BRUKER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
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Year Ended December 31,
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2018
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2017
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2016
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|
Cash flows from operating activities:
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Consolidated net income
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$
|
181.0
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$
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80.3
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$
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154.5
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|
Adjustments to reconcile consolidated net income to cash flows from operating activities:
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Depreciation and amortization
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64.9
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63.9
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54.3
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Stock-based compensation expense
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11.3
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11.0
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|
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9.4
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Deferred income taxes
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|
(15.1
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)
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28.2
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|
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(22.7
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)
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Impairment and other non-cash expenses, net
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39.8
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11.6
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24.1
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Changes in operating assets and liabilities, net of acquisitions:
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Accounts receivable
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(30.5
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)
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(55.5
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)
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(8.4
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)
|
Inventories
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|
|
(35.5
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)
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(6.6
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)
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(43.2
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)
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Accounts payable and accrued expenses
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5.0
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33.7
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(19.6
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)
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Income taxes payable
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|
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4.0
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5.2
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(26.8
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)
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Deferred revenue
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|
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7.1
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4.0
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|
|
4.9
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Customer advances
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3.5
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(27.8
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)
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(7.3
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)
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Other changes in operating assets and liabilities
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4.2
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6.4
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11.6
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Net cash provided by operating activities
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239.7
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154.4
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130.8
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Cash flows from investing activities:
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|
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|
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Purchase of short-term investments
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|
|
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(118.5
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)
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(126.5
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)
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Maturity of short-term investments
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117.0
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|
186.8
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|
165.0
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Cash paid for acquisitions, net of cash acquired
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|
|
(191.6
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)
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|
(66.3
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)
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|
(24.3
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)
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Purchases of property, plant and equipment
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|
|
(49.2
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)
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(43.7
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)
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(37.1
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)
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Proceeds from sales of property, plant and equipment
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0.4
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11.5
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1.1
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Net cash used in investing activities
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|
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(123.4
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)
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|
(30.2
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)
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|
(21.8
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)
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|
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Cash flows from financing activities:
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|
|
|
|
|
|
|
|
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Repayments of revolving lines of credit
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|
|
(218.1
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)
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|
(130.0
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)
|
|
|
|
Proceeds from revolving lines of credit
|
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129.4
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|
|
154.0
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|
146.0
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Repayment of Note Purchase Agreement
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|
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(20.0
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)
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Repayment of other debt, net
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(4.8
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)
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|
(0.9
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)
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|
(0.1
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)
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Proceeds from issuance of common stock, net
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9.4
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|
|
20.0
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|
11.5
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|
Payment of contingent consideration
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(2.3
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)
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(3.5
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)
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|
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|
Payment of dividends to common stockholders
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|
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(25.1
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)
|
|
(25.4
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)
|
|
(25.8
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)
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Repurchase of common stock
|
|
|
|
|
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(152.2
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)
|
|
(160.0
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)
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Cash payments to noncontrolling interests
|
|
|
(0.9
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)
|
|
(1.0
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)
|
|
(0.7
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)
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Excess tax benefits related to stock option awards
|
|
|
|
|
|
|
|
|
1.2
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|
|
|
|
|
|
|
|
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|
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Net cash used in financing activities
|
|
|
(112.4
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)
|
|
(159.0
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)
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|
(27.9
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)
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|
|
|
|
|
|
|
|
|
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Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
|
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(6.5
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)
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|
17.8
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(6.4
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)
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|
|
|
|
|
|
|
|
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Net change in cash, cash equivalents and restricted cash
|
|
|
(2.6
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)
|
|
(17.0
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)
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|
74.7
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|
Cash, cash equivalents and restricted cash at beginning of year
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|
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328.9
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|
|
345.9
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|
|
271.2
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|
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Cash, cash equivalents and restricted cash at end of year
|
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$
|
326.3
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$
|
328.9
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$
|
345.9
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Supplemental cash flow information:
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Cash paid for interest
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$
|
11.7
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$
|
15.2
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$
|
12.5
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Cash paid for taxes
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$
|
60.5
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$
|
53.1
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$
|
72.4
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The accompanying notes are an integral part of these consolidated financial statements.
74
Table of Contents
BRUKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1Description of Business
Bruker Corporation, together with its consolidated subsidiaries ("Bruker" or the "Company"), develops, manufactures and distributes
high-performance scientific instruments and analytical and diagnostic solutions that enable its customers to explore life and materials at microscopic, molecular and cellular levels. Many of the
Company's products are used to detect, measure and visualize structural characteristics of chemical, biological and industrial material samples. The Company's products address the rapidly evolving
needs of a diverse array of customers in life science research, pharmaceuticals, biotechnology, applied markets, cell biology, clinical research, microbiology, in-vitro diagnostics, nanotechnology and
materials science research.
The
Company has two reportable segments,
Bruker Scientific Instruments (BSI)
, which represented approximately 90% of the Company's
revenues in each of the years ended December 31, 2018 and 2017, and
Bruker Energy & Supercon Technologies (BEST)
, which represented the remainder of the
Company's revenues. Within BSI, the Company is organized into three operating segments: the Bruker BioSpin Group, the Bruker CALID Group and the Bruker Nano Group. For financial reporting purposes,
the Bruker BioSpin, Bruker CALID and Bruker Nano operating segments are aggregated into the BSI reportable segment because each has similar economic characteristics, production processes, service
offerings, types and classes of customers, methods of distribution and regulatory environments.
Bruker BioSpin
The Bruker BioSpin Group designs, manufactures and distributes enabling life science tools based on magnetic resonance technology. The majority of the Bruker BioSpin Group's revenues
are generated by academic and government research customers. Other customers include pharmaceutical and biotechnology companies and nonprofit laboratories, as well as chemical, food and beverage,
clinical and other industrial companies.
Bruker CALID (
C
hemicals,
A
pplied Markets,
L
ife Science,
I
n-Vitro Diagnostics,
D
etection)
The Bruker CALID Group designs, manufactures and distributes life science mass spectrometry and ion mobility spectrometry solutions, analytical and process analysis instruments and
solutions based on infrared and Raman molecular spectroscopy technologies and radiological/nuclear detectors for Chemical, Biological, Radiological, Nuclear and Explosive (CBRNE) detection. Customers
of the Bruker CALID Group include: academic institutions and medical schools; pharmaceutical, biotechnology and diagnostics companies; contract research organizations; nonprofit and for-profit
forensics laboratories; agriculture, food and beverage safety laboratories; environmental and clinical microbiology laboratories; hospitals and government departments and agencies.
Bruker Nano
The Bruker Nano Group designs, manufactures and distributes advanced X-ray instruments; atomic force microscopy instrumentation; advanced fluorescence optical microscopy instruments;
analytical tools for electron microscopes and X-ray metrology; defect-detection equipment for semiconductor process control; handheld, portable and mobile X-ray fluorescence spectrometry instruments;
and spark optical emission spectroscopy systems. Customers of the Bruker Nano Group include academic institutions, governmental customers, nanotechnology companies, semiconductor companies, raw
material manufacturers, industrial companies, biotechnology and pharmaceutical companies and other businesses involved in materials analysis.
The
Company's BEST reportable segment develops and manufactures superconducting and non-superconducting materials and devices for use in renewable energy, energy infrastructure,
healthcare and "big science" research. The segment focuses on metallic low temperature superconductors for use in magnetic resonance imaging, nuclear magnetic resonance, fusion energy
75
Table of Contents
research
and other applications, as well as ceramic high temperature superconductors primarily for energy grid and magnet applications.
Note 2Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and all majority and wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated.
Noncontrolling Interests
Noncontrolling interests represents the minority shareholders' proportionate share of the Company's majority-owned subsidiaries. The portion of
net income or net loss attributable to non-controlling interests is presented as net income attributable to noncontrolling interests in consolidated subsidiaries in the consolidated statements of
income and comprehensive income, and the portion of other comprehensive income of these subsidiaries is presented in the consolidated statements of shareholders' equity.
Redeemable Noncontrolling Interests
The Company has an agreement with noncontrolling interest holders that provides the Company with the right to purchase, and the noncontrolling
interest holders with the right to sell, their remaining minority interest at a contractually defined redemption value. These rights are accelerated in certain events. As the redemption is
contingently redeemable at the option of the noncontrolling interest shareholders, the Company classifies the carrying amount of the redeemable noncontrolling interest in the mezzanine section on the
consolidated balance sheet, which is presented above the equity section and below liabilities. Subsequent to the acquisition, the redeemable noncontrolling interest is measured at the greater of the
amount that would be paid if settlement occurred as of the balance sheet date based on the contractually defined redemption value and its carrying amount adjusted for net income (loss) attributable to
the noncontrolling interest. Adjustments to the carrying value of the redeemable noncontrolling interest are recorded through retained earnings.
Business Combinations
The Company accounts for business combinations under the acquisition method of accounting. Accordingly, at the date of each acquisition, the
Company measures the fair value of all identifiable assets acquired (including intangible assets), liabilities assumed and any remaining noncontrolling interests and allocates the amounts paid to all
items measured. The fair value of identifiable intangible assets acquired are based on valuations that use information and assumptions determined by management and which consider management's best
estimates of inputs and assumptions that a market participant would use.
Subsequent Events
The Company has evaluated all subsequent events and determined that there are no material recognized or unrecognized subsequent events, or any
subsequent events required to be mentioned in the footnotes to the consolidated financial statements.
Cash and Cash Equivalents
Cash and cash equivalents primarily include cash on hand, money market funds and time deposits with original maturities of three months or less
at the date of acquisition. Time deposits represent
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amounts
on deposit in banks and temporarily invested in instruments with maturities of three months or less at the time of purchase. Certain of these investments represent deposits which are not
insured by the FDIC or any other government agency. Cash equivalents are carried at cost, which approximates fair value.
Short-term Investments
Short-term investments represent time and call deposits with original maturities of greater than three months at the date of acquisition.
Short-term investments are classified as available-for-sale and are reported at fair value. There were no unrealized gains (losses) recorded as of December 31, 2018 and 2017, as cost approximates
current fair value. There were no short-term investments held by the Company as of December 31, 2018.
Restricted Cash
Restricted cash is included as a component of cash, cash equivalents, and restricted cash on the Company's consolidated statement of cash flows.
The Company has certain subsidiaries that are required by local laws and regulations to maintain restricted cash balances to cover future employee benefit payments. Restricted cash balances are
classified as non-current unless, under the terms of the applicable agreements, the funds will be released from restrictions within one year from the balance sheet date. The current and non-current
portion of restricted cash is recorded within other current assets and other long-term assets, respectively, in the accompanying consolidated balance sheets.
The
inclusion of restricted cash increased the balances of the consolidated statement of cash flows as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Beginning Balance
|
|
$
|
3.9
|
|
$
|
3.5
|
|
$
|
4.1
|
|
Ending Balance
|
|
$
|
3.9
|
|
$
|
3.9
|
|
$
|
3.5
|
|
Derivative Financial Instruments and Hedging Activities
All derivatives, whether designated in a hedging relationship or not, are recorded on the consolidated balance sheets at fair value. The
accounting for changes in fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging
relationship. For those derivative instruments that are designated and qualify as hedging instruments, the Company must designate the hedging instrument, based on the exposure being hedged, as a fair
value hedge, cash flow hedge, foreign currency hedge or a hedge of a net investment in a foreign operation.
Fair Value of Financial Instruments
The Company applies the following hierarchy to determine the fair value of financial instruments, which prioritizes the inputs used to measure
fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. The levels in the
hierarchy are defined as follows:
-
-
Level 1:
Inputs to the valuation methodology are quoted prices (unadjusted)
for identical assets or liabilities in active markets.
-
-
Level 2:
Inputs to the valuation methodology include quoted prices for
similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
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Table of Contents
-
-
Level 3:
Inputs to the valuation methodology are unobservable and
significant to the fair value measurement.
The
valuation techniques that may be used by the Company to determine the fair value of Level 2 and Level 3 financial instruments are the market approach, the income approach and the
cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The income approach uses
valuation techniques to convert future amounts to a single present value based on current market expectations about those future amounts, including present value techniques, option-pricing models and
the excess earnings method. The cost approach is based on the amount that would be required to replace the service capacity of an asset (replacement cost).
The
Company's financial instruments consist primarily of cash equivalents, short-term investments, restricted cash, derivative instruments consisting of forward foreign exchange
contracts, commodity contracts, derivatives embedded in certain purchase and sale contracts, derivatives embedded within noncontrolling interests, accounts receivable, accounts payable, contingent
consideration and long-term debt. The carrying amounts of the Company's cash equivalents, short-term investments and restricted cash, accounts receivable, borrowings under a revolving credit agreement
and accounts payable approximate fair value because of their short-term nature. Derivative assets and liabilities are measured at fair value on a recurring basis. The Company's long-term debt consists
principally of a private placement arrangement entered into in 2012 with various fixed interest rates based on the maturity date and borrowings under a revolving credit agreement.
The
Company has evaluated the estimated fair value of financial instruments using available market information and management's estimates. The use of different market assumptions and/or
estimation methodologies could have a significant effect on the estimated fair value amounts.
Concentration of Credit Risk
Financial instruments that subject the Company to credit risk consist of cash, cash equivalents, short-term investments, derivative instruments,
accounts receivables and restricted cash. The risk with respect to cash, cash equivalents and short-term investments is minimized by the Company's policy of investing in short-term financial
instruments issued by highly-rated financial institutions. The risk with respect to derivative instruments is minimized by the Company's policy of entering into arrangements with highly-rated
financial institutions. The risk with respect to accounts receivables is minimized by the creditworthiness and diversity of the Company's customers. The Company performs periodic credit evaluations of
its customers' financial condition and generally requires an advanced deposit for a portion of the purchase price. Credit losses have been within management's expectations and the allowance for
doubtful accounts totaled $3.8 million and $4.7 million as of December 31, 2018 and 2017, respectively. As of December 31, 2018 and 2017, no single customer represented 10% or more of the Company's
accounts receivable. For the years ended December 31, 2018, 2017 and 2016, no single customer represented 10% or more of the Company's total revenue.
Inventories
Components of inventory include raw materials, work-in-process, demonstration units and finished goods. Demonstration units include systems
which are located in the Company's demonstration laboratories or installed at the sites of potential customers and are considered available for sale. Finished goods include in-transit systems that
have been shipped to the Company's customers, but not yet installed and accepted by the customer. All inventories are stated at the lower of cost and net realizable value. Cost is determined
principally by the first-in, first-out method for a majority of subsidiaries and by average-cost for certain other subsidiaries. The Company reduces the carrying value of its inventories for
differences between cost and estimated net realizable value, taking into
78
Table of Contents
consideration
usage in the preceding twelve months, expected demand, technological obsolescence and other information including the physical condition of demonstration inventories. The Company records
a charge to cost of product revenue for the amount required to reduce the carrying value of inventory to net realizable value. Costs associated with the procurement of inventories, such as inbound
freight charges and purchasing and receiving costs, are capitalized as part of inventory and are also included in the cost of product revenue line item within the consolidated statements of income and
comprehensive income.
In
July 2015, the FASB issued ASU No. 2015-11,
Simplifying the Measurement of Inventory
. This guidance eliminates the measurement of
inventory at market value, and inventory is now measured at the lower of cost and net realizable value. The ASU defines net realizable value as the estimated selling prices in the ordinary course of
business, less reasonably predictable costs of completion, disposal, and transportation. The Company adopted ASU No. 2015-11 on a prospective basis in the first quarter of 2017.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Major improvements that extend the useful lives
of such assets are capitalized while expenditures for maintenance, repairs and minor improvements are charged to expense as incurred. When assets are retired or otherwise disposed of, the assets and
related accumulated depreciation and amortization are eliminated from the accounts and any resulting gain or loss is reflected in the consolidated statements of income and comprehensive income.
Depreciation and amortization are calculated on a straight-line basis over the estimated useful lives of the assets as follows:
|
|
|
|
|
Buildings
|
|
25-40 years
|
|
Machinery and equipment
|
|
3-10 years
|
|
Computer equipment and software
|
|
3-5 years
|
|
Furniture and fixtures
|
|
3-10 years
|
|
Leasehold improvements
|
|
Lesser of 15 years or the remaining lease term
|
Goodwill and Intangible Assets
Goodwill and indefinite-lived intangible assets are not amortized, but are evaluated for impairment on an annual basis, or on an interim basis
when events or changes in circumstances indicate that the carrying value may not be recoverable. In assessing the recoverability of goodwill and indefinite-lived intangible assets, the Company must
make assumptions regarding the estimated future cash flows, and other factors, to determine the fair value of these assets. If these estimates or their related assumptions change in the future, the
Company may be required to record impairment charges against these assets in the reporting period in which the impairment is determined.
