies, biobanks, national laboratories, research institutes and research universities.


22


During fiscal year 2014, we had net income attributable to Brooks Automation, Inc. of $31.4 million, of which $30.0 million was from discontinued operations, including the gain on sale of the Granville-Phillips business unit. Income from continuing operations was $1.5 million in fiscal year 2014 after a loss of $7.1 million in fiscal year 2013. In addition to the acquisitions activity described above, we intend to continue to implement measures to improve the profitability of our continuing operations. For example, during fiscal year 2014, we discontinued certain product lines in the Brooks Life Science Systems and Brooks Product Solutions segments, transitioned manufacturing of our line of Polycold cryochillers to a third party contract manufacturer, consolidated our global footprint and implemented other programs designed to improve our cost structure. In connection with these initiatives, we recorded restructuring charges of $6.3 million for fiscal year 2014, compared to $6.4 million of restructuring charges recorded in fiscal year 2013. We expect these changes to improve our profitability in future periods.
Critical Accounting Policies and Estimates
The preparation of the consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue, bad debts, inventories, derivative instruments, intangible assets, goodwill, income taxes, warranty obligations, pensions and stock-based compensation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, including current and anticipated worldwide economic conditions both in general and specifically in relation to the semiconductor and life science industries, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Using different estimates could have a material impact on our financial condition and results of operations.
We believe the following critical accounting policies incorporate our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenue
Product revenue is associated with the sale of hardware systems, components and spare parts as well as product license revenue. Service revenue is associated with service contracts, repairs, upgrades and field service. Shipping and handling fees billed to customers, if any, are recognized as revenue. The related shipping and handling costs are recognized in cost of revenue.
We recognize revenue when the following criteria have been met: persuasive evidence of an arrangement exists with the customer; delivery of the specified products has occurred or services have been rendered; fees are fixed or determinable; and collection of the related receivable is reasonably assured. The arrangements for the sale of certain of our products include customer acceptance provisions. These provisions are included in these arrangements to ensure that the product delivered to the customer meets published specifications. Prior to shipment of our products, we typically inspect the product, test its functionality and document that it meets the published specifications. In general, our inspections and testing replicate the testing that will be performed at the customer site prior to final acceptance by the customer. In situations where we have sufficient history of objectively demonstrating that the acceptance criteria in the arrangement have been achieved prior to delivery, which are typically for products with limited customization, we recognize revenue in advance of final customer acceptance because there are no remaining substantive contingencies. Arrangements with certain customers also include contingent revenue provisions, in which a portion of the selling price of a delivered item is contingent on the delivery of other items or on the delivered items meeting specified performance criteria. In arrangements that include contingent revenue, the amount of revenue that we recognize is limited to the lower of either: the amount billed that is not contingent on acceptance; or the value of the arrangement consideration allocated to the delivered elements, if the product is part of a multiple-element arrangement. When significant on-site customer acceptance provisions are present in the arrangement, or we are not able to objectively demonstrate that the acceptance criteria have been met, revenue is recognized upon receiving acceptance from the customer.
Revenue from product sales that include significant customization, which primarily include life science automation systems, is recorded using the percentage of completion method. Under the percentage of completion method, revenue is recorded as work progresses based on a percentage that incurred labor effort to date bears to total projected labor effort. Profit estimates on long-term contracts are revised periodically based on changes in circumstances, and any losses on contracts are accrued in the same period we determine that the loss is probable. If we determine that a loss is probable, we estimate the amount of the loss by comparing total estimated contract revenue to the total estimated contract costs. Significant judgment is required when estimating total labor costs and progress to completion on these arrangements, as well as whether a loss is expected to be incurred on the contract due to several factors, including the degree of customization required and the customer’s existing environment. We use historical experience, project plans, and an assessment of the risks and uncertainties inherent in the arrangement to establish these estimates. Uncertainties in these arrangements include implementation delays or performance issues that may or may not be within our control. We also have certain arrangements for products with significant


23


customization that include contractual terms that prohibit us from using the percentage of completion method. In some circumstances, percentage of completion is not appropriate, as it relates to the contractual rights of the customer, and in these cases we use the completed-contract method. Under the completed-contract method, income is recognized only when a contract is completed or substantially completed.
Generally, the terms of long-term contracts provide for progress billings based on completion of milestones or other defined phases of work. In certain instances, payments collected from customers in advance of recognizing the related revenue is recorded as deferred revenue.
Revenue associated with service agreements is generally recognized ratably over the term of the contract, with payments from customers being recorded as deferred revenue. Revenue from repair services or upgrades of customer-owned equipment is recognized upon completion of the repair effort and upon the shipment of the repaired item back to the customer. In instances where the repair or upgrade includes installation, revenue is recognized when the installation is completed.
A portion of the revenue arrangements for our products, particularly in sales of life science automation systems, are multiple element arrangements that can include product, service and other elements. For revenue arrangements with multiple elements, arrangement consideration is allocated to each element based upon their relative selling price using vendor-specific objective evidence, or VSOE, or third-party evidence, or TPE, or based upon the relative selling price using estimated selling prices if VSOE or TPE does not exist. We rely primarily on estimated selling prices because we generally do not have VSOE or TPE. We recognize revenue on each element of the arrangement in accordance with our policies for revenue recognition. The fair value of any undelivered elements is deferred until the undelivered element is delivered and all other criteria for revenue recognition have been met.
Intangible Assets, Goodwill and Other Long-Lived Assets
As a result of our acquisitions, we have identified intangible assets other than goodwill and generated significant goodwill. Intangible assets other than goodwill are valued based on estimates of future cash flows and amortized over their estimated useful life. Goodwill is subject to annual impairment testing as well as testing upon the occurrence of any event that indicates a potential impairment. Intangible assets other than goodwill and other long-lived assets are subject to an impairment test if there is an indicator of impairment. We conduct our annual goodwill impairment test as of our fiscal year end, or September 30th. Management's judgments are based on market and operational conditions at the time of the evaluation and can include management's best estimate of future business activity, which in turn drives estimates of future cash flows from these assets and the reporting units with associated goodwill. These periodic evaluations could cause management to conclude that impairment factors exist, requiring an adjustment of these assets to their then-current fair market value. Future business conditions and/or activity could differ materially from the projections made by management causing the need for additional adjustments and impairment charges.
The testing of goodwill for impairment is to be performed at a level referred to as a reporting unit. A reporting unit is either the “operating segment level” or one level below, which is referred to as a “component.” The level at which the impairment test is performed requires an assessment as to whether the operations below the operating segment constitute a self-sustaining business, in which case testing is generally required to be performed at this level. We currently have four reporting units that have goodwill, including two components that are part of our Brooks Product Solutions operating segment and sole reporting units that are our Brooks Global Services and Brooks Life Science Systems operating segments.
Goodwill impairment testing is a two-step process. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of each reporting unit to its respective carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired. If the reporting unit’s carrying amount exceeds the fair value, the second step of the goodwill impairment test must be completed to measure the amount of the impairment loss, if any. The second step compares the implied fair value of goodwill with the carrying value of goodwill. The implied fair value is determined by allocating the fair value of the reporting unit to all of the assets and liabilities of that unit, and the excess of the fair value over amounts assigned to its assets and liabilities is the implied fair value of goodwill. The implied fair value of goodwill determined in this step is compared to the carrying value of goodwill. If the implied fair value of goodwill is less than the carrying value of goodwill, an impairment loss is recognized equal to the difference.
We determine the fair value of our reporting units using an Income Approach, specifically the Discounted Cash Flow Method, or DCF Method. The DCF Method includes future cash flow projections, which are discounted to present value, and an estimate of terminal values, which are also discounted to present value. Terminal values represent the present value an investor would pay today for the rights to the cash flows of the business for the years subsequent to the discrete cash flow projection period. We consider the DCF Method to be the most appropriate valuation indicator as the DCF analyses are based on management’s long-term financial projections. Given the dynamic nature of the cyclical semiconductor equipment market, management’s projections as of the valuation date are considered more objective since other market metrics for peer companies fluctuate over the cycle. However, we also use market-based valuation techniques to test the reasonableness of the reporting


