Use these links to rapidly review the document TABLE OF CONTENTS ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K Commission File Number 000-30833 BRUKER CORPORATION (Exact name of registrant as specified in its charter) Registrant's telephone number, including area code: (978) 663-3660 Securities registered pursuant to Section 12(b) of the Act: Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934 For the fiscal year ended December 31, 2017 o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Delaware (State or other jurisdiction of Incorporation or organization) 04-3110160 (I.R.S. Employer Identification No.) 40 Manning Road, Billerica, MA (Address of principal executive offices) 01821 (Zip Code) Title of Each Class Name of Each Exchange on Which Registered Common Stock, $0.01 par value per share The Nasdaq Global Select Market Large accelerated filer ý Accelerated filer o Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o Emerging growth company o
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UsetheselinkstorapidlyreviewthedocumentTABLEOFCONTENTSITEM8FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA
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UNITEDSTATESSECURITIESANDEXCHANGECOMMISSION
Washington,D.C.20549
Form10-K
CommissionFileNumber000-30833
BRUKERCORPORATION(Exactnameofregistrantasspecifiedinitscharter)
Registrant'stelephonenumber,includingareacode:(978)663-3660
SecuritiesregisteredpursuanttoSection12(b)oftheAct:
SecuritiesregisteredpursuanttoSection12(g)oftheAct:None
Indicatebycheckmarkiftheregistrantisawell-knownseasonedissuer,asdefinedinRule405oftheSecuritiesAct.YesýNoo
IndicatebycheckmarkiftheregistrantisnotrequiredtofilereportspursuanttoSection13orSection15(d)oftheAct.YesoNoý
Indicatebycheckmarkwhethertheregistrant(1)hasfiledallreportsrequiredtobefiledbySection13or15(d)oftheSecuritiesExchangeActof1934duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtofilesuchreports),and(2)hasbeensubjecttosuchfilingrequirementsforthepast90days.YesýNoo
IndicatebycheckmarkwhethertheregistranthassubmittedelectronicallyandpostedonitscorporateWebsite,ifany,everyInteractiveDataFilerequiredtobesubmittedandpostedpursuanttoRule405ofRegulationS-Tduringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtosubmitandpostsuchfiles).YesýNoo
IndicatebycheckmarkifdisclosureofdelinquentfilerspursuanttoItem405ofRegulationS-Kisnotcontainedherein,andwillnotbecontained,tothebestoftheregistrant'sknowledge,indefinitiveproxyorinformationstatementsincorporatedbyreferenceinPartIIIofthisForm10-KoranyamendmenttothisForm10-K.o
Indicatebycheckmarkwhethertheregistrantisalargeacceleratedfiler,anacceleratedfiler,anon-acceleratedfiler,smallerreportingcompany,oranemerginggrowthcompany.Seethedefinitionsof"largeacceleratedfiler,""acceleratedfiler,""smallerreportingcompany,"and"emerginggrowthcompany"inRule12b-2oftheExchangeAct.
ýý ANNUALREPORTPURSUANTTOSECTION13OR15(d)OFTHESECURITIESEXCHANGEACTof1934
ForthefiscalyearendedDecember31,2017
oo TRANSITIONREPORTPURSUANTTOSECTION13OR15(d)OFTHESECURITIESEXCHANGEACTOF1934
Delaware(StateorotherjurisdictionofIncorporationororganization)
04-3110160(I.R.S.EmployerIdentificationNo.)
40ManningRoad,Billerica,MA(Addressofprincipalexecutiveoffices)
01821(ZipCode)
TitleofEachClass NameofEachExchangeonWhichRegisteredCommonStock,$0.01parvaluepershare TheNasdaqGlobalSelectMarket
Largeacceleratedfilerý Acceleratedfilero Non-acceleratedfilero(Donotcheckifasmaller
reportingcompany)
SmallerreportingcompanyoEmerginggrowthcompanyo
Ifanemerginggrowthcompany,indicatebycheckmarkiftheregistranthaselectednottousetheextendedtransitionperiodforcomplyingwithanyneworrevisedfinancialaccountingstandardsprovidedpursuanttoSection13(a)oftheExchangeAct.o
Indicatebycheckmarkwhethertheregistrantisashellcompany(asdefinedinRule12b-2oftheExchangeAct).YesoNoý
Theaggregatemarketvalueofthevotingandnon-votingstockheldbynon-affiliatesoftheregistrantasofJune30,2017(thelastbusinessdayoftheregistrant'smostrecentlycompletedsecondfiscalquarter)was$2,954,754,499,basedonthereportedlastsalepriceontheNasdaqGlobalSelectMarket.Thisamountexcludesanaggregateof56,475,932sharesofcommonstockheldbyofficersanddirectorsandeachpersonknownbytheregistranttoown10%ormoreoftheoutstandingcommonstockoftheregistrantasofJune30,2017.Exclusionofsharesheldbyanypersonshouldnotbeconstruedtoindicatethatsuchpersonpossessesthepower,directorindirect,todirectorcausethedirectionofmanagementorpoliciesoftheregistrant,orthatsuchpersoniscontrolledbyorundercommoncontrolwiththeregistrant.Thenumberofsharesoftheregistrant'scommonstockoutstandingasofMarch12,2018was156,006,589.
DOCUMENTSINCORPORATEDBYREFERENCE
PortionsoftheinformationrequiredbyPartIIIofthisreport(Items10,11,12,13and14)areincorporatedbyreferencefromtheregistrant'sdefinitiveProxyStatementforits2018AnnualMeetingofStockholderstobefiledwithin120daysofthecloseoftheregistrant'sfiscalyear.
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BRUKERCORPORATION
ANNUALREPORTONFORM10-K
TABLEOFCONTENTS
AnystatementscontainedinthisAnnualReportonForm10-Kthatarenotstatementsofhistoricalfactmaybedeemedtobeforward-lookingstatementswithinthemeaningofSection21EoftheSecuritiesExchangeActof1934.Withoutlimitingtheforegoing,thewords"believes,anticipates,plans,expects,seeks,estimates,should"andsimilarexpressionsareintendedtoidentifyforward-lookingstatements.Anyforward-lookingstatementscontainedhereinarebasedoncurrentexpectations,butaresubjecttoanumberofrisksanduncertainties.Thefactorsthatcouldcauseactualfutureresultstodiffermateriallyfromcurrentexpectationsinclude,butarenotlimitedto,risksanduncertaintiesrelatedtoadversechangesintheeconomicandpoliticalconditionsinthecountriesinwhichweoperate,theintegrationofbusinesseswehaveacquiredormayacquireinthefuture,ourrestructuringandcost-controlinitiatives,changingtechnologies,productdevelopmentandmarketacceptanceofourproducts,thecostandpricingofourproducts,manufacturingandoutsourcing,competition,dependenceoncollaborativepartners,keysuppliersandthirdpartydistributors,capitalspendingandgovernmentfundingpolicies,changesingovernmentalregulations,intellectualproperty
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PartI
Item1 Business 3Item1A RiskFactors 17Item1B UnresolvedStaffComments 33Item2 Properties 33Item3 LegalProceedings 35Item4 MineSafetyDisclosure 35
PartII
Item5 MarketforRegistrant'sCommonEquity,RelatedStockholderMattersandIssuerPurchasesofEquitySecurities 36Item6 SelectedFinancialData 39Item7 Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperations 41Item7A QuantitativeandQualitativeDisclosuresAboutMarketRisk 66Item8 FinancialStatementsandSupplementaryData 69Item9 ChangesinandDisagreementswithAccountantsonAuditingandFinancialDisclosure 125Item9A ControlsandProcedures 125Item9B OtherInformation 127
PartIII
Item10 Directors,ExecutiveOfficersandCorporateGovernance 127Item11 ExecutiveCompensation 127Item12 SecurityOwnershipofCertainBeneficialOwnersandManagementandRelatedStockholderMatters 127Item13 CertainRelationshipsandRelatedTransactionsandDirectorIndependence 128Item14 PrincipalAccountingFeesandServices 128
PartIV
Item15 Exhibits,FinancialStatementsandSchedules 129Item16 Form10-KSummary 132
Signatures 133
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rights,litigation,exposuretoforeigncurrencyfluctuations,ourabilitytoserviceourdebtobligationsandfundouranticipatedcashneedsandotherfactors.ManyofthesefactorsaredescribedinmoredetailinthisAnnualReportonForm10-KunderItem1A."RiskFactors"andfromtimetotimeinotherfilingswemaymakewiththeSecuritiesandExchangeCommission.WhiletheCompanymayelecttoupdateforward-lookingstatementsinthefuture,itspecificallydisclaimsanyobligationtodoso,eveniftheCompany'sestimateschange,andreadersshouldnotrelyonthoseforward-lookingstatementsasrepresentingtheCompany'sviewsasofanydatesubsequenttothedateofthefilingofthisreport.
Referencesto"we,""us,""our,""management"orthe"Company"refertoBrukerCorporationand,insomecases,itssubsidiaries,aswellasallpredecessorentities.
Ourprincipalexecutiveofficesarelocatedat40ManningRoad,Billerica,MA01821,andourtelephonenumberis(978)663-3660.InformationaboutBrukerCorporationisavailableatwww.bruker.com .Theinformationonourwebsiteisnotincorporatedbyreferenceintoanddoesnotformapartofthisreport.Alltrademarks,tradenamesorcopyrightsreferredtointhisreportarethepropertyoftheirrespectiveowners.
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PARTI
ITEM1BUSINESS
OurBusiness
Weareadeveloper,manufactureranddistributorofhigh-performancescientificinstrumentsandanalyticalanddiagnosticsolutionsthatenableourcustomerstoexplorelifeandmaterialsatmicroscopic,molecularandcellularlevels.Manyofourproductsareusedtodetect,measureandvisualizestructuralcharacteristicsofchemical,biologicalandindustrialmaterialsamples.Ourproductsaddresstherapidlyevolvingneedsofadiversearrayofcustomersinlifescienceresearch,pharmaceuticals,biotechnology,appliedmarkets,cellbiology,clinicalresearch,microbiology,in-vitrodiagnostics,nanotechnologyandmaterialsscienceresearch.Ourtechnologyplatformsincludemagneticresonancetechnologies,massspectrometrytechnologies,gasandliquidchromatographytriplequadrupolemassspectrometrytechnologies,X-raytechnologies,spark-opticalemissionspectroscopy,atomicforcemicroscopy,stylusandopticalmetrologytechnology,fluorescenceopticalmicroscopyandinfraredandRamanmolecularspectroscopytechnologies.Wealsodevelop,manufactureanddistributeabroadrangeoffieldanalyticalsystemsforchemical,biological,radiological,nuclearandexplosives,orCBRNE,detection.Wealsodevelop,manufactureandmarkethighandlowtemperaturesuperconductingmaterialsanddevicesbasedprimarilyonmetalliclowtemperaturesuperconductors.OurcorporateheadquartersarelocatedinBillerica,Massachusetts.WemaintainmajortechnicalandmanufacturingcentersinEuropeandNorthAmerica,andwehavesalesofficeslocatedthroughouttheworld.
BusinessSegments
Wehavetworeportablesegments,Bruker Scientific Instruments (BSI) ,whichrepresentedapproximately90%ofourrevenuesduringtheyearendedDecember31,2017,andBruker Energy & Supercon Technologies (BEST) ,whichrepresentedtheremainderofourrevenues.WithinBSI,weareorganizedintothreeoperatingsegments:theBrukerBioSpinGroup,theBrukerCALIDGroupandtheBrukerNanoGroup.Forfinancialreportingpurposes,theBrukerBioSpin,BrukerCALIDandBrukerNanooperatingsegmentsareaggregatedintotheBSIreportablesegmentbecauseeachhassimilareconomiccharacteristics,productionprocesses,serviceofferings,typesandclassesofcustomers,methodsofdistributionandregulatoryenvironments.
BSISegment
Bruker BioSpin Group
TheBrukerBioSpinGroupcomprisestheBrukerMagneticResonance,AppliedIndustrialandClinical,PreclinicalImagingandServiceandLifecycleSupportDivisionsanddesigns,manufacturesanddistributesenablinglifesciencetoolsbasedonmagneticresonancetechnology.Magneticresonanceisanaturalphenomenonoccurringwhenamoleculeplacedinamagneticfieldgivesoffasignatureradiofrequency.Thesignatureradiofrequencyischaracteristicoftheparticularmoleculeandprovidesamultitudeofprecisechemicalandstructuralinformation.Dependingontheintendedapplication,wemarketandselltoourcustomersaNMRsystemoranEPRsystem(eachasdefinedbelow).
BrukerBioSpinalsomanufacturesandsellssingleandmultiplemodalitysystemsusingMRI,PET,SPECT,CTandMPI(eachasdefinedbelow).BrukerBioSpin'sproducts,whichhaveparticularapplicationinstructuralproteomics,drugdiscovery,pharmaceuticalandbiotechnologyresearchandproduction,andfoodandmaterialssciencefields,providecustomerswiththeabilitytodeterminethestructure,dynamics,andfunctionofspecificmolecules,suchasproteins,andtocharacterizeanddeterminethecompositionofmixtures.
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ThemajorityofBrukerBioSpin'srevenuesaregeneratedbyacademicandgovernmentresearchcustomers.Othercustomersincludepharmaceuticalandbiotechnologycompanies;chemical,foodandbeverage,clinicalandpolymercompanies;andnonprofitlaboratories.
During2017,welaunchedanumberofnewproductsandtechnologies,includingthenextgenerationofNMRelectronicsconsoles,newsoftwareandhardwareforenhancedworkflowsolutionsforNMRspectroscopyresearchandanalysisandanewsolutionforthequantificationofmetabolitesinurineusingNMR.
BrukerBioSpinGroup'sinstrumentsarebasedonthefollowingtechnologyplatforms:
• NMR—Nuclearmagneticresonance;
• EPR—Electronparamagneticresonance;
• MRI—Magneticresonanceimaging;
• MPI—MagneticParticleImaging;
• PET—PositronEmissionTomography;
• SPECT—SinglePhotonEmissionTomography;and
• CT—ComputedTomography.
NMRisaqualitativeandquantitativeanalyticaltechniquethatisusedtodeterminethemolecularstructureandpurityofasample.Moleculesareplacedinamagneticfieldandgiveoffaradiofrequencysignaturethatisrecordedbyasensitivedetector.Analysissoftwarehelpstodeterminethemolecularstructureofthesample.TheNMRtechniqueisusedinacademia,pharmaceutical,biotechnology,foodandbeverageandclinicalcompanies,andbyotherindustrialusersinlifescienceandmaterialscienceresearch.
EPRisaprocessofabsorptionofmicrowaveradiationbyparamagneticionsormoleculeswithatleastoneunpairedelectronthatspinsinthepresenceofastaticmagneticfield.EPRdetectsunpairedelectronsunambiguously,whereasothertechniquescanonlyprovideindirectevidenceoftheirpresence.Inaddition,EPRcanidentifytheparamagneticspeciesthataredetected,whichpresentinformationonthemolecularstructureneartheunpairedelectronandgiveinsightintodynamicprocessessuchasmolecularmotionsorfluidity.OurEPRinstrumentsareusedforawiderangeofapplications,includingadvancedmaterialsresearch,materialsanalysisandqualitycontrol.
MRIisaprocessofcreatinganimagefromthemanipulationofhydrogenatomsinamagneticfield.Inthepresenceofanexternalmagneticfield,atomswillalignwithoragainsttheexternalmagneticfield.Applicationofaradiofrequencycausestheatomstojumpbetweenhighandlowenergystates.MRIandmagneticresonancespectroscopy,orMRS,includemanymethodsincludingdiffusion-weighted,perfusion-weighted,molecularimagingandcontrast-enhance.MRIoffershighresolutionmorphologicinformation,aswellasfunctional,metabolicormolecularinformation.CustomersuseourMRIsystemsinpharmaceuticalresearch,includingmetabolomics,tostudyanumberofdiseases,includingdiabetes,neurology,oncologyandcardiovasculardisorders.
MPIisaprocessofcreatinganimagefrommagneticparticlesadministeredtothebodyofananimal.Themagneticparticlesaremanipulatedinacombinationofoscillatingmagneticfieldsexhibitingafieldfreezone.Theresponseoftheparticlesallowsarealtime3Ddatasetacquisitionofthewholebodyofananimal,showingthecontrastagentdistributinginandflowingthroughthebody.Thisimagingmodalityisusedtodetectcardiovasculardisorders.
PETisaprocessofcreatinganimagefrompositronsafteradministrationofapositronemittingradionuclidetothebodyofananimal.Annihilationofthepositronproducestwophotonswhichshowanangleof180°betweenthem,distinguishingthesephotonsfromphotonsoriginatingfromother
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sources.ThePETtracerenrichesincertainregionsofinterestwithinthebodyandgainsmolecularinformationfromtheanimalin vivo .Thishaswidespreadapplications,mostimportantlyforoncology,inflammation,neurologyandcardiovasculardisorders,aswellasmetabolicdisease,drugdiscoveryandbonedisease.
SPECTusesacontrastagentcontainingradionuclideswhichdirectlyemitsinglephotons.Thecontrastagentenrichesincertainpartsofthebodyofananimalandgeneratesimagesoftheradionuclidedistributioninthebody.SPECThaswidespreadapplicationinanimalinvestigationsin vivo ,mostimportantlyinoncology,neurologyandcardiovasculardisorders.
CTisatechnologybasedonX-rayswhichareusedtogenerateacomplete3Ddataset.Themostimportantapplicationsaretissuesampleanalysisornon-invasivein vivo animalimaging.CToffersthehighestspatialresolutionofallpreclinicalimagingmodalitiesandisespeciallyusefultogeneratemorphologicalinformationabouttheobjectoranimalunderinvestigation.CTisbeingusedinawiderangeofpreclinicalinvestigationssuchasbone-orthopedics,cardiovascular,pulmonary,oncology,metabolismandothers.
Bruker CALID Group
TheBrukerCALIDGroupcomprisestheBrukerDaltonics,BrukerDetectionandBrukerOpticsDivisions.TheBrukerDaltonicsDivisionprimarilydesigns,manufacturesanddistributeslifesciencemassspectrometry,orMS,instrumentsthatcanbeintegratedandusedalongwithothersamplepreparationorchromatographyinstruments.Theseproductsareusedinresearch,pharmaceuticalandbiotechnologydevelopmentandclinicaldiagnosticsettings.Massspectrometersaresophisticateddevicesthatmeasurethemassorweightofamoleculeandcanprovideaccurateinformationontheidentity,quantityandprimarystructureofmolecules.Massspectrometrybasedsolutionsoftencombineadvancedmassspectrometryinstrumentation,automatedsamplingandsamplepreparationrobots,reagentkitsandotherdisposableproductsusedinconductingtests,orassays,andbioinformaticssoftware.Weoffermassspectrometrysystemsandintegratedsolutionsforapplicationsinmultipleexistingandemerginglifesciencemarketsandchemicalandappliedmarkets,includingexpressionproteomics,clinicalproteomics,metabolicandpeptidebiomarkerprofiling,drugdiscoveryanddevelopment,moleculardiagnosticsresearchandmolecularandsystemsbiology,aswellasbasicmolecularmedicineresearchandclinicalmicrobiology(forinvitrodiagnostic(IVD)useonlyincertaincountriesandcertainconfigurations).