The
Company tests goodwill for impairment at the reporting unit level, which is the operating segment or one level below an operating segment. The Company has the option of performing a
qualitative assessment to determine whether further impairment testing is necessary before performing the two-step quantitative assessment. If as a result of the qualitative assessment, it is
more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, a quantitative impairment test will be required. Otherwise, no further testing will be required. If a
quantitative impairment test is performed, the first step involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. The Company
generally determines fair value of reporting units using a weighting of both the market and the income methodologies. Estimating the fair value of the reporting units requires significant judgment by
management. If the carrying amount of a reporting unit exceeds the fair value of the reporting unit, the Company performs the second step of the goodwill impairment test to measure the amount of the
impairment. In the second step of the goodwill
79
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impairment
test the Company compares the implied fair value of the reporting unit's goodwill with the carrying value of that goodwill.
In
process research and development, or IPR&D, acquired as part of business combinations under the acquisition method represents ongoing development work associated with enhancements to
existing
products, as well as the development of next generation products. IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment on an annual
basis, or when indicators of impairment are identified. When the IPR&D project is complete, it is reclassified as a finite-lived intangible asset and is amortized over its estimated useful life. If an
IPR&D project is abandoned before completion or is otherwise determined to be impaired, the value of the asset or the amount of the impairment is charged to the consolidated statements of income and
comprehensive income in the period the project is abandoned or impaired.
Intangible
assets with a finite useful life are amortized on a straight-line basis over their estimated useful lives as follows:
|
|
|
|
|
Existing technology and related patents
|
|
3-15 years
|
|
Customer and distributor relationships
|
|
5-15 years
|
|
Trade names
|
|
5-15 years
|
Impairment of Long-Lived Assets
Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the quoted market price, if
available or the estimated fair value of those assets are less than the assets' carrying value and are not recoverable. Determination of recoverability is based on an estimate of undiscounted future
cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the
assets are written-down to their fair values. Impairment losses are charged to the consolidated statements of income and comprehensive income for the difference between the fair value and carrying
value of the asset.
Warranty Costs and Deferred Revenue
The Company typically provides a one year parts and labor warranty with the purchase of equipment. The anticipated cost for this warranty is
accrued upon recognition of the sale
and is included as a current liability on the accompanying consolidated balance sheets. The Company's warranty reserve reflects estimated material and labor costs for potential product issues for
which the Company expects to incur an obligation. The Company's estimates of anticipated rates of warranty claims and costs are primarily based on historical information. The Company assesses the
adequacy of the warranty reserve on a quarterly basis and adjusts the amount as necessary. If the historical data used to calculate the adequacy of the warranty reserve is not indicative of future
requirements, additional or reduced warranty reserves may be required.
The
Company also offers to its customers extended warranty and service agreements extending beyond the initial warranty for a fee. These fees are recorded as deferred revenue and
recognized ratably into income over the life of the extended warranty contract or service agreement.
Income Taxes
Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial
statement carrying amounts and the income tax basis of assets and liabilities. A valuation allowance is applied against any net deferred tax asset if, based on the available evidence, it is more
likely than not that some or all of the deferred tax assets will not be realized.
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Table of Contents
The
Company records liabilities related to uncertain tax positions in accordance with the guidance that clarifies the accounting for uncertainty in income taxes recognized in a company's
financial statements. This guidance prescribes a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to
be taken in a tax return. The Company includes accrued interest and penalties related to unrecognized tax benefits and income tax liabilities, when applicable, in income tax expense.
Customer Advances
The Company typically requires an advance deposit under the terms and conditions of contracts with customers. These deposits are recorded as a
current or long-term liability until revenue is recognized on the specific contract in accordance with the Company's revenue recognition policy.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606,
Revenue from Contracts with
Customers
. The key elements of ASC 606 are: 1) identifying a contract with the customer; 2) identifying the performance obligations in the contract; 3) determining the
transaction price; 4) allocating the transaction price to the performance obligations in the contract; and 5) recognizing revenue when (or as) each performance obligation is satisfied.
A
performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract's transaction price is allocated to each distinct performance
obligation and recognized as revenue when, or as, the performance obligation is satisfied. Some of the Company's contracts have multiple performance obligations, most commonly due to providing
additional goods or services along with a system, such as installation, accessories, parts and services. For contracts with multiple performance obligations, the Company allocates the contract's
transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct good or service being provided to the customer. The Company's best evidence of
standalone selling price is its normal selling pricing and discounting practices for the specific product or service when sold on a standalone basis. Alternatively, when not sold separately, the
Company may determine standalone selling price using an expected cost plus a margin approach. The Company analyzes its selling prices used in the allocation of the transaction price, at a minimum, on
an annual basis. Selling prices will be analyzed more frequently if a significant change in the Company's business or other factors necessitate more frequent analysis or the Company experiences
significant variances in its selling prices.
The
Company's performance obligations are typically satisfied at a point in time, most commonly either on shipment or customer acceptance. Certain performance obligations, such as
maintenance contracts and extended warranty, are recognized over time based on the contractual obligation period. In addition, certain arrangements to provide more customized deliverables may be
satisfied over time based on the extent of progress towards completion. For performance obligations recognized over time, revenue is measured by progress toward completion of the performance
obligation that reflects the transfer of control. Typically, progress is measured using a cost-to-cost method based on cost incurred to date relative to total estimated costs upon completion as this
best depicts the transfer of control to the customer. Application of the cost-to-cost method requires the Company to make reasonable estimates of the extent of progress toward completion and the total
costs the Company expects to incur. Losses are recorded immediately when the Company estimates that contracts will ultimately result in a loss. Changes in the estimates could affect the timing of
revenue recognition.
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Table of Contents
The Company includes costs incurred in connection with shipping and handling of products within selling, general and administrative costs. Amounts billed to
customers in connection with these costs are included in total revenues. When control of the goods transfers prior to the completion of the Company's obligation to ship the products to its customers,
the Company has elected the practical expedient to account for the shipping services as a fulfillment cost. The Company expenses incremental costs of obtaining a contract as and when incurred if the
expected amortization period is one year or less or the amount is immaterial. The Company excludes from the transaction price all taxes assessed by a governmental authority on revenue-producing
transactions that are collected by the Company from a customer.
The
Company recognizes revenue from systems sales upon transfer of control in an amount that reflects the consideration it expects to receive. Transfer of control generally occurs upon
shipment, or for certain systems, based upon customer acceptance for a system once delivered and installed at a customer facility. For systems that include customer-specific acceptance criteria, the
Company is required to assess when it can demonstrate the acceptance criteria has been met, which generally is upon successful factory acceptance testing or customer acceptance and evidence of
installation. For systems that require installation and where system revenue is recognized upon shipment, the standalone selling price of installation is deferred until customer acceptance. Revenue
from accessories and parts is generally recognized based on shipment. Service revenue is recognized as the services are performed or
ratably over the contractual obligation and includes maintenance contracts, extended warranties, training, application support and on-demand services.
When
products are sold through an independent distributor or a strategic distribution partner, the Company recognizes the system sale upon transfer of control which is typically on
shipment. When the Company is responsible for installation, the standalone selling price of installation is deferred until customer acceptance. The Company's distributors do not have price protection
rights or rights of return; however, the Company's products are typically warranted to be free from defect for a period of one year.
The
Company requires an advance deposit based on the terms and conditions of contracts with customers for many of its contracts. Typically, revenue is recognized within one year of
receiving an advance deposit. The Company does not have any material payment terms that extend beyond one year. For contracts where an advance payment is received greater than one year from expected
revenue recognition, or a portion of the payment due extends beyond one year, the Company determined it does not constitute a significant financing component. There is minimal variable consideration
included in the transaction price of the Company's contracts.
Other
revenues are primarily comprised of development arrangements recognized on a cost-plus-fixed-fee basis and licensing arrangements recognized either when the licenses are provided
or ratably over the contract term depending on the nature of the arrangement.
Contract Assets and Liabilities
Contract assets represent unbilled receivables when revenue recognized exceeds the amount billed to the customer, and the right to payment is
not just subject to the passage of time. Contract assets typically result from system revenue recorded where a portion of the transaction price is not billable until a future event, such as customer
acceptance, or from contracts recognized on a cost-to-cost or cost-plus-fixed-fee basis as revenue exceeds the amount billed to the customer. Amounts may not exceed their net realizable value.
Contract assets are generally classified as current.
Contract
liabilities consist of customer advances, deferred revenue and billings in excess of revenue from contracts recognized on a cost-to-cost or cost-plus-fixed-fee basis. Contract
liabilities are classified as current or long-term based on the timing of when the Company expects to recognize revenue.
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Contract
assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period.
The Company recognized revenue from systems sales when persuasive evidence of an arrangement exists, the price is fixed or determinable, title
and risk of loss has been transferred to the customer and collectability of the resulting receivable is reasonably assured. Title and risk of loss generally transfers upon shipment, or for certain
systems, based upon customer acceptance for a system that has been delivered and installed at a customer facility. For systems that include customer-specific acceptance criteria, the Company is
required to assess when it can demonstrate the acceptance criteria has been met, which generally is upon successful factory acceptance testing or customer acceptance and evidence of installation.
When
products are sold through an independent distributor or a strategic distribution partner who assumes responsibility for installation, the Company recognizes the system sale when the
product has been shipped and title and risk of loss have been transferred to the distributor. The Company's distributors do not have price protection rights or rights of return; however, the Company's
products are typically warranted to be free from defect for a period of one year. Revenue is deferred until cash is received when collectability is not reasonably assured or when the price is not
fixed or determinable.
For
transactions that include multiple elements, arrangement consideration was allocated to each element using the fair value hierarchy as required by ASU No. 2009-13. The Company limits
the amount of revenue recognized for delivered elements to the amount that is not contingent on the future delivery of products or services, future performance obligations, or subject to
customer-specific return or refund privileges.
The
Company determines the fair value of its products and services based upon vendor specific objective evidence ("VSOE"). The Company determines VSOE based on its normal selling pricing
and discounting practices for the specific product or service when sold on a stand-alone basis. In determining VSOE, the Company's policy requires a substantial majority of selling prices for a
product or service to be within a reasonably narrow range. The Company also considers the class of customer, method of distribution and the geographies into which products and services are being sold
when determining VSOE.
If
VSOE cannot be established, the Company attempts to establish the selling price based on third-party evidence ("TPE"). VSOE cannot be established in instances where a product or
service has not been sold separately, stand-alone sales are too infrequent or product pricing is not within a sufficiently narrow range. TPE is determined based on competitor prices for similar
deliverables when sold separately.
When
the Company cannot determine VSOE or TPE, it uses estimated selling price ("ESP") in its allocation of arrangement consideration. The objective of ESP is to determine the price at
which the Company would typically transact a stand-alone sale of the product or service. ESP is determined by considering a number of factors including the Company's pricing policies, internal costs
and gross profit objectives, method of distribution, market research and information, recent technological trends, competitive landscape and geographies. The Company analyzes the selling prices used
in its allocation of arrangement consideration, at a minimum, on an annual basis. Selling prices will be analyzed more frequently if a significant change in the Company's business or other factors
necessitate more frequent analysis or if the Company experiences significant variances in its selling prices.
Revenue
from accessories and parts is generally recognized based on shipping terms. Service revenue is recognized as the services are performed or ratably over the contractual obligation
and
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includes
maintenance contracts, extended warranty, training, application support and on-demand services.
The
Company also has contracts for which it applies the percentage-of-completion model and completed contract model of revenue recognition. Application of the percentage-of-completion
method requires the Company to make reasonable estimates of the extent of progress toward completion of the contract and the total costs the Company will incur under the contract and losses are
recorded immediately when we estimate that contracts will ultimately result in a loss. Changes in the estimates could affect the timing of revenue recognition.
Other
revenues are primarily comprised of development arrangements recognized on a cost-plus-fixed-fee basis and licensing arrangements recognized ratably over the term of the related
contracts.
Shipping and Handling Costs
The Company includes costs incurred in connection with shipping and handling of products within selling, general and administrative expenses in
the accompanying consolidated statements of income and comprehensive income. Shipping and handling costs were $25.2 million, $23.2 million and $21.3 million in the years ended December 31, 2018, 2017
and 2016, respectively. Amounts billed to customers in connection with these costs are included in total revenues.
Research and Development
The Company commits substantial capital and resources to internal and collaborative research and development projects in order to provide
innovative products and solutions to their customers. The Company conducts research primarily to enhance system performance and improve the reliability of existing products, and to develop
revolutionary new products and solutions. Research and development costs are expensed as incurred and include salaries, wages and other personnel related costs, material costs and depreciation,
consulting costs and facility costs.
Capitalized Software
Purchased software is capitalized at cost and is amortized over the estimated useful life, which is generally three years. Software developed
for use in the Company's products is expensed as incurred to research and development expense until technological feasibility is achieved. Subsequent to the achievement of technological feasibility,
amounts are capitalizable; however, to date such amounts have not been material.
Advertising
The Company expenses advertising costs as incurred. Advertising expenses were $14.4 million, $14.0 million and $12.7 million during the years
ended December 31, 2018, 2017 and 2016, respectively.
Stock-Based Compensation
The Company recognizes stock-based compensation expense in the consolidated statements of income and comprehensive income based on the fair
value of the share-based award at the grant date. The Company's primary types of share-based compensation are stock options, restricted stock awards
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and
restricted stock units. The Company recorded stock-based compensation expense for the years ended December 31, 2018, 2017 and 2016, as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Stock options
|
|
$
|
4.2
|
|
$
|
6.2
|
|
$
|
7.5
|
|
Restricted stock awards
|
|
|
0.8
|
|
|
1.4
|
|
|
1.6
|
|
Restricted stock units
|
|
|
6.3
|
|
|
3.4
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation
|
|
$
|
11.3
|
|
$
|
11.0
|
|
$
|
9.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Costs of product revenue
|
|
$
|
1.7
|
|
$
|
1.7
|
|
$
|
1.4
|
|
Selling, general and administrative
|
|
|
7.9
|
|
|
7.6
|
|
|
6.6
|
|
Research and development
|
|
|
1.7
|
|
|
1.7
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation
|
|
$
|
11.3
|
|
$
|
11.0
|
|
$
|
9.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
expense is amortized on a straight-line basis over the underlying vesting terms of the share-based award. Stock options to purchase the Company's common stock are
periodically awarded to executive officers and other employees of the Company subject to a vesting period of three to four years. The fair value of each option award is estimated on the date of grant
using the Black-Scholes option-pricing model. Assumptions regarding volatility, expected term, dividend yield and risk-free interest rates are required for the Black-Scholes model and are presented in
the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Risk-free interest rates
|
|
|
2.80%
|
|
|
1.78%-2.09%
|
|
|
1.23%-2.21%
|
|
Expected life
|
|
|
5.38 years
|
|
|
5.56 years
|
|
|
5.75-7.02 years
|
|
Volatility
|
|
|
28.46%
|
|
|
30.78%-34.13%
|
|
|
33.57%-41.60%
|
|
Expected dividend yield
|
|
|
0.47%
|
|
|
0.55%-0.74%
|
|
|
0.0%-0.78%
|
|
Risk-free
interest rates are based on the yield on zero-coupon U.S. Treasury securities for a period that is commensurate with the expected life assumption. Expected life is determined
through a calculation based on historical experience. Expected volatility is based on the Company's historical volatility results. The expected dividend yield was included in the option pricing
formula beginning in February 2016 when the Company adopted a dividend policy. The Company utilizes an estimated forfeiture rate derived from an analysis of historical data of 7.5%, 6.7% and 6.2% for
the years ended December 31, 2018, 2017 and 2016, respectively.
Earnings Per Share
Net income per common share attributable to Bruker Corporation shareholders is calculated by dividing net income attributable to Bruker
Corporation, adjusted to reflect changes in the redemption value of the redeemable noncontrolling interest, by the weighted-average shares outstanding during the period. The diluted net income per
share computation includes the effect of
shares which would be issuable upon the exercise of outstanding stock options and the vesting of restricted stock, reduced by the number of shares which are assumed to be purchased by the Company
under the treasury stock method. There was no redemption value adjustment of the redeemable noncontrolling interest for the year ended December 31, 2018, 2017 or 2016.
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The
following table sets forth the computation of basic and diluted weighted average shares outstanding for the years ended December 31, (in millions, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Net income attributable to Bruker Corporation, as reported
|
|
$
|
179.7
|
|
$
|
78.6
|
|
$
|
153.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding-basic
|
|
|
156.2
|
|
|
158.1
|
|
|
161.4
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
Stock options, restricted stock awards and restricted stock units
|
|
|
1.0
|
|
|
1.0
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157.2
|
|
|
159.1
|
|
|
162.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share attributable
|
|
|
|
|
|
|
|
|
|
|
to Bruker Corporation shareholders:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.15
|
|
$
|
0.50
|
|
$
|
0.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.14
|
|
$
|
0.49
|
|
$
|
0.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options and restricted stock units to purchase approximately 0.2 million shares, 0.3 million shares and 0.6 million shares were excluded from the computation of diluted earnings
per share for the years ended December 31, 2018, 2017 and 2016, respectively, because their effect would have been anti-dilutive.
Post Retirement Benefit Plans
The Company recognizes the over-funded or under-funded status of defined benefit pension and other postretirement defined benefit plans as an
asset or liability, respectively, in its consolidated balance sheets and recognizes changes in the funded status in the year in which the changes occur through other comprehensive income.