24


unit fair values determined by the DCF Method. In addition, we compare the aggregate fair value of our reporting units plus our net corporate assets to our overall market capitalization.
For our annual goodwill impairment test as of September 30, 2014, we determined that the estimated fair value of each reporting unit substantially exceeded its carrying value and that no impairment existed. The observable inputs used in our DCF approach include discount rates that are at or above our weighted-average cost of capital. We derive discount rates that are commensurate with the risks and uncertainties inherent in the respective businesses and our internally developed projections of future cash flows. In addition, we determine the terminal value of each reporting unit using the Gordon growth method. The Gordon growth method assumes that the reporting unit will grow and generate free cash flow at a constant rate. We believe that the Gordon growth method is the most appropriate method for determining the terminal value because the terminal value was calculated at the point in which we have assumed that our reporting units have reached stable growth rates.
We are required to test long-lived assets, other than goodwill, when indicators of impairment are present. For purposes of this test, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. When we determine that indicators of potential impairment exist, the next step of the impairment test requires that the potentially impaired long-lived asset group is tested for recoverability. The test for recoverability compares the undiscounted future cash flows of the long-lived asset group to its carrying value. If the carrying values of the long-lived asset group exceed the future cash flows, the assets are potentially impaired. The next step in the impairment process is to determine the fair value of the individual net assets within the long-lived asset group. If the aggregate fair values of the individual net assets of the group are less than the carrying values, an impairment charge is recorded equal to the excess of the aggregate carrying value of the group over the aggregate fair value. The loss is allocated to each asset within the group based on their relative carrying values, with no asset reduced below its fair value.
We determined that impairment indicators were present for long-lived assets related to the Celigo product line as of September 30, 2013. Indicators of impairment for this asset group included declining sales in the trailing twelve months and negative cash flows from the asset group. We tested the recoverability of the asset group by comparing the sum of the expected future undiscounted cash flows directly attributable to the assets to their carrying values, which resulted in the conclusion that the carrying amounts of the assets were not recoverable. The fair value of the long-lived assets related to the Celigo products was based primarily on market-based valuation techniques reflecting the view of a market participant using the assets in the group to their best possible use. We determined that the carrying value of the asset group exceeded the fair value of the asset group by approximately $2.0 million and we recorded this amount as an impairment charge in the fourth quarter of 2013. We revised our estimate of the fair value of these assets in the first fiscal quarter of 2014 and determined that an additional impairment charge, representing the remaining carrying value of the long-lived assets, of $0.4 million was required.
Except as described above, we have not tested any other long-lived assets, other than goodwill, since 2009 because no events have occurred that would require an impairment assessment.
Accounts Receivable
We record trade accounts receivable at the invoiced amount. Trade accounts receivables do not bear interest. We maintain an allowance for doubtful accounts representing our best estimate of the amount of probable credit losses in our existing accounts receivable. If the financial results of our customers deteriorate, reducing their ability to make payments, additional allowances would be required, resulting in a charge to operations. We do not have any off-balance-sheet credit exposure related to our customers.
Derivative Financial Instruments
We record all derivative instruments as assets or liabilities at their fair value, which is determined by estimating future cash flows of the instrument. Subsequent changes in a derivative’s fair value are recognized in income, unless specific hedge accounting criteria are met. Changes in the fair value of a derivative that is highly effective and designated as a cash flow hedge are recognized in accumulated other comprehensive income until the forecasted transaction occurs or it becomes probable that the forecasted transaction will not occur. We perform an assessment at the inception of the hedge and on a quarterly basis thereafter, to determine whether our derivatives are highly effective in offsetting changes in the value of the hedged items. Any changes in the fair value resulting from hedge ineffectiveness are immediately recognized as income or expense.
Warranty
We provide for the estimated cost of product warranties at the time revenue is recognized. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers, our warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from our estimates, revisions to the estimated warranty liability would be required and may result in additional benefits or charges to operations.


25


Inventory
We provide reserves for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. We fully reserve for inventories and noncancelable purchase orders for inventory deemed obsolete. We perform periodic reviews of all inventory items to identify excess inventories on hand by comparing on-hand balances to anticipated usage using recent historical activity as well as anticipated or forecasted demand, based upon sales and marketing inputs through our planning systems. If estimates of demand diminish further or actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
Deferred Income Taxes
We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We consider recent historical income, estimated future taxable income, carry-forward periods of tax attributes, the volatility of the semiconductor industry and ongoing tax planning strategies in assessing the need for the valuation allowance. We maintain a valuation allowance against certain deferred tax assets in the U.S. and in certain foreign jurisdictions. We will continue to assess the need for a valuation allowance in future periods. If future operating results of the U.S. or these foreign jurisdictions deviate from long-term expectations, it is reasonably possible that there could be a change in the valuation allowance in the future. A change in the valuation allowance, in whole or in part, would result in a non-cash income tax expense or benefit during the period of change.
Pension Plans
We sponsor defined benefit pension plans in Switzerland and Taiwan. The cost and obligations of these arrangements are calculated using many assumptions to estimate the benefits that the employee earns while working, the amount of which cannot be completely determined until the benefit payments cease. Major assumptions used in the accounting for these employee benefit plans include the discount rate, expected return on plan assets and rate of increase in employee compensation levels. Assumptions are determined based on company data and appropriate market indicators in consultation with third-party actuaries, and are evaluated each year as of the plans’ measurement date. Should any of our assumptions change, they would have an effect on net periodic pension costs and the unfunded benefit obligation.
Stock-Based Compensation
We measure compensation cost for all employee stock awards at fair value on the date of grant and recognize compensation expense over the service period for awards expected to vest. The fair value of restricted stock units is determined based on the number of shares granted and the closing price of our common stock quoted on NASDAQ on the date of grant, and the fair value of stock options is determined using the Black-Scholes valuation model. Such fair values are recognized as expense over the service period, net of estimated forfeitures. The estimation of stock awards that will ultimately vest requires significant judgment. We consider many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience. In addition, for stock-based awards where vesting is dependent upon achieving certain operating performance goals, we estimate the likelihood of achieving the performance goals. Actual results, and future changes in estimates, may differ from our current estimates.
Year Ended September 30, 2014 Compared to Year Ended September 30, 2013
Revenue
We reported revenue of $482.8 million for fiscal year 2014, compared to $422.4 million in the previous fiscal year, an increase of 14%. All three of our segments contributed to the increase in revenue. Revenue from Brooks Product Solutions and Brooks Global Services increased $35.1 million and $5.4 million, respectively, and benefited from stronger demand from the semiconductor capital equipment market. Brooks Life Science Systems’ revenue increased $19.9 million, primarily as a result of increased demand for automated cold storage systems. Acquisitions completed in the last twelve months contributed $5.5 million of revenue. We continue to seek opportunities to expand our market share in the semiconductor and adjacent technology markets served by our Brooks Product Solutions and Brooks Global Services segments. However, these markets are cyclical and demand for the products and services offered will be affected by these cycles. We anticipate continued growth in revenue from our Brooks Life Science Systems segment through our internally developed products and services, including our Twinbank platform for automated systems, and through acquisition of products and services that expand our addressable markets, including our recent acquisition of FluidX.
Our Brooks Product Solutions segment reported revenue of $325.6 million for fiscal year 2014, an increase of 12% from $290.5 million in the prior fiscal year. These increases were mostly attributable to increased demand from the semiconductor capital equipment market. Revenue from the acquisition of DMS contributed $5.5 million to the increase.