TheBrukerDetectionDivisionsuppliesvarioussystemsbasedonmassspectrometry,ionmobilityspectrometry,infraredspectroscopyandradiological/nucleardetectorsforChemical,Biological,Radiological,NuclearandExplosive(CBRNE)detectioninemergencyresponse,homelandsecurityanddefenseapplications.
TheBrukerOpticsDivisionmanufacturesanddistributesresearch,analyticalandprocessanalysisinstrumentsandsolutionsbasedoninfraredandRamanmolecularspectroscopytechnologies.Theseproductsareutilizedinindustry,governmentandacademiaforawiderangeofapplicationsandsolutionsforlifescience,pharmaceutical,foodandagriculturalanalysis,qualitycontrolandprocessanalysisapplications.InfraredandRamanspectroscopyarewidelyusedinbothresearchandindustryassimple,rapid,nondestructiveandreliabletechniquesforapplicationsrangingfrombasicsampleidentificationandqualitycontroltoadvancedresearch.TheBrukerOpticsDivisionalsoutilizesFouriertransformanddispersiveRamanmeasurementtechniquesonanextensiverangeoflaboratoryandprocessspectrometers.TheBrukerOpticsDivision'sproductsarecomplementedbyawiderangeofsamplingaccessoriesandtechniques,whichinclude,amongothers,microanalysisandhigh-throughputscreeningtohelpusersfindsuitablesolutionstoanalyzetheirsampleseffectively.
CustomersofourBrukerCALIDGroupincludepharmaceutical,biotechnologyanddiagnosticscompanies,contractresearchorganizations,academicinstitutions,medicalschools,nonprofitor
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for-profitforensics,agriculture,foodandbeveragesafety,environmentalandclinicalmicrobiologylaboratories,hospitalsandgovernmentdepartmentsandagencies.
During2017,welaunchedanumberofnewmassspectrometrybasedproductsolutions,includingthetimsTOFProTMforPASEFmassspectrometry,whichusesproprietarytrappedionmobilityspectrometry.Weintroducedmajorinnovationsforstraintyping,hospitalhygieneandinfectioncontrolwiththeIRBiotyperTM.WealsoexpandedtheassayandconsumablekitsweoffertofurtherenhancetheMALDIBiotyperTMplatform.Softwarereleasesaccompaniedourinstrumentsolutionslaunchesin2017.
TheBrukerCALIDGroup'sinstrumentsarebasedonthefollowingtechnologyplatforms:
• MALDI-TOF—Matrix-assistedlaserdesorptionionizationtime-of-flightmassspectrometry,includingtandemtime-of-flightsystems(MALDI-TOF/TOF);
• ESI-TOF—Electrosprayionizationtime-of-flightspectrometry,includingtandemmassspectrometrysystemsbasedonESI-quadrupole-TOFmassspectrometry(ESI-Q-q-TOF);
• FTMS—Fouriertransformmassspectrometry,includinghybridsystemswithaquadrupolefrontend(Q-q-FTMS);
• ITMS—Iontrapmassspectrometry;
• GC-MS—Gaschromatography-massspectrometrysystemsutilizingtriple-quadrupoletime-of-flightmassspectrometry;
• LC-MS—Liquidchromatography-massspectrometrysystemsutilizingtriple-quadrupoletime-offlightmassspectrometry;
• FT-IR—Fouriertransform-infraredspectroscopy;
• NIR—Near-infraredspectroscopy;and
• Raman—Ramanspectroscopy.
MALDI-TOFmassspectrometersutilizeanionizationprocesstoanalyzesolidsamplesusingalaserthatcombineshighsamplethroughputwithhighmassrangeandsensitivity.OurMALDI-TOFmassspectrometersareparticularlyusefulforapplicationsinclinicaldiagnostics,environmentalandtaxonomicalresearchandfoodprocessingandqualitycontrol.Specificapplicationsinclude:oligonucleotideandsyntheticpolymeranalysis;proteinidentificationandquantification;peptidedenovosequencing;determinationofpost-translationalmodificationsofproteins;interactionproteomicsandproteinfunctionanalysis;drugdiscoveryanddevelopment;andfastbodyfluidandtissuepeptideorproteinbiomarkerdetection.MALDImassspectrometryallowsuserstoclassifyandidentifymicroorganismsquicklyandreliablywithminimalsamplepreparationeffortsandlifecyclecosts.OurMALDIBiotypersolution,whichservestheclinicalmicrobiologymarket,enablesidentification,taxonomicalclassificationordereplicationofmicroorganismslikebacteria,yeastsandfungi.
ESI-TOFmassspectrometersutilizeanelectrosprayionizationprocesstoanalyzeliquidsamples.Thisionizationprocess,whichdoesnotdissociatethemolecules,allowsforrapiddataacquisitionandanalysisoflargebiologicalmolecules.ESI-TOFmassspectrometersareparticularlyusefulfor:identification,proteinanalysisandfunctionalcomplexanalysisinproteomicsandproteinfunction;molecularidentificationinmetabolomics,naturalproductanddrugmetaboliteanalysis;combinatorialchemistryhighthroughputscreening;andfastliquidchromatographymassspectrometry,orliquidchromatographymassspectrometry(LC-MS),indrugdiscoveryanddevelopment.
FTMSsystemsutilizehigh-fieldsuperconductingmagnetstoofferthehighestresolution,selectivity,andmassaccuracycurrentlyachievableinmassspectrometry.Oursystemsbasedonthistechnologyofteneliminatetheneedfortime-consumingseparationtechniquesincomplexmixtureanalyses.In
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addition,oursystemscanfragmentmolecularionstoperformexactmassanalysisonallfragmentstodeterminemolecularstructure.FTMSsystemsareparticularlyusefulfor:thestudyofstructureandfunctionofbiomolecules,includingproteins,DNAandnaturalproducts;complexmixtureanalysisincludingbodyfluidsorcombinatoriallibraries;high-throughputproteomicsandmetabolomics;andtop-downproteomicsofintactproteinswithouttheneedforenzymaticdigestionoftheproteinspriortoanalysis.Weoffernext-generationhybridFTMSsystemsthatcombineatraditionalexternalquadrupolemassselectorandhexapolecollisioncellwithahigh-performanceFTMSforfurtheriondissociation,top-downproteomicstoolsandultra-highresolutiondetection.
ITMSsystemscollectallionssimultaneously,whichimprovessensitivityrelativetopreviousquadrupolemassspectrometers.Iontrapmassspectrometersareparticularlyusefulforsequencingandidentificationbasedonpeptidestructuralanalysis,quantitativeliquidchromatographymassspectrometry,identificationofcombinatoriallibrariesandgenerallyenhancingthespeedandefficiencyofthedrugdiscoveryanddevelopmentprocess.
GC-MSsystemscombinethefeaturesofgaschromatographyandmassspectrometrytoidentifydifferentsubstanceswithinatestsample.Thetwocomponents,usedtogether,allowforafinerdegreeofsubstanceidentificationthaneithersystemwhenusedseparately.Theresultisaquantitativeanalysisofthecomponentsandthemassspectrumofeachcomponent.OurGC-MSsystemsareavailableintriplequadrupoleconfigurationsandcanbeconfiguredwithavarietyofoptionstosuitarangeofapplications.OurGC-MSsystemshaveapplicationsinfoodandproductsafety,forensics,clinicalandtoxicologytestingandenvironmental,pharmaceuticalandchemicalanalysis.
LC-MSsystemscombinetheseparationfeaturesofliquidchromatographywiththemolecularidentificationfeaturesofmassspectrometrytoseparate,identifyandquantifydifferentsubstanceswithinatestsample.AsacomplementarytechniquetoGC-MS,whichanalyzesvolatilecompounds,LC-MScanbeusedtoanalyzeawiderangeofnon-volatilecompoundsincomplexsamples.OurLC-MSsystemsareavailableinawiderangeofconfigurationstosuitauser'sspecificneeds.Althoughprimarilyusedforlifescienceapplications,ourLC-MSsystemsalsohaveapplicationsinfoodandproductsafety,forensicsandclinicalandtoxicologytesting,aswellasenvironmental,pharmaceuticalandchemicalanalysis.
FT-IRspectrometersutilizethemid-andfar-infraredregionsoftheelectromagneticspectrum.OurFT-IRsystemsarecommonlyusedforvariousqualitycontrolandmaterialsresearchapplications.
NIRspectrometersutilizethenear-infraredregionoftheelectromagneticspectrum.OurNIRinstrumentsareprimarilyusedforqualityandprocesscontrolapplicationsinthepharmaceutical,foodandagricultureandchemicalindustries.ThepharmaceuticalindustryistheleadinguserofNIRinstruments,andapplicationsincludequalitycontrol,researchanddevelopmentandprocessanalyticaltechnology.ThefoodandagriculturalindustryisthesecondlargestuserofNIRinstrumentation,withanincreasingdemandforfood,forageandbeveragequalitycontrol.
Ramanspectroscopyprovidesinformationonmolecularstructure.ThemechanismofRamanscatteringisdifferentfromthatofinfraredabsorption,inthatRamanandIRspectraprovidecomplementaryinformation.Ramanisusefulfortheidentificationofbothorganicandinorganiccompoundsandfunctionalgroups.Itisanondestructivetechnique,andcanbeusedfortheanalysisofbothliquidsandsolids.Ramaniswellsuitedforuseinthepolymerandpharmaceuticalindustries,andhasapplicationsinthemetals,electronicsandsemiconductorsindustries.Thetechniquealsohasapplicationsinlifesciences,forensicsandartworkauthentication.
Additionally,theBrukerDetectionDivisionoffersawiderangeofportableanalyticalandbioanalyticaldetectionsystemsandrelatedproductsforCBRNEdetection.Ourcustomersusethesedevicesfornuclear,biologicalagentandchemicalagentdefenseapplications,anti-terrorism,lawenforcementandprocessandfacilitiesmonitoring.OurCBRNEdetectionproductsusemanyofthe
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sametechnologyplatformsasourlifescienceproducts,aswellasadditionaltechnologies,includinginfraredstand-offdetectionandionmobilityspectrometry,forhandheldchemicaldetectors.Wealsoprovideintegrated,comprehensivedetectionsuitesthatincludeourmultipledetectionsystems,consumables,trainingandsimulators.
Bruker Nano Group
TheBrukerNanoGroupcomprisestheBrukerAXS,BrukerNanoSurfaces,BrukerNanoAnalyticsandBrukerSemiconductorDivisions.TheBrukerAXSDivisiondesigns,manufacturesanddistributesadvancedX-rayinstrumentsthatuseelectromagneticradiationwithextremelyshortwavelengthstodeterminethecharacteristicsofmatterandthethree-dimensionalstructureofmolecules.ThisincludesaproductportfolioofinstrumentsbasedonX-rayfluorescencespectroscopy(XRF),X-raydiffraction(XRD)andX-raymicrocomputedtomography(µCT),aswellassparkopticalemissionspectroscopysystems(S-OES)usedtoanalyzetheconcentrationofelementsinmetallicsamples.
BrukerNanoSurfacesDivision'sproductsincludeatomicforcemicroscopyinstrumentation(AFM).Suchinstrumentsprovideatomicornearatomicresolutionofsurfacetopographyandmechanical,electricalandchemicalinformationusingnanoscaleprobes.Inaddition,theBrukerNanoSurfacesDivisionprovidesadvancedfluorescenceopticalmicroscopyinstrumentsformulti-photon,multipointscanningconfocalandhigh-speed3Dsuper-resolutionstudiesinlifescienceapplications.TheBrukerNanoSurfacesDivisionalsoprovidesnon-contactnanometerresolutiontopographythroughwhitelightinterferometryandstylusprofilometry.
TheBrukerNanoAnalyticsDivisionmanufacturesandmarketsanalyticaltoolsforelectronmicroscopes,includingenergy-dispersiveX-rayspectrometers(EDS),electronbackscatterdiffractionsystems(EBSD)andµCTaccessories,aswellasmobileandbench-topmicroX-rayfluorescence(µXRF),totalreflectionX-rayfluorescencespectrometers(TXRF)andhandheld,portableandmobileX-rayfluorescence(HMP-XRF)spectrometryinstruments.
TheBrukerSemiconductorDivisionmanufacturesandmarketsX-raymetrologyandautomatedAFMdefect-detectionequipmentforsemiconductorprocesscontrol.
CustomersofourBrukerNanoGroupincludebiotechnologyandpharmaceuticalcompanies,academicinstitutions,governmentalcustomers,nanotechnologycompanies,semiconductorcompanies,rawmaterialmanufacturers,industrialcompaniesandotherbusinessesinvolvedinmaterialsanalysis.
During2017,welaunchedseveralnewproducts,includingthenextgenerationwavelengthdispersiveXRFspectrometerandnewhighperformancetechnologyforlaboratorymacromolecularcrystallography.Wealsoreleasednextgenerationmodelsofseveralotherproducts,includingtheEBSDdetectorsandsoftware.
TheBrukerNanoGroup'ssystemsarebasedonthefollowingtechnologyplatforms:
• XRD—PolycrystallineX-raydiffraction,oftenreferredtoasX-raydiffraction;
• XRF—X-rayfluorescence,alsocalledX-rayspectrometry,includinghandheldXRFsystems;
• SC-XRD—SinglecrystalX-raydiffraction,oftenreferredtoasX-raycrystallography;
• µCT—X-raymicrocomputedtomography;
• EDS—EnergydispersiveX-rayspectroscopyonelectronmicroscopes;
• EBSD—Electronbackscatterdiffractiononelectronmicroscopes;
• S-OES—Sparkopticalemissionspectroscopy;
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• CS/ONH—Combustionanalysisforcarbon,sulfur,oxygen,nitrogen,andhydrogeninsolids;
• AFM—Atomicforcemicroscopy;
• FM—Fluorescenceopticalmicroscopy;
• SOM—Stylusandopticalmetrology;and
• TMT—Tribologyandmechanicaltestsystemsforanalysisoffrictionandwear.
XRDsystemsinvestigatepolycrystallinesamplesorthinfilmswithsinglewavelengthX-rays.TheatomsinthepolycrystallinesamplescattertheX-raystocreateauniquediffractionpatternrecordedbyadetector.Computersoftwareprocessesthepatternandproducesavarietyofinformation,includingstress,texture,qualitativeandquantitativephasecomposition,crystallitesize,percentcrystallinityandlayerthickness,composition,defectsanddensityofthinfilmsandsemiconductormaterial.OurXRDsystemscontributetoareductioninthedevelopmentcyclesfornewproductsinthecatalyst,polymer,electronic,opticalmaterialandsemiconductorindustries.CustomersalsouseourXRDsystemsacademicandgovernmentresearchfacilities,aswellasavarietyofotherfields,includingforensics,artandarchaeology.
XRFsystemsdeterminetheelementalcompositionofamaterialandprovideafullqualitativeandquantitativeanalysis.OurXRFsystemsdirectX-raysatasample,andtheatomsinthesampleabsorbtheX-rayenergy.TheelementsinthesamplethenemitX-raysthatarecharacteristicforeachelement.ThesystemcollectstheX-rays,andthesoftwareanalyzestheresultingdatatodeterminetheelementsthatarepresent.OurXRFproductsprovideautomatedsolutionsonaturn-keybasisforindustrialusersthatrequireautomated,controlledproductionprocessesthatreduceproductandprocesscost,increaseoutputandimproveproductquality.OurXRFproductscoversubstantiallyalloftheperiodictableandcananalyzesolid,powderorliquidsamples.
SC-XRDsystemsdeterminethethree-dimensionalstructuresofmoleculesinachemical,mineral,orbiologicalsubstancebeinganalyzed.SC-XRDsystemshavethecapabilitytodeterminestructureinbothsmallchemicalmoleculesandlargerbiomolecules.SC-XRDsystemsdirectanX-raybeamatasolid,singlecrystalsample.TheatomsinthecrystalsamplescattertheX-raystocreateaprecisediffractionpatternrecordedbyanelectronicdetector.Softwarethenreconstructsamodelofthestructureandprovidestheuniquearrangementoftheatomsinthesample.Thisinformationontheexactarrangementofatomsinthesampleisacriticalpartofmolecularanalysisandcanprovideinsightintoavarietyofareas,includinghowaproteinfunctionsorinteractswithasecondmolecule.OurSC-XRDsystemsaredesignedforuseinthelifesciencesindustry,academicresearchandavarietyofotherapplications.
µCTisX-rayimagingin3D,bythesamemethodusedinhospitalCTscans,butonasmallscalewithmassivelyincreasedresolution.3Dmicroscopyallowsuserstoimagetheinternalstructureofobjectsnon-destructivelyonaveryfinescale.BrukerµCTisavailableinarangeofeasy-to-usedesktopinstruments,whichgenerate3Dimagesofthesample'smorphologyandinternalmicrostructurewithresolutiondowntothesub-micronlevel.OurµCTsystemsareusedfornumerousapplicationsinmaterialsresearchandinthelifesciencesindustry.
EDSsystemsanalyzethechemicalcompositionofmaterialsunderinvestigationinelectronmicroscopesbyutilizingthefactthatatomsofdifferentchemicalelements,whenexposedtothehighenergyelectronbeamgeneratedbythemicroscope,irradiateX-raysofdifferentcharacteristicenergy.Theevaluationoftheenergyspectrumcollectedbyourspectrometerallowsthedeterminationofthequalitativeandquantitativechemicalsamplecompositionatthecurrentbeamposition.EDSsystemsallowforsimultaneousanalysisofallelementsintheperiodictable,beginningwithatomicnumber4(beryllium).OurEDSsystemsareusedforarangeofapplications,includingnanotechnologyand
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advancedmaterialsresearch,aswellasmaterialsanalysisandqualitycontrol.CustomersforEDSsystemsincludeindustrialcustomers,academiaandgovernmentresearchfacilities.
EBSDsystemsareusedtoperformquantitativemicrostructureanalysisofcrystallinesamplesinelectronmicroscopes.Themicroscope'selectronbeamstrikesthetiltedsampleanddiffractedelectronsformapatternonafluorescentscreen.Thispatternischaracteristicofthecrystalstructureandorientationofthesampleregionfromwhichitwasgenerated.Itprovidestheabsolutecrystalorientationwithsub-micronresolution.EBSDcanbeusedtocharacterizematerialswithregardtocrystalorientation,texture,stress,strainandgrainsize.EBSDalsoallowstheidentificationofcrystallinephasesandtheirdistribution,andisappliedtomanyindustriessuchasmetalsprocessing,aerospace,automotive,microelectronicsandearthsciences.
S-OESinstrumentsareusedforanalyzingmetals.S-OEScoversabroadrangeofapplicationsformetalsanalysisfrompuremetalstraceanalysistohighalloyedgrades,andallowforanalysisofacompleterangeofrelevantelementssimultaneously.S-OESinstrumentspassanelectricsparkontoasample,whichburnsthesurfaceofthesampleandcausesatomstojumptoahigherorbit.Ourdetectorsquantifythelightemittedbytheseatomsandhelpourcustomerstodeterminetheelementalcompositionofthematerial.Thistechniqueiswidelyusedinproductioncontrollaboratoriesoffoundriesandsteelmills.