Other Comprehensive Income (Loss)
Other comprehensive income (loss) refers to revenues, expenses, gains and losses that are excluded from net income as these amounts are recorded
directly as an adjustment to
shareholders' equity, net of tax. The Company's other comprehensive income (loss) was composed of foreign currency translation adjustments and pension liability adjustments.
Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiaries, where the functional currency is the local currency, are translated into U.S.
Dollars using year-end exchange rates, or historical rates, as appropriate. Revenues and expenses of foreign subsidiaries are translated at the average exchange rates in effect during the year.
Adjustments resulting from financial statement translations are included as a separate component of shareholders' equity. Gains and losses resulting from translation of foreign currency monetary
transactions are reported in interest and other income (expense), net in the consolidated statements of income and comprehensive income for all periods presented. The Company has certain intercompany
foreign currency transactions that are deemed to be of a long-term investment nature. Exchange adjustments related to those transactions are made directly to a separate component of shareholders'
equity.
Risks and Uncertainties
The Company is subject to risks common to its industry including, but not limited to, global economic conditions, rapid technological change,
government and academic funding levels, changes in
86
Table of Contents
commodity
prices, spending patterns of its customers, protection of its intellectual property, availability of key raw materials and components, compliance with existing and future regulation by
government agencies and fluctuations in foreign currency exchange rates.
Loss Contingencies
Loss contingency provisions are recorded if the potential loss from any claim, asserted or unasserted, or legal proceeding related to patents,
products and other matters, is considered probable and the amount can be reasonably estimated or a range of loss can be determined. These accruals represent management's best estimate of probable
loss. Disclosure is provided when it is reasonably possible that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the recorded provision.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period.
Significant
estimates and judgments made by management in preparing these financial statements include revenue recognition, allowances for doubtful accounts, write-downs for excess and
obsolete inventory, estimated fair values used to record impairment charges related to intangible assets, goodwill, and other long-lived assets, amortization periods, expected future cash flows used
to evaluate the recoverability of long-lived assets and to record intangible assets in business combinations, stock-based compensation expense, warranty allowances, restructuring and other related
charges, contingent liabilities and the recoverability of the Company's net deferred tax assets.
Changes
in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be
reasonable under the circumstances. Actual results may differ from management's estimates if these results differ from historical experience or other assumptions prove not to be substantially
accurate, even if such assumptions were reasonable when made.
Note 3Revenue
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09,
Revenue from Contracts with Customers,
which supersedes the revenue recognition requirements under Accounting Standards Codification (ASC) Topic 605.
The new guidance was the result of a joint project between the FASB and the International Accounting Standards Board to clarify the principles for recognizing revenue and to develop common revenue
standards for U.S. GAAP and International Financial Reporting Standards. The core principle of the new guidance is that revenue should be recognized to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance was effective as of January 1,
2018 and was applied on a modified retrospective basis. The Company elected the practical expedient and only evaluated contracts for which substantially all revenue had not been recognized under
ASC 605 with the cumulative effect of the new guidance recorded as of the date of initial application. The impact of adoption was an increase to beginning retained earnings of $6.1 million, net
of $2.1 million related to taxes. The adoption impact was primarily due to the change in license revenue being recognized at a point in time under ASC 606 rather than over time as it was recognized
under ASC 605. The difference between ASC 606 and ASC 605 was not material to the year ended December 31, 2018.
87
Table of Contents
The
following table presents the Company's revenues by Group for the year ended December 31, 2018 (dollars in millions):
|
|
|
|
|
|
|
2018
|
|
Revenue by Group:
|
|
|
|
|
Bruker BioSpin
|
|
$
|
591.1
|
|
Bruker CALID
|
|
|
547.8
|
|
Bruker Nano
|
|
|
568.1
|
|
BEST
|
|
|
194.8
|
|
Eliminations
|
|
|
(6.2
|
)
|
|
|
|
|
|
Total revenue
|
|
$
|
1,895.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
for the Company recognized at a point in time versus over time is as follows for the year ended December 31, 2018 (dollars in millions):
|
|
|
|
|
|
|
2018
|
|
Revenue recognized at a point in time
|
|
$
|
1,716.8
|
|
Revenue recognized over time
|
|
|
178.8
|
|
|
|
|
|
|
Total revenue
|
|
$
|
1,895.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining performance obligations represent the aggregate transaction price allocated to a promise to transfer a good or service that is fully
or partially unsatisfied at the end of the period. As of December 31, 2018, remaining performance obligations were approximately $1,054.4 million. The Company expects to recognize revenue on
approximately 84.3% of the remaining performance obligations over the next twelve months and the remaining performance obligations primarily within one to three years.
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets)
and deferred revenue, customer deposits and billings in excess of revenue recognized (contract liabilities) on the Company's consolidated balance sheets.
Contract assets
Most of the Company's long-term contracts are billed as work progresses in accordance with the contract terms and
conditions, either at periodic intervals or upon achievement of certain milestones. Billing often occurs subsequent to revenue recognition, resulting in contract assets. Contract assets are generally
classified as other current assets in the consolidated balance sheets. The balance of contract assets as of December 31, 2018 and January 1, 2018, the date of adoption of ASC 606,
was $25.9 million and $12.8 million, respectively. The increase in the contract asset balance during the twelve-month period ended December 31, 2018 is primarily a result of foreign currency
translation and contracts that have been recognized as revenue during the twelve month period ending December 31, 2018 for which billing cannot contractually occur as of December 31,
2018.
Contract liabilities
The Company often receives cash payments from customers in advance of the Company's performance, resulting in contract
liabilities. These contract liabilities are classified as either current or long-term in the consolidated balance sheet based on the timing of when revenue recognition is expected. As of December 31,
2018 and January 1, 2018, the date of adoption of ASC 606, contract liabilities were $288.5 million and $291.3 million, respectively. The decrease in
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the
contract liability balance during the twelve-month period ended December 31, 2018 is primarily a result of satisfying performance obligations and foreign currency translation which were
offset in part by new cash payments received and additions due to recent acquisitions. Approximately $171.0 million of the contract liability balance on January 1, 2018, the date of adoption of
ASC 606, was recognized as revenue during the twelve-month period ended December 31, 2018.
Note 4Acquisitions
2018
During the year ended December 31, 2018, the Company completed various acquisitions that collectively complemented the Company's existing
product offerings or added aftermarket and software capabilities to the Company's existing businesses. The following table reflects the components and preliminary fair value allocations of the
consideration transferred in connection with the 2018 acquisitions and the respective reporting segment for each of the acquisitions (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company acquired
|
|
Anasys
|
|
JPK
|
|
Mestrelab
|
|
Hain
|
|
Alicona
|
|
Reportable segment assigned
|
|
BSI
|
|
BSI
|
|
BSI
|
|
BSI
|
|
BSI
|
|
Consideration Transferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid
|
|
$
|
27.0
|
|
$
|
16.6
|
|
$
|
11.2
|
|
$
|
76.6
|
|
$
|
55.4
|
|
Cash acquired
|
|
|
|
|
|
(0.2
|
)
|
|
(1.9
|
)
|
|
(3.4
|
)
|
|
(1.4
|
)
|
Contingent consideration
|
|
|
5.3
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consideration transferred
|
|
$
|
32.3
|
|
$
|
20.7
|
|
$
|
9.3
|
|
$
|
73.2
|
|
$
|
54.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of Consideration Transferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
2.8
|
|
$
|
3.0
|
|
$
|
|
|
$
|
9.7
|
|
$
|
10.1
|
|
Accounts receivable
|
|
|
0.8
|
|
|
1.8
|
|
|
2.4
|
|
|
5.9
|
|
|
3.7
|
|
Other current and non-current assets
|
|
|
1.1
|
|
|
0.7
|
|
|
0.8
|
|
|
1.5
|
|
|
2.0
|
|
Property, plant and equipment
|
|
|
|
|
|
|
|
|
0.1
|
|
|
2.3
|
|
|
1.5
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
|
|
|
7.3
|
|
|
7.0
|
|
|
4.9
|
|
|
38.1
|
|
|
15.2
|
|
Customer relationship
|
|
|
8.0
|
|
|
7.5
|
|
|
4.7
|
|
|
38.6
|
|
|
19.8
|
|
Backlog
|
|
|
1.8
|
|
|
1.1
|
|
|
|
|
|
|
|
|
2.3
|
|
Trade name
|
|
|
0.6
|
|
|
0.6
|
|
|
0.5
|
|
|
3.9
|
|
|
1.9
|
|
Goodwill
|
|
|
16.6
|
|
|
8.0
|
|
|
12.5
|
|
|
42.3
|
|
|
19.3
|
|
Deferred taxes, net
|
|
|
(3.2
|
)
|
|
(4.9
|
)
|
|
(2.5
|
)
|
|
(19.6
|
)
|
|
(9.1
|
)
|
Liabilities assumed
|
|
|
(3.5
|
)
|
|
(4.1
|
)
|
|
(1.3
|
)
|
|
(15.0
|
)
|
|
(6.5
|
)
|
Assumed debt
|
|
|
|
|
|
|
|
|
|
|
|
(11.3
|
)
|
|
(6.2
|
)
|
Redeemable noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
(23.2
|
)
|
|
|
|
Hybrid instrument liability
|
|
|
|
|
|
|
|
|
(12.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consideration transferred
|
|
$
|
32.3
|
|
$
|
20.7
|
|
$
|
9.3
|
|
$
|
73.2
|
|
$
|
54.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
impact of all 2018 acquisitions, individually and collectively, on revenues, net income and total assets was not material.
Pro
forma financial information reflecting all acquisitions has not been presented because the impact, individually and collectively, on revenues, net income and total assets is not
material. Amounts allocated to goodwill that are attributable to expected synergies are not expected to be deductible for tax purposes.
89
Table of Contents
On April 8, 2018, the Company acquired a 100% interest in Anasys Instruments Corp. ("Anasys"), a privately held company, for a purchase price of
$27.0 million with the potential for additional consideration of up to $9.6 million based on revenue achievements in 2019 and 2020. Anasys develops and manufactures nanoscale infrared spectroscopy and
thermal measurement instruments.
Anasys is located in Santa Barbara, California and was integrated into the Bruker Nano Group within the BSI reportable segment.
The
preliminary fair value allocation included contingent consideration in the amount of $5.3 million, which represented the estimated fair value of future payments to the former
shareholders of Anasys based on Anasys achieving annual revenue targets for the years 2019 and 2020. The Company completed the fair value allocation in the fourth quarter of 2018. The amortization
period for all intangible assets acquired in connection with Anasys is eight years, except for backlog which will be amortized over one year.
On July 11, 2018, the Company acquired a 100% interest in JPK Instruments AG ("JPK"), a privately held company, for a purchase price of Euro
14.2 million (approximately $16.6 million), with the potential for additional consideration of up to Euro 4.3 million (approximately $5.0 million) based on various operational achievements throughout
2019 and 2020. JPK adds in-depth expertise in live-cell imaging, cellular mechanics, adhesion, and molecular force measurements, optical trapping, and biological stimulus-response characterization to
Bruker's capabilities. JPK is located in Berlin, Germany and was integrated into the Bruker Nano Group within the BSI reportable segment.
The
preliminary fair value allocation included contingent consideration in the amount of $4.3 million, which represented the estimated fair value of future payments to the former
shareholders of JPK based on JPK achieving various operational achievements for the years 2019 and 2020. The Company expects to complete the fair value allocation in the second quarter of 2019. The
amortization period for all intangible assets acquired in connection with JPK is eight years, except for backlog which will be amortized over one year.
On October 1, 2018, Bruker acquired a 24.9% interest in Mestrelab Research, S.L. ("Mestrelab") for a purchase price of Euro 4.7 million
(approximately $5.4 million) and acquired an additional 26.1% interest on December 4, 2018 for a purchase price of Euro 5.2 million (approximately $5.9 million). The Company has options that can be
exercised after 2022 to acquire the remaining 49%. Mestrelab adds in-depth expertise to assist in advancing chemistry software that handles spectroscopic data and extracts and manages chemical
information from a variety of analytical techniques, including, for example, NMR and mass spectrometry. Mestrelab is located in Santiago de Compostela, Spain and was integrated into the Bruker BioSpin
Group within the BSI reportable segment.
The
Company expects to complete the fair value allocation during 2019. The amortization period for all intangible assets acquired in connection with Mestrelab is nine years, except for
customer relationships which will be amortized over ten years.
Concurrent
with the acquisition, the Company entered into an agreement with the noncontrolling interest holders that provides the Company with the right to purchase, and the
noncontrolling interest holders with the right to sell, the remaining 49% of Mestrelab for cash at a contractually defined redemption value. These rights (embedded derivative) are exercisable
beginning in 2022 and can be accelerated, at a discounted redemption value, upon certain events related to post combination services. As the option is tied to continued employment, the Company
classified the hybrid instrument
90
Table of Contents
(noncontrolling
interest with an embedded derivative) as a long-term liability on the consolidated balance sheet. Subsequent to the acquisition, the carrying value of the hybrid instrument is
remeasured to fair value with changes recorded to stock-based compensation expense in proportion to the requisite service period vested.
On October 15, 2018, Bruker acquired an 80% interest in Hain Lifescience GmbH ("Hain") for a purchase price of Euro 66 million (approximately
$76.4 million) and has options to acquire the remaining 20% exercisable after 2022. Hain is an infectious disease specialist with a broad range of molecular diagnostics solutions for the detection of
microbial and viral pathogens, as well as for molecular antibiotic resistance testing. Hain is located in Nehren, Germany and was integrated into the Bruker CALID Group within the BSI reportable
segment.
The
Company expects to complete the fair value allocation during 2019. The amortization period for all intangible assets acquired in connection with Hain is 15 years.
Concurrent
with the acquisition, the Company entered into an agreement with the noncontrolling interest holders that provided the Company with the right to purchase, and the
noncontrolling interest holders with the right to sell, the remaining 20% of Hain for cash at a contractually defined redemption value. These rights are accelerated in certain events. As the
redemption of is contingently
redeemable at the option of the noncontrolling interest shareholders, the Company classifies the carrying amount of the redeemable noncontrolling interest in the mezzanine section on the consolidated
balance sheet, which is presented above the equity section and below liabilities. The agreement establishes a redemption price floor of Euro 16.7 million (approximately $19.4 million). Beginning in
2022, the redemption price is capped at Euro 46 million and increases by Euro 6 million each year thereafter if unexercised by either party.
Subsequent
to the acquisition, the redeemable noncontrolling interest is measured at the greater of the amount that would be paid if settlement occurred as of the balance sheet date
based on the contractually defined redemption value and its carrying amount adjusted for net income (loss) attributable to the noncontrolling interest. Adjustments to the carrying value of the
redeemable noncontrolling interest are recorded through retained earnings.
On December 17, 2018, Bruker acquired a 100% interest in Agapetus GmbH ("Alicona") for a purchase price of Euro 48.9 million (approximately
$55.4 million). Alicona is a provider of optical-based metrology products. Alicona is located in Graz, Austria and was integrated into the Bruker Nano Group within the BSI reportable segment.
The
Company expects to complete the fair value allocation during 2019. The amortization period for the intangible assets acquired in connection with Alicona is 8 years for the customer
relationships and technology intangible assets, 12 years for the trade name intangible asset and 1 year for the backlog intangible asset.
In addition to the acquisitions noted above, in the year ended December 31, 2018, the Company completed various other acquisitions that
collectively complemented the Company's existing product offerings or added aftermarket and software capabilities to the Company's existing businesses. The total consideration transferred for the
additional acquisitions was $12.7 million.
91
Table of Contents
2017 & 2016
In the years ended December 31, 2017 and 2016, the Company completed various acquisitions that collectively complemented the Company's existing
product offerings or added aftermarket and software capabilities to the Company's existing microbiology business. The impact of these acquisitions, individually and collectively, on revenues, net
income and total assets was not material in either year. Pro forma financial information reflecting these acquisitions were not been presented because the impact, individually and collectively, on
revenues, net income and total assets is not material. Amounts allocated to goodwill that are attributable to expected synergies are not expected to be deductible for tax purposes. The following
tables reflect the consideration transferred and the respective reporting segment for each of the acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
Name of Acquisition
|
|
Date Acquired
|
|
Segment
|
|
Consideration
|
|
Cash Consideration
|
|
InVivo Biotech Svs GmbH.
|
|
January 2, 2017
|
|
BSI
|
|
$
|
9.1
|
|
$
|
9.1
|
|
Hysitron, Incorporated
|
|
January 23, 2017
|
|
BSI
|
|
|
28.8
|
|
|
27.2
|
|
Luxendo GmbH
|
|
May 5, 2017
|
|
BSI
|
|
|
21.9
|
|
|
18.8
|
|
Other
|
|
Various
|
|
BSI
|
|
|
11.5
|
|
|
11.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
71.3
|
|
$
|
66.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Acquisition
|
|
Date Acquired
|
|
Segment
|
|
Consideration
|
|
Cash Consideration
|
|
Oxford Instruments Superconducting Wire LLC (OST)
|
|
November 17, 2016
|
|
BEST
|
|
$
|
15.9
|
|
$
|
15.9
|
|
Other
|
|
Various
|
|
BSI
|
|
|
15.5
|
|
|
8.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
31.4
|
|
$
|
24.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On May 5, 2017, the Company acquired 100% of the shares of Luxendo GmbH ("Luxendo"), a privately held spin-off of the European Molecular Biology
Laboratory, for a purchase price of Euro 17 million (approximately $18.8 million), with the potential for additional consideration based on revenue achievements in 2018 through 2021. Luxendo is a
developer and manufacturer of proprietary light-sheet fluorescence microscopy instruments. Luxendo is located in Heidelberg, Germany and was integrated into the Bruker Nano Group within the BSI
reportable segment.