26


Our Brooks Global Services segment reported revenue of $94.1 million for fiscal year 2014, a 6% increase from $88.6 million in the prior fiscal year. The increase was primarily due to increased demand from semiconductor capital equipment end-users.
Our Brooks Life Science Systems segment reported revenue of $63.1 million for fiscal year 2014, an increase of 46% from $43.3 million in the prior fiscal year. Revenue growth was supported by the launch and accelerating sales of the first internally developed Twinbank platform for automated cold storage systems. The acquisition of Matrical provided $6.0 million and $1.0 million of revenue from automated cold storage systems, instrumentation and consumables in fiscal years 2014 and 2013, respectively. Many of the opportunities for Matrical automated cold storage systems were transitioned to the Twinbank platform that we launched in fiscal year 2014.
Revenue outside the United States was $308.5 million, or 64% of total revenue, and $244.7 million, or 58% of total revenue, for fiscal years 2014 and 2013, respectively.
Gross Margin
Gross margin increased by 3.4 percentage points to 34.7% for fiscal year 2014, compared to 31.3% for the prior fiscal year. The increase was driven by leverage on increased volume in all three segments, favorable mix in our Brooks Product Solutions segment and execution of operational initiatives related to material and warranty cost reduction. Gross margin in fiscal year 2014 included $3.0 million of charges related to the step-up of inventory balances in purchase accounting, impairment of intangible assets and restructuring charges compared with $5.0 million of such charges in fiscal year 2013. These charges reduced gross profit margin by 0.6 percentage points in fiscal year 2014 and 1.2 percentage points in fiscal year 2013.
Our gross margin percentage for our Brooks Products Solutions segment increased to 34.3% for fiscal year 2014 as compared to 31.4% in the prior fiscal year. The increase was primarily driven by leverage on increased volume, execution of operational initiatives related to material and warranty cost reduction and favorable product mix. Operational improvements were partially offset by an increase in inventory step-up charges associated with acquisitions which reduced gross profit margin by 0.6 percentage points in fiscal year 2014 as compared to 0.5 percentage points in fiscal year 2013.
Our gross margin percentage for our Brooks Global Services segment increased to 34.2% for fiscal year 2014 as compared to 30.4% in the prior fiscal year. The increase was primarily driven by leverage on increased volume, improved utilization of our field service organization and a reduction in inventory step-up charges associated with acquisitions. Gross margin in fiscal 2013 included $1.3 million of step-up charges which reduced gross margin by 1.5 percentage points. Our Brooks Global Services segment did not have any step-up charges in fiscal year 2014.
Our gross margin percentage for our Brooks Life Science Systems segment increased to 37.1% for fiscal year 2014 as compared to 32.7% in the prior fiscal year. The increase was driven by leverage on increased volume, a reduction in inventory step-up charges associated with acquisitions and a reduction in impairment charges related to completed technology intangible assets. The segment operating leverage drove significant benefits with revenue growth of 46% compared to fiscal year 2013. The operational improvements in the segment were partially offset by one $3.6 million project, recognized in the third quarter of fiscal 2013, that made a minimal contribution to gross margin. Gross profit margin in fiscal year 2014 benefited from $2.0 million of lower costs related to the step-up of inventory balances in purchase accounting, impairment of intangible assets and restructuring charges.
Research and Development
Research and development, or R&D, expenses for fiscal year 2014 were $52.6 million, an increase of $6.4 million, compared to $46.2 million in the previous fiscal year. The increase in R&D expenses, which consist primarily of employee-related and project costs, relates to developing enhancements to our current product offerings and investing in new product development as part of our strategy to grow longer-term revenue. R&D expenses for fiscal year 2014 also increased as compared to the prior fiscal year as a result of our recently completed acquisitions.
Selling, General and Administrative
Selling, general and administrative, or SG&A, expenses were $111.1 million for fiscal year 2014, an increase of $14.6 million compared to $96.5 million in the prior fiscal year. The increase is the result of $10.4 million of higher costs for incentive compensation and stock-based compensation resulting from our improved execution against financial performance objectives. SG&A expenses in fiscal year 2014 also includes $2.6 million of expenses related to the impairment of a note receivable. Our recently completed acquisitions also contributed to the increase in SG&A in fiscal year 2014 as compared to fiscal year 2013. These increases were partially offset by lower employee-related and facility costs attributable to cost savings initiatives undertaken over the last twelve months.
We recorded the impairment charge on the note receivable in the third quarter of fiscal year 2014, after a strategic partner informed us of their intent to secure additional funding through an investment program designed to support early-stage


27


companies being funded by the Commonwealth of Massachusetts. In connection with efforts to secure additional financing, we agreed to subordinate our first-priority security interest to the new lender and to extend the due date of our loan to coincide with the due date of the new loan, which is September 2019. The partner also provided revised assumptions about their future cash flows. Based on the information provided by the partner, and the subordination, we determined it was probable that we would not recover all amounts due from the loan and recorded an impairment charge. We determined the fair value of the loan by considering the fair value of the collateral using certain valuation techniques, principally, the discounted cash flow method, and the subordination to the new lender. As a result, the fair value of the loan, which we currently estimate to be $1.0 million, could be different under different conditions or different assumptions, including the varying assumptions regarding future cash flows of the partner or discount rates.
Restructuring and Other Charges
We recorded restructuring charges of $6.3 million for fiscal year 2014. These charges relate primarily to our decision to discontinue certain product lines in the Brooks Life Science Systems and Brooks Product Solutions segments, the transition of manufacturing certain products in our line of Polycold cryochillers and compressors to a third party contract manufacturer, the consolidation of our global footprint and other programs designed to improve our cost structure.
Restructuring costs recorded in fiscal year 2014 include $5.7 million of severance costs resulting from workforce reductions of approximately 70 positions across all of our reportable segments and our corporate function. Total severance charges related to the outsourcing of the Polycold manufacturing operation, which relate to the Brooks Product Solutions and Brooks Global Services segments, were $1.2 million, of which $0.6 million was recorded in fiscal year 2014. The charge for this program was recorded ratably over the period from notification of the closing in October 2012 to the actual service end date in September 2014.
Unpaid severance charges of $3.4 million as of September 30, 2014 are expected to be paid during fiscal year 2015.
In addition to the workforce-related charges described above, we recorded $0.6 million of facility-related costs which consisted of lease payments and fixed asset write-offs associated with our efforts to reduce the space used in our operations. We also recorded $0.3 million of inventory write-offs associated primarily with discontinuing certain product lines and is included in cost of revenue in our Consolidated Statements of Operations.
We recorded restructuring charges of $6.4 million for fiscal year 2013. These charges related primarily to workforce reductions implemented to consolidate the operations of Crossing into our operations, the transition of manufacturing certain our line of Polycold cryochillers and compressors to a third party contract manufacturer and other programs designed to improve our cost structure. Restructuring charges also included facility-related costs incurred in connection with the consolidation of Crossing facilities with our facilities. Restructuring costs recorded in fiscal year 2013 consisted of $5.5 million of severance costs and $0.8 million of facility related costs. Severance costs related to a series of workforce reductions implemented to improve our cost structure by eliminating approximately 200 positions. Restructuring and other charges recorded in fiscal year 2013 also included $0.1 million related to a partial settlement of a defined benefit pension plan that covered substantially all of our Swiss employees.
Interest Income
Interest income was $1.0 million for both fiscal year 2014 and 2013.
Interest Expense
Interest expense was $0.2 million in fiscal year 2014 and relates to the capital lease we entered in March 2014.
Other Income, net
Other income, net of $0.3 million for fiscal year 2014 consists primarily of $1.4 million of other income, of which $0.6 million is attributable to joint venture management fee income, and is partially offset by $1.2 million of foreign exchange losses.
Other income, net of $1.2 million for fiscal year 2013 consists primarily of a $1.4 million gain on the sale of certain underutilized buildings in Chelmsford, MA and Oberdiessbach, Switzerland and $0.6 million of joint venture management fee income which was partially offset by foreign exchange losses of $0.9 million.
Income Tax Benefit
We recorded an income tax benefit of $2.0 million for fiscal year 2014. The tax benefit is driven by U.S. and German pre-tax losses and $1.2 million of reductions in unrecognized tax benefits resulting from the expiration of the statute of limitations in various foreign jurisdictions. These benefits are partially offset by foreign income taxes and interest related to unrecognized tax benefits.