CS/ONHcarriergassystemsincorporateafurnaceandinfraredorthermalconductivitydetectiontoanalyzeinorganicmaterialsforthedeterminationofcarbon,sulfur,nitrogen,oxygenandhydrogen.Combustionandinertgasfusionanalyzersareusedforapplicationsinmetalproductionandprocessing,chemicals,ceramicsandcement,coalprocessing,oilrefiningandsemiconductors.
AFMsystemsprovideatomicornear-atomicresolutionofmaterialsurfacetopographyusinganano-scaleprobethatisbroughtintolightcontactwiththesamplebeinginvestigated.Inadditiontopresentingasurfaceimage,AFMcanalsoprovidequantitativenano-scalemeasurementsoffeaturesizes,materialproperties,electricalinformation,chemicalpropertiesandothersamplecharacteristics.OurAFMsystemsareusedforapplicationsinacademicandgovernmentalmaterialsandbiologicalresearchandsemiconductor,datastorageharddrive,LED,battery,solarcells,polymers,andpharmaceuticalproductdevelopmentandmanufacturing.
FMproductsusefluorescencemicroscopytodeterminethestructureandcompositionoflifesciencesamples.Ourproductsincludetwo-photonmicroscopes,multipointscanningconfocalmicroscopes,laserilluminationsources,photoactivation,photostimulationandphotoablationaccessoriesandsynchronizationandanalysissoftware.Two-photonmicroscopesallowimagingdeepintotissuesandcellsandareusedwidelyinneuroscience.Multipointscanningconfocalsystemsallowlivecellimagingwithrapidacquisitionofimagesforstructuralandcompositionanalysis.Wealsooffersuper-resolutionandsingle-moleculelocalizationmicroscopyproductswhichcanbreaktheopticaldiffractionlimitbyanorderofmagnitude.
SOMsystemsprovideatomicornear-atomictwodimensionalandthreedimensionalsurfaceresolutionusingwhitelightinterferometry,confocalopticalandstylusprofilometrymethods.SOMprofilersrangefromlow-costmanualtoolsforsinglemeasurementstoadvanced,highlyautomatedsystemsforproductionlinequalityassuranceandqualitycontrolapplicationswherethecombinationofthroughput,repeatabilityandreproducibilityisessential.SOMprofilerssupportarangeofapplicationsinresearch,productdevelopment,tribology,qualitycontrolandfailureanalysisrelatedtomaterialsandmachiningintheautomotive,orthopedic,ophthalmic,highbrightnessLED,semiconductor,datastorage,opticsandothermarkets.
TMTsystemsprovideaplatformforalltypesofcommonmechanical,friction,durability,scratchandindentationtestsforawidespectrumofmaterials.Tribologysystemsareutilizedforbothacademicresearchofthefundamentalmaterialpropertiesandindustrialapplicationsinthesemiconductor,aerospace,petroleum,automotiveandotherindustries.
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BESTSegment
BESTdesigns,manufacturesanddistributessuperconductingmaterials,primarilymetalliclowtemperaturesuperconductors,foruseinmagneticresonanceimaging,nuclearmagneticresonance,fusionenergyresearchandotherapplications.BESTalsodevelops,manufacturesandmarketsceramic,secondgenerationhightemperaturesuperconductorsforenergytechnologyandmagnetresearchapplications.Additionally,BESTdevelops,manufacturesandmarketssophisticateddevicesandcomplextoolsbasedprimarilyonmetalliclowtemperaturesuperconductorsthathaveapplicationsin"bigscience"research,includingradiofrequencyacceleratorcavitiesandmodules,powercouplersandlinearaccelerators.BESTalsomanufacturesandsellsnon-superconductinghightechnologytools,suchassynchrotronandbeamlineinstrumentation,principallytocustomersengagedinmaterialsresearchand"bigscience"researchprojects.
SalesandMarketing
WemaintaindirectsalesforcesthroughoutNorthAmerica,Europe,Russia,China,Japan,andelsewhereintheAsiaPacificregion.Wealsoutilizeindirectsaleschannelstoreachcustomers.Wehavevariousinternationaldistributors,independentsalesrepresentativesandvariousotherrepresentativesinpartsofAsia,LatinAmerica,Africa,theMiddleEastandEasternEurope.Theseentitiesaugmentourdirectsalesforceandprovidecoverageinareaswherewedonothavedirectsalespersonnel.Inaddition,wehaveadoptedadistributionbusinessmodelinwhichweengageinstrategicdistributionallianceswithothercompaniestoaddresscertainmarketsegments.Thesalescycleforourproductsisdependentonthesizeandcomplexityofthesystemandbudgetingcyclesofourcustomers.Oursalescycleistypicallythreetotwenty-fourmonthsforacademicandhigh-endresearchproductsandtwoweekstosixmonthsforindustrialproducts.Thesalescycleofourlowtemperaturesuperconductingmaterialsistypicallyfourtotwelvemonths,withcyclesofcertainhigh-endmaterialsexceedingoneyear.Salesofourhigh-endNMRandsuperconductingdevicestypicallytakemorethanoneyearandcertainlarge,complexcontractscantakemorethantwoyearstocomplete.
Wehavewell-equippedapplicationsanddemonstrationfacilitiesandqualifiedapplicationpersonnelwhoassistcustomersandprovideproductdemonstrationsinspecificapplicationareas.Wemaintainourprimarydemonstrationfacilitiesatourproductionfacilities,aswellasinotherkeymarketlocations.
SeasonalNatureofBusiness
Historicallywehavehigherlevelsofrevenueinthefourthquarterandlowerlevelsofrevenuesinthefirstquarteroftheyear,whichwebelieveisinfluencedbyourcustomers'budgetingcycles.
MajorCustomers
TheCompanyhasabroadanddiversifiedcustomerbaseandwedonotdependonanysinglecustomer.Nosinglecustomeraccountedformorethan10%ofrevenueinanyofthelastthreefiscalyearsormorethan10%ofaccountsreceivableasofDecember31,2017or2016.
Competition
Ourexistingproductsandsolutionsandanyproductsandsolutionsthatwedevelopinthefuturemaycompeteinmultiple,highlycompetitivemarkets.Inaddition,therehasbeenatrendtowardsconsolidationinourindustriesandmanyofourcompetitorshavesubstantiallygreaterfinancial,technicalandmarketingresourcesthanwedo.Ourcompetitorsmaysucceedindevelopingandofferingproductsthatcouldrenderourproductsorthoseofourstrategicpartnersobsoleteornoncompetitive.OurcompetitorsmayalsohavecostandpriceadvantagesbaseduponthevalueoftheircurrenciescomparedwiththeU.S.DollarorEuro.Inaddition,manyofthesecompetitorshavesignificantlymore
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experienceinthelifesciences,chemicalandmaterialsmarkets.Ourabilitytocompetesuccessfullywilldependonourabilitytodevelopproprietaryproductsthatreachourtargetmarketsinatimelymannerandaretechnologicallysuperiortoand/orlessexpensive,ormorecosteffective,thanproductsmarketedbyourcompetitors.Currentcompetitorsorothercompaniesmaypossessordeveloptechnologiesandproductsthataremoreeffectivethanours.Ourtechnologiesandproductsmayberenderedobsoleteoruneconomicalbytechnologicaladvancesorbyentirelydifferentapproachesdevelopedbyoneormoreofourcompetitors.
Wealsocompetewithcompaniesthatprovideanalyticalorautomationtoolsbasedontechnologiesotherthanthoseweoffer.Thesetechnologiesmayprovetobemoresuccessfulinmeetingdemandsinthemarketsthatourproductsandsolutionsareintendedtoserve.Inaddition,othercompaniesmaychoosetoenterourfieldsinthefuture.Webelievethattheprincipalcompetitivefactorsinourmarketsaretechnology-basedapplicationsexpertise,productspecifications,functionality,reliability,marketingexpertise,distributioncapability,proprietarypatentportfoliosandcosteffectiveness.
BSISegment
BrukerBioSpincompeteswithcompaniesthatoffermagneticresonancespectrometers,mainlyJEOLandOxfordInstruments.Inthefieldofpreclinicalimaging,BrukerBioSpincompeteswithPerkinElmer,Mediso,Trifoil,MRSolutionsandothers.BrukerCALIDcompeteswithavarietyofcompaniesthatoffermassspectrometrybasedsystems.BrukerCALID'scompetitorsinthelifesciencemarketsandchemicalandappliedmarketsincludeDanaher,Agilent,GE-Healthcare,Waters,ThermoFisherScientific,Shimadzu,HitachiandJEOL.Inthemicrobiologymarket,wecompetewithBiomerieux.BrukerCALID'sCBRNEdetectioncustomersarehighlyfragmented,andwecompetewithanumberofcompaniesinthisarea,ofwhichthemostsignificantcompetitorisSmithsDetection.BrukerCALIDalsocompeteswithavarietyofcompaniesthatoffermolecularspectrometrybasedsystems,includingThermoFisherScientific,PerkinElmer,Agilent,Foss,ABBBomem,Buchi,ShimadzuandJasco.Inaddition,thereareseveralsmallercompanies,specializinginvariousmarkets,withwhichtheBrukerCALIDGroupfrequentlycompetes.BrukerNanocompeteswithcompaniesthatofferanalyticalX-raysolutions,OESsystems,AFMandSOMsystemsandopticalfluorescencesystems,primarilyRigaku,OxfordInstruments,Agilent,ThermoFisherScientific,Ametek'sSpectroandEdaxdivisions,PANalytical,Olympus,Nikon,ZeissandDanaher'sLeicabusiness.
BESTSegment
BESTcompeteswithLuvataandJastecCo.,Ltd.inlowtemperaturesuperconductingmaterials.Inaddition,BESTcompeteswithFujikura,SuperPower(aFurukawacompany),SuperconductorTechnologiesInc.andSuNamCo.,Ltd.inthemarketforsecondgenerationhightemperaturesuperconductingmaterials.BESTfurthercompeteswithZanon,MitsubishiElectricandAESinthedevelopmentandsupplyofacceleratorcavities,withThales,ToshibaandCPIInternationalinthedevelopmentandsupplyofradiofrequencycouplers,withMitsubishiHeavyIndustriesinthedevelopmentandsupplyofsuperconductingacceleratormodulesandwithAESandThalesforelectronlinearaccelerators.
ManufacturingandSupplies
SeveralofourmanufacturingfacilitiesarecertifiedunderISO9001:2008andISO13485,aninternationalqualitystandard.WemanufactureandtestourmagneticresonanceproductsatourfacilitiesinFaellanden,Switzerland;Wissembourg,France;andKarlsruhe,Germany.WemanufactureandtestourpreclinicalimagingproductsatourfacilitiesinEttlingen,Germany;Wissembourg,France;Kontich,Belgium;andFaellanden,Switzerland.Wemanufactureandtestourmassspectrometryproducts,includingCBRNEdetectionproducts,atourfacilitiesinBremen,GermanyandLeipzig,Germany.Weprincipallymanufactureandtestourmolecularspectroscopyproductsatourfacilitiesin
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Ettlingen,Germany.WemanufactureandtestourX-ray,OESandAFMproductsatourfacilitiesinKarlsruhe,Germany;Berlin,Germany;Madison,Wisconsin,U.S.A.;SantaBarbara,California,U.S.A.;Kennewick,Washington,U.S.A.;andMigdalHa'Emek,Israel.WemanufactureandtestthemajorityofourenergyandsuperconductingproductsatourfacilitiesinHanau,Germany;BergischGladbach,Germany;Perth,ScotlandandCarteret,NewJersey,U.S.A.ManufacturingprocessesatourfacilitiesinEurope,IsraelandCalifornia,U.S.A.includeallphasesofmanufacturing,suchasmachining,fabrication,subassembly,systemassembly,andfinaltesting.Ourotherfacilitiesprimarilyperformhigh-levelassembly,systemintegrationandfinaltesting.Wetypicallymanufacturecriticalcomponentsin-housetoensurekeycompetenceandoutsourcetothirdpartymanufacturersnoncriticalcomponents.
Wepurchasematerialsandcomponentsfromvarioussuppliersthatareeitherstandardproductsorbuilttoourspecifications.Weobtainsomeofthecomponentsincludedinourproductsfromalimitedgroupofsuppliersorfromasingle-sourcesupplierforitemssuchaschargecoupleddeviceareadetectors,X-raytubes,robotics,infraredopticsandothers.BrukerAXShasanongoingcollaborationandjointdevelopmentprojectwiththeSiemensMedicalSolutionsVacuumTechnologyDivisioninGermanyforthedevelopmentofX-raytubes.SomeBrukerentities,specificallyBrukerNanoGmbHandBrukerAXSHandheldInc.,presentlyprocurekeyX-raydetectorchipsandcertainOESopticaldetectorsandminiaturizedX-raysourcesfromsingle-sourcesuppliers.Inaddition,BESTsourcesniobiumtitaniumandotherniobiumproductsfromasinglesupplier.
ResearchandDevelopment
Wecommitsubstantialcapitalandresourcestointernalandcollaborativeresearchanddevelopmentprojectsinordertoprovideinnovativeproductsandsolutionstoourcustomers.Weconductresearchprimarilytoenhancesystemperformanceandimprovethereliabilityofexistingproducts,andtodeveloprevolutionarynewproductsandsolutions.Weexpensed$162.7million(9.2%ofrevenue),$149.0million(9.2%ofrevenue)and$145.7million(9.0%ofrevenue)in2017,2016and2015,respectively,forresearchanddevelopmentpurposes.Ourresearchanddevelopmenteffortsareconductedfortherelevantproductswithineachoftheoperatingsegments,aswellasincollaborationwithothersonareassuchasmicrofluidics,automationandworkflowmanagementsoftware.WehavebeentherecipientofgovernmentgrantsfromGermanyandtheUnitedStatesforvariousprojectsrelatedtoearly-stageresearchanddevelopment.Wehavegenerallyretained,ataminimum,non-exclusiverightstoanyitemsorenhancementswedevelopunderthesegrants.TheGermangovernmentrequiresthatweuseandmarkettechnologydevelopedundergrantsinordertoretainourrightstothetechnology.Wehavealsoacceptedsomesponsoredresearchcontractsfromprivatesources.
BSISegment
TheresearchanddevelopmentperformedintheBSISegmentisprimarilyconductedatourfacilitiesinBremen,Ettlingen,KarlsruheandLeipzig,Germany;Faellanden,Switzerland;Wissembourg,France;Billerica,Massachusetts,U.S.A.;Madison,Wisconsin,U.S.A.;SanJoseandSantaBarbara,California,U.S.A.
TheBrukerBioSpinGroupmaintainstechnicalcompetenciesincoremagneticresonancetechnologiesandsingle-andmultimodalimagingtechnologiesandcapabilities,includingNMR,EPR,MRI,MPI,PET,CTandOI.Recentprojectsincludethedevelopmentofsolidstatedynamicnuclearpolarizationtechnologies,anongoingdevelopmentthatenablesgainsinsensitivityforNMR,highfieldEPRinstrumentationwithdedicatedcryogenfreemagnets,highfieldmagnettechnologyforpreclinicalMRI,basicNMRresearchandquadrupoletunedcryoprobesforbiologicalresearch,aswellasMPIimagingforpreclinicalapplication.
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TheBrukerCALIDGroupmaintainstechnicalcompetenciesincoremassspectrometrytechnologiesandcapabilities,including:MALDI,ESIandEI/CIionsource,TOF,TOF/TOF,iontraps,FTMS,quadrupoleandIMSanalyzersandbioinformatics.RecentprojectsincludetherapifleXMALDITissuetyper,whichisBrukerDaltonics'high-throughputMALDIimagingsolutionthatprovidesenhancedhigh-resolutionmolecularinformationanddistributionintissues.AnotherrecentprojectincludestheinnovativetimsTOFmassspectrometerforseparationandanalysisofunresolvedcompoundsandconformations.TheBrukerCALIDGroupalsomaintainstechnicalcompetenciesincorevibrationalspectroscopytechnologiesandcapabilities,includingFT-IR,NIRandRaman.
TheBrukerNanoGroupmaintainstechnicalcompetenciesincoreX-raytechnologiesandcapabilities,includingdetectorsusedtosenseX-rayandX-raydiffractionpatterns,X-raysourcesandopticsthatgenerateandfocustheX-rays,roboticsandsamplehandlingequipmentthatholdsandmanipulatestheexperimentalmaterial,andsoftwarethatgeneratesthestructuraldata.Recentprojectsincluderefiningnext-generationhighbrilliancyopticsandmicrosources,developingnewhigh-powerX-raysourcesforX-raydiffractionandproteincrystallographyapplications,developingaTXRFsystemfortraceelementanalysisinsemiconductormetrology,developinganewlargesolidangle,high-resolution,high-throughputenergydispersiveX-raydetectorformicroanalysis,creatingahighsensitivityareadetectorsystemanddevelopingothersolution-basedtechnologiesandsoftwareapplications,includingaproductforX-rayscatteringinvestigationsofproteincrystals.TheBrukerNanoGroupalsohascompetenciesinAFMtechnology,whichinvolvesub-angstromlevelpositionandmotioncontrol,aswellassub-piconewtonforcecontrol.TheBrukerNanoGrouptechnologiesalsoinclude3Dopticalinferencebasedmicroscopy,stylusprofilometry,tribologytesting,nano-indentation,opticalfluorescencetwo-photonmicroscopy,multipointscanningmicroscopyandhigh-speed,3Dsuper-resolutionflorescencemicroscopy.Recentinnovationsincludeelementalanalyzersystemsforadvancedapplicationsandresearchandsimultaneous,all-opticalstimulationandimagingplatformsforneuroscienceapplications.
BESTSegment
TheresearchanddevelopmentperformedintheBESTSegmentisprimarilyconductedatourfacilitiesinHanau,BergischGladbachandAlzenau,GermanyandCarteret,NewJersey,U.S.A.BESTmaintainstechnicalcompetenciesintheproductionanddevelopmentoflowandhightemperaturesuperconductingmaterialsanddevices.
IntellectualProperty
Ourintellectualpropertyconsistsofpatents,copyrights,tradesecrets,know-how,andtrademarks.Protectionofourintellectualpropertyisastrategicpriorityforourbusinessesbecauseofthelengthoftimeandexpenseassociatedwithbringingnewproductsthroughthedevelopmentprocessandtothemarketplace.Wehaveasubstantialpatentportfolio,andweintendtofileadditionalpatentapplicationsasappropriate.Webelieveourownedandlicensedpatentportfolioprovidesuswithacompetitiveadvantage.Thisportfoliopermitsustomaintainaccesstoanumberofkeytechnologies.Welicenseourownedpatentrightswhereappropriate.Weintendtoenforceourpatentrightsagainstinfringers,ifnecessary.Thepatentpositionsoflifesciencestoolscompaniesinvolvecomplexlegalandfactualquestions.Asaresult,wecannotpredicttheenforceabilityofourpatentswithcertainty.Inaddition,weareawareoftheexistencefromtimetotimeofpatentsincertaincountries,which,ifvalid,couldimpairourabilitytomanufactureandsellproductsinthesecountries.