The
fair value allocation included contingent consideration in the amount of $3.1 million, which represented the estimated fair value of future payments to the former shareholders of
Luxendo based on achieving annual revenue targets for the years 2018 through 2021. The Company completed the fair value allocation in the third quarter of 2017. The amortization period for intangible
assets acquired in connection with the acquisition of Luxendo is 10 years for trade names and 7 years for technology.
On January 23, 2017, the Company acquired 100% of the shares of Hysitron, Incorporated ("Hysitron"). The acquisition adds Hysitron's
nanomechanical testing instruments to the Company's existing portfolio of atomic force microscopes, surface profilometers, and tribology and mechanical testing systems. Hysitron is included in the
Bruker Nano Group within the BSI reportable segment.
The
fair value allocation included contingent consideration in the amount of $1.6 million, which represented the estimated fair value of future payments to the former shareholders of
Hysitron based on achieving annual revenue targets for the years 2017 through 2018. The Company completed the fair
value allocation in the second quarter of 2017. The maximum potential future payments related to the contingent consideration is $10 million. The amortization period for intangible assets acquired in
92
Table of Contents
connection
with Hysitron is 7 years for customer relationships, trademarks and other intangibles and 5 years for existing technology.
Note 5Fair Value of Financial Instruments
The Company measures the following financial assets and liabilities at fair value on a recurring basis. The following tables set forth the
Company's financial instruments and presents them within the fair value hierarchy using the lowest level of input that is significant to the fair value measurement at December 31, 2018 and 2017 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Total
|
|
Quoted Prices
in Active
Markets
Available
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
0.2
|
|
$
|
|
|
$
|
0.2
|
|
$
|
|
|
Embedded derivatives in purchase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and delivery contracts
|
|
|
0.4
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets recorded at fair value
|
|
$
|
0.6
|
|
$
|
|
|
$
|
0.6
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
15.1
|
|
$
|
|
|
$
|
|
|
$
|
15.1
|
|
Hybrid instrument liability
|
|
|
12.9
|
|
|
|
|
|
|
|
|
12.9
|
|
Foreign exchange contracts
|
|
|
2.8
|
|
|
|
|
|
2.8
|
|
|
|
|
Embedded derivatives in purchase and delivery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
contracts
|
|
|
0.9
|
|
|
|
|
|
0.9
|
|
|
|
|
Fixed price commodity contracts
|
|
|
0.5
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities recorded at fair value
|
|
$
|
32.2
|
|
$
|
|
|
$
|
4.2
|
|
$
|
28.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Total
|
|
Quoted Prices
in Active
Markets
Available
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
4.5
|
|
$
|
|
|
$
|
4.5
|
|
$
|
|
|
Embedded derivatives in purchase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and delivery contracts
|
|
|
0.9
|
|
|
|
|
|
0.9
|
|
|
|
|
Fixed price commodity contracts
|
|
|
0.8
|
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets recorded at fair value
|
|
$
|
6.2
|
|
$
|
|
|
$
|
6.2
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
12.7
|
|
$
|
|
|
$
|
|
|
$
|
12.7
|
|
Foreign exchange contracts
|
|
|
0.1
|
|
|
|
|
|
0.1
|
|
|
|
|
Embedded derivatives in purchase and delivery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
contracts
|
|
|
2.9
|
|
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities recorded at fair value
|
|
$
|
15.7
|
|
$
|
|
|
$
|
3.0
|
|
$
|
12.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
Table of Contents
Derivative financial instruments are classified within level 2 because there is not an active market for each derivative contract. However, the inputs used to
calculate the value of the instruments are obtained from active markets.
The
fair value of the long-term fixed interest rate debt, which has been classified as Level 2, was $228.8 million and $231.3 million at December 31, 2018 and 2017,
respectively, based on market and observable sources with similar maturity dates.
The
Company measures certain assets and liabilities at fair value with changes in fair value recognized in earnings. Fair value treatment may be elected either upon initial recognition
of an eligible asset or liability or, for an existing asset or liability, if an event triggers a new basis of accounting. The Company did not elect to remeasure any of its existing financial assets or
liabilities during the years ended December 31, 2018 and 2017.
Excluded
from the table above are restricted cash and short-term investments related to time and call deposits. The Company has a program to enter into time deposits with varying
maturity dates ranging from one to twelve months, as well as call deposits for which the Company has the ability to redeem the invested amounts over a period of 95 days. The Company has classified
these investments within cash and cash equivalents or short-term investments within the consolidated balance sheets based on call and maturity dates and these are not subject to fair value
measurement. The following tables set forth the balances of restricted cash and short-term investments as of December 31, 2018 and 2017 (in millions):
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Restricted Cash
|
|
$
|
3.9
|
|
$
|
3.9
|
|
Short-term Investments
|
|
|
|
|
|
114.2
|
|
On
a quarterly basis, the Company reviews its short-term investments to determine if there have been any events that could create an impairment. None were noted for the years ended
December 31, 2018 and 2017.
As
part of certain acquisitions, the Company recorded contingent consideration liabilities that have been classified as Level 3 in the fair value hierarchy. The contingent consideration
represents the estimated fair value of future payments to the former shareholders of certain acquired companies based on the applicable acquired company achieving annual revenue and gross margin
targets in certain years as specified in the relevant purchase and sale agreement. The Company initially values the contingent considerations by using a Monte Carlo simulation or an income approach
method. The Monte Carlo method models future revenue and costs of goods sold projections and discounts the average results to present value. The income approach method involves calculating the earnout
payment based on the forecasted cash flows, adjusting the future earnout payment for the risk of reaching the projected financials, and then discounting the future payments to present value by the
counterparty risk. The counterparty risk considers the risk of the buyer having the cash to make the earnout payments and is commensurate with a cost of debt over an appropriate term.
94
Table of Contents
The
following table sets forth the changes in contingent consideration liabilities for the years ended December 31, 2018 and 2017 (in millions):
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
16.6
|
|
Current period additions
|
|
|
5.0
|
|
Current period adjustments
|
|
|
2.3
|
|
Current period settlements
|
|
|
(11.7
|
)
|
Foreign currency effect
|
|
|
0.5
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
|
12.7
|
|
Current period additions
|
|
|
9.9
|
|
Current period adjustments
|
|
|
(1.9
|
)
|
Current period settlements
|
|
|
(5.5
|
)
|
Foreign currency effect
|
|
|
(0.1
|
)
|
|
|
|
|
|
Balance at December 31, 2018
|
|
$
|
15.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
part of the Mestrelab acquisition, the Company entered into an agreement with the noncontrolling interest holders that provides the Company with the right to purchase, and the
noncontrolling interest holders with the right to sell, the remaining 49% of Mestrelab for cash at a contractually defined redemption value. These rights (embedded derivative) are exercisable
beginning in 2022 and can be accelerated, at a discounted redemption value, upon certain events related to post combination services. As the option is tied to continued employment, the Company
classified the hybrid instrument (noncontrolling interest with an embedded derivative) as a long-term liability on the consolidated balance sheet. Subsequent to the acquisition, the carrying value of
the hybrid instrument is remeasured to fair value with changes recorded to stock-based compensation expense in proportion to the requisite service period vested. The hybrid instrument is classified as
Level 3 in the fair value hierarchy
The
following table sets forth the changes in hybrid instrument liability for the year ended December 31, 2018 (dollars in millions):
|
|
|
|
|
Balance at December 31, 2017
|
|
$
|
|
|
Current period additions
|
|
|
12.9
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
$
|
12.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6Accounts Receivable
The following is a summary of accounts receivable, net at December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Gross accounts receivable
|
|
$
|
361.0
|
|
$
|
324.0
|
|
Allowance for doubtful accounts
|
|
|
(3.8
|
)
|
|
(4.7
|
)
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
357.2
|
|
$
|
319.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
allowance for doubtful accounts is based on a number of factors, including an evaluation of customer credit worthiness, the age of the outstanding receivable, economic trends and
historical experience. Provisions for doubtful accounts are recorded in selling, general and administrative expenses in the accompanying consolidated statements of income and comprehensive income.
95
Table of Contents
The
following is a summary of the activity in the Company's allowance for doubtful accounts at December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
Beginning
of
Period
|
|
Additions
Charged to
Expense
|
|
Deductions
Amounts
Written Off
|
|
Foreign
Currency
Impact
|
|
Balance at
End of Period
|
|
2018
|
|
$
|
4.7
|
|
$
|
0.7
|
|
$
|
(1.7
|
)
|
$
|
0.1
|
|
$
|
3.8
|
|
2017
|
|
|
7.9
|
|
|
0.5
|
|
|
(4.4
|
)
|
|
0.7
|
|
|
4.7
|
|
2016
|
|
|
9.1
|
|
|
0.9
|
|
|
(2.0
|
)
|
|
(0.1
|
)
|
|
7.9
|
|
Note 7Inventories
Inventories consisted of the following at December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Raw materials
|
|
$
|
164.5
|
|
$
|
152.0
|
|
Work-in-process
|
|
|
182.4
|
|
|
183.1
|
|
Finished goods
|
|
|
94.8
|
|
|
96.6
|
|
Demonstration units
|
|
|
67.9
|
|
|
54.5
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
509.6
|
|
$
|
486.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finished
goods include in-transit systems that have been shipped to the Company's customers but not yet installed and accepted by the customer. As of December 31, 2018 and 2017,
inventory-in-transit was $38.3 million and $41.4 million, respectively.
Note 8Property, Plant and Equipment, Net
The following is a summary of property, plant and equipment, net by major asset class at December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Land
|
|
$
|
26.8
|
|
$
|
28.1
|
|
Building and leasehold improvements
|
|
|
299.2
|
|
|
294.8
|
|
Machinery, equipment, software and furniture and fixtures
|
|
|
366.4
|
|
|
364.9
|
|
|
|
|
|
|
|
|
|
|
|
|
692.4
|
|
|
687.8
|
|
Less accumulated depreciation and amortization
|
|
|
(421.8
|
)
|
|
(421.3
|
)
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
270.6
|
|
$
|
266.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expense, which includes the amortization of leasehold improvements, for the years ended December 31, 2018, 2017 and 2016 was $36.0 million,
$34.3 million and $32.6 million, respectively.
There
were no impairment charges in the year ended December 31, 2018. During the years ended December 31, 2017 and 2016, the Company recorded impairment charges of
$1.1 million and $0.8 million, respectively, representing the write down to fair value of certain property, plant and equipment, net related to restructuring and outsourcing activities
undertaken during the respective years. These impairment charges are recorded within other charges, net in the accompanying consolidated statements of income and comprehensive income. Please see Note
18other charges, net, for additional details on the restructuring activities.
96
Table of Contents
Note 9Goodwill and Intangible Assets
Goodwill
The following table sets forth the changes in the carrying amount of goodwill for the years ended December 31, 2018, 2017 and 2016 (in
millions):
|
|
|
|
|
Balance at December 31, 2015
|
|
$
|
130.6
|
|
Current period additions/adjustments
|
|
|
1.0
|
|
Foreign currency impact
|
|
|
(1.0
|
)
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
130.6
|
|
Current period additions/adjustments
|
|
|
33.8
|
|
Foreign currency impact
|
|
|
5.4
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
|
169.8
|
|
Current period additions/adjustments
|
|
|
109.0
|
|
Foreign currency impact
|
|
|
(3.1
|
)
|
|
|
|
|
|
Balance at December 31, 2018
|
|
$
|
275.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2018, 2017 and 2016, all goodwill was allocated within the BSI Segment. The Company performed its annual impairment evaluation using a quantitative approach at
December 31, 2018 and a qualitative approach at December 31, 2017 and 2016 and concluded it was more likely than not that goodwill has not been impaired. Based on the most recent
quantitative analysis the fair values of each of the Company's reporting units was significantly greater than their carrying amounts and, therefore, no impairment was required.
Intangible Assets
The following is a summary of intangible assets at December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Existing technology and related patents
|
|
$
|
272.6
|
|
$
|
(160.5
|
)
|
$
|
112.1
|
|
$
|
195.4
|
|
$
|
(138.9
|
)
|
$
|
56.5
|
|
Customer relationships
|
|
|
112.0
|
|
|
(18.1
|
)
|
|
93.9
|
|
|
34.6
|
|
|
(12.9
|
)
|
|
21.7
|
|
Non compete conracts
|
|
|
1.8
|
|
|
(1.8
|
)
|
|
|
|
|
1.8
|
|
|
(1.5
|
)
|
|
0.3
|
|
Trade names
|
|
|
11.6
|
|
|
(1.6
|
)
|
|
10.0
|
|
|
4.2
|
|
|
(0.9
|
)
|
|
3.3
|
|
Other
|
|
|
5.1
|
|
|
(2.4
|
)
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets subject to amortization
|
|
|
403.1
|
|
|
(184.4
|
)
|
|
218.7
|
|
|
236.0
|
|
|
(154.2
|
)
|
|
81.8
|
|
In-process research and development
|
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
$
|
403.1
|
|
$
|
(184.4
|
)
|
$
|
218.7
|
|
$
|
236.6
|
|
$
|
(154.2
|
)
|
$
|
82.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the years ended December 31, 2018, 2017 and 2016, the Company recorded amortization expense of approximately $28.9 million, $29.6 million and
$21.7 million, respectively, in the consolidated statements of income and comprehensive income. During the year ended December 31, 2018, the Company recorded an impairment charge of
$0.6 million representing the impairment of the in-process research and development within the Bruker CALID Group.
97
Table of Contents
The
estimated future amortization expense related to amortizable intangible assets at December 31, 2018 is as follows (in millions):
|
|
|
|
|
2019
|
|
$
|
34.9
|
|
2020
|
|
|
29.7
|
|
2021
|
|
|
27.7
|
|
2022
|
|
|
21.8
|
|
2023
|
|
|
19.1
|
|
Thereafter
|
|
|
85.5
|
|
|
|
|
|
|
Total
|
|
$
|
218.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 10Other Current Liabilities
The following is a summary of other current liabilities at December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Deferred revenue
|
|
$
|
96.3
|
|
$
|
87.0
|
|
Accrued compensation
|
|
|
104.2
|
|
|
105.4
|
|
Accrued warranty
|
|
|
19.7
|
|
|
20.6
|
|
Contingent consideration
|
|
|
7.1
|
|
|
6.5
|
|
Income taxes payable
|
|
|
36.8
|
|
|
28.1
|
|
Other taxes payable
|
|
|
23.4
|
|
|
16.7
|
|
Derivative liabilities
|
|
|
4.2
|
|
|
2.4
|
|
Other accrued expenses
|
|
|
60.2
|
|
|
55.3
|
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
$
|
351.9
|
|
$
|
322.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table sets forth the changes in accrued warranty for the years ended December 31, 2018, 2017 and 2016 (in millions):
|
|
|
|
|
Balance at December 31, 2015
|
|
$
|
19.6
|
|
Accruals for warranties issued during the year
|
|
|
17.4
|
|
Settlements of warranty claims
|
|
|
(17.8
|
)
|
Foreign currency impact
|
|
|
(0.5
|
)
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
18.7
|
|
Accruals for warranties issued during the year
|
|
|
17.0
|
|
Settlements of warranty claims
|
|
|
(17.0
|
)
|
Foreign currency impact
|
|
|
1.9
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
|
20.6
|
|
Accruals for warranties issued during the year
|
|
|
21.3
|
|
Settlements of warranty claims
|
|
|
(21.5
|
)
|
Foreign currency impact
|
|
|
(0.7
|
)
|
|
|
|
|
|
Balance at December 31, 2018
|
|
$
|
19.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
Table of Contents
Note 11Debt
The Company's debt obligations consist of the following as of December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
US Dollar revolving loan under the 2015 Credit Agreement
|
|
$
|
111.6
|
|
$
|
195.0
|
|
US Dollar notes under the Note Purchase Agreement
|
|
|
220.0
|
|
|
220.0
|
|
Unamortized debt issuance costs under the Note Purchase Agreement
|
|
|
(0.5
|
)
|
|
(0.7
|
)
|
Other revolving loans
|
|
|
2.9
|
|
|
|
|
Capital lease obligations and other loans
|
|
|
7.1
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
341.1
|
|
|
415.6
|
|
Current portion of long-term debt
|
|
|
(18.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt, less current portion
|
|
$
|
322.6
|
|
$
|
415.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Agreements
On October 27, 2015, the Company entered into a new revolving credit agreement, referred to as the 2015 Credit Agreement. The 2015 Credit
Agreement provides a maximum commitment on the Company's revolving credit line of $500 million and a maturity date of October 2020. Borrowings under the revolving credit line of the 2015 Credit
Agreement accrue interest, at the Company's option, at either (a) the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.50% and (iii) adjusted LIBOR plus 1.00%, plus margins ranging
from 0.00% to 0.30% or (b) LIBOR, plus margins ranging from 0.90% to 1.30%. There is also a facility fee ranging from 0.10% to 0.20%.