28


The net deferred tax assets, including current and noncurrent, decreased from $115.0 million to $83.2 million during the fiscal year ended September 30, 2014. The decrease of $31.8 million was primarily driven by a tax provision of $29.9 million related to the gain on the sale of discontinued operations. The gain on sale of discontinued operations was reported net of the tax effect in the Consolidated Statements of Operations.
We recorded an income tax benefit of $5.0 million for fiscal year 2013. This benefit consists of deferred tax benefits in the U.S. generated by pre-tax losses and tax credits of $5.1 million. We recorded the benefit in the U.S. because there was no valuation allowance against the deferred tax assets generated in fiscal year 2013. This benefit is partially offset by foreign taxes on profits of our foreign subsidiaries. Additionally, we recorded $1.0 million of tax benefits for the reversal of tax reserves resulting from the expiration of statutes of limitations in certain foreign jurisdictions. The U.S. tax benefit includes $0.9 million of U.S. tax credits from fiscal year 2012 that were recognized in fiscal year 2013. These credits were reinstated under The American Taxpayer Relief Act of 2012 that was signed into law on January 2, 2013.
Equity in Earnings of Equity Method Investments
Our proportional share of income from our equity method investments was $1.2 million in fiscal year 2014 compared with $2.4 million in fiscal year 2013. The decrease is driven primarily from lower income from our 50% interest in ULVAC Cryogenics, Inc., a joint venture with ULVAC Corporation of Japan, which contributed $1.6 million of income in fiscal year 2014 as compared to $2.6 million for fiscal year 2013. The remaining decrease in income from our equity method investments is attributable to higher losses generated by our 50% interest in Yaskawa Brooks Automation, Inc., a joint venture with Yaskawa Electric Corporation of Japan and our proportional share of losses generated by BioCision LLC, a privately-held company based in Larkspur, California, in which we made an equity investment in March 2014.
Income from Discontinued Operations, Net of Tax
We determined that the Granville-Phillips business was not consistent with our strategy to expand our leadership positions in our core semiconductor and life science market segments. We entered into an agreement to sell this business unit for $87.0 million in cash that we completed in May 2014. We determined that our Granville-Phillips business unit met the criteria to be reported as a discontinued operation. As a result, our historical financial statements have been revised to present the operating results of the Granville-Phillips business as a discontinued operation.
Reported revenue for the fiscal years ended September 30, 2014 and 2013 have been reduced by $19.3 million and $28.5 million, respectively, for amounts attributable to Granville-Phillips. The pre-tax income from the discontinued operation was $61.7 million and $7.8 million for the fiscal years ended September 30, 2014 and 2013, respectively. The after-tax income from the discontinued operation was $30.0 million and $5.0 million for the fiscal years ended September 30, 2014 and 2013, respectively. The results of the discontinued operation for the fiscal year ended September 30, 2014 include the pre-tax gain of $56.8 million and the after-tax gain of $26.9 million from the sale of the Granville-Phillips business unit. Tax expense related to the gain on the sale of the business was $29.9 million, representing a tax rate of 52.7%, which is higher than the U.S. statutory rate. The goodwill that was disposed of in this transaction had no basis for tax purposes and as a result, increased the gain recognized for tax purposes. The tax charge was substantially non-cash as it was offset by our net operating losses.
Year Ended September 30, 2013 Compared to Year Ended September 30, 2012
Revenue
We reported revenue of $422.4 million for fiscal year 2013, compared to $489.0 million in the previous fiscal year, a decrease of 14%. This decrease was due to reduced demand for our products, primarily due to weakness in demand for semiconductor capital equipment which led to a reduction of $94.4 million in revenue from our Brooks Product Solutions segment and a $4.3 million reduction in revenue from our Brooks Global Services segment. These decreases were partially offset by the acquisition of Crossing which added $33.5 million of revenue to our Brooks Product Solutions segment and $8.0 million of revenue to our Brooks Global Services segment for fiscal year 2013. Our Brooks Life Science Systems segment had lower sales of $9.3 million for fiscal year 2013 as compared to the previous year due to lower demand.
Our Brooks Product Solutions segment reported revenue of $290.5 million for fiscal year 2013, a decrease of 17% from $351.4 million in the prior fiscal year. These decreases were mostly attributable to lower volumes of shipments to semiconductor capital equipment and semiconductor adjacent customers, which decreased by $94.4 million for fiscal year 2013, as compared to the prior fiscal year. This decrease was partially offset by $33.5 million of product revenue for fiscal year 2013, contributed by our acquisition of Crossing.
Our Brooks Global Services segment reported revenue of $88.6 million for fiscal year 2013, a 4% increase from $84.9 million in the prior fiscal year. Excluding the acquisition of Crossing, revenue for this segment declined $4.3 million for fiscal year 2013 as compared to the prior fiscal year period primarily due to weakness in demand.


29


Our Brooks Life Science Systems segment reported revenue of $43.3 million for fiscal year 2013, a decrease of 18% from $52.6 million in the same prior fiscal year. These decreases were the result of delays in customer decisions to purchase automated sample management systems during the first half of fiscal year 2013.
Revenue outside the United States was $244.7 million, or 58% of total revenue, and $274.9 million, or 56% of total revenue, for fiscal years 2013 and 2012, respectively.
Gross Margin
Gross margin percentage decreased to 31.3% for fiscal year 2013, compared to 32.6% for the prior fiscal year. Gross margin in fiscal year 2013 included $2.7 million of charges related to the acquisition of Crossing, related primarily to the sale of acquired inventory to which a step-up in value was applied in our purchase accounting, which reduced gross margin by 0.6 percentage points. Gross margin in fiscal year 2013 also included $2.4 million of impairment charges and inventory reserves related to the Celigo product line which reduced gross margin by 0.6 percentage points. Gross margin was also negatively impacted by lower production which resulted in reduced absorption of our fixed costs. However, the decrease in absorption was offset by lower charges for excess and obsolete inventories, warranty costs and other manufacturing costs which increased gross margin by approximately 1.1 percentage points in fiscal year 2013.
Our gross margin percentage for our Brooks Products Services segment decreased to 31.4% for fiscal year 2013 as compared to 32.4% in the prior fiscal year. The decrease was due primarily to reduced demand for our products, which resulted in reduced absorption of our fixed costs. In addition, gross margin for the Brooks Products Services segment included $1.4 million related primarily to the sale of acquired inventory to which a step-up in value was applied in our purchase accounting, which reduced gross margin by 0.4 percentage points. The decreases in gross margin were partially offset by lower charges for excess and obsolete inventories and warranty costs which increased gross margin by 0.8 percentage points in fiscal year 2013.
Our gross margin percentage for our Brooks Global Services segment increased to 30.4% for fiscal year 2013 as compared to 29.5% in the prior fiscal year. The increase was due to lower charges for excess and obsolete inventories which increased gross margin by 1.3 percentage points in fiscal year 2013 and higher absorption of fixed costs resulting from an increase in revenue. The increase was partially offset by $1.3 million of charges related to the acquisition of Crossing, related primarily to the sale of acquired inventory to which a step-up in value was applied in our purchase accounting, which reduced gross margin by 1.5 percentage points. In addition, amortization expense associated with Crossing reduced gross margin by 0.2 percentage points in fiscal year 2013.
Our gross margin percentage for our Brooks Life Science Systems segment decreased to 32.7% for fiscal year 2013 as compared to 38.8% in the prior fiscal year. The decrease was due primarily to $2.4 million of impairment charges and inventory reserves related to the Celigo product line. The charges reduced gross profit margin by 5.5 percentage points for fiscal year 2013. The remaining decrease related to lower production and as a result, reduced absorption of our fixed costs.
Research and Development
Research and development, or R&D, expenses for fiscal year 2013 were $46.2 million, an increase of $1.5 million, compared to $44.7 million in the previous fiscal year. Lower labor and material costs resulting from restructuring actions and other cost saving initiatives were more than offset by our Crossing acquisition, which increased R&D expenses by $6.8 million and was not included in the prior fiscal year.
Selling, General and Administrative
Selling, general and administrative, or SG&A, expenses were $96.5 million for fiscal year 2013, a decrease of $1.5 million compared to $98.0 million in the prior fiscal year. The decrease was the result of $5.2 million of lower consulting costs and other professional service fees which decreased primarily because a project focused on improving operating efficiencies was completed in the prior fiscal year. We also reduced labor costs by $5.0 million through restructuring actions taken during fiscal year 2013 and incurred $1.2 million less stock-based compensation expense as a result of performance-based vesting criteria that we no longer expected to achieve. Lower SG&A costs for fiscal year 2013 were partially offset by $6.9 million of SG&A expenses for Crossing, which were not included in the prior fiscal year. In addition, in the second quarter of fiscal year 2012, we received $3.3 million of insurance proceeds as reimbursement of previously incurred litigation related costs.
Restructuring and Other Charges
We recorded restructuring charges of $6.4 million for fiscal year 2013. These charges related primarily to workforce reductions implemented to consolidate the operations of Crossing into our operations, to transition manufacturing of certain products in our line of Polycold cryochillers and compressors to a third party contract manufacturer and other programs designed to improve our cost structure. Restructuring charges also included facility related costs incurred in connection with the consolidation of Crossing facilities with our facilities.