Wealsorelyupontradesecrets,know-how,trademarks,copyrightprotectionandlicensingtodevelopandmaintainourcompetitiveposition.Wegenerallyrequiretheexecutionofconfidentialityagreementsbyouremployees,consultants,andotherscientificadvisors.Theseagreementsprovidethatallconfidentialinformationmadeknownduringthecourseofarelationshipwithuswillbeheldin
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confidenceandusedonlyforourbenefit.Inaddition,theseagreementsprovidethatweownallinventionsgeneratedduringthecourseoftherelationship.
GovernmentContracts
Weareapartytovariousgovernmentcontracts.Undersomeofthesegovernmentcontracts,thegovernmentmayreceivelicenseorsimilarrightstointellectualpropertydevelopedunderthecontract.However,undergovernmentcontractsweenterwegenerallyreceiveatleastnon-exclusiverightstoanyitemsortechnologieswedevelop.Althoughwetransactbusinesswithvariousgovernmentagencies,webelievethatnogovernmentcontractisofsuchmagnitudethatarenegotiationofprofitsorterminationofthecontractorsubcontractsattheelectionofthegovernmentwouldhaveamaterialadverseeffectonourfinancialresults.
GovernmentRegulation
Wearerequiredtocomplywithfederal,state,andlocalenvironmentalprotectionregulations.Wedonotexpectthiscompliancetohaveasignificantimpactonourcapitalspending,earningsorcompetitiveposition.
PriortointroducingaproductintheUnitedStates,ourBrukerAXSsubsidiaryprovidesnoticetotheU.S.FoodandDrugAdministration,orFDA,intheformofaRadiationSafetyInitialProductAbbreviatedReport,whichprovidesidentificationinformationandoperatingcharacteristicsoftheproduct.IftheFDAfindsthatthereportiscomplete,itprovidesapprovalintheformofwhatisknownasanaccessionnumber.BrukerAXSmaynotmarketaproductuntilithasreceivedanaccessionnumber.Inaddition,BrukerAXSsubmitsanannualreporttotheFDAthatincludestheradiationsafetyhistoryofallproductsitsellsintheUnitedStates.BrukerAXSisrequiredtoreporttotheFDAincidentsofaccidentalexposuretoradiationarisingfromthemanufacture,testing,oruseofanyofitsproducts.BrukerAXSalsoreportsinstallationsofitsproductstostategovernmentregulatoryagenciesresponsiblefortheregulationofradiationemittingdevices.ForsalesinGermany,BrukerAXSregisterseachsystemwiththelocalauthorities.InsomecountrieswhereBrukerAXSsellssystems,BrukerAXSusesthelicenseweobtainedfromthefederalauthoritiesinGermanytoassistitinobtainingalicensefromthecountryinwhichthesaleoccurs.Inaddition,asindicatedabove,wearesubjecttovariousotherforeignanddomesticenvironmental,healthandsafetylawsandregulationsinconnectionwithouroperations.Apartfromtheseareas,wearesubjecttothelawsandregulationsgenerallyapplicabletobusinessesinthejurisdictionsinwhichweoperate.
OurBrukerAXSsubsidiarypossesseslow-levelradiationmaterialslicensesfromtheU.S.NuclearRegulatoryCommissioninagreementwiththeStateofWisconsinforitsfacilityinMadison,Wisconsin;fromthelocalradiationsafetyauthority,GewerbeaufsichtsamtKarlsruhe,foritsfacilityinKarlsruhe,Germany;andfromthelocalradiationsafetyauthority,KanagawaPrefecture,foritsfacilityinYokohama,Japan,aswellasfromvariousothercountriesinwhichitsellsitsproducts.OurBrukerDaltonicssubsidiarypossesseslow-levelradiationlicensesforfacilitiesinBillerica,MassachusettsandLeipzig,Germany.TheU.S.NuclearRegulatoryCommissionalsohasregulationsconcerningtheexposureofouremployeestoradiation.
CertainofourclinicalproductsaresubjecttoregulationintheUnitedStatesbytheFDAandbysimilarregulatorybodiesinothercountrieswheresuchproductsaresold.Forexample,ourMALDIBiotyperCAsystemissubjecttoregulationbytheFDAandourIVD-CECertifiedMALDIBioTypersystemissubjecttoregulationintheEuropeanUnionundertheprovisionsofDirective98/79/EC.These,andsimilarlocalregulationselsewhereintheworld,governawidevarietyofproduct-relatedactivities,fromqualitymanagement,designanddevelopmenttolabeling,manufacturing,promotion,salesanddistribution.Assuch,wecontinuallyinvestinourmanufacturinginfrastructuretogainandmaintaincertificationsnecessaryfortherelevantlevelofregulatoryclearance.
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WorkingCapitalRequirements
Therewerenocredittermsextendedtocustomersthatwouldhaveamaterialadverseeffectonourworkingcapital.
Werecognizerevenuefromsystemsaleswhenpersuasiveevidenceofanarrangementexists,thepriceisfixedordeterminable,titleandriskoflosshasbeentransferredtothecustomer,andcollectabilityoftheresultingreceivableisreasonablyassured.Titleandriskoflossgenerallytransfersuponshipment,orforcertainsystems,baseduponcustomeracceptanceforasystemthathasbeendeliveredtothecustomerandinstalledatacustomerfacility.Forsystemsthatincludecustomer-specificacceptancecriteria,wearerequiredtoassesswhenwecandemonstratetheacceptancecriteriahavebeenmet,whichgenerallyisuponsuccessfulfactoryacceptancetestingorcustomeracceptanceandevidenceofinstallation.Systemsthathavebeenshippedtocustomers,butnotyetacceptedbythecustomer,areincludedasfinishedgoodsin-transit.Finishedgoodsin-transitwas$41.4millionand$37.5millionatDecember31,2017and2016,respectively.Wealsohavewell-equippedapplicationsanddemonstrationfacilitiesandqualifiedapplicationpersonnelwhoassistcustomersandprovideproductdemonstrationsinspecificapplicationareas.Intotal,weheld$54.5millionand$34.8millionofdemonstrationinventoryatDecember31,2017and2016,respectively.
Backlog
Ourbacklogconsistsoffirmordersundernon-cancellablepurchaseordersreceivedfromcustomers.TotalsystembacklogatDecember31,2017and2016wasapproximately$1,010millionand$932million,respectively.Weanticipatethatapproximately78%ofthebacklogasofDecember31,2017willbefilledin2018.Weexperiencevariableandfluctuatingrevenuesinthefirstthreequartersoftheyear,whileourfourthquarterrevenueshavehistoricallybeenstrongerthantherestoftheyear.Asaresult,backlogonanyparticulardatecanbeindicativeofourshort-termrevenueperformance,butisnotnecessarilyareliableindicatoroflong-termrevenueperformance.
Employees
AsofDecember31,2017and2016,wehadapproximately6,200and6,000full-timeemployeesworldwide,respectively.Oftheseemployees,approximately1,085and1,075werelocatedintheUnitedStatesasofDecember31,2017and2016,respectively.OuremployeesintheUnitedStatesarenotunionizedoraffiliatedwithanylabororganizations.EmployeesbasedoutsidetheUnitedStatesareprimarilylocatedinEurope,withworker'scouncilsorlaborunionsprimarilyinGermanyandFrance.Severalofourinternationalsubsidiariesarepartiestocontractswithlaborunionsandworkers'councils.Webelievethatwehavegoodrelationshipswithouremployeesandtheworkers'councils.
AsofDecember31,2017,wehadapproximately3,035employeesinproductionanddistribution,1,482employeesinsellingandmarketingand1,000employeesinresearchanddevelopment,withgeneralandadministrativeemployeesrepresentingtheremainder.AsofDecember31,2016,wehadapproximately2,975employeesinproductionanddistribution,1,500employeesinsellingandmarketingand940employeesinresearchanddevelopment,withgeneralandadministrativeemployeesrepresentingtheremainder.
FinancialInformationaboutGeographicAreasandSegments
FinancialinformationaboutourgeographicareasandsegmentsmaybefoundinNote19toourConsolidatedFinancialStatementsinthisAnnualReportonForm10-K,includedaspartofItem8tothisreport,whichincludesinformationaboutourrevenuesfromexternalcustomers,measureofprofitandtotalassetsbyreportablesegment.
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AvailableInformation
WearesubjecttotheinformationalrequirementsoftheSecuritiesExchangeActof1934("ExchangeAct").Therefore,wefileperiodicreports,proxystatementsandotherinformationwiththeSecuritiesandExchangeCommission("SEC").Suchreports,proxystatementsandotherinformationmaybereadandcopiedbyvisitingthePublicReferenceRoomoftheSECat100FStreetN.E.,Washington,D.C.20549.YoumayobtaininformationontheoperationofthePublicReferenceRoombycallingtheSECat1-800-SEC-0330.Inaddition,theSECmaintainsanInternetsite(http://www.sec.gov)thatcontainsreports,proxyandinformationstatementsandotherinformationregardingissuersthatfileelectronically.
Ourwebsiteislocatedatwww.bruker.com .WemakeavailablefreeofchargethroughthiswebsiteourannualreportsonForm10-K,quarterlyreportsonForm10-Q,currentreportsonForm8-K,andamendmentstothosereportsfiledwithorfurnishedtotheSECpursuanttoSection13(a)or15(d)oftheExchangeAct,assoonasreasonablypracticableaftertheyareelectronicallyfiledwithorfurnishedtotheSEC.Thecontentsofourwebsitearenotincorporatedintothisreport.
ITEM1ARISKFACTORS
ThefollowingriskfactorsshouldbeconsideredinconjunctionwiththeotherinformationincludedinthisAnnualReportonForm10-K.Thisreportmayincludeforward-lookingstatementsthatinvolverisksanduncertainties.Inadditiontothoseriskfactorsdiscussedelsewhereinthisreport,weidentifythefollowingriskfactors,whichcouldaffectouractualresultsandcauseactualresultstodiffermateriallyfromthoseintheforward-lookingstatements.
WemaylosemoneywhenweexchangeforeigncurrencyreceivedfrominternationalsalesintoU.S.Dollars.
AsignificantportionofourbusinessisconductedincurrenciesotherthantheU.S.Dollar,whichisourreportingcurrency.Asaresult,currencyfluctuationsamongtheU.S.Dollarandthecurrenciesinwhichwedobusinesshavecaused,andwillcontinuetocause,foreigncurrencytranslationgainsandlosses.Inaddition,currencyfluctuationscouldcausethepriceofourproductstobemoreorlesscompetitivethanourprincipalcompetitors'products.Currencyfluctuationswillincreaseordecreaseourcoststructurerelativetothoseofourcompetitors,whichcouldlessenthedemandforourproductsandaffectourcompetitiveposition.Fromtimetotimeweenterintocertainhedgingtransactionsand/oroptionandforeigncurrencyexchangecontractswhichareintendedtooffsetsomeofthemarketriskassociatedwithoursalesdenominatedinforeigncurrencies.Wecannotpredicttheeffectivenessofthesetransactionsortheirimpactuponourfutureoperatingresults,andfromtimetotimetheymaynegativelyaffectourquarterlyearnings.
Ourreportedfinancialresultsmaybeadverselyaffectedbyfluctuationsincurrencyexchangerates.
Inadditiontotheforeigncurrencyexposureassociatedwithdifferencesbetweenwhereourproductsaremanufacturedandsoldbyusandourcompetitors,ourexposuretocurrencyexchangeratefluctuationsresultsfromthecurrencytranslationexposureassociatedwiththepreparationofourconsolidatedfinancialstatements,aswellasfromtheexposureassociatedwithtransactionsofoursubsidiariesthataredenominatedinacurrencyotherthantherespectivesubsidiary'sfunctionalcurrency.WhileourfinancialresultsarereportedinU.S.Dollars,thefinancialstatementsofmanyofoursubsidiariesoutsidetheU.S.arepreparedusingthelocalcurrencyasthefunctionalcurrency.Duringconsolidation,theseresultsaretranslatedintoU.S.Dollarsbyapplyingappropriateexchangerates.Asaresult,fluctuationsintheexchangerateoftheU.S.Dollarrelativetothelocalcurrenciesinwhichourforeignsubsidiariesreportcouldcausesignificantfluctuationsinourreportedresults.Moreover,asexchangeratesvary,revenueandotheroperatingresultsmaydiffermateriallyfromourexpectations.Thefavorableeffectsofchangesincurrencyexchangeratesincreasedour2017revenues
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byapproximately$19.6million,or1.2%,whileunfavorableforeigncurrencyeffectsdecreasedour2016revenuesbyapproximately$8.3million,or0.5%,respectively.Adjustmentsresultingfromfinancialstatementtranslationsareincludedasaseparatecomponentofshareholders'equity.IntheyearendedDecember31,2017,werecordednetgainsfromcurrencytranslationadjustmentsof$97.1million.IntheyearendedDecember31,2016,werecordednetlossesfromcurrencytranslationadjustmentsof$27.6million.
Additionally,totheextentmonetaryassetsandliabilities,includingcashanddebt,areheldinadifferentcurrencythanthereportingsubsidiary'sfunctionalcurrency,fluctuationsincurrencyexchangeratesmayhaveasignificantimpactonourreportedfinancialresults,andmayleadtoincreasedearningsvolatility.Wemayrecordsignificantgainsorlossesrelatedtoboththetranslationofassetsandliabilitiesheldbyoursubsidiariesintolocalcurrenciesandtheremeasurementofinter-companyreceivablesandloanbalances.
Unfavorableeconomicorpoliticalconditionsinthecountriesinwhichweoperatemayhaveanadverseimpactonourbusinessresultsorfinancialcondition.
Ourbusinessesandresultsofoperationsareaffectedbyinternational,nationalandregionaleconomicandpoliticalconditions.Ourbusinessesorfinancialresultsmaybeadverselyimpactedbyunfavorablechangesineconomicorpoliticalconditionsinthecountriesandmarketsinwhichweoperate,including,amongothers,adversechangesininterestratesortaxrates,volatilityinfinancialandcommoditymarkets,contractionintheavailabilityofcreditinthemarketplace,andchangesincapitalspendingpatterns.
OurrevenuefromU.S.operationsrepresentedapproximately25%and27%oftotalconsolidatedrevenueforfiscal2017and2016,respectively.OurrevenuefromoperationsinEuroperepresentedapproximately38%and36%oftotalconsolidatedrevenueforthecorrespondingperiods.OurrevenuefromoperationsintheAsiaPacificregionrepresentedapproximately29%and28%oftotalconsolidatedrevenueforthecorrespondingperiods.EconomicfactorsthatcouldadverselyinfluencedemandfortheCompany'sproductsincludeuncertaintyaboutglobaleconomicconditionsleadingtoreducedlevelsofinvestment,changesingovernmentspendinglevelsand/orpriorities,thesizeandavailabilityofgovernmentbudgets,customers'andsuppliers'accesstocreditandothermacroeconomicfactorsaffectinggovernment,academicorindustrialspendingbehavior.Slowereconomicgrowthoradeteriorationineconomicconditionscouldresultinadecreaseingovernmentfundingforscientificresearch,adelayinordersfromcurrentorpotentialcustomersorareductioninpurchasesofourproducts.
Wecannotpredicthowchangesineconomicconditionsorpoliticalinstabilitywillaffectourcustomersandsuppliersorhowanynegativeimpactonourcustomersandsuppliersmightadverselyimpactourbusinessresultsorfinancialcondition.
TheeffectofcomprehensiveU.S.taxreformlegislationisuncertain.
OnDecember22,2017,thePresidentoftheUnitedStatessignedtheTaxCutsandJobsAct,orthe2017TaxAct,whichenactedawiderangeofchangestotheU.S.incometaxsystem,manyofwhichdiffersignificantlyfromtheprovisionsofthepreviousU.S.taxlaw.The2017TaxAct,amongotherthings,permanentlyreducestheU.S.corporateincometaxrateto21%beginningin2018andprovidesformoregeneralchangestothetaxationofcorporations,includingchangestothedeductibilityofinterestexpense,theadoptionofamodifiedterritorialtaxsystem,assessingarepatriationtaxor"toll-charge"onundistributedearningsandprofitsofU.S.-ownedforeigncorporationsandbroadeningthecorporatetaxbasethroughtheeliminationorreductionofdeductions,exclusionsandcredits.Wehavenotyetcompletedourassessmentofthetaxeffectsassociatedwiththeenactmentofthe2017TaxAct;however,reasonableestimateshavebeenmadeoftheeffectsofthe2017TaxActonthe
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Company'sexistingdeferredtaxbalancesandtheone-timetransitiontaxonundistributedearningsandprofitsofourforeignsubsidiaries.ChangesinthetaxratesandlawsareaccountedforintheperiodofenactmentandtheseestimatesarereflectedinourfinancialstatementsfortheperiodendedDecember31,2017.
Theactualresultsoftheimplementationofthe2017TaxActmaymateriallydifferfromourcurrentestimatedueto,amongotherthings,furtherguidancethatmaybeissuedbyU.S.taxauthoritiesorregulatorybodies,includingtheSECandtheFinancialAccountingStandardsBoard(FASB)tointerpretthe2017TaxAct.Wewillcontinuetoanalyzethe2017TaxActandanyadditionalguidancethatmaybeissuedandfinalizethefulleffectsofapplyingthenewlegislationinfutureperiods.Anyrevisionstoourcurrentestimatescouldmateriallyaffectourresultsofoperations,cashflowandfinancialposition.
Wederiveasignificantportionofourrevenuefrominternationalsalesandaresubjecttotherisksofdoingbusinessinforeigncountries.
Internationalsalesaccount,andareexpectedtocontinuetoaccount,forasignificantportionofourtotalrevenues.Ourrevenuefromnon-U.S.operationsrepresentedapproximately75%and73%ofourtotalconsolidatedrevenueforfiscal2017and2016,respectively.Ourinternationaloperationsare,andwillcontinuetobe,subjecttoavarietyofrisksassociatedwithconductingbusinessinternationally,manyofwhicharebeyondourcontrol.Theserisks,whichmayadverselyaffectourabilitytoachieveandmaintainprofitabilityandourabilitytosellourproductsinternationally,include:
• changesinforeigncurrencytranslationrates;
• changesinregulatoryrequirements;
• legislationandregulation,includingtariffs,relatingtotheimportorexportofhightechnologyproducts;
• theimpositionofgovernmentcontrols;
• politicalandeconomicinstability,includinginternationalhostilities,actsofterrorismandgovernmentalrestrictions,inflation,traderelationshipsandmilitaryandpoliticalalliances;
• costsandrisksofdeployingsystemsinforeigncountries;
• compliancewithexportlawsandcontrolsandtradeembargoesinmultiplejurisdictions;
• limitedintellectualpropertyrights;
• theburdenofcomplyingwithawidevarietyofcomplexforeignlawsandtreaties,includingunfavorablelaborregulations,specificallythoseapplicabletoourEuropeanoperations;and
• compliancewithU.S.andlocallawsaffectingtheactivitiesofU.S.companiesabroad,includingtheUnitedStatesForeignCorruptPracticesAct,orFCPA,andlocalanti-briberylaws.