Borrowings
under the 2015 Credit Agreement are secured by guarantees from certain material subsidiaries, as defined in the 2015 Credit Agreement. The 2015 Credit Agreement also requires
the Company to maintain certain financial ratios related to maximum leverage and minimum interest coverage (as defined in the 2015 Credit Agreement). Specifically, the Company's leverage ratio cannot
exceed 3.5 and the Company's interest coverage ratio cannot be less than 2.5. In addition to the financial ratios, the 2015 Credit Agreement contains negative covenants, including among others,
restrictions on liens, indebtedness of the Company and its subsidiaries, asset sales, dividends and transactions with affiliates. Failure to comply with any of these restrictions or covenants may
result in an event of default on the 2015 Credit Agreement, which could permit acceleration of the debt and require the Company to prepay the debt before its scheduled due date.
As
of December 31, 2018, the Company was in compliance with the covenants of the 2015 Credit Agreement. The Company's leverage ratio (as defined in the 2015 Credit Agreement) was 0.93
and interest coverage ratio (as defined in the 2015 Credit Agreement) was 22.5.
The
following is a summary of the maximum commitments and the net amounts available to the Company under the 2015 Credit Agreement and other lines of credit with various financial
institutions
99
Table of Contents
located
primarily in Germany and Switzerland that are unsecured and typically due upon demand with interest payable monthly, at December 31, 2018 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average
Interest
Rate
|
|
Total Amount
Committed by
Lenders
|
|
Outstanding
Borrowings
|
|
Outstanding
Letters of
Credit
|
|
Total
Amount
Available
|
|
2015 Credit Agreement
|
|
|
1.4
|
%
|
$
|
500.0
|
|
$
|
111.6
|
|
$
|
1.3
|
|
$
|
387.1
|
|
Hain revolving line of credit
|
|
|
3.5
|
%
|
|
4.0
|
|
|
2.9
|
|
|
|
|
|
1.1
|
|
Alicona revolving line of credit
|
|
|
0.5
|
%
|
|
5.3
|
|
|
|
|
|
|
|
|
5.3
|
|
Other lines of credit
|
|
|
|
|
|
256.5
|
|
|
|
|
|
137.0
|
|
|
119.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revolving loans
|
|
|
|
|
$
|
765.8
|
|
$
|
114.5
|
|
$
|
138.3
|
|
$
|
513.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note Purchase Agreement
In January 2012, the Company entered into a note purchase agreement, referred to as the Note Purchase Agreement, with a group of accredited
institutional investors. Pursuant to the Note Purchase Agreement, the Company issued and sold $240.0 million of senior notes, referred to as the Senior Notes, which consist of the
following:
-
-
$20 million 3.16% Series 2012A Senior Notes, Tranche A, due January 18, 2017;
-
-
$15 million 3.74% Series 2012A Senior Notes, Tranche B, due January 18, 2019;
-
-
$105 million 4.31% Series 2012A Senior Notes, Tranche C, due January 18, 2022; and
-
-
$100 million 4.46% Series 2012A Senior Notes, Tranche D, due January 18, 2024.
On
January 18, 2017, the outstanding $20.0 million principal amount of Tranche A of the Senior Notes was repaid in accordance with the terms of the Note Purchase Agreement.
Under
the terms of the Note Purchase Agreement, the Company may issue and sell additional senior notes up to an aggregate principal amount of $600 million, subject to certain conditions.
Interest on the Senior Notes is payable semi-annually on January 18 and July 18 of each year. The Senior Notes are unsecured obligations of the Company and are fully and unconditionally guaranteed by
certain of the Company's direct and indirect subsidiaries. The Senior Notes rank pari passu in right of repayment with the Company's other senior unsecured indebtedness. The Company may prepay some or
all of the Senior Notes at any time in an amount not less than 10% of the original aggregate principal amount of the Senior Notes to be prepaid, at a price equal to the sum of (a) 100% of the
principal amount thereof, plus accrued and unpaid interest, and (b) the applicable make-whole amount, upon not less than 30 and no more than 60 days' written notice to the holders of the Senior Notes.
In the event of a change in control of the Company, as defined in the Note Purchase Agreement, the Company may be required to prepay the Notes at a price equal to 100% of the principal amount thereof,
plus accrued and unpaid interest.
The
Note Purchase Agreement contains affirmative covenants, including, without limitation, maintenance of corporate existence, compliance with laws, maintenance of insurance and
properties, payment of taxes, addition of subsidiary guarantors and furnishing notices and other information. The Note Purchase Agreement also contains certain restrictive covenants that restrict the
Company's ability to, among other things, incur liens, transfer or sell assets, engage in certain mergers and consolidations and enter into transactions with affiliates. The Note Purchase Agreement
also includes customary representations and warranties and events of default. In the case of an event of default arising from specified events of bankruptcy or insolvency, all outstanding Senior Notes
will become due and payable immediately without further action or notice. In the case of payment events of defaults, any holder of Senior Notes affected thereby may declare all Senior Notes held by it
due and payable immediately. In
100
Table of Contents
the
case of any other event of default, a majority of the holders of the Senior Notes may declare all the Senior Notes to be due and payable immediately. Pursuant to the Note Purchase Agreement, so
long as any Senior Notes are outstanding the Company will not permit (i) its leverage ratio, as determined pursuant to the Note Purchase Agreement, as of the end of any fiscal quarter to exceed 3.50
to 1.00, (ii) its interest coverage ratio as determined pursuant to the Note Purchase Agreement as of the end of any fiscal quarter for any period of four consecutive fiscal quarters to be less than
2.50 to 1 or (iii) priority debt at any time to exceed 25% of consolidated net worth, as determined pursuant to the Note Purchase Agreement.
As
of December 31, 2018, the Company was in compliance with the covenants of the Note Purchase Agreement. The Company's leverage ratio (as defined in the Note Purchase Agreement) was
0.93 and interest coverage ratio (as defined in the Note Purchase Agreement) was 22.5.
Annual
maturities of debt outstanding, less deferred financing cost amortization, at December 31, 2018 are as follows (in millions):
|
|
|
|
|
2019
|
|
$
|
18.5
|
|
2020
|
|
|
112.3
|
|
2021
|
|
|
1.7
|
|
2022
|
|
|
106.0
|
|
2023
|
|
|
1.1
|
|
Thereafter
|
|
|
101.5
|
|
|
|
|
|
|
Total
|
|
$
|
341.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense for the years ended December 31, 2018, 2017 and 2016, was $12.6 million, $15.4 million and $13.2 million, respectively.
Note 12Derivative Instruments and Hedging Activities
Interest Rate Risks
The Company's exposure to interest rate risk relates primarily to outstanding variable rate debt and adverse movements in the related short-term
market rates. The most significant component of the Company's interest rate risk relates to amounts outstanding under the 2015 Credit Agreement, which totaled $111.6 million at December 31, 2018. The
Company currently has a higher level of fixed rate debt than variable rate debt, which limits the exposure to adverse movements in interest rates.
Foreign Exchange Rate Risk Management
The Company generates a substantial portion of its revenues and expenses in international markets, principally Germany and other countries in
the European Union and Switzerland, which subjects its operations to the exposure of exchange rate fluctuations. The impact of currency exchange rate movement can be positive or negative in any
period. The Company periodically enters into foreign currency contracts in order to minimize the volatility that fluctuations in currency translation have on its monetary transactions. Under these
arrangements, the Company typically agrees to purchase a fixed amount of a foreign currency in exchange for a fixed amount of U.S. Dollars or other currencies on specified dates with maturities of
less than twelve months, with some agreements extending to longer periods. These transactions do not qualify for hedge accounting and, accordingly, the instrument is recorded at fair value with the
corresponding gains and losses recorded in the consolidated statements
101
Table of Contents
of
income and comprehensive income. The Company had the following notional amounts outstanding under foreign exchange contracts at December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy
|
|
Notional
Amount in
Buy Currency
|
|
Sell
|
|
Maturity
|
|
Notional
Amount in
U.S. Dollars
|
|
Fair Value
of Assets
|
|
Fair Value
of Liabilities
|
|
December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro
|
|
|
25.4
|
|
U.S. Dollars
|
|
January 2019
|
|
$
|
31.1
|
|
$
|
|
|
$
|
2.1
|
|
U.S. Dollars
|
|
|
8.5
|
|
Euro
|
|
January 2019
|
|
|
8.6
|
|
|
|
|
|
0.1
|
|
Swiss Francs
|
|
|
11.1
|
|
U.S. Dollars
|
|
January 2019
|
|
|
11.3
|
|
|
|
|
|
|
|
U.S. Dollars
|
|
|
2.1
|
|
Swiss Francs
|
|
January 2019
|
|
|
2.1
|
|
|
|
|
|
|
|
Swiss Francs
|
|
|
10.4
|
|
Japanese Yen
|
|
April 2019
|
|
|
10.8
|
|
|
|
|
|
0.2
|
|
U.S. Dollars
|
|
|
1.5
|
|
Canadian Dollars
|
|
January 2019
|
|
|
1.5
|
|
|
|
|
|
|
|
Singapore Dollar
|
|
|
4.3
|
|
U.S. Dollars
|
|
January 2019
|
|
|
3.1
|
|
|
|
|
|
|
|
Chinese Renminbi
|
|
|
41.1
|
|
U.S. Dollars
|
|
January 2019
|
|
|
5.9
|
|
|
0.1
|
|
|
|
|
Great Britain Pound
|
|
|
15.4
|
|
Euro
|
|
January 2019
|
|
|
20.0
|
|
|
|
|
|
0.4
|
|
Euro
|
|
|
6.9
|
|
Great Britain Pound
|
|
May 2019 to October 2020
|
|
|
8.0
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
102.4
|
|
$
|
0.2
|
|
$
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro
|
|
|
59.5
|
|
U.S. Dollars
|
|
January 2018
|
|
$
|
67.0
|
|
$
|
4.5
|
|
$
|
|
|
Swiss Francs
|
|
|
11.0
|
|
U.S. Dollars
|
|
January 2018
|
|
|
11.3
|
|
|
|
|
|
|
|
Singapore Dollar
|
|
|
4.9
|
|
U.S. Dollars
|
|
January 2018
|
|
|
3.6
|
|
|
|
|
|
|
|
Euro
|
|
|
1.8
|
|
Polish Zloty
|
|
January 2018
|
|
|
2.3
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
84.2
|
|
$
|
4.5
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
addition, the Company periodically enters into purchase and sales contracts denominated in currencies other than the functional currency of the parties to the transaction. The Company
accounts for these transactions separately valuing the "embedded derivative" component of these contracts. The contracts, denominated in currencies other than the functional currency of the
transacting parties, amounted to $113.5 million for the delivery of products and $6.0 million for the purchase of products at December 31, 2018 and $98.3 million for the delivery of products and $3.6
million for the purchase of products at December 31, 2017. The changes in the fair value of these embedded derivatives are recorded in interest and other income (expense), net in the consolidated
statements of income and comprehensive income.
Commodity Price Risk Management
The Company has an arrangement with a customer under which it has a firm commitment to deliver copper based superconductors at a fixed price. In
order to minimize the volatility that fluctuations in the price of copper have on the Company's sales of these commodities, the Company enters into commodity hedge contracts. At December 31, 2018 and
2017, the Company has
fixed price commodity contracts with notional amounts aggregating $6.8 million and $3.0 million, respectively. The changes in the fair value of these commodity contracts are recorded in interest and
other income (expense), net in the consolidated statements of income and comprehensive income.
102
Table of Contents
The
fair value of the derivative instruments described above were recorded in the consolidated balance sheets for the years ended December 31, 2018 and 2017 as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location
|
|
2018
|
|
2017
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Other current assets
|
|
$
|
0.2
|
|
$
|
4.5
|
|
Embedded derivatives in purchase and delivery contracts
|
|
Other current assets
|
|
|
0.2
|
|
|
0.9
|
|
Fixed price commodity contracts
|
|
Other current assets
|
|
|
|
|
|
0.8
|
|
Embedded derivatives in purchase and delivery contracts
|
|
Other long-term assets
|
|
|
0.2
|
|
|
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Other current liabilities
|
|
$
|
2.8
|
|
$
|
0.1
|
|
Embedded derivatives in purchase and delivery contracts
|
|
Other current liabilities
|
|
|
0.9
|
|
|
1.5
|
|
Fixed price commodity contracts
|
|
Other current liabilities
|
|
|
0.5
|
|
|
|
|
Embedded derivatives in purchase and delivery contracts
|
|
Other long-term liabilities
|
|
|
|
|
|
1.4
|
|
The
impact on net income of unrealized gains and losses resulting from changes in the fair value of derivative instruments for the years ending December 31 are as follows (in millions)
and are recorded within interest and other income (expense), net in the consolidated statements of income and comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Foreign exchange contracts
|
|
$
|
(7.0
|
)
|
$
|
5.8
|
|
$
|
(0.1
|
)
|
Embedded derivatives in purchase and delivery contracts
|
|
|
1.5
|
|
|
(5.7
|
)
|
|
3.7
|
|
Fixed price commodity contracts
|
|
|
(1.3
|
)
|
|
0.6
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (expense), net
|
|
$
|
(6.8
|
)
|
$
|
0.7
|
|
$
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 13Income Taxes
The domestic and foreign components of income before taxes are as follows for the years ended December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Domestic
|
|
$
|
(15.4
|
)
|
$
|
(14.0
|
)
|
$
|
18.4
|
|
Foreign
|
|
|
260.1
|
|
|
211.8
|
|
|
159.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
244.7
|
|
$
|
197.8
|
|
$
|
177.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103
Table of Contents
The
components of the income tax provision are as follows for the years ended December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Current income tax (benefit) expense:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
10.1
|
|
$
|
32.2
|
|
$
|
(2.4
|
)
|
State
|
|
|
1.0
|
|
|
2.0
|
|
|
0.3
|
|
Foreign
|
|
|
61.8
|
|
|
42.7
|
|
|
59.8
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current income tax expense
|
|
|
72.9
|
|
|
76.9
|
|
|
57.7
|
|
Deferred income tax (benefit) expense:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(15.4
|
)
|
|
35.5
|
|
|
3.1
|
|
State
|
|
|
(0.3
|
)
|
|
(0.4
|
)
|
|
(5.3
|
)
|
Foreign
|
|
|
6.5
|
|
|
5.5
|
|
|
(32.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax (benefit) expense
|
|
|
(9.2
|
)
|
|
40.6
|
|
|
(34.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
63.7
|
|
$
|
117.5
|
|
$
|
23.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
income tax provision differs from the tax provision computed at the U.S federal statutory rate due to the following significant components for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Statutory tax rate
|
|
|
21.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
Foreign tax rate differential
|
|
|
4.6
|
|
|
(11.7
|
)
|
|
(11.6
|
)
|
Permanent differences
|
|
|
0.7
|
|
|
(0.5
|
)
|
|
8.2
|
|
Mandatory Repatriation
|
|
|
1.7
|
|
|
27.0
|
|
|
|
|
Tax contingencies
|
|
|
0.9
|
|
|
(1.3
|
)
|
|
(3.0
|
)
|
Change in tax rates
|
|
|
1.1
|
|
|
0.9
|
|
|
0.2
|
|
Withholding taxes
|
|
|
0.1
|
|
|
2.2
|
|
|
1.3
|
|
Tax on unremitted earnings
|
|
|
(4.9
|
)
|
|
7.8
|
|
|
|
|
State income taxes, net of federal benefits
|
|
|
(0.4
|
)
|
|
1.3
|
|
|
(2.9
|
)
|
Purchase accounting
|
|
|
0.1
|
|
|
0.5
|
|
|
1.6
|
|
Tax credits
|
|
|
|
|
|
(0.3
|
)
|
|
(3.0
|
)
|
Other
|
|
|
0.6
|
|
|
(1.2
|
)
|
|
4.3
|
|
Change in valuation allowance for unbenefitted losses
|
|
|
0.5
|
|
|
(0.3
|
)
|
|
(17.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
26.0
|
%
|
|
59.4
|
%
|
|
13.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104
Table of Contents
The tax effect of temporary items that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2018 and 2017 are as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
|
|
$
|
3.9
|
|
Accrued expenses
|
|
|
5.3
|
|
|
6.7
|
|
Compensation
|
|
|
26.9
|
|
|
27.9
|
|
Deferred revenue
|
|
|
|
|
|
0.4
|
|
Net operating loss carryforwards
|
|
|
24.3
|
|
|
19.1
|
|
Fixed assets
|
|
|
3.9
|
|
|
|
|
Inventory
|
|
|
|
|
|
2.8
|
|
Foreign tax and other tax credit carryforwards
|
|
|
8.3
|
|
|
5.9
|
|
Unrealized currency gain/loss
|
|
|
1.1
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
69.8
|
|
|
69.9
|
|
Less valuation allowance
|
|
|
(4.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
65.5
|
|
|
69.9
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1.2
|
|
|
|
|
Investments
|
|
|
0.5
|
|
|
|
|
Inventory
|
|
|
1.8
|
|
|
|
|
Deferred revenue
|
|
|
5.9
|
|
|
|
|
Fixed assets
|
|
|
|
|
|
0.3
|
|
Foreign statutory reserves
|
|
|
0.4
|
|
|
0.9
|
|
Intangibles
|
|
|
47.6
|
|
|
13.0
|
|
Accrued expenses
|
|
|
0.3
|
|
|
0.6
|
|
Accrued withholding tax
|
|
|
4.8
|
|
|
16.1
|
|
Other
|
|
|
3.2
|
|
|
6.4
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
65.7
|
|
|
37.3
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
(0.2
|
)
|
$
|
32.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company uses the liability method to account for income taxes. Under this method, deferred income taxes are recognized for the future tax consequences of differences between the tax
and financial accounting bases of assets and liabilities at each reporting period. Deferred income taxes are based on enacted tax laws and statutory tax rates applicable to the period in which these
differences are expected to affect taxable income. A valuation allowance is established when necessary to reduce deferred tax assets to the expected realizable amounts.