30


Restructuring costs recorded in fiscal year 2013 consisted of $5.5 million of severance costs and $0.8 million of facility related costs. Severance costs related to a series of workforce reductions implemented to improve our cost structure by eliminating approximately 200 positions.
We recorded a restructuring charge of $3.2 million for fiscal year 2012. These charges related primarily to a series of workforce reductions of 118 employees implemented to improve our cost structure.
Pension Settlement
During fiscal year 2012, we advised participants of our frozen U.S. defined benefit pension plan that we intended to settle this pension obligation. This settlement occurred in the quarter ended September 30, 2012 and resulted in accelerated cash payments of approximately $6.4 million to fully satisfy the pension liability, and resulted in an accelerated amortization of approximately $8.9 million of prior pension losses that were previously reported in accumulated other comprehensive income.
In-process Research and Development
During the three months ended March 31, 2012, we acquired assets consisting primarily of intellectual property from Intevac, Inc. for $3.0 million. Management evaluated this asset purchase to determine if this acquisition would be considered an acquisition of a business. Since only limited assets were acquired, management concluded that the inputs and processes required to meet the definition of a business were not acquired in this transaction, and therefore, this transaction was treated as the purchase of an asset group. We expensed essentially all of this asset purchase as an in-process research and development cost in fiscal 2012.
Interest Income
Interest income was $1.0 million and $1.2 million, respectively, for fiscal years 2013 and 2012. The reduction was due to lower cash balances available for investing due to the cash acquisitions of Crossing in October 2012 and Matrical in August 2013.
Other Income, net
Other income, net, of $1.2 million for fiscal year 2013 consisted primarily of a $1.4 million gain on the sale of certain underutilized buildings in Chelmsford, MA and Oberdiessbach, Switzerland and $0.6 million of joint venture management fee income which was partially offset by foreign exchange losses of $0.9 million. Other income, net of $0.7 million for fiscal year 2012 consisted primarily of $1.0 million of joint venture management fee income partially offset by foreign exchange losses of $0.4 million.
Income Tax Benefit
We recorded an income tax benefit of $5.0 million for fiscal year 2013. This benefit consists of deferred tax benefits in the U.S. generated by pre-tax losses and tax credits of $5.1 million. We recorded the benefit in the U.S. because there was no valuation allowance against the deferred tax assets generated in fiscal year 2013. Despite the current year loss in the U.S. for fiscal year 2013, we reported taxable income for federal tax purposes due to the reversal of book to taxable income differences and the inclusion of income from the discontinued operations. As a result, we did not change any estimates with regard to long-term utilization of our net operating losses and credits. This benefit was partially offset by foreign taxes on profits of our foreign subsidiaries. Additionally, we recorded $1.0 million of tax benefits for the reversal of tax reserves resulting from the expiration of statutes of limitations in certain foreign jurisdictions. The U.S. tax benefit included $0.9 million of U.S. tax credits from fiscal year 2012 that were recognized in fiscal year 2013. These credits were reinstated under The American Taxpayer Relief Act of 2012 that was signed into law on January 2, 2013.
We recorded an income tax benefit of $126.2 million for fiscal year 2012. This benefit included a $121.8 million deferred income tax benefit, primarily resulting from a significant reduction in the valuation allowance against deferred tax assets. We considered the weight of both positive and negative evidence as of September 30, 2012 and concluded that a substantial portion of the deferred tax assets would be realized. The tax benefit for fiscal year 2012 was partially offset by U.S. state income taxes and foreign taxes.
Equity in Earnings of Equity Method Investments
Income associated with our 50% interest in ULVAC Cryogenics, Inc., a joint venture with ULVAC Corporation of Japan, was $2.6 million for fiscal year 2013 as compared to $2.0 million for fiscal year 2012. Loss associated with our 50% interest in Yaskawa Brooks Automation, Inc., a joint venture with Yaskawa Electric Corporation of Japan was $(0.2) million for fiscal year 2012 as compared to a gain of $0.1 million for fiscal year 2012.


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Liquidity and Capital Resources
A considerable portion of our revenue is dependent on the demand for semiconductor capital equipment. Demand for this equipment has historically experienced periodic downturns. We believe that we have adequate resources to fund our currently planned working capital and capital expenditure requirements for the next twelve months. The cyclical nature of our served markets and uncertainty with the current global economic environment makes it difficult for us to predict longer-term liquidity requirements with certainty. We may be unable to obtain any required additional financing on terms favorable to us, if at all. If adequate funds are not available on acceptable terms, we may be unable to 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.
Our cash, cash equivalents and marketable securities as of September 30, 2014 and 2013 consist of the following (in thousands):
 