WemustalsocomplywiththerecentlyenactedEuropeanUnionGeneralDataProtectionRegulation(GDPR).AllEuropeanUnionmemberstatesmustcomplywithGDPRbyMay2018.ThegoaloftheregulationistoincreaseindividualrightsandprotectionsforpersonaldatalocatedinororiginatingfromtheEuropeanUnion.GDPRisextraterritorialinthatitappliestoallbusinesswithintheEuropeanUnionandanybusinessislocatedoutsideoftheEuropeanUnionthatprocessespersonaldataofindividualslocatedwithintheEuropeanUnion.Therearesignificantfinesassociatedwithnon-compliance.
Whiletheimpactofthesefactorsisdifficulttopredict,anyoneormoreofthesefactorscouldadverselyaffectouroperationsinthefuture.
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Ifwearenotabletosuccessfullyintegratethebusinessesweacquirethroughmergers,acquisitionsorstrategicalliances,wemaynotbeabletorealizeallofthecostsavingsandotherbenefitsthatweexpecttoresultfromthetransactionsandourfinancialresultsmaybedifferentthanexpected.
Ourstrategyincludesexpandingourtechnologybaseandproductofferingsthroughselectedmergers,acquisitionsandstrategicalliances.Forexample,from2015toDecember31,2017,wehaveacquired13businessestoexpandourtechnologiesandproductofferings.
Successfulintegrationofthebusinessesweacquireinvolvesanumberofrisks,including,amongothers,risksrelatedto:
• coordinatingorconsolidatinggeographicallyseparateorganizationsandintegratingpersonnelwithdifferentbusinessbackgroundsandcorporatecultures;
• integratingpreviouslyautonomousdepartmentsinsalesandmarketing,distribution,accountingandadministrativefunctions,andinformationandmanagementsystems;
• diversionofresourcesandmanagementtime;
• disruptionofourongoingbusiness;
• potentialimpairmentofrelationshipswithcustomersasaresultofchangesinmanagementorotherwisearisingoutofsuchtransactions;and
• retentionofkeyemployeesoftheacquiredbusinesseswithinthefirstonetotwoyearsaftertheacquisition,includingtheriskthattheymaycompetewithussubsequently.
Wemayhavedifficultydeveloping,manufacturingandmarketingtheproductsofanewlyacquiredcompanyorbusinessinawaythatenhancestheperformanceofourcombinedbusinessesorproductlines.Asaresult,wemaynotrealizethevaluefromexpectedsynergies.Acquisitionshaveresulted,andmayinthefutureresult,inunexpectedsignificantcostsandexpenses.Inthefuture,wemayberequiredtorecordchargestoearningsduringtheperiodifwedeterminethereisanimpairmentofgoodwillorintangibleassets,uptothefullamountofthevalueoftheassets.
Itmaybedifficultforustoimplementourstrategiesforimprovingmargins,profitabilityandcashflow.
Wearepursuinganumberofstrategiestoimproveourfinancialperformance,includingimplementingvariousproductivityimprovementinitiativesatbothBSIandBESTinanefforttostreamlineouroperations.Theseinitiativesincludetheoutsourcingofmanufacturingactivities,consolidating,transferringorceasingoperationsatcertainfacilities;applyingleanmanufacturingandsixsigmaconceptstoouroperations,implementingERPandotherinformationtechnologysystemsandapplyingasharedserviceapproachtovariousfunctions.
Wemaynotbeabletosuccessfullyimplementthesestrategies,andtheseeffortsmaynotresultintheexpectedimprovementinourmargins,profitabilityorcashflow.Anticipatedbenefitstoouroperatingandfinancialperformancemightbereducedordelayedasaresultofdifficultiesinimplementingtheseinitiatives,whichmayincludecomplicationsinthetransferofassetsandproductionknowledge,lossofkeyemployeesand/orcustomers,thedisruptionofongoingbusinessandpossibleinconsistenciesinstandards,controlsandprocedures.Implementationcostsalsomightexceedourexpectationsandfurthercostreductionmeasuresmightbecomenecessary,resultinginadditionalfuturecharges.Ourabilitytosuccessfullyimplementthesestrategiesandachieveourobjectiveswillalsodependonourabilitytoidentify,attractandretainmanagementandotherpersonnelwiththeskillsandexperienceneededtoeffectivelymanagetheprocessanddriveouroperatingperformanceimprovementduringandafterimplementationofourimprovementinitiatives.
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Theseimprovementstrategiesmayalsohaveunintendedconsequences,suchasattritionbeyondourintendedreductioninworkforce,reducedemployeemoraleandlossofcustomerrelationships.Wealsomayundertakeadditionalrestructuringactivitiesinthefuture.Becauseoftheseandotherfactors,wecannotpredictwhetherwewillrealizethepurposeandanticipatedbenefitsofourrestructuringandrelatedmeasures,andifwedonot,ourbusinessandresultsofoperationsmaybeadverselyaffected.
Goodwill,intangibleassetsandotherlong-livedassetsaresubjecttoimpairment.
Wehaverecordedgoodwill,intangibleassetsandotherlong-livedassetsthatmustbeperiodicallyevaluatedforpotentialimpairment.Weassesstherealizabilityofthereportedgoodwill,intangibleassetsandotherlong-livedassetsannually,aswellaswhenevereventsorchangesincircumstancesindicatethattheassetsmaybeimpaired.Theseeventsorcircumstancesgenerallyincludeoperatinglossesorasignificantdeclineintheearningsassociatedwiththereportingunittheseassetsarereportedwithin.Adeclineinourstockpriceandmarketcapitalizationmayalsocauseustoconsiderwhethergoodwill,intangibleassetsandotherlong-livedassetsmayrequireanimpairmentassessment.Ourabilitytorealizethevalueoftheseassetswilldependonthefuturecashflowsofthereportingunitinadditiontohowwellweintegratethebusinessesweacquire.Wehaverecordedimpairmentlossesof$1.1million,$0.8millionand$4.6millionfortheyearsendedDecember31,2017,2016and2015,respectively.
Ifourproductsfailtoachieveandsustainsufficientmarketacceptanceacrosstheirbroadintendedrangeofapplications,wewillnotgenerateexpectedrevenue.
Ourbusinessstrategydependsonourabilitytosuccessfullycommercializeabroadrangeofproductsbasedonourtechnologyplatforms,includingmagneticresonancetechnology,pre-clinicalimagingtechnology,massspectrometrytechnology,X-raytechnology,atomicforcemicroscopytechnology,stylusandopticalmetrologytechnology,fluorescencemicroscopytechnology,infraredtechnologyandsuperconductingmagnettechnologiesforuseinavarietyoflifescience,chemistryandmaterialsanalysisapplications.Someofourproductshaveonlyrecentlybeencommerciallylaunchedandhaveachievedonlylimitedsalestodate.Thecommercialsuccessofourproductsdependsonobtainingandexpandingmarketacceptancebyadiversearrayofindustrial,academic,clinical,pharmaceutical,biotechnology,applied,medicalresearchandgovernmentalcustomersaroundtheworld.Wemayfailtoachieveorsustainsubstantialmarketacceptanceforourproductsacrossthefullrangeofourintendedapplicationsorinoneormoreofourprincipalintendedapplications.Anysuchfailurecoulddecreaseoursalesandrevenue.Tosucceed,wemustconvincesubstantialnumbersofpotentialcustomerstoinvestinnewsystemsorreplacetheirexistingtechniqueswithtechniquesemployingoursystems.Limitedfundingavailableforcapitalacquisitionsbyourcustomers,aswellasourcustomers'owninternalpurchasingapprovalpolicies,couldhindermarketacceptanceofourproducts.Ourintendedcustomersmaybereluctanttomakethesubstantialcapitalinvestmentgenerallyneededtoacquireourproductsortoincurthetrainingandothercostsinvolvedwithreplacingtheirexistingsystemswithourproducts.Wealsomaynotbeabletoconvinceourintendedcustomersthatoursystemsareanattractiveandcost-effectivealternativetoothertechnologiesandsystemsfortheacquisition,analysisandmanagementofmolecular,cellularandmicroscopicinformation.Additionally,ifethicalandotherconcernssurroundingtheuseofgeneticinformation,genetherapyorgeneticallymodifiedorganismsbecomewidespread,wemayhavelessdemandforourproducts.Becauseoftheseandotherfactors,ourproductsmayfailtogainorsustainmarketacceptance.
Ourproductscompeteinmarketsthataresubjecttorapidtechnologicalchange,andoneormoreofthetechnologiesunderlyingourproductscouldbemadeobsoletebynewtechnology.
Themarketfordiscoveryandanalysistoolsischaracterizedbyrapidtechnologicalchangeandfrequentnewproductintroductions.Rapidlychangingtechnologycouldmakesomeorourentire
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productlinesobsoleteunlessweareabletocontinuallyimproveourexistingproductsanddevelopnewproducts.Becausesubstantiallyallofourproductsarebasedonourtechnologyplatforms,includingmagneticresonancetechnology,massspectrometrytechnology,X-raytechnology,atomicforcemicroscopytechnology,fluorescencemicroscopytechnology,stylusandopticalmetrologytechnologyandinfraredtechnology,weareparticularlyvulnerabletoanytechnologicaladvancesthatwouldmakethesetechniquesobsoleteasthebasisforanalyticalsystemsinanyofourmarkets.Tomeettheevolvingneedsofourcustomers,wemustrapidlyandcontinuallyenhanceourcurrentandplannedproductsandservicesanddevelopandintroducenewproductsandservices.Inaddition,ourproductlinesarebasedoncomplextechnologiesthataresubjecttorapidchangeasnewtechnologiesaredevelopedandintroducedinthemarketplace.Wemayhavedifficultyinkeepingabreastoftherapidchangesaffectingeachofthedifferentmarketsweserveorintendtoserve.Ifwefailtodevelopandintroduceproductsinatimelymannerinresponsetochangingtechnology,marketdemandsortherequirementsofourcustomers,ourproductsalesmaydecline,andwecouldexperiencesignificantlosses.Currentlyinourbacklog,wehaveorderstotaling$112.0millionforultra-highfieldmagnets.Ifweareunabletoreachthetechnicalfeasibilityforthesemagnets,wewillbeunabletofulfillcustomerorderswherealternatearrangementshavenotbeenprovidedforincustomercontracts.Additionalrisksincludeextraordinarywarrantyexpenses,reworkandpotentialinventorywrite-offs.
Ourbusinesscouldbeharmedifourcollaborationsfailtoadvanceourproductdevelopment.
Demandforourproductswilldepend,inpart,upontheextenttowhichourcollaborationswithpharmaceutical,biotechnologyandproteomicscompaniesaresuccessfulindeveloping,orhelpingustodevelop,newproductsandnewapplicationsforourexistingproducts.Inaddition,wecollaboratewithacademicinstitutionsandgovernmentresearchlaboratoriesonproductdevelopment.Wehavelimitedornocontrolovertheresourcesthatanycollaboratormaydevotetoourproducts.Anyofourpresentorfuturecollaboratorsmaynotperformtheirobligationsasexpected.Ifwefailtoenterintoormaintainappropriatecollaborationagreements,orifanyoftheseeventsoccur,wemaynotbeabletodevelopsomeofournewproducts,whichcouldmateriallyimpedeourabilitytogeneraterevenueorprofits.
Wefacesubstantialcompetition.
Wefacesubstantialcompetitioninourindustriesandweexpectthatcompetitioninallofourmarketswillincreasefurther.Currently,ourprincipalcompetitioncomesfromestablishedcompaniesprovidingproductsusingexistingtechnologiesthatperformmanyofthesamefunctionsforwhichwemarketourproducts.Anumberofourcompetitorshaveexpandedtheirmarketshareinrecentyearsthroughbusinesscombinations.Othercompaniesalsomaychoosetoenterourfieldsinthefuture.Ourcompetitorsmaydevelopormarketproductsthataremoreeffectiveorcommerciallyattractivethanourcurrentorfutureproductsorthatmayrenderourproductsobsolete.Competitionhasinthepastsubjected,andislikelyinthefuturetosubject,ourproductstopricingpressure.Manyofourcompetitorshavemoreexperienceinthemarketandsubstantiallygreaterfinancial,operational,marketingandtechnicalresourcesthanwedo,whichcouldgivethemacompetitiveadvantageinareassuchasresearchanddevelopment,production,marketinganddistribution.Ourabilitytocompetesuccessfullywilldepend,inpart,onourabilitytodevelopproprietaryproductsthatreachthemarketinatimelymannerandaretechnologicallysuperiorto,lessexpensivethan,ormorecost-effectivethan,othercurrentlymarketedproducts.
Ifweloseourstrategicpartners,ourmarketingandsaleseffortscouldbeimpaired.
Asubstantialportionofoursalesofselectedproductsconsistsofsalestothirdpartieswhoincorporateourproductsintotheirsystems.Thesethirdpartiesareresponsibleforthemarketingandsalesoftheirsystems.Wehavelittleornocontrolovertheirmarketingandsalesactivitiesorhowthey
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usetheirresources.Ourpresentorfuturestrategicpartnersmayormaynotpurchasesufficientquantitiesofproductsfromusorperformappropriatemarketingandsalesactivities.Inaddition,ifweareunabletomaintainourrelationshipswithstrategicpartners,ourbusinessesmaysuffer.Failuresbyourpresentorfuturestrategicpartners,orourinabilitytomaintainorenterintonewarrangementswithstrategicpartnersforproductdistribution,couldmateriallyimpedethegrowthofourbusinessesandourabilitytogeneratesufficientrevenueandprofits.
Wefacerisksrelatedtosalesthroughdistributorsandotherthirdpartiesthatwedonotcontrol,whichcouldharmourbusiness.
Wesellsomeproductsthroughthirdpartyagents,includingdistributorsandvalue-addedresellers.Thisexposesustovariousrisks,includingcompetitivepressure,concentrationofsalesvolumes,creditrisks,andcompliancerisks.Wemayrelyononeorafewkeydistributorsforaproductormarket,andthelossofthesedistributorscouldreduceourrevenueandnetearnings.Distributorsmayalsofacefinancialdifficulties,includingbankruptcy,whichcouldharmourcollectionofaccountsreceivables.Risksrelatedtoouruseofdistributorsmayreducesales,increaseexpenses,andweakenourcompetitiveposition.Moreover,violationsoftheFCPAorsimilaranti-briberylawsbydistributorsorotherthirdpartyagentscouldmateriallyandadverselyimpactourbusinessandresultsofoperations.
Dependenceoncontractmanufacturingmayadverselyaffectourabilitytobringproductstomarketanddamageourreputation.
Aspartofoureffortstostreamlineouroperationsandreduceouroperatingcosts,weoutsourceaspectsofourmanufacturingprocessesandcontinuetoevaluateadditionaloutsourcing.Ifourcontractmanufacturersfailtoperformtheirobligationsinatimelymanneroratsatisfactoryqualitylevels,ourabilitytobringproductstomarketandourreputationcouldsuffer.Forexample,duringamarketupturn,ourcontractmanufacturersmaybeunabletomeetourdemandrequirements,whichmayprecludeusfromfulfillingourcustomers'ordersonatimelybasis.Theabilityofthesemanufacturerstoperformislargelyoutsideourcontrol.Additionally,changingorreplacingourcontractmanufacturerscouldcausedisruptionsordelays.Problemswithoutsourcedmanufacturingcouldresultinlowerrevenuesandunexecutedefficiencies,andadverselyaffectourfinancialconditionandresultsofoperations.
Ifinvestmentinlifeandmaterialscienceresearchspendingdeclines,ourabilitytogeneraterevenuemaysuffer.
Wearedependent,bothdirectlyandindirectly,upongeneralinvestmentinlifescienceresearch,particularlyintheresearchanddevelopmentbudgetsofthepharmaceuticalandbiotechnologyindustries,andinmaterialscienceresearchaswellasuponthefinancialconditionandfundingprioritiesofvariousgovernmentsandgovernmentagencies.Sinceourinception,bothweandouracademiccollaboratorsandcustomershavebenefitedfromvariousgovernmentalcontractsandresearchgrants.Whetherweorouracademiccollaboratorswillcontinuetobeabletoattractthesegrantsdependsnotonlyonthequalityofourproducts,butalsoongeneralspendingpatternsofpublicinstitutions.
Anyreductioninthecapitalresourcesorgovernmentfundingofourcustomerscouldreduceoursalesandimpedeourabilitytogeneraterevenue.
Asignificantportionofoursalesarecapitalpurchasesbyourcustomers.Thespendingpoliciesofourcustomerscouldhaveasignificanteffectonthedemandforourproducts.Thesepoliciesarebasedonawidevarietyoffactors,includingtheresourcesavailabletomakepurchases,thespendingprioritiesamongvarioustypesofequipment,policiesregardingspendingduringrecessionaryperiodsandchangesinthepoliticalclimate.Anychangesincapitalspendingorchangesinthecapitalbudgetsofour
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customerscouldsignificantlyreducedemandforourproducts.Thecapitalresourcesofourlifescienceandothercorporatecustomersmaybelimitedbytheavailabilityofequityordebtfinancing.Anysignificantdeclineinresearchanddevelopmentexpendituresbyourlifescienceandmaterialsciencecustomerscouldsignificantlydecreaseoursales.Inaddition,asubstantialportionofoursalesaretonon-profitandgovernmententities,whicharedependentongovernmentsupportforscientificresearch.Anydeclineinthissupportcoulddecreasetheabilityofthesecustomerstopurchaseourproducts.
Disruptionsatanyofourmanufacturingfacilitiescouldadverselyaffectourbusiness.
WehavemanufacturingfacilitieslocatedintheUnitedStates,EuropeandIsrael.Manyofourproductsaredevelopedandmanufacturedatsinglelocations,withlimitedalternatefacilities.Ifweexperienceanysignificantdisruptionofthosefacilitiesforanyreason,suchasstrikesorotherlaborunrest,powerinterruptions,fire,earthquakes,orothereventsbeyondourcontrol,wemaybeunabletomanufacturetherelevantproductsatpreviouslevelsoratall.Areductionorinterruptioninmanufacturingcouldharmourcustomerrelationships,impedeourabilitytogeneraterevenuesfromourbacklogorobtainnewordersandcouldhaveamaterialadverseeffectonourbusiness,resultsofoperations,financialconditionandcashflows.
Ifemployeesweretoengageinastrikeorotherworkstoppageorinterruption,ourbusiness,resultsofoperations,financialconditionandliquiditycouldbemateriallyadverselyaffected.
Someofouremployeesarerepresentedbyworkers'councilsandlaborunionsincertainjurisdictions,primarilyinGermanyandFrance.Althoughwebelievethatourrelationswithouremployeesaresatisfactory,ifdisputeswiththeseemployeesarise,orifourworkersengageinastrikeorotherworkstoppageorinterruption,wecouldexperienceasignificantdisruptionof,orinefficienciesin,ouroperationsorincurhigherlaborcosts,whichcouldhaveamaterialadverseeffectonourbusiness,resultsofoperations,financialconditionandliquidity.
Ouroperationsaredependentuponalimitednumberofsuppliersandcontractmanufacturers.