The
Company can only recognize a deferred tax asset to the extent this it is "more likely than not" that these assets will be realized. Judgments around realizability depend on the
availability and weight
105
Table of Contents
of
both positive and negative evidence. Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2018, 2017 and 2016 were as follows:
|
|
|
|
|
Balance at December 31, 2015
|
|
$
|
37.2
|
|
Decreases recorded as a benefit to income tax provision
|
|
|
(36.7
|
)
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
0.5
|
|
Decreases recorded as a benefit to income tax provision
|
|
|
(0.5
|
)
|
|
|
|
|
|
Balance at December 31, 2017
|
|
$
|
|
|
Increases recorded as a loss to income tax provision
|
|
|
1.3
|
|
Increases recorded as part of acquisition purchase accounting
|
|
|
3.0
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
$
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2018, the Company has approximately $43.2 million net operating loss carryforwards available to reduce state taxable income. The Company also has approximately
$93.1 million of German Trade Tax and Corporate Income Tax net operating losses that are carried forward indefinitely. Additionally, the Company has $8.5 million of other foreign net operating
losses that are expected to expire at various times beginning in 2019. The Company also has state research and development tax credits of $8.6 million. Utilization of these credits and state net
operating losses may be subject to annual limitations due to the ownership percentage change limitations provided by the Internal Revenue Code Section 382 and similar state provisions. In the event of
a deemed change in control under Internal Revenue Code Section 382, an annual limitation on the utilization of net operating losses and credits may result in the expiration of all or a portion of the
net operating loss and credit carryforwards.
The
Company reflects certain statutory reserves in its tabular reconciliation of unrecognized tax benefits. Effective for the year ended December 31, 2013 and thereafter, these
unrecognized tax benefits are presented as a reduction of the associated net deferred tax assets.
At
December 31, 2018 the Company recorded state income and foreign withholding taxes on the cash and liquid assets portion of the unremitted earnings and profits (E&P) of foreign
subsidiaries expected to be repatriated from its foreign subsidiaries to the United States, except for amounts from certain subsidiaries, which the Company has asserted to be indefinitely reinvested.
Specifically, the Company asserts that a total of $1.328 billion of unremitted foreign earnings is indefinitely reinvested. This figure is comprised of $875.0 million in unremitted earnings as well as
$453.4 million of non-cash E&P in all jurisdictions not indefinitely reinvested. If this E&P is ultimately distributed to the United States in the form of dividends or otherwise the Company would
likely be subject to additional withholding tax. The Company estimates the amount of unrecognized deferred withholding taxes on the undistributed E&P to be approximately $48.5 million at December 31,
2018.
The
Company had gross unrecognized tax benefits, excluding interest, of approximately $6.6 million as of December 31, 2018, that if recognized, would reduce the Company's
effective tax rate. In the next twelve months it is reasonably possible that the Company will reduce its unrecognized tax benefits by $0.1 million due to the expiration of statutes of limitations and
favorable settlement with
106
Table of Contents
taxing
authorities which would reduce the Company's effective tax rate. A tabular reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):
|
|
|
|
|
Gross unrecognized tax benefits at December 31, 2015
|
|
$
|
33.2
|
|
Gross decreasestax positions in prior periods
|
|
|
(4.8
|
)
|
Gross increasescurrent period tax positions
|
|
|
0.9
|
|
Settlements
|
|
|
(21.3
|
)
|
Lapse of statutes
|
|
|
(1.8
|
)
|
|
|
|
|
|
Gross unrecognized tax benefits at December 31, 2016
|
|
|
6.2
|
|
Lapse of statutes
|
|
|
(1.8
|
)
|
|
|
|
|
|
Gross unrecognized tax benefits at December 31, 2017
|
|
|
4.4
|
|
Gross increasescurrent period tax positions
|
|
|
3.1
|
|
Lapse of statutes
|
|
|
(0.9
|
)
|
|
|
|
|
|
Gross unrecognized tax benefits at December 31, 2018
|
|
$
|
6.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company's policy is to include accrued interest and penalties related to unrecognized tax benefits and income tax liabilities, when applicable, in income tax expense. As of December
31, 2018 and 2017, the Company had approximately $0.2 million and $0.2 million, respectively, of accrued interest and penalties related to uncertain tax positions included in other long-term
liabilities in the consolidated balance sheets. The Company recorded a benefit of $0.3 million for penalties and interest related to unrecognized tax benefits in the provision for income taxes during
the year ended December 31, 2017. There was no benefit recognized during the year ended December 31, 2018.
The
Company files tax returns in the United States, which includes federal, state and local jurisdictions, and many foreign jurisdictions with varying statutes of limitations. The
Company considers Germany, the United States and Switzerland to be its significant tax jurisdictions. The majority of the Company's earnings are derived in Germany and Switzerland. Accounting for the
various federal and local taxing authorities, the statutory rates for 2018 were approximately 30.0% and 20.0% for Germany and Switzerland, respectively. The mix of earnings in those two jurisdictions
resulted in an increase of 3.76% from the U.S. statutory rate of 21% in 2018. The Company has not been a party to any tax holiday agreements. The tax years 2013 to 2016 are open to examination in
Germany and Switzerland. In 2016, the Company settled tax audits in Germany and Switzerland. The settlements were immaterial to the consolidated financial statements. Tax years 2011 to 2016 remain
open for examination in the United States.
On December 22, 2017 (Enactment Date), the President of the United States signed tax reform legislation (2017 Tax Act), which enacted a wide
range of changes to the U.S. corporate income tax system, many of which differ significantly from the provisions of the previous U.S. tax law. The 2017 Tax Act contains several key provisions
including, among other things:
-
-
A reduction in the corporate tax rate from 35.0% to 21.0% for the tax years beginning after December 31, 2017;
-
-
The introduction of a territorial tax system beginning in 2018 by providing a 100% dividends received deduction on certain qualified dividends
from foreign subsidiaries;
-
-
To fund the territorial tax system, a one-time tax on the mandatory deemed repatriation of post-1986 untaxed foreign earnings and profits
(E&P), referred to as the "toll charge", and;
-
-
The introduction of a new U.S. tax on certain off-shore earnings associated with so-called "Global Intangible Low-Taxed Income" (GILTI). This
tax is imposed at an effective tax rate of
107
Table of Contents
Also
on December 22, 2017, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 118, which provides companies with additional guidance on how to
implement the provisions of the 2017 Tax Act in their financial statements. The guidance provides for a measurement period, up to one year from the Enactment Date, in which provisional amounts may be
adjusted when additional information is obtained, prepared or analyzed about facts and circumstances that existed as of the Enactment Date, if known, which would have impacted the amounts that were
initially recorded by the Company.
During
the fourth quarter of 2017, the Company recognized within its provision for income taxes an incremental income tax provision of $68.9 million, which is primarily comprised of the
following:
-
-
An estimated income tax provision of $55.0 million for the federal and state impacts of the one-time deemed repatriation of pre-2018 E&P. In
accordance with the 2017 Tax Act, the federal portion of the toll charge liability may be paid over eight years. Such liability can be reduced by certain credits. Accordingly, we have recorded $30.6
million and $2.7 million in long-term income tax liabilities and accrued income taxes (current), respectively, as of December 31, 2017
-
-
An estimated net income tax benefit of $1.4 million, for the remeasurement of our deferred tax assets and liabilities at the newly enacted tax
rate of 21%; and
-
-
As a result of the 2017 Tax Act and our expectations about distributing certain cash balances from its foreign subsidiaries to the United
States, we also recorded estimated income tax provisions for estimated state income taxes and foreign withholding taxes of $12.5 million.
During
the fourth quarter of 2018, the Company completed its accounting for the elements of U.S. Tax Reform. During 2018, the Company recorded tax adjustments under SAB 118 equal to a
net benefit of $5.4 million. Among those adjustments were $6.6 million of additional tax expense related to the toll charge liability that was estimated to be $55.0 million in 2017. In addition, a
$12.0 million tax benefit was recorded in 2018 that reduced the estimated liability of $12.5 that the Company recorded in 2017 for expected state income and foreign withholding taxes associated with
unremitted foreign earnings. There was no change from the $1.4 million that was recorded in 2017 to the net deferred tax liability related to the reduction on the U.S. federal statutory tax rate from
35% to 21%.
The
Company recorded tax expense associated with the GILTI provisions of the 2017 Tax Act as of December 31, 2018. Companies are allowed to adopt an accounting policy to either recognize
deferred taxes for GILTI or treat such as a tax cost in the year incurred. The Company has determined to treat such as a tax cost in the year incurred. As such, the Company did not record a deferred
income tax expense or benefit related to the GILTI provisions of the 2017 Tax Act in the consolidated statement of income for the year ended December 31, 2018.
Note 14Post Retirement Benefit Plans
Defined Contribution Plans
The Company sponsors various defined contribution plans that cover certain domestic and international employees. The Company may make
contributions to these plans at its discretion. The Company contributed $8.4 million, $6.4 million and $6.0 million to such plans in the years ended December 31, 2018, 2017 and 2016, respectively.
Defined Benefit Plans
Substantially all of the Company's employees in Switzerland, France and Japan, as well as certain employees in Germany, are covered by
Company-sponsored defined benefit pension plans. Retirement
108
Table of Contents
benefits
are generally earned based on years of service and compensation during active employment. Eligibility is generally determined in accordance with local statutory requirements; however, the
level of benefits and terms of vesting varies among plans.
The
components of net periodic benefit costs for the years ended December 31, 2018, 2017 and 2016 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Components of net periodic benefit costs:
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
7.5
|
|
$
|
7.8
|
|
$
|
6.8
|
|
Interest cost
|
|
|
2.0
|
|
|
1.7
|
|
|
2.2
|
|
Expected return on plan assets
|
|
|
(1.9
|
)
|
|
(1.7
|
)
|
|
(1.8
|
)
|
Settlement loss recognized
|
|
|
|
|
|
|
|
|
|
|
Amortization of net loss
|
|
|
3.8
|
|
|
4.8
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit costs
|
|
$
|
11.4
|
|
$
|
12.6
|
|
$
|
11.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company measures its benefit obligation and the fair value of plan assets as of December 31st each year. The changes in benefit obligations and plan assets under the
defined benefit pension plans, projected benefit obligation and funded status of the plans were as follows at December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
228.0
|
|
$
|
210.1
|
|
Service cost
|
|
|
7.5
|
|
|
7.8
|
|
Interest cost
|
|
|
2.0
|
|
|
1.7
|
|
Plan participant contributions
|
|
|
4.3
|
|
|
4.1
|
|
Plan amendments
|
|
|
(1.3
|
)
|
|
|
|
Plan settlements
|
|
|
(0.4
|
)
|
|
|
|
Benefits paid
|
|
|
(2.0
|
)
|
|
(3.6
|
)
|
Actuarial loss (gain)
|
|
|
(16.2
|
)
|
|
(3.6
|
)
|
Premiums paid
|
|
|
(1.7
|
)
|
|
(1.5
|
)
|
Impact of foreign currency exchange rates
|
|
|
(3.5
|
)
|
|
13.0
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
216.7
|
|
|
228.0
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
120.3
|
|
|
105.9
|
|
Return on plan assets
|
|
|
(0.6
|
)
|
|
5.0
|
|
Plan participant and employer contributions
|
|
|
10.2
|
|
|
9.5
|
|
Benefits paid
|
|
|
(2.2
|
)
|
|
(3.6
|
)
|
Plan settlements
|
|
|
(0.4
|
)
|
|
|
|
Premiums paid
|
|
|
(1.5
|
)
|
|
(1.5
|
)
|
Impact of foreign currency exchange rates
|
|
|
(1.2
|
)
|
|
5.0
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
124.6
|
|
|
120.3
|
|
|
|
|
|
|
|
|
|
Net under funded status
|
|
$
|
(92.1
|
)
|
$
|
(107.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
March 2017, the FASB issued ASU No. 2017-07,
Compensation- Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net
Periodic Postretirement Benefit Cost
. This new standard intends to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The new
standard requires the service cost component of net periodic cost
109
Table of Contents
be
reported in the same line item(s) as other employee compensation costs and all other components of the net periodic cost be reported in the condensed consolidated statements of income and
comprehensive income below operating income. The Company adopted this guidance on January 1, 2018 on a retrospective basis. The Company reclassified the non-service pension cost previously
reported in operations of $4.8 million and $4.6 million for the years ended December 31, 2017 and 2016, respectively. These amounts were previously reported in cost of sales, selling, general, and
administrative, and research and development expenses in the consolidated statements of income and comprehensive income.
The
accumulated benefit obligation for the defined benefit pension plans is $206.9 million and $217.2 million at December 31, 2018 and 2017, respectively. All defined benefit pension
plans have an accumulated benefit obligation and projected benefit obligation in excess of plan assets at December 31, 2018 and 2017.
The
following amounts were recognized in the accompanying consolidated balance sheets for the Company's defined benefit plans at December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Current liabilities
|
|
$
|
(1.6
|
)
|
$
|
(2.1
|
)
|
Non-current liabilities
|
|
|
(90.5
|
)
|
|
(105.6
|
)
|
|
|
|
|
|
|
|
|
Net benefit obligation
|
|
$
|
(92.1
|
)
|
$
|
(107.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following pre-tax amounts were recognized in accumulated other comprehensive income for the Company's defined benefit plans at December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Reconciliation of amounts recognized in the consolidated balance sheets:
|
|
|
|
|
|
|
|
Prior service cost
|
|
$
|
(6.9
|
)
|
$
|
(9.7
|
)
|
Net actuarial loss
|
|
|
(32.0
|
)
|
|
(48.9
|
)
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
(38.9
|
)
|
|
(58.6
|
)
|
Accumulated contributions below net periodic benefit cost
|
|
|
(53.2
|
)
|
|
(49.1
|
)
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(92.1
|
)
|
$
|
(107.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
amount in accumulated other comprehensive income at December 31, 2018 expected to be recognized as amortization of net loss within net periodic benefit cost in 2019 is $1.9 million.
For
the defined benefit pension plans, the Company uses a corridor approach to amortize actuarial gains and losses. Under this approach, net actuarial gains or losses in excess of ten
percent of the larger of the projected benefit obligation or the fair value of plan assets are amortized over the average remaining service of active participants who are expected to receive benefits
under the plans.
The
range of assumptions used for defined benefit pension plans reflects the different economic environments within the various countries. The range of assumptions used to determine the
projected benefit obligations for the years ended December 31, are as follows:
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Discount rates
|
|
0.2%-2.3%
|
|
0.2%-2.1%
|
|
0.2%-2.1%
|
Expected return on plan assets
|
|
0.0%-3.0%
|
|
0.0%-3.0%
|
|
0.0%-3.0%
|
Expected rate of compensation increase
|
|
1.0%-3.0%
|
|
1.0%-3.0%
|
|
1.0%-3.0%
|
110
Table of Contents
To
determine the expected long-term rate of return on pension plan assets, the Company considers current asset allocations, as well as historical and expected returns on various asset
categories of plan assets. For the defined benefit pension plans, the Company applies the expected rate of return to a market-related value of assets, which stabilizes variability in assets to which
the expected return is applied.