September 30,
 
2014
 
2013
Cash and cash equivalents
$
94,114

 
$
82,971

Short-term marketable securities
68,130

 
45,900

Long-term marketable securities
83,212

 
44,491

 
$
245,456

 
$
173,362

Our marketable securities are generally readily convertible to cash without an adverse impact.
Cash and cash equivalents were $94.1 million at September 30, 2014, an increase of $11.1 million from September 30, 2013. The increase in cash was primarily due to $85.4 million of net proceeds received from the sale of divested businesses and $53.8 million of cash flow from operations. These sources of cash were partially offset by $62.2 million of net purchases of marketable securities, $35.6 million used in acquisitions and $22.9 million of cash dividends paid to our shareholders. Our cash and cash equivalents of $83.0 million at September 30, 2013 increased $28.3 million compared with cash and cash equivalents at September 30, 2012. In fiscal year 2013, the increase in cash and cash equivalents was due primarily to $54.4 million of cash flow from operations, $53.3 million of net sales of marketable securities and $14.1 million of proceeds from the sale of real estate offset, in part, by $68.3 million used for acquisitions and $21.3 million of cash dividends paid to our shareholders.
Cash provided by operating activities was $53.8 million for fiscal year 2014 compared with $54.4 million for fiscal year 2013. In fiscal year 2014, cash provided by operating activities was composed primarily of $31.5 million of net income adjusted by $8.2 million for non-cash related charges and $14.1 million of net working capital improvements. Non-cash related charges in fiscal year 2014 consisted of $23.5 million of depreciation and amortization and $10.9 million of stock-based compensation offset by $27.4 million related to gains from the sale of divested businesses. The decrease in working capital is primarily due to a $12.1 million decrease in accounts receivable and a $9.6 million decrease in inventory. In fiscal year 2013, cash provided by operating activities was composed primarily of a $2.2 million net loss adjusted by $28.4 million for non-cash related charges and a $28.1 million decrease in net working capital. Non-cash related charges in fiscal year 2013 consisted of $24.2 million of depreciation and amortization and $7.8 million of stock-based compensation. The decrease in working capital was primarily due to a $15.5 million decrease in inventory and $9.0 million increase in deferred revenue. The change in assets and liabilities due to acquisitions and divestitures is treated as an investing activity, not as an operating activity.
Cash used in investing activities was $17.8 million for fiscal year 2014, and included $62.2 million of net purchases of marketable securities, $35.6 million used for the acquisition of DMS and our investment in BioCision, LLC and $5.5 million of capital expenditures offset, in part, by $85.4 million of net proceeds from the sale of divested businesses. In fiscal year 2013, we used $7.1 million of cash in investing activities, which consisted of $68.3 million used for acquisitions and $3.6 million of capital expenditures offset, in part, by $53.3 million of net sales of marketable securities and $14.1 million of net proceeds from the sale of certain real estate in the United States and Switzerland.
Cash used in financing activities was $24.5 million for fiscal year 2014 compared with $19.5 million for fiscal year 2013. In fiscal year 2014, we used $22.9 million for the quarterly cash dividends we paid to our shareholders and an additional $3.2 million to acquire the outstanding interest of our majority-owned subsidiary in Korea. Cash used in financing activities for fiscal year 2013 consisted of $21.3 million for quarterly cash dividends partially offset by $1.8 million of cash generated from employee contributions to our employee stock purchase plans.
We had approximately $21.1 million of letters of credit outstanding related primarily to customer advances and other performance obligations at September 30, 2014. These arrangements guarantee the refund of advance payments received from customers in the event that the product is not delivered or warranty obligations are not fulfilled in compliance with the terms of the contract. While we do not anticipate that these obligations will be called, they could be called by the beneficiaries at any time before the expiration date of the particular letter of credit should we fail to meet certain contractual requirements.


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Our contractual obligations consist of the following at September 30, 2014 (in thousands):  
 
Total
 
Less than
One Year
 
One to
Three Years
 
Four to
Five Years
 
Thereafter
Operating leases
$
12,472

 
$
5,140

 
$
5,132

 
$
2,107

 
$
93

Capital lease
9,544

 
881

 
8,663

 

 

Pension funding
2,082

 
309

 
619

 
311

 
843

Purchase commitments and other
72,353

 
68,385

 
3,829

 
139

 

Total contractual obligations
$
96,451

 
$
74,715

 
$
18,243

 
$
2,557

 
$
936

In March 2014, we exercised an option to renew the lease of a building and the related land on our Chelmsford, Massachusetts campus. We have leased this building since 2002. By exercising this option, we also contracted to purchase the building at the end of the lease period. The assets acquired under the capital lease were recorded at the net present value of the minimum lease payments. The cost of the building and the land under the capital lease were included in the Consolidated Balance Sheets as property, plant and equipment at $6.4 million and $2.1 million, respectively, and the building is being depreciated over its estimated useful life.
As of September 30, 2014, the total amount of net unrecognized tax benefits for uncertain tax positions and the accrual for the related interest was $5.8 million, all of which represents a potential future cash outlay. We are unable to make a reasonably reliable estimate of the timing of the cash settlement for this liability since the timing of future tax examinations by various tax jurisdictions and the related resolution is uncertain.
We are a guarantor on a lease in Mexico that expires in January 2018. The remaining payments under this lease at September 30, 2014 are approximately $1.4 million.
On June 25, 2013, we filed a shelf registration statement on Form S-3 with the SEC to sell up to $200 million of securities, before any fees or expenses of the offering. Securities that may be sold include common stock, preferred stock, warrants, debt securities, depository shares, purchase contracts and purchase units. Any such offering, if it does occur, may happen in one or more transactions. Specific terms of any securities to be sold will be described in supplemental filings with the SEC. This registration statement will expire on July 1, 2016.
Our Board of Directors declared the following dividends during the fiscal years ended September 30, 2014 and 2013 (in thousands, except per share data):  
Declaration Date
 
Dividend
per
Share
 
Record
Date
 
Payment
Date
 
Total
Fiscal year Ended September 30, 2014
 
 
 
 
 
 
 
 
  November 12, 2013
 
$
0.08

 
December 6, 2013
 
December 27, 2013
 
$
5,391

  February 5, 2014
 
0.08

 
March 7, 2014
 
March 28, 2014
 
5,408

  May 7, 2014
 
0.08

 
June 6, 2014
 
June 27, 2014
 
5,344

  July 30, 2014
 
0.10

 
September 5, 2014
 
September 26, 2014
 
6,732

Fiscal year Ended September 30, 2013
 
 
 
 
 
 
 
 
  November 7, 2012
 
$
0.08

 
December 7, 2012
 
December 28, 2012
 
$
5,311

  January 30, 2013
 
0.08

 
March 8, 2013
 
March 29, 2013
 
5,361

  May 8, 2013
 
0.08

 
June 7, 2013
 
June 28, 2013
 
5,316

  August 7, 2013
 
0.08

 
September 6, 2013
 
September 27, 2013
 
5,340

On November 5, 2014, our Board of Directors approved a cash dividend of $0.10 per share of our common stock. The total dividend of approximately $6.7 million will be paid on December 26, 2014 to shareholders of record at the close of business on December 5, 2014. Dividends are declared at the discretion of our Board of Directors and depend on actual cash from operations, our financial condition and capital requirements and any other factors our Board of Directors may consider relevant. We intend to pay quarterly cash dividends in the future; however, the amount and timing of these dividends may be impacted by the cyclical nature of certain markets that we serve. We may reduce, delay or cancel a quarterly cash dividend based on the severity of a cyclical downturn.
Recent Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board, or FASB, issued an amendment to the accounting guidance for presentation of unrecognized tax benefits. The prior guidance related to unrecognized tax benefits did not explicitly address financial statement presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. The amended guidance eliminates the existing diversity in practice in the presentation of