Wecurrentlypurchasecomponentsusedinourproductsfromalimitednumberofoutsidesuppliers.Ourrelianceonalimitednumberofsupplierscouldresultintimedelaysassociatedwithredesigningaproductduetoaninabilitytoobtainanadequatesupplyofrequiredcomponentsandreducedcontroloverpricing,qualityandtimelydelivery.Anyofthesefactorscouldadverselyaffectourrevenuesandprofitability.Inparticular,ourX-raymicroanalysisbusiness,whichmanufacturesandsellsaccessoriesforelectronmicroscopes,ispartiallydependentoncooperationfromlargermanufacturersofelectronmicroscopes.Additionally,ourelementalanalysisbusinesspurchasescertainopticaldetectorsfromasinglesupplier,PerkinElmer,Inc.,thesolesupplierofthesedetectorcomponents.BrukerCALIDpurchasesdetectorsandpowersuppliesfromsoleorlimitedsourcesuppliersanditsfocalplanearraydetectorsfromasinglesupplier,LockheedMartinCorporation.Similarly,BrukerBioSpinobtainsvariouscomponentsfromsoleorlimitedsourcesuppliersandBESTobtainsvariousrawmaterialsanduseskeyproductionequipmentfromsoleorlimitedsourcesuppliersorcontractmanufacturers.Therearelimited,ifany,availablealternativestothesesuppliers.Theexistenceofshortagesofthesecomponentsorthefailureofdeliverywithregardtothesecomponentscouldhaveamaterialadverseeffectuponourrevenuesandmargins.Inaddition,priceincreasesfromthesesuppliersorcontractmanufacturerscouldhaveamaterialadverseeffectuponourgrossmargins.
Becauseofthescarcityofsomecomponents,wemaybeunabletoobtainanadequatesupplyofcomponents,orwemayberequiredtopayhigherpricesortopurchasecomponentsoflesserquality.Anydelayorinterruptioninthesupplyoftheseorothercomponentscouldimpairourabilitytomanufactureanddeliverourproducts,harmourreputationandcauseareductioninourrevenues.Inaddition,anyincreaseinthecostofthecomponentsthatweuseinourproductscouldmakeourproductslesscompetitiveanddecreaseourgrossprofits.Wemaynotbeabletoobtainsufficient
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quantitiesofrequiredcomponentsonthesameorsubstantiallythesameterms.Additionally,consolidationamongoursupplierscouldresultinothersolesourcesuppliersforusinthefuture.
SupplyshortagesandincreasingpricesofrawmaterialscouldadverselyaffectthegrossprofitoftheBrukerBioSpinGroupandofourBrukerEnergy&SuperconTechnologiesbusiness.
Thelastfewyearshaveseenperiodicsupplyshortagesandsharpincreasesinthepricesforvariousrawmaterials,inpartduetohighdemandfromdevelopingcountries.BrukerBioSpinandBESTrelyonsomeofthesematerialsfortheproductionoftheirproducts.Inparticular,foritssuperconductingmagnetproduction,bothforthehorizontalandverticalmagnetseries,BrukerBioSpinreliesontheavailabilityofcopper,steelandthemetallicrawmaterialsfortraditionallow-temperaturesuperconductingwires.Similarly,BESTreliesontheavailabilityofniobiumtitaniumforitsproductionoflow-temperaturesuperconductingmaterialsanddevices.Higherpricesforthesecommoditieswillincreasetheproductioncostofsuperconductingwiresandsuperconductingmagnetsandmayadverselyaffectgrossprofits.
Thepricesofcopperandcertainotherrawmaterialsusedforsuperconductorshaveincreasedsignificantlyoverthelastdecade.Sincecopperisamainconstituentoflowtemperaturesuperconductors,thismayaffectthepriceofsuperconductingwire.Thistypeofincreasewouldhaveanimmediateeffectontheproductioncostsofsuperconductingmagnetsandmaynegativelyaffecttheprofitmarginsforthoseproducts.Inaddition,anincreaseinrawmaterialcostaffectstheproductioncostofthesuperconductingwireproducedbyBESTandofsuperconductingwireusedbyBrukerBioSpin.
BrukerBioSpinanditscustomersalsorelyonliquidheliumtooperateitssuperconductingmagnets.HeliumiscontrolledbytheFederalHeliumReserveandissubjecttopricechanges.ShortagesofliquidheliumassociatedwithfederalpricecontrolscouldhaveanadverseimpactonproducingandoperatingBioSpin'ssuperconductingmagnetsandmayalsonegativelyimpacttheprofitmarginsforthoseproducts.
Regulationsrelatedto"conflictminerals"maycauseustoincuradditionalexpensesandcouldlimitthesupplyandincreasethecostofcertainmetalsusedinmanufacturingourproducts.
Regulationsrequiredisclosuresbypubliccompaniesofspecifiedminerals,knownasconflictminerals,thatarenecessarytothefunctionalityorproductionofproductsmanufacturedorcontractedtobemanufactured.ThisrequirestheperformanceofduediligencetodeterminewhetherornotsuchmineralsoriginatefromtheDemocraticRepublicofCongooranadjoiningcountry.Theseregulationscouldaffectsourcingatcompetitivepricesandavailabilityinsufficientquantitiesofcertainmineralsusedinthemanufactureofourproducts,includingtantalum,tin,goldandtungsten.Thenumberofsupplierswhoprovideconflict-freemineralsmaybelimited.Inaddition,theremaybematerialcostsassociatedwithcomplyingwiththedisclosurerequirements,suchascostsrelatedtodeterminingthesourceofcertainmineralsusedinourproducts,aswellascostsofpossiblechangestoproducts,processesorsourcesofsupplyasaconsequenceofsuchverificationactivities.Asoursupplychainiscomplexandweusecontractmanufacturersforsomeofourproducts,wemaynotbeabletosufficientlyverifytheoriginsoftherelevantmineralsusedinourproductsthroughtheduediligenceproceduresthatweimplement,whichmayharmourreputation.Inaddition,wemayencounterchallengestosatisfythosecustomerswhorequirethatallofthecomponentsofourproductsbecertifiedasconflict-free,whichcouldplaceusatacompetitivedisadvantageifweareunabletodoso.
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Ifwefailtomaintainaneffectivesystemofinternalcontrols,wemaynotbeabletoaccuratelyreportourfinancialresults,whichcouldleadtoalossofinvestorconfidenceinourfinancialstatementsandhaveanadverseeffectonourstockprice.
Effectiveinternalcontrolsarenecessaryforustoprovidereliableandaccuratefinancialstatementsandtoeffectivelypreventfraud.WedevotesignificantresourcesandtimetocomplywiththeinternalcontroloverfinancialreportingrequirementsoftheSarbanesOxleyActof2002andcontinuetoenhanceourcontrols.However,wecannotbecertainthatwewillbeabletopreventfuturesignificantdeficienciesormaterialweaknesses.IntheyearendedDecember31,2017,weremediatedthepreviouslydisclosedmaterialweaknessinourinternalcontrolsovertheaccountingforincometaxes.Inadequateinternalcontrolscouldcauseinvestorstoloseconfidenceinourreportedfinancialinformation,whichcouldhaveanegativeeffectoninvestorconfidenceinourfinancialstatements,thetradingpriceofourstockandouraccesstocapital.
Ourmanufactureandsaleofproductscouldleadtoproductliabilityclaimsforwhichwecouldhavesubstantialliability.
Themanufactureandsaleofourproductsexposeustoproductliabilityclaimsifanyofourproductscauseinjuryorarefoundotherwiseunsuitableduringmanufacturing,marketing,saleorcustomeruse.Inparticular,ifoneofourCBRNEdetectionproductsmalfunctions,thiscouldleadtocivilianormilitarycasualtiesinatimeofunrest,exposingustoincreasedpotentialforhigh-profileliability.IfourCBRNEdetectionproductsmalfunctionbygeneratingafalse-positivetoapotentialthreat,wecouldbeexposedtoliabilitiesassociatedwithactionstakenthatotherwisewouldnothavebeenrequired.Additionally,thenuclearmagneticresonance,researchmagneticresonanceimaging,FouriertransformmassspectrometryandcertainelectronparamagneticresonancemagnetsofBrukerBioSpinutilizehighmagnetfieldsandcryogenicstooperateatapproximately4Kelvin,thetemperatureofliquidhelium.Thereisaninherentriskofpotentialproductliabilityduetotheexistenceofthesehighmagneticfields,associatedstrayfieldsoutsidethemagnet,andthehandlingofthecryogensassociatedwithsuperconductingmagnets.Inaddition,ourMALDIBiotyperproducthasanIVD-CEmarkandisusedfortheidentificationofmicroorganisms.Misidentificationorafalse-negativeofcertainbacteria,yeastsorfungicouldleadtoinappropriatetreatmentforpatients,andcouldexposeustoproductliabilityclaims.
Asuccessfulproductliabilityclaimbroughtagainstusinexcessof,oroutsidethecoverageof,ourinsurancecoveragecouldhaveamaterialadverseeffectonourbusiness,financialconditionandresultsofoperations.Wemaynotbeabletomaintainproductliabilityinsuranceonacceptableterms,ifatall,andinsurancemaynotprovideadequatecoverageagainstpotentialliabilities.
Respondingtoclaimsrelatingtoimproperhandling,storageordisposalofhazardouschemicalsandradioactiveandbiologicalmaterialswhichweusecouldbetimeconsumingandcostly.
WeusecontrolledhazardousandradioactivematerialsinourbusinessandgeneratewastesthatareregulatedashazardouswastesunderU.S.federal,andMassachusetts,California,NewJersey,WashingtonandWisconsinstate,environmentalandatomicenergyregulatorylawsandunderequivalentprovisionsoflawinthoseandotherjurisdictionsinwhichourresearchandmanufacturingfacilitiesarelocated.Ouruseofthesesubstancesandmaterialsissubjecttostringent,andperiodicallychanging,regulationthatcanimposecostlycomplianceobligationsonusandhavethepotentialtoadverselyaffectourmanufacturingactivities.Theriskofaccidentalcontaminationorinjuryfromthesematerialscannotbecompletelyeliminated.Ifanaccidentwiththesesubstancesoccurs,wecouldbeheldliableforanydamagesthatresult,inadditiontoincurringclean-upcostsandliabilities,whichcanbesubstantial.Additionally,anaccidentcoulddamageourresearchandmanufacturingfacilitiesresultingindelaysandincreasedcosts.
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Wearesubjecttoenvironmentallawsandregulationswhichmayimposesignificantcomplianceorothercostsonus.
Ourmanufacturing,productdevelopmentandresearchanddevelopmentoperationsandprocessesinvolvethecontrolleduseofcertainhazardousmaterials.Inaddition,weownand/orleaseanumberoffacilities,someofwhichhavebeeninoperationformanydecades,whereweorothersmayhaveusedsubstancesorgeneratedanddisposedofwasteswhichareconsideredhazardousormaybeconsideredhazardousinthefuture.Wealsohaveacquiredvariouscompanieswhichhistoricallymayhaveusedcertainhazardousmaterialsandwhichmayhaveownedand/orleasedfacilitiesatwhichhazardousmaterialshavebeenused.Forallofthesereasons,wearesubjecttofederal,state,foreign,andlocallawsandregulationsgoverningtheuse,manufacture,storage,transportation,handling,treatment,remediation,anddisposalofhazardousmaterialsandcertainwasteproducts.Wehavepotentialliabilityundertheselawsandregulationswithrespecttotheremediationofpastcontaminationincertainofthefacilitieswenowownorlease.Additionally,inthefutureourfacilitiesandthedisposalsitesownedbyotherstowhichwesendorsentwaste,maybeidentifiedascontaminatedandrequireremediation.Accordingly,wemaybecomesubjecttoadditionalcompliancecostsorenvironmentalliabilitieswhichmaybesignificantandcouldmateriallyharmourresultsofoperationsorfinancialcondition.
Inadditiontotherisksapplicabletoourlifescienceandmaterialsanalysisproducts,ourCBRNEdetectionproductsaresubjecttoanumberofadditionalrisks,includinglengthyproductdevelopmentandcontractnegotiationperiodsandcertainrisksinherentinlong-termgovernmentcontracts.
OurCBRNEdetectionproductsaresubjecttomanyofthesamerisksassociatedwithourlifescienceproducts,includingvulnerabilitytorapidtechnologicalchange,dependenceonmassspectrometryandothertechnologiesandsubstantialcompetition.Inaddition,ourCBRNEdetectionproductsandcertainFT-IRproductsaregenerallysoldtogovernmentagenciesunderlong-termcontracts.Thesecontractsgenerallyinvolvelengthypre-contractnegotiationsandproductdevelopment.Wemayberequiredtodevotesubstantialworkingcapitalandotherresourcespriortoobtainingproductorders.Asaresult,wemayincursubstantialcostsbeforewerecognizerevenuefromtheseproducts.Moreover,inreturnforlarger,longer-termcontracts,ourcustomersfortheseproductsoftendemandmorestringentacceptancecriteria.Thesecriteriamayalsocausedelaysinourabilitytorecognizerevenuefromsalesoftheseproducts.Furthermore,wemaynotbeabletoaccuratelypredictinadvanceourcoststofulfillourobligationsundertheselong-termcontracts.Ifwefailtoaccuratelypredictourcosts,duetoinflationorotherfactors,wecouldincursignificantlosses.Also,thepresenceorabsenceofsuchcontractsmaycausesubstantialvariationinourresultsofoperationsbetweenfiscalperiodsand,asaresult,ourresultsofoperationsforanygivenfiscalperiodmaynotbepredictiveofourresultsforsubsequentfiscalperiods.Theresultinguncertaintymayhaveanadverseimpactonourstockprice.
Wearesubjecttoexistingandpotentialadditionalregulationandgovernmentinquiry,whichcanimposeburdensonouroperationsandnarrowthemarketsforourproducts.
Wearesubject,bothdirectlyandindirectly,totheadverseimpactofexistingandpotentialfuturegovernmentregulationofouroperationsandmarkets.Forexample,exportationofourproducts,particularlyourCBRNEdetectionproducts,issubjecttostrictregulatorycontrolinanumberofjurisdictions.Thefailuretosatisfyexportcontrolcriteriaorobtainnecessaryclearancescoulddelayorpreventshipmentofproducts,whichcouldadverselyaffectourrevenuesandprofitability.
Inaddition,asaresultofourinternationaloperations,wearesubjecttocompliancewithvariouslawsandregulations,includingtheFCPAandlocalanti-briberylawsinthejurisdictionsinwhichwedobusiness,whichgenerallyprohibitcompaniesandtheirintermediariesoragentsfromengaginginbriberyormakingimproperpaymentstoforeignofficialsortheiragents.TheFCPAalsorequiresproperrecordkeepingandcharacterizationofsuchpaymentsinourreportsfiledwiththeSEC.
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Despitemaintainingpoliciesandproceduresthatrequireouremployeestocomplywiththeselawsandourstandardsofethicalconduct,wecannotensurethatthesepoliciesandprocedureswillalwaysprotectusfromintentional,recklessornegligentactscommittedbyouremployeesoragents.Forexample,in2014weresolvedaninvestigationbytheSECintopossibleviolationsoftheFCPAarisingfrompastconductofoursubsidiariesoperatinginChina.Inconnectionwiththeresolution,weconsentedtotheentryofanadministrativeceaseanddesistorderbytheSECconcerningviolationsofthebooksandrecordsandinternalcontrolsprovisionsoftheFCPAandpaidanaggregateamountofapproximately$2.4million,consistingof$1.7millionindisgorgement,$0.3millioninprejudgmentinterest,anda$0.4millionpenalty.Wealsoincurredlegalandprofessionalfeesassociatedwiththeinvestigationandsettlementofapproximately$25.1million.Additionally,in2017weresolvedaninvestigationoftheKoreaFairTradeCommission("KFTC")intoimproperbiddingbyBrukerKoreaCo.,Ltd.("BrukerKorea")andseveralothercompaniesinconnectionwithbidsforsalesofX-raysystemsin2010and2012.Inconnectionwiththesematters,variousKoreangovernmentalentitiesimposedsuspensionsonBrukerKorea,withoverlappingsuspensionperiodsrangingfromthreetosixmonths.Duringtheperiodsofthesesuspensions,whichexpiredin2017,BrukerKoreawasprohibitedfrombiddingfororconductingsalestoKoreangovernmentalagencies.
OnOctober19,2017,theCompanyreceivedanoticeofinvestigationandsubpoenatoproducedocumentsfromtheDivisionofEnforcementoftheSEC.ThesubpoenaseeksinformationrelatedtoanemployeeterminatedaspartofarestructuringandcertainmattersinvolvingtheCompany'spoliciesandaccountingpracticesrelatedtorevenuerecognitionandrestructuringactivities,aswellasrelatedfinancialreporting,disclosureandcompliancematters,sinceJanuary1,2013.Thesubpoenaalsoseeksinformationconcerning,amongotherthings,theCompany'spreviouslyidentifiedmaterialweaknessininternalcontrolsovertheaccountingforincometaxes,relatedfinancialreportingmattersandcertainpaymentsfornon-employeetravelexpenses.TheCompanyisproducingdocumentsinresponsetothesubpoenaandintendstocontinuetocooperatefullywiththeSEC'sinvestigation.Atthistime,theCompanyisunabletopredicttheduration,scopeoroutcomeofthisinvestigation.
Moreover,thelifesciencesindustry,whichisthemarketforourprincipalproducts,hashistoricallybeenheavilyregulated.Thereare,forexample,lawsinseveraljurisdictionsrestrictingresearchingeneticengineering,whichcanoperatetonarrowourmarkets.Giventheevolvingnatureofthisindustry,legislativebodiesorregulatoryauthoritiesmayadoptadditionalregulationthatadverselyaffectsourmarketopportunities.Ourbusinessisalsodirectlyaffectedbyawidevarietyofgovernmentregulationsapplicabletobusinessenterprisesgenerallyandtocompaniesoperatinginthelifesciencesindustryinparticular.
OurclinicalproductsaresubjecttoregulationbytheFDA.Theseregulationsgovernawidevarietyofproductrelatedactivities,fromqualitymanagement,designanddevelopmenttolabeling,manufacturing,promotion,salesanddistribution.IfweoranyofoursuppliersordistributorsfailtocomplywithFDAandotherapplicableregulatoryrequirements,orareperceivedtopotentiallyhavefailedtocomply,wemayface,amongotherthings,warningletters;adversepublicityaffectingbothusandourcustomers;investigationsornoticesofnon-compliance,fines,injunctions,andcivilpenalties;importorexportrestrictions;partialsuspensionsortotalshutdownofproductionfacilitiesortheimpositionofoperatingrestrictions;increaseddifficultyinobtainingrequiredFDAclearancesorapprovalsorforeignequivalents;seizuresorrecallsofourproductsorthoseofourcustomers;ortheinabilitytosellsuchproducts.AnysuchFDAactionscoulddisruptourbusinessandoperations,leadtosignificantremedialcostsandhaveamaterialadverseimpactonourfinancialpositionandresultsofoperations.