Asset Allocations by Asset Category
The fair value of the Company's pension plan assets at December 31, 2018 and 2017, by asset category and by level in the fair value hierarchy,
is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Total
|
|
Quoted Prices in
Active Markets
Available (Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
Plan Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group BPCE Life (a)
|
|
$
|
0.8
|
|
$
|
|
|
$
|
0.8
|
|
$
|
|
|
Swiss Life Collective BVG Foundation (b)
|
|
|
123.8
|
|
|
|
|
|
123.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total plan assets
|
|
$
|
124.6
|
|
$
|
|
|
$
|
124.6
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Total
|
|
Quoted Prices in
Active Markets
Available (Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
Plan Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group BPCE Life (a)
|
|
$
|
1.1
|
|
$
|
|
|
$
|
1.1
|
|
$
|
|
|
Swiss Life Collective BVG Foundation (b)
|
|
|
119.2
|
|
|
|
|
|
119.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total plan assets
|
|
$
|
120.3
|
|
$
|
|
|
$
|
120.3
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
The
Company's pension plan in France is invested in a larger fund that invests in a variety of instruments. The assets are not directly dedicated to the French
pension plan. The Group BPCE Life fund invests in debt securities of foreign corporations and governments, equity securities of foreign government funds and private real estate funds.
-
(b)
-
The
Company's pension plan in Switzerland is outsourced to Swiss Life AG, an outside insurance provider. Under the insurance contract, the plan assets are invested
in Swiss Life Collective BVG Foundation (the Foundation), which is an umbrella fund for which the retirement savings and interest rates are guaranteed a minimum of 1.0% and 1.75% for the years ended
December 31, 2018 and 2017, respectively, on the mandatory withdrawal portion, as defined by Swiss law, and 0.25% and 0.75% for the years ended December 31, 2018 and 2017, respectively on the
non-mandatory portion. The Foundation utilizes plan administrators and investment managers to oversee the investment allocation process, set long-term strategic targets and monitor asset allocations.
The target allocations are 75% bonds, including cash, 5% equity investments and 20% real estate and mortgages. Should the Foundation yield a return greater than the guaranteed amounts, the
Company, according to Swiss law, shall receive 90% of the additional return with Swiss Life AG retaining 10%. The withdrawal benefits and interest allocations are secured at all times by Swiss Life
AG.
Contributions and Estimated Future Benefit Payments
During 2019, the Company expects contributions to be consistent with 2018. The estimated future benefit payments are based on the same
assumptions used to measure the Company's benefit obligation
111
Table of Contents
at
December 31, 2018. The following benefit payments reflect future employee service as appropriate (in millions):
|
|
|
|
|
2019
|
|
$
|
2.5
|
|
2020
|
|
|
2.8
|
|
2021
|
|
|
3.3
|
|
2022
|
|
|
3.7
|
|
2023
|
|
|
4.4
|
|
2024-2028
|
|
|
31.0
|
|
Note 15Commitments and Contingencies
In accordance with ASC Topic 450, Contingencies, the Company accrues anticipated costs of settlement, damages, or other costs to the extent
specific losses are probable and estimable.
Litigation and Related Contingencies
Lawsuits, claims and proceedings of a nature considered normal to its businesses may be pending from time to time against the Company. Third
parties might allege that the Company or its collaborators are infringing their patent rights or that the Company is otherwise violating their intellectual property rights. Loss contingency provisions
are recorded if the potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the amount can be reasonably estimated or a range of loss can be determined.
These accruals represent management's best estimate of probable loss. Disclosure is also provided when it is reasonably possible that a loss will be incurred or when it is reasonably possible that the
amount of a loss will exceed the recorded provision. The Company believes the outcome of pending proceedings, individually and in the aggregate, will not have a material impact on the Company's
financial statements. As of December 31, 2018 and 2017, no material accruals have been recorded for potential contingencies.
Governmental Investigations
The Company is subject to regulation by national, state and local government agencies in the United States and other countries in which it
operates. From time to time, the Company is the subject of governmental investigations often involving regulatory, marketing and other business practices. These governmental investigations may result
in the commencement of civil and criminal proceedings, fines, penalties and administrative remedies which could have a material adverse effect on the Company's financial position, results of
operations and/or liquidity.
In
August 2018, the Korea Fair Trade Commission ("KFTC") informed the Company that it is conducting an investigation into the public tender bidding activities of a number of life science
instrument companies operating in Korea, including Bruker Korea Co., Ltd. The Company is cooperating fully with the KFTC regarding this matter and is unable to predict the timing or outcome of this
investigation at this time. Revenues from Korea represent less than 3% of the Company's consolidated revenue for the twelve-month period ended December 31, 2018.
On
October 19, 2017, the Company received a notice of investigation and subpoena to produce documents from the Division of Enforcement of the SEC. The subpoena seeks information related
to an employee terminated as part of a restructuring and certain matters involving the Company's policies and accounting practices related to revenue recognition and restructuring activities, as well
as related financial reporting, disclosure and compliance matters, since January 1, 2013. The subpoena also seeks information concerning, among other things, the Company's previously identified
material weakness in internal controls over the accounting for income taxes, related financial reporting matters and certain payments for non-employee travel expenses. The Company is producing
documents in response to the
112
Table of Contents
subpoena
and intends to continue to cooperate fully with the SEC's investigation. Additionally, the Audit Committee of the Company's Board of Directors, with the assistance of outside counsel, is
conducting an internal investigation into practices of certain business partners in China and into the conduct of former employees of the Bruker Optics division in China which raised questions of
compliance with laws, including the U.S. Foreign Corrupt Practices Act, and/or compliance with the Company's business policies and code of conduct. The Company has voluntarily disclosed this matter to
the SEC and U.S. Department of Justice. At this time, the Company is unable to predict the duration, scope or outcome of these investigations.
As
of December 31, 2018 and 2017, no material accruals have been recorded for potential contingencies related to these matters.
Operating Leases
Certain buildings, office equipment and vehicles are leased under agreements that are accounted for as operating leases. Total rental expense
under operating leases was $25.1 million, $23.7 million and $22.0 million during the years ended December 31, 2018, 2017 and 2016, respectively. Future minimum lease payments under non-cancelable
operating leases at December 31, 2018, for each of the next five years and thereafter are as follows (in millions):
|
|
|
|
|
2019
|
|
$
|
25.3
|
|
2020
|
|
|
19.1
|
|
2021
|
|
|
13.7
|
|
2022
|
|
|
9.3
|
|
2023
|
|
|
7.3
|
|
Thereafter
|
|
|
18.4
|
|
|
|
|
|
|
Total
|
|
$
|
93.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Leases
The Company leases certain assets under agreements that are classified as capital leases. The cost of these assets under the capital leases is
included in the consolidated balance sheets
as property, plant and equipment and was $0.2 million and $0.9 million at December 31, 2018 and 2017, respectively. Accumulated amortization of the leased buildings at December 31, 2018 and 2017 was
$0.1 million and $0.5 million, respectively. Amortization expense related to assets under capital leases was included in depreciation expense. The obligations related to capital leases was recorded as
a component of long-term debt or the current portion of long-term debt in the consolidated balance sheets, depending on when the lease payments are due.
Unconditional Purchase Commitments
The Company has entered into unconditional purchase commitments, in the ordinary course of business, that include agreements to purchase goods,
services or fixed assets and to pay royalties that are enforceable and legally binding and that specify all significant terms including: fixed or minimum quantities to be purchased; fixed, minimum or
variable price provisions; and the approximate timing of the transaction. Purchase commitments exclude agreements that are cancelable at any time without penalty. The aggregate amount of the Company's
unconditional purchase commitments totaled $228.3 million at December 31, 2018 and the majority of these commitments are expected to be settled during 2019.
113
Table of Contents
License Agreements
The Company has entered into license agreements allowing it to utilize certain patents. If these patents are used in connection with a
commercial product sale, the Company pays royalties on the related product revenues. Licensing fees for the years ended December 31, 2018, 2017 and 2016, were $3.7 million, $3.5 million and $3.0
million, respectively, and are recorded in cost of product revenue in the consolidated statements of income and comprehensive income.
Letters of Credit and Guarantees
At December 31, 2018 and 2017, the Company had bank guarantees of $138.3 million and $138.8 million, respectively, related primarily to
customer advances. These arrangements guarantee the refund of advance payments received from customers in the event that the merchandise is not delivered or warranty obligations are not fulfilled in
compliance with the terms of the contract. These guarantees affect the availability of the Company's lines of credit.
Indemnifications
The Company enters into standard indemnification arrangements in the Company's ordinary course of business. Pursuant to these arrangements, the
Company indemnifies, holds harmless, and agrees to reimburse the indemnified parties for losses suffered or incurred by the indemnified party. These parties are generally the Company's business
partners or customers, in connection with any patent, or any copyright or other intellectual property infringement claim by any third party with respect to its products. The term of these
indemnification agreements is generally perpetual any time after the execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these
agreements is unlimited. The Company believes the estimated fair value of these agreements is minimal based on historical experiences.
Note 16Shareholders' Equity
Share Repurchase Program
In May 2017, the Company's Board of Directors approved a share repurchase program under which repurchases of common stock up to $225.0 million
may occur from time to time, in amounts, at prices, and at such times as the Company deems appropriate, subject to market conditions, legal requirements and other considerations. No repurchases
occurred in the year ended
December 31, 2018. A total of 5,318,063 shares were repurchased at an aggregate cost of $152.2 million in the year ended December 31, 2017 under the program. Any future repurchases will be funded from
cash on hand, future cash flows from operations and available borrowings under the revolving credit facility.
The
repurchased shares are reflected within Treasury stock in the accompanying consolidated balance sheet at December 31, 2018 and 2017.
Cash Dividends on Common Stock
On February 22, 2016, the Company announced the establishment of a dividend policy and the declaration by its Board of Directors of an initial
quarterly cash dividend in the amount of $0.04 per share of the Company's issued and outstanding common stock. Under the dividend policy, the Company will target a cash dividend to the Company's
shareholders in the amount of $0.16 per share
114
Table of Contents
per
annum, payable in equal quarterly installments. The following is a summary of the dividends paid in the years ended December 31, 2018 and 2017 (in millions):
|
|
|
|
|
|
|
|
|
|
|
2018
|
Dividends Paid on
|
|
March 23
|
|
June 22
|
|
September 21
|
|
December 21
|
Shareholders of Record as of
|
|
March 6
|
|
June 4
|
|
September 4
|
|
December 3
|
Aggregate Cost
|
|
$6.3
|
|
$6.2
|
|
$6.3
|
|
$6.3
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
Dividends Paid on
|
|
March 24
|
|
June 23
|
|
September 22
|
|
December 22
|
Shareholders of Record as of
|
|
March 8
|
|
June 5
|
|
September 5
|
|
December 4
|
Aggregate Cost
|
|
$6.4
|
|
$6.4
|
|
$6.3
|
|
$6.3
|
Subsequent
dividend declarations and the establishment of record and payment dates for such future dividend payments, if any, are subject to the Board of Directors' continuing
determination that the dividend policy is in the best interests of the Company's shareholders. The dividend policy may be suspended or cancelled at the discretion of the Board of Directors at any
time.
Accumulated Other Comprehensive Income (Loss)
The following is a summary of the components of accumulated other comprehensive income (loss), net of tax, at December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
|
|
Pension
Liability
Adjustment
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Balance at December 31, 2015
|
|
$
|
3.2
|
|
$
|
(47.4
|
)
|
$
|
(44.2
|
)
|
Other comprehensive income (loss)
|
|
|
(27.3
|
)
|
|
(8.4
|
)
|
|
(35.7
|
)
|
Realized loss on reclassification
|
|
|
|
|
|
4.0
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
(24.1
|
)
|
|
(51.8
|
)
|
|
(75.9
|
)
|
Other comprehensive income (loss)
|
|
|
96.3
|
|
|
1.8
|
|
|
98.1
|
|
Realized loss on reclassification
|
|
|
|
|
|
4.8
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
|
72.2
|
|
|
(45.2
|
)
|
|
27.0
|
|
Other comprehensive income
|
|
|
(25.3
|
)
|
|
11.9
|
|
|
(13.4
|
)
|
Realized loss on reclassification
|
|
|
|
|
|
3.4
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
$
|
46.9
|
|
$
|
(29.9
|
)
|
$
|
17.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 17Stock-Based Compensation
In February 2010, the Bruker BioSciences Corporation Amended and Restated 2000 Stock Option Plan (the "2000 Plan"), expired at the end of its
scheduled ten-year term. On March 9, 2010, the Company's Board of Directors unanimously approved and adopted the Bruker Corporation 2010 Incentive Compensation Plan (the "2010 Plan"), and on May 14,
2010, the 2010 Plan was approved by the Company's stockholders. The 2010 Plan provided for the issuance of up to 8,000,000 shares of the Company's common stock. The 2010 Plan allowed a committee of
the Board of Directors (the "Compensation Committee") to grant incentive stock options, non-qualified stock options and restricted stock awards. The Compensation Committee had the authority to
determine which employees would receive the awards, the amount of the awards and other terms and conditions of any awards. Awards granted under the 2010 Plan typically were made subject to a vesting
period of three to five years.
115
Table of Contents
In
May 2016, the Bruker Corporation 2016 Incentive Compensation Plan (the "2016 Plan") was approved by the Company's stockholders. With the approval of the 2016 Plan, no further grants
will be made under the 2010 Plan. The 2016 Plan provides for the issuance of up to 9,500,000 shares of the Company's common stock and permits the grant of awards of non-qualified stock options,
incentive stock options, stock appreciation rights, restricted stock, unrestricted stock, restricted stock units, performance shares and performance units, as well as cash-based awards. The 2016 Plan
is administered by the Compensation Committee. The Compensation Committee has the authority to determine which employees will receive awards, the amount of any awards, and other terms and conditions
of such awards. Stock option awards granted under the 2016 Plan typically vest over a period of one to four years.
Starting
in 2017, members of the Company's Board of Directors receive an annual award of restricted stock units which vest over a one-year service period.
Stock
option activity for the year ended December 31, 2018 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Subject to
Options
|
|
Weighted
Average
Option Price
|
|
Weighted
Average
Remaining
Contractual
Term (Yrs)
|
|
Aggregate
Intrinsic Value
(in millions) (b)
|
|
Outstanding at December 31, 2017
|
|
|
3,235,673
|
|
$
|
20.16
|
|
|
|
|
|
|
|
Granted
|
|
|
126,260
|
|
|
35.86
|
|
|
|
|
|
|
|
Exercised
|
|
|
(575,372
|
)
|
|
17.87
|
|
|
|
|
|
|
|
Forfeited/Expired
|
|
|
(193,251
|
)
|
|
20.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
|
2,593,310
|
|
$
|
21.41
|
|
|
5.6
|
|
$
|
22.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2018
|
|
|
1,789,819
|
|
$
|
19.77
|
|
|
5.1
|
|
$
|
17.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable and expected to vest at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018 (a)
|
|
|
2,533,128
|
|
$
|
21.33
|
|
|
5.6
|
|
$
|
22.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
In
addition to the options that are vested at December 31, 2018, the Company expects a portion of the unvested options to vest in the future. Options expected to
vest in the future are determined by applying an estimated forfeiture rate to the options that are unvested as of December 31, 2018.
-
(b)
-
The
aggregate intrinsic value is based on the positive difference between the fair value of the Company's common stock price of $29.77 on December 31, 2018, or the
date of exercises, as appropriate, and the exercise price of the underlying stock options.
The
weighted average fair value of options granted was $9.50, $7.61 and $7.72 per share for the years ended December 31, 2018, 2017 and 2016, respectively.
The
total intrinsic value of options exercised was $8.0 million, $16.2 million and $11.2 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Unrecognized
pre-tax stock-based compensation expense of $4.4 million related to stock options awarded under the 2010 and 2016 Plans is expected to be recognized over the weighted
average remaining service period of 2.08 years for stock options outstanding at December 31, 2018.
Restricted
shares of the Company's common stock are periodically awarded to executive officers, directors and certain key employees of the Company, subject to service restrictions, which
vest ratably over periods of one to four years. The restricted shares of common stock may not be sold or transferred during the restriction period. Stock-based compensation for restricted stock is
recorded based on the stock price on the grant date and charged to expense ratably throughout the restriction period.
116
Table of Contents
The
following table summarizes information about restricted stock award activity during the year ended December 31, 2018:
|
|
|
|
|
|
|
|
|
|
Shares
Subject to
Restriction
|
|
Weighted
Average Grant
Date Fair
Value
|
|
Outstanding at December 31, 2017
|
|
|
85,529
|
|
$
|
20.39
|
|
Vested
|
|
|
(54,343
|
)
|
|
20.12
|
|
Forfeited
|
|
|
(6,553
|
)
|
|
24.80
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
|
24,633
|
|
$
|
19.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
total fair value of restricted stock vested was $1.8 million, $2.3 million and $1.5 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Unrecognized
pre-tax stock-based compensation expense of $0.3 million related to restricted stock awarded under the 2010 Plan is expected to be recognized over the weighted average
remaining service period of 0.6 years for awards outstanding at December 31, 2018.
Restricted
stock units of the Company's common stock are periodically awarded to executive officers, directors and certain employees of the Company which vest ratably over a service
periods of one to four years. Stock-based compensation for restricted stock units is recorded based on the stock price on the grant date and charged to expense ratably throughout the vesting period.