33


unrecognized tax benefits in these instances. Under the amended guidance, an unrecognized tax benefit, or a portion of an unrecognized tax benefit, will be presented in the financial statements as a reduction of a deferred tax asset when an operating loss carryforward, a similar tax loss or a tax credit carryforward exists, with limited exceptions. This amended guidance is effective for fiscal years beginning on or after December 15, 2013. The adoption of this guidance will not have a material impact on our financial position or results of operations.
In April 2014, the FASB issued an amendment to the accounting guidance for reporting discontinued operations. The amended guidance raises the threshold for disposals to qualify as a discontinued operation by requiring a component of an entity that is held for sale, or has been disposed of by sale, to represent a strategic shift that has or will have a major effect on operations and financial results. Under the amended guidance, a strategic shift could include the disposal of a major line of business, a major geographical area, a major equity method investment or other major parts of an entity. In addition, the new guidance allows companies to have significant continuing involvement and continuing cash flows with the discontinued operation. The amended guidance is effective for fiscal years beginning on or after December 15, 2014. Early adoption is permitted but not required for disposals, or classifications as held for sale, that have not been previously reported in financial statements. We have elected not to adopt this amended guidance in regard to the Granville-Phillips discontinued operation.
In May 2014, the FASB issued new accounting guidance for reporting revenue recognition. The guidance recognizes revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The five step process may make it possible that more judgment and estimation will be required within the revenue recognition process than required under existing generally accepted accounting principles in the United States, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. This guidance is effective for fiscal years beginning after December 15, 2016. Early adoption is not permitted. We are evaluating the impact that the adoption of this guidance will have on our financial position and results of operations.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to a variety of market risks, 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
Our cash and cash equivalents consist principally of money market securities which are short-term in nature. Our short-term and long-term investments consist mostly of highly rated corporate debt securities, U.S. Treasury securities, and obligations of U.S. Government Agencies and other municipalities. At September 30, 2014, the unrealized loss position on marketable securities was $38,000, which is included in “Accumulated other comprehensive income” in the Consolidated Balance Sheets. A hypothetical 100 basis point change in interest rates would result in an annual change of approximately $2.1 million in interest income earned.
Currency Rate Exposure
We have transactions and balances denominated in currencies other than the U.S. dollar. Most of these transactions or balances are denominated in Euros, British Pounds and a variety of Asian currencies. Sales in currencies other than the U.S. dollar were 30% of our total sales for the fiscal year ended September 30, 2014. These foreign sales were made primarily by our foreign subsidiaries, which have cost structures that substantially align with the currency of sale.
In the normal course of our business, we have short-term advances between our legal entities that are subject to foreign currency exposure. These short-term advances were approximately $18.7 million at September 30, 2014, and relate to the Euro, British Pound and a variety of Asian currencies. We mitigate the impact of potential currency translation losses on these short-term intercompany advances by the timely settlement of each transaction, generally within 30 days. We also utilize forward contracts to mitigate our exposures to currency movement. We incurred a foreign currency loss of $1.2 million for the fiscal year ended September 30, 2014, which relates to the currency fluctuation on these advances between the time the transaction occurs and the ultimate settlement of the transaction. A hypothetical 10% change in foreign exchange rates at September 30, 2014 would result in a $0.5 million change in our net income.


34


Item 8.
Financial Statements and Supplementary Data  


35


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Brooks Automation, Inc.
Chelmsford, Massachusetts

We have audited the accompanying consolidated balance sheets of Brooks Automation, Inc. as of September 30, 2014 and 2013 and the related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits 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 the financial statements are free of material misstatement. An audit also includes 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, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Brooks Automation, Inc. at September 30, 2014 and 2013 and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Brooks Automation, Inc.’s internal control over financial reporting as of September 30, 2014, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated November 13, 2014 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
Boston, Massachusetts
November 13, 2014





36


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Brooks Automation, Inc.:

In our opinion, the consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for the year ended September 30, 2012 present fairly, in all material respects, the results of their operations and cash flows of Brooks Automation, Inc. and its subsidiaries for the year ended September 30, 2012, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes 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. We believe that our audit provides a reasonable basis for our opinion.


/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP

Boston, Massachusetts
November 21, 2012, except for the effects of discontinued operations discussed in Note 3 as to which the date is November 13, 2014



37


BROOKS AUTOMATION, INC.
CONSOLIDATED BALANCE SHEETS
 
September 30,
2014
 
September 30,
2013
 
(In thousands, except share and per share data)
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
94,114

 
$
82,971

Restricted cash

 
177

Marketable securities
68,130

 
45,900

Accounts receivable, net
80,106

 
77,483

Inventories
93,567

 
94,411

Deferred tax assets
19,009

 
16,839

Assets held for sale

 
27,778

Prepaid expenses and other current assets
19,387

 
9,030

Total current assets
374,313

 
354,589

Property, plant and equipment, net
50,183

 
47,506

Long-term marketable securities
83,212

 
44,491

Long-term deferred tax assets
67,563

 
99,146

Goodwill
109,501

 
97,924

Intangible assets, net
59,550

 
60,088

Equity method investments
28,944

 
25,687

Other assets
4,772

 
7,332

Total assets
$
778,038

 
$
736,763

Liabilities and equity
 
 
 
Current liabilities
 
 
 
Accounts payable
$
33,740

 
$
35,392

Capital lease obligation
881

 

Deferred revenue
26,279

 
19,610

Accrued warranty and retrofit costs
6,499

 
7,260

Accrued compensation and benefits
21,663

 
14,225

Accrued restructuring costs
3,475

 
1,412

Accrued income taxes payable
1,808

 
1,058

Deferred tax liabilities
808

 
19

Liabilities held for sale

 
132

Accrued expenses and other current liabilities
18,688

 
13,453

Total current liabilities
113,841

 
92,561

Long-term capital lease obligation
7,417

 

Long-term tax reserves
5,708

 
6,115

Long-term deferred tax liabilities
2,567

 
921

Long-term pension liability
1,774

 
815

Other long-term liabilities
3,842

 
3,695

Total liabilities
135,149

 
104,107

Commitments and contingencies (Note 22)

 

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

 

Common stock, $0.01 par value, 125,000,000 shares authorized, 80,375,777 shares issued and 66,913,908 shares outstanding at September 30, 2014, 80,039,104 shares issued and 66,577,235 shares outstanding at September 30, 2013
804

 
800

Additional paid-in capital
1,834,619

 
1,825,499

Accumulated other comprehensive income
15,687

 
22,604

Treasury stock at cost, 13,461,869 shares
(200,956
)
 
(200,956
)
Accumulated deficit
(1,007,265
)
 
(1,015,991
)
Total Brooks Automation, Inc. stockholders’ equity
642,889

 
631,956

Noncontrolling interest in subsidiaries

 
700

Total equity
642,889

 
632,656

Total liabilities and equity
$
778,038

 
$
736,763



The accompanying notes are an integral part of these consolidated financial statements.
38






BROOKS AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 
Year ended September 30,
 
2014
 
2013
 
2012
 
(In thousands, except per share data)
Revenue
 
 
 
 
 
Product
$
387,032

 
$
335,011

 
$
402,505

Services
95,816

 
87,429

 
86,478

Total revenue
482,848

 
422,440

 
488,983

Cost of revenue
 
 
 
 
 
Product
252,688

 
229,411

 
267,448

Services
62,823

 
60,722

 
62,082

Total cost of revenue
315,511

 
290,133

 
329,530

Gross profit
167,337

 
132,307

 
159,453

Operating expenses
 
 
 
 
 
Research and development
52,649

 
46,209

 
44,717

Selling, general and administrative
111,098

 
96,516

 
97,978

Restructuring and other charges
6,289

 
6,380

 
3,153

Pension settlement

 

 
8,937

In-process research and development

 

 
3,026

Total operating expenses
170,036

 
149,105

 
157,811

Operating income (loss)
(2,699
)
 
(16,798
)
 
1,642

Interest income
950

 
1,032

 
1,213

Interest expense
(202
)
 
(2
)
 
(14
)
Other income, net
256

 
1,227

 
660

Income (loss) before income taxes and equity in earnings of equity method investments
(1,695
)
 
(14,541
)
 
3,501

Income tax benefit
(1,980
)
 
(4,985
)
 
(126,201
)
Income (loss) before equity in earnings of equity method investments
285

 
(9,556
)
 
129,702

Equity in earnings of equity method investments
1,235

 
2,442

 
2,133

Income (loss) from continuing operations
1,520

 
(7,114
)
 
131,835

Income from discontinued operations, net of tax
30,002

 
4,964

 
5,000

Net income (loss)
31,522

 
(2,150
)
 
136,835

Net income attributable to noncontrolling interests
(161
)
 
(65
)
 
(46
)
Net income (loss) attributable to Brooks Automation, Inc.
$
31,361

 
$
(2,215
)
 
$
136,789

Basic net income (loss) per share attributable to Brooks Automation, Inc. common stockholders:
 
 
 
 
 
Income (loss) from continuing operations
$
0.02

 
$
(0.11
)
 