Wehavebeen,are,andexpecttobeinthefuture,subjecttoinquiriesfromthegovernmentagenciesthatenforcetheseregulations,includingtheU.S.DepartmentofState,theU.S.DepartmentofCommerce,theU.S.FoodandDrugAdministration,theU.S.InternalRevenueService,theU.S.DepartmentofHomelandSecurity,theU.S.DepartmentofJustice,theSecuritiesandExchange
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Commission,theFederalTradeCommission,theU.S.CustomsandBorderProtectionandtheU.S.DepartmentofDefense,amongothers,aswellasfromstateorforeigngovernmentsandtheirdepartmentsandagencies.Asaresult,fromtimetotime,theattentionofourmanagementandotherresourcesmaybedivertedtoattendtotheseinquiries.Inaddition,failuretocomplywiththeseregulationsorobtainormaintainnecessarypermitsandlicensescouldresultinavarietyoffinesorothercensuresoraninterruptioninourbusinessoperationswhichmayhaveanegativeimpactonourabilitytogeneraterevenuesandcouldadverselyaffectourfinancialconditionandresultsofoperations.
Oursuccessdependsonourabilitytooperatewithoutinfringingormisappropriatingtheproprietaryrightsofothers.
Ourcommercialsuccessdependsonavoidingtheinfringementofotherparties'patentsandproprietaryrightsaswellasavoidingthebreachofanylicensesrelatingtoourtechnologiesandproducts.Giventhattheremaybepatentsofwhichweareunaware,particularlyintheUnitedStateswherepatentapplicationsareconfidential,avoidanceofpatentinfringementmaybedifficult.Variousthirdpartiesholdpatentswhichmayrelatetoourtechnology,andwemaybefoundinthefuturetoinfringetheseorotherpatentsorproprietaryrightsofthirdparties,eitherwithproductswearecurrentlymarketingordevelopingorwithnewproductswhichwemaydevelopinthefuture.Ifathirdpartyholdingrightsunderapatentsuccessfullyassertsaninfringementclaimwithrespecttoanyofourcurrentorfutureproducts,wemaybepreventedfrommanufacturingormarketingourinfringingproductinthecountryorcountriescoveredbythepatentweinfringe,unlesswecanobtainalicensefromthepatentholder.Wemaynotbeabletoobtainalicenseoncommerciallyreasonableterms,ifatall,especiallyifthepatentholderisacompetitor.Inaddition,evenifwecanobtainthelicense,itmaybenon-exclusive,whichwillpermitotherstopracticethesametechnologylicensedtous.Wealsomayberequiredtopaysubstantialdamagestothepatentholderintheeventofaninfringement.UndersomecircumstancesintheUnitedStatesthesedamagescouldincludedamagesequaltotripletheactualdamagesthepatentholderincurs.Ifwehavesuppliedinfringingproductstothirdpartiesformarketingbythemorlicensedthirdpartiestomanufacture,useormarketinfringingproducts,wemaybeobligatedtoindemnifythesethirdpartiesforanydamagestheymayberequiredtopaytothepatentholderandforanylossesthethirdpartiesmaysustainthemselvesastheresultoflostsalesorlicensepaymentstheyarerequiredtomaketothepatentholder.Anysuccessfulinfringementactionbroughtagainstusmayalsoadverselyaffectmarketingoftheinfringingproductinothermarketsnotcoveredbytheinfringementaction,aswellasourmarketingofotherproductsbasedonsimilartechnology.Furthermore,wewillsufferadverseconsequencesfromasuccessfulinfringementactionagainstuseveniftheactionissubsequentlyreversedonappeal,nullifiedthroughanotheractionorresolvedbysettlementwiththepatentholder.Thedamagesorotherremediesawarded,ifany,maybesignificant.Asaresult,anysuccessfulinfringementactionagainstusmayharmourbusiness.
Ifweareunabletoeffectivelyprotectourintellectualproperty,thirdpartiesmayuseourtechnology,whichwouldimpairourabilitytocompeteinourmarkets.
Ourcontinuedsuccesswilldependinsignificantpartonourabilitytoobtainandmaintainmeaningfulpatentprotectionforourproductsthroughouttheworld.Werelyonpatentstoprotectasignificantpartofourintellectualpropertyandtoenhanceourcompetitiveposition.However,ourpresentlypendingorfuturepatentapplicationsmaynotissueaspatents,andanypatentpreviouslyissuedtousmaybechallenged,invalidated,heldunenforceableorcircumvented.Furthermore,theclaimsinpatentswhichhavebeenissued,orwhichmaybeissuedtousinthefuture,maynotbesufficientlybroadtopreventthirdpartiesfromproducingcompetingproductssimilartoourproducts.Inaddition,thelawsofvariousforeigncountriesinwhichwecompetemaynotprotectourintellectualpropertytothesameextentasdothelawsoftheUnitedStates.Failuretoobtainadequatepatentprotectionforourproprietarytechnologycouldmateriallyimpairourabilitytobecommerciallycompetitive.
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Inadditiontopatentprotection,wealsorelyontheprotectionoftradesecrets,know-howandconfidentialandproprietaryinformation.Tomaintaintheconfidentialityoftradesecretsandproprietaryinformation,wegenerallyseektoenterintoconfidentialityagreementswithouremployees,consultantsandstrategicpartnersuponthecommencementofarelationshipwithus.However,wemaynotobtaintheseagreementsinallcircumstances.Intheeventofunauthorizeduseordisclosureofthisinformation,theseagreements,evenifobtained,maynotprovidemeaningfulprotectionforourtradesecretsorotherconfidentialinformation.Inaddition,adequateremediesmaynotexistintheeventofunauthorizeduseordisclosureofthisinformation.Thelossorexposureofourtradesecretsandotherproprietaryinformationwouldimpairourcompetitiveadvantagesandcouldhaveamaterialadverseeffectonouroperatingresults,financialconditionandfuturegrowthprospects.Furthermore,othersmayhave,ormayinthefutureindependentlydevelop,substantiallysimilarorsuperiorknow-howandtechnology.
Wemaybeinvolvedinlawsuitstoprotectorenforceourpatentsthatarebroughtbyuswhichcouldbeexpensiveandtimeconsumingand,ifdeterminedadversely,couldadverselyaffectourpatentposition.
Inordertoprotectorenforceourpatentrights,wemayinitiatepatentlitigationagainstthirdparties,andwemaybesimilarlysuedbyothers.Wemayalsobecomesubjecttointerferenceproceedingsconductedinthepatentandtrademarkofficesofvariouscountriestodeterminethepriorityofinventions.Thedefenseandprosecution,ifnecessary,ofintellectualpropertysuits,interferenceproceedingsandrelatedlegalandadministrativeproceedingsiscostlyanddivertsourtechnicalandmanagementpersonnelfromtheirnormalresponsibilities.Wemaynotprevailinanyofthesesuits.Anadversedeterminationofanylitigationordefenseproceedingscouldputourpatentsatriskofbeinginvalidatedorinterpretednarrowlyandcouldputourpatentapplicationsatriskofnotissuing.
Furthermore,becauseofthesubstantialamountofdiscoveryrequiredinconnectionwithintellectualpropertylitigation,thereisariskthatsomeofourconfidentialinformationcouldbecompromisedbydisclosureduringthistypeoflitigation.Inaddition,duringthecourseofthiskindoflitigation,therecouldbepublicannouncementsoftheresultsofhearings,motionsorotherinterimproceedingsordevelopmentsinthelitigation.Ifsecuritiesanalystsorinvestorsperceivetheseresultstobenegative,itcouldhaveasubstantialnegativeeffectonthetradingpriceofourcommonstock.
Werelyoninformationtechnologytosupportouroperationsandreportingenvironments.Asecurityfailureofthattechnologycouldimpactourabilitytooperateourbusinesseseffectively,adverselyaffectourfinancialresults,damageourreputationandexposeustopotentialliabilityorlitigation.
Weuseinformationsystemstocarryoutouroperationsandmaintainourbusinessrecords.Somesystemsareinternallymanagedandsomearemaintainedbythird-partyserviceproviders.Weandourserviceprovidersemploywhatwebelieveareadequatesecuritymeasures.Ourabilitytoconductbusinesscouldbemateriallyandadverselyaffectedifthesesystemsorresourcesarecompromised,damagedorfail.Thiscouldbearesultofacyber-incident,naturaldisaster,hardwareorsoftwarecorruption,failureorerror,telecommunicationssystemfailure,serviceprovidererrororfailure,intentionalorunintentionalpersonnelactionsorotherdisruption.
Intheordinarycourseofbusiness,wecollectandstoresensitivedata,includingintellectualproperty,otherproprietaryinformationandpersonallyidentifiableinformation.Ifthisdataiscompromised,destroyedorinappropriatelydisclosed,itcouldhaveamaterialadverseeffect,includingdamagetoourreputation,lossofcustomers,significantexpensestoaddressandresolvetheissues,orlitigationorotherproceedingsbyaffectedindividuals,businesspartnersorregulatoryauthorities.
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Ourdebtmayadverselyaffectourcashflowandmayrestrictourinvestmentopportunitiesorlimitouractivities.
AsofDecember31,2017,wehadoutstandinganaggregateprincipalamountofdebttotalingapproximately$415.6million,including$220.0millionofseniorunsecurednotes,$195.0millionoflong-termborrowingsunderourrevolvingloanfacilityand$1.3millionofotherdebt,offsetbyunamortizeddebtissuancecostsfortheseniorunsecurednotesof$0.7million.Wealsohadtheabilitytoborrowanadditional$303.9millionavailableunderourexistingcreditfacility.MostofouroutstandingdebtisintheUnitedStatesandtherearesubstantialcashrequirementsintheUnitedStatestoservicedebtinterestobligations,fundoperations,capitalexpendituresandourdeclareddividendsandfinancepotentialacquisitionsorsharerepurchases.Ourabilitytosatisfyourdebtobligationsandmeetourotherliquidityneedsdependsonourfutureoperatingperformanceandoneconomic,financial,competitiveandotherfactorsbeyondourcontrol.Ourbusinessmaynotgeneratesufficientcashflowtomeetourdebtobligationsorprovidesufficientfundsforourotherobjectives.Ifweareunabletoserviceourdebtorobtainadditionalfinancing,wemaybeforcedtodelaystrategicacquisitions,capitalexpendituresorresearchanddevelopmentexpendituresorsuspendourdividendpaymentsandsharerepurchases.Wemaynotbeabletoobtainadditionalfinancingontermsacceptabletousoratall.Furthermore,amajorityofourcash,cashequivalentsandshort-terminvestmentsisgeneratedfromforeignoperations,with$405.8million,or92.4%heldbyforeignsubsidiariesasofDecember31,2017.OurfinancialconditionandresultsofoperationscouldbeadverselyimpactedifweareunabletomaintainasufficientlevelofcashflowintheUnitedStatestoaddressourfundingrequirementsthroughcashfromoperationsandtimelyrepatriationofcashfromoverseasorothersourcesobtainedatanacceptablecost.
Additionally,theagreementsgoverningourdebtrequirethatwemaintaincertainfinancialratiosrelatedtomaximumleverageandminimuminterestcoverageandcontainnegativecovenants,includingamongothers,restrictionsonliens,indebtednessoftheCompanyanditssubsidiaries,assetsales,dividendsandtransactionswithaffiliates.Ourabilitytocomplywiththesefinancialrestrictionsandcovenantsisdependentonourfutureperformance,whichissubjecttoprevailingeconomicconditionsandotherfactors,includingfactorsthatarebeyondourcontrolsuchasforeigncurrencytranslationratesandinterestrates.Ourfailuretocomplywithanyoftheserestrictionsorcovenantsmayresultinaneventofdefaultundertheapplicabledebtinstrument,whichcouldpermitaccelerationofthedebtunderthefacilityandrequireustoprepaythedebtbeforeitsscheduledduedate.
Changesinoureffectiveincometaxratecouldadverselyaffectourresultsofoperations.
WearesubjecttoincometaxesinboththeUnitedStatesandvariousforeignjurisdictionsandourdomesticandinternationaltaxliabilitiesarelargelydependentuponthedistributionofincomeamongthesedifferentjurisdictions.Variousfactorsmayhavefavorableorunfavorableeffectsonoureffectiveincometaxrate.Thesefactorsincludeinterpretationsofexistingtaxlaws,theaccountingforstockoptionsandothershare-basedcompensation,changesintaxlawsandrates,includingtherecentlyenactedTaxCutsandJobsAct,futurelevelsofresearchanddevelopmentspending,changesinaccountingstandards,changesinthemixofearningsinthevarioustaxjurisdictionsinwhichweoperate,theoutcomeofexaminationsbytheU.S.InternalRevenueServiceandothertaxauthorities,theaccuracyofourestimatesforunrecognizedtaxbenefitsandrealizationofdeferredtaxassetsandchangesinoveralllevelsofpre-taxearnings.
Variousinternationaltaxriskscouldadverselyaffectourearningsandcashflows.
Wearesubjecttointernationaltaxrisks.Wecouldbesubjecttodoubletaxationonincomerelatedtooperationsincertaincountriesthatdonothavetaxtreatieswiththecountryofthetradingpartner.Inaddition,wemayhaveahighereffectiveincometaxratethanthatofothercompaniesinourindustryiflossesincurredbyoneoperatingcompanyarenotavailabletooffsettheincomeofan
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operatingcompanylocatedinanothercountry.Also,distributionsofearningsandotherpaymentsreceivedfromoursubsidiariesmaybesubjecttowithholdingtaxesimposedbythecountrieswheretheyareoperatingorareincorporated.IftheseforeigncountriesdonothaveincometaxtreatieswiththeUnitedStatesorthecountrieswhereoursubsidiariesareincorporated,wecouldbesubjecttohighratesofwithholdingtaxesonthesedistributionsandpayments.Additionally,theamountofthecreditthatwemayclaimagainstourU.S.federalincometaxforforeignincometaxespaidoraccruedissubjecttomanylimitationswhichmaysignificantlyrestrictourabilitytoclaimacreditforalloftheforeigntaxeswepay.
Wecurrentlyhavereservesestablishedforpotentialtaxliabilities.Ifthesereservesarechallenged,andweareunabletosuccessfullydefendourtaxpositions,anegativeimpacttoourcashflowscouldresult.
Theunpredictabilityandfluctuationofourquarterlyresultsmayadverselyaffectthetradingpriceofourcommonstock.
Ourrevenuesandresultsofoperationshaveinthepastandwillinthefuturevaryfromquartertoquarterduetoanumberoffactors,manyofwhichareoutsideourcontrolandanyofwhichmaycauseourstockpricetofluctuate.Theprimaryfactorsthatmayaffectusincludethefollowing:
• thetimingofsalesofourproductsandservices;
• thetimingofrecognizingrevenueanddeferredrevenueunderU.S.GAAP;
• changesinourpricingpoliciesorthepricingpoliciesofourcompetitors;
• increasesinsalesandmarketing,productdevelopmentoradministrationexpenses;
• themixofservicesprovidedbyusandthird-partycontractors;
• ourabilitytoattainandmaintainqualitylevelsforourproducts;
• costsrelatedtoacquisitionsoftechnologyorbusinesses;and
• theeffectivenessoftransactionsenteredintotohedgetherisksassociatedwithforeigncurrencyandinterestratefluctuations.
Wecanexperiencequarter-to-quarterfluctuationsinouroperatingresultsasaresultofvariousfactors,someofwhichareoutsideourcontrol,suchas:
• thetimingofgovernmentalstimulusprogramsandacademicresearchbudgets;
• thetimeittakesbetweenthedatecustomerordersanddepositsarereceived,systemsareshippedandacceptedbyourcustomersandfullpaymentisreceived;
• thetimeittakestosatisfylocalcustomsrequirementsandotherexport/importrequirements;
• thetimeittakesforcustomerstoconstructorpreparetheirfacilitiesforourproducts;and
• thetimerequiredtoobtaingovernmentallicenses.
Thesefactorshaveinthepastaffectedtheamountandtimingofrevenuerecognizedonsalesofourproductsandreceiptofrelatedpaymentsandwillcontinuetodosointhefuture.Accordingly,ouroperatingresultsinanyparticularquartermaynotnecessarilybeanindicationofanyfuturequarter'soperatingperformance.
Historicallywehavehigherlevelsofrevenueinthefourthquarteroftheyearcomparedtothefirst,secondandthirdquarters,whichwebelieveisprimarilytheresultofourcustomers'budgetingcycles.Quarter-to-quartercomparisonsofourresultsofoperationsshouldnotberelieduponasanindicationofourfutureperformance.Itislikelythatinsomefuturequarters,ourresultsofoperations
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maybebelowtheexpectationsofpublicmarketanalystsandinvestors.Inthisevent,thepriceofourcommonstockmayfall.
Existingstockholdershavesignificantinfluenceoverus.
AsofMarch12,2018,Laukienfamilymembers,includingourChairman,PresidentandChiefExecutiveOfficerFrankLaukienandDirectorJoergLaukien,owned,intheaggregate,approximately35.7%ofouroutstandingcommonstock.Asaresult,thesestockholderswillbeabletoexercisesubstantialinfluenceoverallmattersrequiringstockholderapproval,includingtheelectionofdirectorsandapprovalofsignificantcorporatetransactions.Thiscouldhavetheeffectofdelayingorpreventingachangeincontrolofourcompanyandwillmakesometransactionsdifficulttoaccomplishwithoutthesupportofthesestockholders.
Othercompaniesmayhavedifficultyacquiringus,evenifdoingsowouldbenefitourstockholders,duetoprovisionsunderourcorporatecharterandbylaws,aswellasDelawarelaw.
Provisionsinourcertificateofincorporation,asamended,andourbylaws,aswellasDelawarelawcouldmakeitmoredifficultforothercompaniestoacquireus,evenifdoingsowouldbenefitourstockholders.Ourcertificateofincorporation,asamended,andbylawscontainthefollowingprovisions,amongothers,whichmayinhibitanacquisitionofourcompanybyathirdparty:
• astaggeredBoardofDirectors,wherestockholderselectonlyaminorityoftheboardeachyear;
• advancenotificationproceduresformatterstobebroughtbeforestockholdermeetings;
• alimitationonwhomaycallstockholdermeetings;and
• theabilityofourBoardofDirectorstoissueupto5,000,000sharesofpreferredstockwithoutastockholdervote.
ITEM1BUNRESOLVEDSTAFFCOMMENTS
WehavenotreceivedanywrittencommentsfromthestaffoftheSecuritiesandExchangeCommissionregardingourperiodicorcurrentreportsthat(1)webelievearematerial,(2)wereissuednotlessthan180daysbeforetheendofour2017fiscalyearend,and(3)remainunresolved.
ITEM2PROPERTIES
Webelievethatourexistingprincipalfacilitiesarewellmaintainedandingoodoperatingconditionandthattheyareadequateforourforeseeablebusinessneeds.
Inadditiontotheprincipalfacilitiesnotedbelow,weleaseadditionalfacilitiesforsales,applicationsandservicesupportinvariouscountriesthroughouttheworldincludingAustralia,Austria,Belgium,Brazil,China,CzechRepublic,Estonia,France,Germany,HongKong,India,Israel,Italy,Japan,Malaysia,Mexico,Netherlands,Poland,Portugal,Russia,Singapore,SouthAfrica,SouthKorea,Spain,Sweden,Switzerland,Taiwan,Thailand,Turkey,Ukraine,theUnitedKingdomandtheUnitedStates.Ifweshouldrequireadditionaloralternativefacilities,webelievethatsuchfacilitiescanbeobtainedonshortnoticeatcompetitiverates.