The
following table summarizes information about restricted stock unit activity for year ended December 31, 2018:
|
|
|
|
|
|
|
|
|
|
Shares
Subject to
Restriction
|
|
Weighted
Average Grant
Date Fair
Value
|
|
Outstanding at December 31, 2017
|
|
|
652,123
|
|
$
|
25.47
|
|
Granted
|
|
|
428,464
|
|
|
33.76
|
|
Vested
|
|
|
(203,144
|
)
|
|
24.95
|
|
Forfeited
|
|
|
(71,194
|
)
|
|
26.89
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
|
806,249
|
|
$
|
29.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
total fair value of restricted stock vested was $6.9 million and $2.0 million for the years ended December 31, 2018 and 2017, respectively. No restricted stock units vested in the
years ended December 31, 2016.
Unrecognized
pre-tax stock-based compensation expense of $18.8 million related to restricted stock units awarded under the 2016 Plan is expected to be recognized over the weighted
average remaining service period of 3.07 years for units outstanding at December 31, 2018.
In
March 2016, the FASB issued ASU No. 2016-09,
Stock CompensationImprovements to Employee Share-Based Payment Accounting
.
The new standard simplifies accounting for share-based payment transactions, including income tax consequences and the classification of the tax impact on the statement of cash flows. The Company
adopted this standard effective January 1, 2017. The ASU requires that the difference between the actual tax benefit realized upon exercise or vesting, as applicable, and the tax benefit recorded
based on the fair value of the stock award at the time of grant (the "excess tax benefits") be reflected as a reduction of the current period provision for income taxes with any shortfall recorded as
an increase in the tax provision rather than as a component of changes to additional paid-in capital. The ASU also required the excess tax benefit realized be reflected as an operating cash flow
rather than a financing cash flow. This standard was adopted by the Company on a
117
Table of Contents
modified
retrospective basis with respect to the previously unrecognized windfalls, which resulted in a cumulative adjustment to retained earnings of $3.6 million as of January 1, 2017 related to the
timing of when excess tax benefits are recognized. The Company adopted this standard on a prospective basis with respect to the statements of income and cash flows and recognized an excess tax benefit
related to stock compensation which decreased income tax expense in the amount of $1.3 million and $1.9 million for the years ended December 31, 2018 and 2017, respectively. The excess tax benefits
were previously recorded in equity. The Company continues to utilize a historical forfeiture rate to estimate future forfeitures.
Note 18Other Charges, Net
The components of other charges, net for the years ended December 31, 2018, 2017 and 2016, were as follows in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Acquisition-related expenses (income), net
|
|
$
|
3.4
|
|
$
|
4.5
|
|
$
|
9.0
|
|
Professional fees incurred in connection with investigation matters
|
|
|
4.5
|
|
|
0.2
|
|
|
|
|
Information technology transformation costs
|
|
|
4.8
|
|
|
4.2
|
|
|
6.2
|
|
Restructuring charges
|
|
|
6.8
|
|
|
10.6
|
|
|
9.8
|
|
Long-lived asset impairments
|
|
|
|
|
|
0.2
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
Other charges, net
|
|
$
|
19.5
|
|
$
|
19.7
|
|
$
|
25.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring Initiatives
Restructuring charges for the years ended December 31, 2018, 2017 and 2016 included charges for various other programs which were recorded in
the accompanying consolidated statements of income and comprehensive income as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Cost of revenues
|
|
$
|
2.6
|
|
$
|
5.6
|
|
$
|
11.0
|
|
Other charges, net
|
|
|
6.8
|
|
|
10.6
|
|
|
9.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9.4
|
|
$
|
16.2
|
|
$
|
20.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118
Table of Contents
The
following table sets forth the changes in the restructuring reserves for the years ended December 31, 2018, 2017 and 2016 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Severance
|
|
Exit Costs
|
|
Provisions for
Excess
Inventory
|
|
Balance at December 31, 2015
|
|
$
|
23.1
|
|
$
|
10.3
|
|
$
|
2.4
|
|
$
|
10.4
|
|
Restructuring charges
|
|
|
20.8
|
|
|
10.6
|
|
|
7.2
|
|
|
3.0
|
|
Cash payments
|
|
|
(22.1
|
)
|
|
(15.6
|
)
|
|
(5.6
|
)
|
|
(0.9
|
)
|
Non-cash adjustments
|
|
|
(5.4
|
)
|
|
(0.4
|
)
|
|
(0.3
|
)
|
|
(4.7
|
)
|
Foreign currency impact
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
16.2
|
|
$
|
4.9
|
|
$
|
3.7
|
|
$
|
7.6
|
|
Restructuring charges
|
|
|
16.2
|
|
|
7.7
|
|
|
6.2
|
|
|
2.3
|
|
Cash payments
|
|
|
(17.1
|
)
|
|
(10.1
|
)
|
|
(6.8
|
)
|
|
(0.2
|
)
|
Non-cash adjustments
|
|
|
(5.5
|
)
|
|
(0.7
|
)
|
|
(1.0
|
)
|
|
(3.8
|
)
|
Foreign currency impact
|
|
|
1.0
|
|
|
0.2
|
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
$
|
10.8
|
|
$
|
2.0
|
|
$
|
2.1
|
|
$
|
6.7
|
|
Restructuring charges
|
|
|
9.4
|
|
|
4.1
|
|
|
5.3
|
|
|
|
|
Cash payments
|
|
|
(9.2
|
)
|
|
(4.4
|
)
|
|
(4.8
|
)
|
|
|
|
Non-cash adjustments
|
|
|
(3.5
|
)
|
|
0.3
|
|
|
(1.2
|
)
|
|
(2.6
|
)
|
Foreign currency impact
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
$
|
7.3
|
|
$
|
2.0
|
|
$
|
1.4
|
|
$
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
charges by segment as of and for the years ended December 31, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
BSI
|
|
$
|
9.4
|
|
$
|
14.1
|
|
$
|
20.8
|
|
BEST
|
|
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9.4
|
|
$
|
16.2
|
|
$
|
20.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 19Interest and Other Income (Expense), Net
The components of interest and other income (expense), net for the years ended December 31, 2018, 2017 and 2016, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Interest income
|
|
$
|
1.2
|
|
$
|
0.8
|
|
$
|
0.3
|
|
Interest expense
|
|
|
(12.6
|
)
|
|
(15.4
|
)
|
|
(13.2
|
)
|
Exchange gains (losses) on foreign currency transactions
|
|
|
(3.0
|
)
|
|
(5.5
|
)
|
|
4.1
|
|
Pension components
|
|
|
(3.9
|
)
|
|
(4.8
|
)
|
|
(4.6
|
)
|
Gain on bargain purchase
|
|
|
|
|
|
0.6
|
|
|
9.2
|
|
Other
|
|
|
0.6
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income (expense), net
|
|
$
|
(17.7
|
)
|
$
|
(21.7
|
)
|
$
|
(4.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119
Table of Contents
Note 20Business Segment Information
The Company has two reportable segments, BSI and BEST, as discussed in Note 1 to the consolidated financial statements.
Selected
business segment information is presented below for the years ended December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
BSI
|
|
$
|
1,707.0
|
|
$
|
1,583.9
|
|
$
|
1,492.6
|
|
BEST
|
|
|
194.8
|
|
|
191.2
|
|
|
130.2
|
|
Eliminations (a)
|
|
|
(6.2
|
)
|
|
(9.2
|
)
|
|
(11.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
1,895.6
|
|
$
|
1,765.9
|
|
$
|
1,611.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income:
|
|
|
|
|
|
|
|
|
|
|
BSI
|
|
$
|
247.9
|
|
$
|
213.4
|
|
$
|
173.5
|
|
BEST
|
|
|
14.5
|
|
|
7.4
|
|
|
6.6
|
|
Corporate, eliminations and other (b)
|
|
|
|
|
|
(1.3
|
)
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
262.4
|
|
$
|
219.5
|
|
$
|
181.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
Represents
product and service revenue between reportable segments.
-
(b)
-
Represents
corporate costs and eliminations not allocated to the reportable segments.
The
Company recorded an impairment charge of $0.6 million, $1.1 million and $0.8 million for the years ended December 31, 2018, 2017 and 2016, respectively, within the BSI and BEST
Segments. Please see Note 8Property, Plant and Equipment, net and Note 9Goodwill and Other Intangible Assets, for description of impairment charges recorded in 2018, 2017 and
2016. These impairment charges are included within cost of revenue for the year ended December 31, 2018 and other charges, net for the years ended December 31, 2017 and 2016 in the accompanying
consolidated statements of income and comprehensive income.
Total
assets by segment as of and for the years ended December 31, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Assets:
|
|
|
|
|
|
|
|
BSI
|
|
$
|
2,100.6
|
|
$
|
1,917.8
|
|
BEST
|
|
|
33.2
|
|
|
35.6
|
|
Eliminations and other (a)
|
|
|
(5.2
|
)
|
|
(4.9
|
)
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,128.6
|
|
$
|
1,948.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
Assets
not allocated to the reportable segments and eliminations of intercompany transactions.
120
Table of Contents
Total
capital expenditures and depreciation and amortization by segment are presented below for the years ended December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
|
|
BSI
|
|
$
|
42.8
|
|
$
|
38.5
|
|
$
|
34.6
|
|
BEST
|
|
|
6.4
|
|
|
5.2
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
49.2
|
|
$
|
43.7
|
|
$
|
37.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
|
|
|
BSI
|
|
$
|
60.2
|
|
$
|
59.8
|
|
$
|
51.3
|
|
BEST
|
|
|
4.7
|
|
|
4.1
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$
|
64.9
|
|
$
|
63.9
|
|
$
|
54.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
and property, plant and equipment, net by geographical area as of and for the year ended December 31, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
489.4
|
|
$
|
434.7
|
|
$
|
428.2
|
|
Germany
|
|
|
201.1
|
|
|
200.2
|
|
|
189.5
|
|
Rest of Europe
|
|
|
500.2
|
|
|
465.0
|
|
|
393.4
|
|
Asia Pacific
|
|
|
549.2
|
|
|
514.8
|
|
|
458.1
|
|
Other
|
|
|
155.7
|
|
|
151.2
|
|
|
142.1
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
1,895.6
|
|
$
|
1,765.9
|
|
$
|
1,611.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Property, plant and equipment, net:
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
44.1
|
|
$
|
46.2
|
|
$
|
46.4
|
|
Germany
|
|
|
137.0
|
|
|
140.9
|
|
|
122.5
|
|
Rest of Europe
|
|
|
78.7
|
|
|
71.9
|
|
|
63.3
|
|
Asia Pacific
|
|
|
6.3
|
|
|
5.4
|
|
|
4.4
|
|
Other
|
|
|
4.5
|
|
|
2.1
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment, net
|
|
$
|
270.6
|
|
$
|
266.5
|
|
$
|
239.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 21Related Parties
The Company leases certain office space from certain of its principal shareholders, including a director and executive officer and a former
member of the Company's Board of Directors, and members of their immediate families, which have expiration dates ranging from 2019 to 2020. Total rent expense under these leases was $1.2 million, $3.5
million and $3.9 million for each of the years ended December 31, 2018, 2017 and 2016, respectively.
During
the years ended December 31, 2018, 2017 and 2016, the Company recorded revenue of $2.9 million, $2.6 million and $1.1 million, respectively, arising from commercial transactions
with a life
sciences company in which a member of the Company's Board of Directors is Chairman and Chief Executive Officer.
121
Table of Contents
During
the year ended December 31, 2018, the Company recorded revenue of $0.6 million from commercial transactions with a hospital in which a member of the Company's Board of Directors
serves on the Board of Trustees.
Note 22Recent Accounting Pronouncements
In January 2017, the FASB issued ASU No. 2017-04,
Intangibles-Goodwill and Other (Topic 350): Simplifying
the Test for Goodwill Impairment.
The new standard simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test. This ASU
will be applied prospectively and is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. This standard is not expected to have a material
impact on the Company's financial position, results of operations or statements of cash flows upon adoption.
In
January 2017, the FASB issued ASU No. 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a
Business.
This new standard clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities is not a business. The
screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets,
the set is not a business. This new standard was adopted as of the effective date of January 1, 2018. The Company has evaluated the provisions of this standard and has determined that the impact of
adoption of ASU No. 2017-01 was not material to the Company's consolidated financial statements.
In
October 2016, the FASB issued ASU No. 2016-16,
Income Taxes (Topic 740)Intra-Entity Transfer of Assets Other than
Inventory
. The new standard requires recognition of current and deferred income taxes resulting from an intra-entity transfer of any asset (excluding inventory) when the
transfer occurs. This is a change from existing U.S. GAAP which prohibits recognition of current and deferred income taxes until the asset is sold to a third party. This new standard was adopted as of
the effective date of January 1, 2018. The Company has evaluated the provisions of this standard and has determined that the impact of adoption of ASU No. 2016-16 was not material to the
Company's consolidated financial statements.
In
February 2016, the FASB issued ASU No. 2016-02,
Leases
which provides guidance on the recognition, measurement,
presentation and disclosure of leases. The new standard supersedes present U.S. GAAP guidance on leases and requires all leases with terms longer than 12 months to be reported on the balance sheet as
right-of-use ("ROU") assets and lease liabilities, as well as, provide additional disclosures. The lease liability represents the lessee's obligation to make lease payments arising from a lease and
will be measured as the present value of the lease payments. The right-of-use asset represents the lessee's right to use a specified asset for the lease term, and will be measured at the lease
liability amount, adjusted for lease prepayment, lease incentives received and the lessee's initial direct costs.
The
new standard is effective as of January 1, 2019. Under ASU No. 2016-02, companies are required to transition to the new standard in the period of adoption at the
beginning of the earliest period presented in the financial statements (January 1, 2017 for the Company). In July 2018, the FASB issued ASU No. 2018-11 as an update to
ASU No. 2016-02, which in part provided companies the option of transitioning to the new standard as of the adoption date and recognize a cumulative-effect adjustment to the opening
balance of retained earnings in the period of adoption. The Company adopted the new standard as of January 1, 2019 using the alternative transition method under ASU No. 2018-11 and will
recognize a cumulative-effect adjustment to the opening balance sheet. The Company elected the available package of practical expedients for leases that commenced prior to the effective date that
allows it to not reassess: 1) whether any expired or existing contracts are or contain leases; 2) the lease classification for any expired or existing leases; and 3) the accounting treatment of
initial direct costs for any expired or existing leases. The Company also elected the practical expedient that allows lessees to treat lease and non-lease components of leases as a single lease
component.
122
Table of Contents
The
Company is in the process of finalizing the implementation of a leasing software that will provide the required accounting disclosures and is continuing to finalize its calculations
based on the new standard. Accordingly, the Company has not completed its evaluation of all aspects of the new standard.
The
Company expects that the new standard will have a material impact on its consolidated balance sheet due to the recognition of right-of-use assets and lease liabilities for
substantially all leases currently accounted for as operating leases. As the Company completes its evaluation of this new standard, new information may arise that could change its current
understanding of the impact to its consolidated financial statements.
The
Company is also working to establish new processes and internal controls that may be required to comply with the new standard, but it does not expect it will have a material impact
on the Company's operations.
Note 23Quarterly Financial Data (Unaudited)
A summary of operating results for the quarterly periods in the years ended December 31, 2018 and 2017, is set forth below (in millions, except
per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
Year ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
431.7
|
|
$
|
443.7
|
|
$
|
466.6
|
|
$
|
553.6
|
|
Gross profit
|
|
|
199.4
|
|
|
205.2
|
|
|
222.6
|
|
|
272.8
|
|
Operating income
|
|
|
38.1
|
|
|
48.8
|
|
|
69.1
|
|
|
106.4
|
|
Net income attributable to Bruker Corporation
|
|
|
27.0
|
|
|
31.2
|
|
|
43.4
|
|
|
78.1
|
|
Net income per common share attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruker Corporation shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.17
|
|
$
|
0.20
|
|
$
|
0.28
|
|
$
|
0.50
|
|
Diluted
|
|
$
|
0.17
|
|
$
|
0.20
|
|
$
|
0.28
|
|
$
|
0.50
|
|
Year ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
384.9
|
|
$
|
414.9
|
|
$
|
435.6
|
|
$
|
530.5
|
|
Gross profit
|
|
|
176.4
|
|
|
184.5
|
|
|
198.9
|
|
|
256.2
|
|
Operating income
|
|
|
37.6
|
|
|
35.3
|
|
|
51.3
|
|
|
95.3
|
|
Net income (loss) attributable to Bruker Corporation
|
|
|
21.6
|
|
|
23.4
|
|
|
37.0
|
|
|
(3.4
|
)
|
Net income (loss) per common share attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruker Corporation shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.14
|
|
$
|
0.15
|
|
$
|
0.23
|
|
$
|
(0.02
|
)
|
Diluted
|
|
$
|
0.13
|
|
$
|
0.15
|
|
$
|
0.23
|
|
$
|
(0.02
|
)
|
123
Table of Contents