$
2.02

Income from discontinued operations, net of tax
0.45

 
0.08

 
0.08

Basic net income (loss) per share attributable to Brooks Automation, Inc.
$
0.47

 
$
(0.03
)
 
$
2.10

Diluted net income (loss) per share attributable to Brooks Automation, Inc. common stockholders:
 
 
 
 
 
Income (loss) from continuing operations
$
0.02

 
$
(0.11
)
 
$
2.01

Income from discontinued operations, net of tax
0.44

 
0.08

 
0.08

Diluted net income (loss) per share attributable to Brooks Automation, Inc. common stockholders
$
0.46

 
$
(0.03
)
 
$
2.08

Dividend declared per share
$
0.34

 
$
0.32

 
$
0.32

Weighted-average shares used in computing earnings (loss) per share:
 
 
 
 
 
Basic
66,648

 
65,912

 
65,128

Diluted
67,644

 
65,912

 
65,722



The accompanying notes are an integral part of these consolidated financial statements.
39







BROOKS AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) 

 
Year ended September 30,
 
2014
 
2013
 
2012
 
(In thousands)
Net income (loss)
$
31,522

 
$
(2,150
)
 
$
136,835

Comprehensive income (loss), net of tax:
 
 
 
 
 
Change in cumulative translation adjustment
(6,296
)
 
(2,113
)
 
(2,406
)
Change in unrealized gain (loss) on marketable securities
(104
)
 
(135
)
 
393

Change in fair value on cash flow hedges
(14
)
 
14

 

Actuarial gain (loss)
(503
)
 
1,109

 
(606
)
Pension settlement

 
87

 
8,937

Comprehensive income (loss), net of tax
24,605

 
(3,188
)
 
143,153

Comprehensive income attributable to noncontrolling interests
(161
)
 
(65
)
 
(46
)
Comprehensive income (loss) attributable to Brooks Automation, Inc., net of tax
$
24,444

 
$
(3,253
)
 
$
143,107




The accompanying notes are an integral part of these consolidated financial statements.
40






BROOKS AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Year ended September 30,
 
2014
 
2013
 
2012
 
(In thousands)
Cash flows from operating activities
 
 
 
 
 
Net income (loss)
$
31,522

 
$
(2,150
)
 
$
136,835

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization
23,459

 
24,155

 
21,620

Impairment of intangible assets
398

 
1,960

 

Impairment of other assets
2,621

 

 

Stock-based compensation
10,912

 
7,757

 
8,647

Amortization of premium on marketable securities
1,255

 
1,274

 
2,401

Undistributed earnings of equity method investments
(1,235
)
 
(2,442
)
 
(2,133
)
Deferred income tax benefit
(1,779
)
 
(2,936
)
 
(122,136
)
Pension settlement

 
87

 
8,937

Gain on disposal of businesses
(27,444
)
 

 

Loss (gain) on disposal of long-lived assets
13

 
(1,394
)
 
(63
)
Changes in operating assets and liabilities, net of acquisitions and disposals:
 
 
 
 
 
Accounts receivable
12,098

 
6,422

 
(784
)
Inventories
9,598

 
15,490

 
5,874

Prepaid expenses and other current assets
(12,325
)
 
4,359

 
5,801

Accounts payable
(11,924
)
 
3,123

 
(11,182
)
Deferred revenue
5,900

 
8,971

 
(4,684
)
Accrued warranty and retrofit costs
(1,102
)
 
(1,806
)
 
(123
)
Accrued compensation and benefits
6,783

 
(2,625
)
 
(4,878
)
Accrued restructuring costs
2,161

 
(972
)
 
1,930

Accrued pension
997

 
(950
)
 
(5,772
)
Accrued expenses and other current liabilities
1,873

 
(3,934
)
 
(4,252
)
Net cash provided by operating activities
53,781

 
54,389

 
36,038

Cash flows from investing activities
 
 
 
 
 
Purchases of property, plant and equipment
(5,518
)
 
(3,635
)
 
(8,653
)
Purchases of marketable securities
(174,287
)
 
(91,740
)
 
(132,015
)
Sale/maturity of marketable securities
112,085

 
145,023

 
131,317

Proceeds from divestitures
85,369

 

 

Acquisitions, net of cash acquired
(35,625
)
 
(68,331
)
 
(9,216
)
Decrease in restricted cash
177

 
586

 
530

Other investment

 

 
(3,000
)
Proceeds from the sale of property, plant and equipment

 
14,082

 

Payment of deferred leasing cost

 
(3,134
)
 

Net cash used in investing activities
(17,799
)
 
(7,149
)
 
(21,037
)
Cash flows from financing activities
 
 
 
 
 
Proceeds from issuance of common stock, net of issuance costs
1,838

 
1,851

 
1,705

Repayment of capital lease obligations
(239
)
 

 

Acquisition of noncontrolling interest
(3,189
)
 

 

Common stock dividend paid
(22,875
)
 
(21,328
)
 
(20,953
)
Net cash used in financing activities
(24,465
)
 
(19,477
)
 
(19,248
)
Effects of exchange rate changes on cash and cash equivalents
(374
)
 
569

 
53

Net increase (decrease) in cash and cash equivalents
11,143

 
28,332

 
(4,194
)
Cash and cash equivalents, beginning of year
82,971

 
54,639

 
58,833

Cash and cash equivalents, end of year
$
94,114

 
$
82,971

 
$
54,639

Supplemental disclosures:
 
 
 
 
 
       Cash paid during the year for interest
$
202

 
$
2

 
$
14

       Cash paid (refunded) during the year for income taxes, net
$
1,084

 
$
(762
)
 
$
4,282

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

 
$

 
$


The accompanying notes are an integral part of these consolidated financial statements.
41






BROOKS AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
 
Common
Stock
Shares
 
Common
Stock at
Par
Value
 
Additional
Paid-In
Capital  
 
Accumulated
Other
Comprehensive
Income
 
Accumulated
Deficit
 
Treasury
Stock
 
Total
Brooks
Automation,
Inc.
Stockholders’
Equity  
 
Noncontrolling
Interests in
Subsidiaries
 
Total
Equity  
 
(In thousands, except share data)
Balance September 30, 2011
79,737,189

 
$
797

 
$
1,809,287

 
$
17,324

 
$
(1,108,105
)
 
$
(200,956
)
 
$
518,347

 
$
589

 
$
518,936

Shares issued under stock option, restricted stock and purchase plans, net
53,368

 
1

 
(228
)
 
 

 
 

 
 

 
(227
)
 
 

 
(227
)
Stock-based compensation
 

 
 

 
8,647

 
 

 
 

 
 

 
8,647

 
 

 
8,647

Common stock dividend declared
 

 
 

 
 

 
 

 
(21,208
)
 
 

 
(21,208
)
 
 

 
(21,208
)
Net income
 
 
 
 
 
 
 
 
136,789

 
 
 
136,789

 
46

 
136,835

Currency translation adjustments
 

 
 

 
 

 
(2,406
)
 
 

 
 

 
(2,406
)
 
 

 
(2,406
)
Changes in unrealized gain on marketable securities
 

 
 

 
 

 
393

 
 
 
 

 
393

 
 

 
393

Actuarial loss arising in the year
 

 
 

 
 

 
(606
)
 
 
 
 

 
(606
)
 
 

 
(606
)
Recognition of pension settlement in earnings
 

 
 

 
 

 
8,937

 
 

 
 

 
8,937

 
 

 
8,937

Balance September 30, 2012
79,790,557

 
798

 
1,817,706

 
23,642

 
(992,524
)
 
(200,956
)
 
648,666

 
635

 
649,301

Shares issued under stock option, restricted stock and purchase plans, net
248,547

 
2

 
186

 
 

 
 

 
 

 
188

 
 

 
188

Stock-based compensation