Thelocationandgeneralcharacterofourprincipalpropertiesbyoperatingsegmentareasfollows:
BSISegment:
BrukerBioSpin'sfiveprincipalfacilitiesarelocatedinRheinstetten,EttlingenandKarlsruhe,Germany;Faellanden,Switzerland;andWissembourg,France.Thesefacilities,whichincorporate
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manufacturing,researchanddevelopment,applicationanddemonstration,marketingandsalesandadministrationfunctionsforthebusinessesofBrukerBioSpin,include:
• anowned475,000squarefootfacilityinRheinstetten,Germany;
• anowned360,000squarefootfacilityinEttlingen,Germany;
• anowned345,000squarefootfacilityinKarlsruhe,Germany;
• anowned300,000squarefootfacilityandaleased70,000squarefootfacilityinFaellanden,Switzerland;and
• anowned175,000squarefootfacilityandaleased16,000squarefootfacilityinWissembourg,France.
BrukerCALID'sthreeprincipalfacilitiesarelocatedinBremen,EttlingenandLeipzig,Germany.Thesefacilities,whichincorporatemanufacturing,researchanddevelopment,applicationanddemonstration,marketingandsalesandadministrationfunctionsforthemassspectrometryandCBRNEbusinessesofBrukerCALID,include:
• anowned270,500squarefootfacilityinBremen,Germany;
• anowned205,000squarefootfacilityinEttlingen,Germany;and
• anowned165,000squarefootfacilityinLeipzig,Germany.
BrukerNano'sfiveprincipalfacilitiesarelocatedinKarlsruheandBerlin,Germany;MigdalHa'Emek,Israel;Madison,Wisconsin,U.S.A.;andSantaBarbara,California,U.S.A.Thesefacilities,whichincorporatemanufacturing,researchanddevelopment,applicationanddemonstration,marketingandsalesandadministrationfunctionsforthebusinessesofBrukerNano,include:
• anowned76,000squarefootfacilityandanowned46,000squarefootfacilityinKarlsruhe,Germany;
• anowned100,000squarefootfacilityinSantaBarbara,California,U.S.A.;
• anowned87,000squarefootfacilityinBerlin,Germany;
• anowned43,000squarefootfacilityinMadison,Wisconsin,U.S.A.;and
• aleased22,000squarefootfacilityinMigdalHa'Emek,Israel.
BESTSegment:
BEST'sfiveprincipalfacilitiesarelocatedinHanau,BergischGladbachandAlzenau,Germany,Carteret,NewJersey,U.S.A.,andPerth,Scotland.Thesefacilities,whichincorporatemanufacturing,researchanddevelopment,applicationanddemonstration,marketingandsalesandadministrationfunctionsforthebusinessofBEST,include:
• anowned47,000squarefootfacilityinPerth,Scotland;
• aleased170,000squarefootfacilityinHanau,Germany;
• aleased80,000squarefootfacilityinBergischGladbach,Germany;
• aleased107,000squarefootfacilityinCarteret,NewJersey,U.S.A.;and
• aleased31,000squarefootfacilityinAlzenau,Germany.
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ITEM3LEGALPROCEEDINGS
Weareinvolvedinlawsuits,claims,andproceedings,including,butnotlimitedto,patentandcommercialmatters,whichariseintheordinarycourseofbusiness.Therearenosuchmatterspendingthatwecurrentlybelievearereasonablypossibleofhavingamaterialimpactonourbusinessortoourconsolidatedfinancialstatements.
Inaddition,fromtimetotime,theCompanyisthesubjectofinvestigationsbynational,stateandlocalgovernmentagenciesintheUnitedStatesandothercountriesinwhichitoperates,involving,amongotherthings,regulatory,financialreporting,marketingandotherbusinesspractices.Thesegovernmentalinvestigationsmayresultinthecommencementofcivilandcriminalproceedings,fines,penaltiesandadministrativeremediesandmayhaveamaterialadverseeffectonourfinancialposition,resultsofoperationsand/orbusiness.
OnOctober19,2017,wereceivedanoticeofinvestigationandsubpoenatoproducedocumentsfromtheDivisionofEnforcementoftheSEC.ThesubpoenaseeksinformationrelatedtoanemployeeterminatedaspartofarestructuringandcertainmattersinvolvingtheCompany'spoliciesandaccountingpracticesrelatedtorevenuerecognitionandrestructuringactivities,aswellasrelatedfinancialreporting,disclosureandcompliancematters,sinceJanuary1,2013.Thesubpoenaalsoseeksinformationconcerning,amongotherthings,theCompany'spreviouslyidentifiedmaterialweaknessininternalcontrolsovertheaccountingforincometaxes,relatedfinancialreportingmattersandcertainpaymentsfornon-employeetravelexpenses.TheCompanyisproducingdocumentsinresponsetothesubpoenaandintendstocontinuetocooperatefullywiththeSEC'sinvestigation.Atthistime,weareunabletopredicttheduration,scopeoroutcomeofthisinvestigation.
ITEM4MINESAFETYDISCLOSURE
Notapplicable.
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PARTII
ITEM5MARKETFORREGISTRANT'SCOMMONEQUITY,RELATEDSTOCKHOLDERMATTERSANDISSUERPURCHASESOFEQUITYSECURITIES
MarketPrices
OurcommonstockistradedontheNasdaqGlobalSelectMarketunderthesymbol"BRKR."Thefollowingtablesetsforth,fortheperiodindicated,thehighandlowsalespricesforourcommonstockasreportedontheNasdaqGlobalSelectMarket:
AsofMarch12,2018,therewereapproximately88holdersofrecordofourcommonstock.Thisnumberdoesnotincludeindividualbeneficialownersofsharesheldinnomineenameorwithinclearinghousepositionsofbrokeragefirmsandbanks.
Dividends
OnFebruary22,2016,weannouncedtheestablishmentofadividendpolicyandthedeclarationbyourBoardofDirectorsofaninitialquarterlycashdividendintheamountof$0.04pershareofourissuedandoutstandingcommonstock.Cashdividendspaidin2017and2016totaled$0.04pershareineachofMarch,June,SeptemberandDecember.Underthedividendpolicy,wewilltargetacashdividendtoourstockholdersintheamountof$0.16pershareperannum,payableinequalquarterlyinstallments.Subsequentdividenddeclarationsandtheestablishmentofrecordandpaymentdatesforsuchfuturedividendpayments,ifany,aresubjecttotheBoardofDirectors'continuingdeterminationthatthedividendpolicyisinthebestinterestsofourstockholders.ThedividendpolicymaybesuspendedorcancelledatthediscretionoftheBoardofDirectorsatanytime.Weareincompliancewithrestrictionsthatthetermsofcertaindebtfacilitiesplaceontheamountofcashdividendsthatwecouldpotentiallypay.
RecentSalesofUnregisteredSecurities
Therewerenounregisteredsalesofequitysecuritiesduringthefourthquarterof2017.
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High Low FirstQuarter2017 $ 25.39 $ 21.20SecondQuarter2017 30.02 21.83ThirdQuarter2017 30.23 26.98FourthQuarter2017 36.53 29.59
FirstQuarter2016 $ 29.23 $ 20.90SecondQuarter2016 29.85 21.76ThirdQuarter2016 25.37 21.38FourthQuarter2016 23.52 19.59
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IssuerPurchasesofEquitySecurities
ThefollowingtablesetsforthallpurchasesmadebyoronbehalfoftheCompanyorany"affiliatedpurchaser,"asdefinedinRule10b-18(a)(3)undertheExchangeAct,ofsharesofourcommonstockduringeachmonthinthefourthquarterof2017.
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Period
TotalNumberofShares
Purchased(1)
AveragePricePaidperShare
TotalNumberofSharesPurchasedasPartofPublicly
AnnouncedPlansorPrograms(2)
MaximumNumberofShares(or
approximatedollarvalue)thatMayYetBePurchasedUnder
thePlansorPrograms(3)
October1-October31,2017 560,000 $ 30.55 560,000 $ 76,090,259November1-November30,2017 100,000 32.61 100,000 72,828,939December1-December31,2017 — — — 72,828,939
660,000 $ 30.86 660,000
(1) Includes(i)sharesrepurchasedundera$225millionsharerepurchaseprogramapprovedbytheBoardofDirectorsandannouncedonMay12,2017(the"RepurchaseProgram"),underwhichrepurchasesofcommonstockmayoccurfromtimetotime,inamounts,atprices,andatsuchtimesastheCompanydeemsappropriate,subjecttomarketconditions,legalrequirementsandotherconsiderations.
(2) RepresentssharesrepurchasedundertheRepurchaseProgram.
(3) TheRepurchaseProgramauthorizespurchasesofupto$225millionoftheCompany'scommonstockoveratwo-yearperiodcommencingMay12,2017.AsofDecember31,2017,sharesofcommonstockwithanaggregatecostofapproximately$152.2millionhavebeenrepurchased.TheremainingauthorizationundertheRepurchaseProgramis$72.8millionasofMarch12,2018.TheRepurchaseProgramexpiresMay11,2019andcanbesuspended,modifiedorterminatedatanytimewithoutpriornotice.
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StockPricePerformanceGraph
Thegraphbelowshowsthecumulativestockholderreturn,assumingtheinvestmentof$100(andthereinvestmentofanydividendsthereafter)fortheperiodbeginningonDecember31,2012andendingonDecember31,2017,forourcommonstock,stockstradedonNasdaq,andapeergroupconsistingofU.S.PublicCompanieswithaStandardIndustryClassification,orSIC,code3826LaboratoryAnalyticalInstruments.ThestockpriceperformanceofBrukerCorporationshowninthefollowinggraphisnotindicativeoffuturestockpriceperformance.
Comparisonof5YearCumulativeTotalReturnAssumesInitialInvestmentof$100
December2017
ThedataforthisperformancegraphwascompiledbyZack'sInvestmentResearch,Inc.andisusedwiththeirpermission.
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CumulativeTotalReturnIndexfor: 2012 2013 2014 2015 2016 2017 BrukerCorporation $ 100.0 $ 129.7 $ 128.7 $ 159.3 $ 139.9 $ 228.0NASDAQStockMarket(UScompanies) 100.0 139.4 160.7 173.1 190.1 203.1SICCode3826LaborartoryAnalyticalInstruments 100.0 140.6 165.5 181.7 176.7 265.7
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ITEM6SELECTEDFINANCIALDATA
TheconsolidatedstatementsofincomeandcomprehensiveincomedataforeachoftheyearsendedDecember31,2017,2016and2015,andtheconsolidatedbalancesheetdataasofDecember31,2017and2016,havebeenderivedfromourauditedconsolidatedfinancialstatementsincludedinItem8inthisAnnualReportonForm10-K.
ThedatapresentedbelowwasderivedfromconsolidatedfinancialstatementsthatwerepreparedinaccordancewithU.S.generallyacceptedaccountingprinciplesandshouldbereadwiththeconsolidatedandcombinedfinancialstatements,includingthenotesthereto,and"Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperations"includedelsewhereinthisAnnualReportonForm10-K.
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YearEndedDecember31, 2017(1) 2016(2) 2015(3) 2014(4) 2013(5) (inmillions,exceptpersharedata) Consolidated/CombinedStatementsofIncomeData: Productrevenue $ 1,479.5 $ 1,345.4 $ 1,381.1 $ 1,571.9 $ 1,611.4Servicerevenue 278.2 254.7 235.5 231.8 219.3Otherrevenue 8.2 11.2 7.2 5.2 8.7Totalrevenue 1,765.9 1,611.3 1,623.8 1,808.9 1,839.4Totalcostsandoperatingexpenses 1,551.2 1,434.1 1,478.1 1,703.5 1,691.2Operatingincome 214.7 177.2 145.7 105.4 148.2NetincomeattributabletoBrukerCorporation 78.6 153.6 101.6 56.7 80.1Netincomepercommonshareattributableto BrukerCorporationshareholders: Basic $ 0.50 $ 0.95 $ 0.60 $ 0.34 $ 0.48Diluted $ 0.49 $ 0.95 $ 0.60 $ 0.33 $ 0.48
Cashdividendsdeclaredpercommonshare $ 0.16 $ 0.16 $ — $ — $ —
(1) 2017includes$16.2millionofrestructuringcostsand$1.1millionofimpairmentofotherlong-livedassetsandincludes$68.9millionofincrementalincometaxprovisionrelatedtothe2017TaxAct.
(2) 2016includes$20.8millionofrestructuringcostsand$0.8millionofimpairmentofotherlong-livedassets.
(3) 2015includes$29.3millionofrestructuringcostsand$4.6millionofimpairmentofgoodwill,definite-livedintangibleassetsandotherlong-livedassets.
(4) 2014includes$36.1millionofrestructuringcostsand$11.5millionofimpairmentofdefinite-livedintangibleassetsandotherlong-livedassets.
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(5) 2013includes$25.3millionofrestructuringcosts.
YearEndedDecember31, 2017 2016(1) 2015 2014(2) 2013 (inmillions) Consolidated/CombinedBalanceSheetData: Cashandcashequivalents $ 325.0 $ 342.4 $ 267.1 $ 319.5 $ 438.7Short-terminvestments 114.2 157.9 201.2 178.0 —Workingcapital(3) 834.3 751.2 677.0 783.6 783.3Totalassets 1,948.5 1,808.4 1,730.0 1,863.7 1,987.1Totaldebt 415.6 411.7 265.8 353.9 353.8Otherlong-termliabilities 274.9 199.0 177.4 156.2 135.2Totalshareholders'equity 733.5 693.1 732.9 771.7 850.2
(1) In2016,theCompanyadoptedAccountingStandardsUpdate2015-03,Simplifying the Presentation of Debt Issuance Costs ,andreclassifiedthedebtissuancecostsassociatedwiththeseniorunsecurednotestoareductionofthecarryingamountofdebtinsteadofasanotherassetasofeachoftheyearspresentedabove.Theimpactwas$0.9million,$1.1million,$1.2millionand$1.4millionineachoftheyearsendedDecember31,2015,2014and2013,respectively.
(2) In2014,theCompanycommencedaprogramtoenterintotimedepositswithvaryingmaturitydatesaswellascalldeposits.Basedonthecallandmaturitydates,certainoftheseinvestmentshavebeenclassifiedasshort-terminvestments.
(3) Workingcapitalisdefinedintheabovetableascurrentassetslesscurrentliabilites.
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ITEM7MANAGEMENT'SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
ThefollowingManagement'sDiscussionandAnalysisofFinancialConditionandResultsofOperations,orMD&A,describestheprincipalfactorsaffectingtheresultsofouroperations,financialconditionandchangesinfinancialcondition,aswellasourcriticalaccountingpoliciesandestimates.OurMD&Aisorganizedasfollows:
• Overview. Thissectionprovidesabriefdiscussionofourreportablesegments'resultsofoperations,significantrecentdevelopmentsinourbusinesses,andchallengesandrisksthatmayimpactourbusinessesinthefuture.
• Results of Operations. ThissectionprovidesouranalysisofthesignificantlineitemsonourconsolidatedstatementsofincomeandcomprehensiveincomefortheyearendedDecember31,2017comparedtotheyearendedDecember31,2016andfortheyearendedDecember31,2016comparedtotheyearendedDecember31,2015.
• Liquidity and Capital Resources. Thissectionprovidesananalysisofourliquidityandcashflowandadiscussionofouroutstandingdebtandcommitments.
• Critical Accounting Policies and Estimates. Thissectiondiscussestheaccountingestimatesthatareconsideredimportanttoourfinancialconditionandresultsofoperationsandrequireustoexercisesubjectiveorcomplexjudgmentsintheirapplication.AllofoursignificantaccountingpoliciesaresummarizedinNote2toourconsolidatedfinancialstatementsinItem8ofthisAnnualReportonForm10-K.
• Recent Accounting Pronouncements. Thissectionprovidesasummaryofrecentaccountingpronouncementsanddiscussestheirpotentialimpactonourconsolidatedfinancialstatements.
• Transactions with Related Parties. Thissectionsummarizestransactionswithrelatedparties.
StatementscontainedinManagement'sDiscussionandAnalysisofFinancialConditionandResultsofOperations,whichexpressthatwe"believe,""anticipate,""plan,""expect,""seek,""estimate,"or"should,"aswellasotherstatementswhicharenothistoricalfact,areforward-lookingstatementswithinthemeaningofthePrivateSecuritiesLitigationReformActof1995.Actualeventsorresultsmaydiffermateriallyfromthosesetforthinforward-lookingstatements.Certainfactorsthatmightcausesuchadifferencearediscussedin"RiskFactors"and"Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperations"inthisAnnualReportonForm10-KfortheyearendedDecember31,2017.
AlthoughourconsolidatedfinancialstatementshavebeenpreparedinaccordancewithgenerallyacceptedaccountingprinciplesintheUnitedStatesofAmerica(GAAP),webelievedescribingrevenueandexpenses,excludingtheeffectsofforeigncurrency,acquisitionsanddivestitures,aswellascertainothercharges,net,providesmeaningfulsupplementalinformationregardingourperformance.Specifically,managementbelievesthatfreecashflowandorganicrevenue,bothnon-GAAPfinancialmeasures,aswellasnon-GAAPgrossprofitmarginandnon-GAAPoperatingmargin,providerelevantandusefulinformationwhichiswidelyusedbyequityanalysts,investorsandcompetitorsinourindustry,aswellasbyourmanagement,inassessingbothconsolidatedandbusinessunitperformance.WedefinethetermorganicrevenueasGAAPrevenueexcludingtheeffectofforeigncurrencytranslationchangesandtheeffectofacquisitionsanddivestitures.Wedefinethetermnon-GAAPgrossprofitmarginasGAAPgrossprofitmarginwithcertainnon-GAAPmeasuresexcludedandnon-GAAPoperatingmarginasGAAPoperatingmarginwithcertainnon-GAAPmeasuresexcluded.Thesenon-GAAPmeasuresexcludecostsrelatedtorestructuringactions,acquisitionandrelatedintegrationexpenses,amortizationofacquiredintangibleassetsandothercoststhatareinfrequentornon-recurringinnatureandwebelievetheseareusefulmeasurestoevaluateourcontinuingbusiness.
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Wedefinefreecashflowasnetcashprovidedbyoperatingactivitieslessadditionstoproperty,plant,andequipment.Webelievefreecashflowisausefulmeasuretoevaluateourbusinessasitindicatestheamountofcashgeneratedafteradditionstoproperty,plant,andequipmentwhichisavailablefor,amongotherthings,investmentsinourbusiness,acquisitions,sharerepurchases,dividendsandrepaymentofdebt.
Weusethesenon-GAAPfinancialmeasurestoevaluateourperiod-over-periodoperatingperformancebecauseourmanagementbelievestheyprovidemorecomparablemeasuresofourcontinuingbusinessbecausetheyadjustforcertainitemsthatarenotreflectiveoftheunderlyingperformanceofourbusiness.Thesemeasuresmayalsobeusefultoinvestorsinevaluatingtheunderlyingoperatingperformanceofourbusiness.Weregularlyusethesenon-GAAPfinancialmeasuresinternallytounderstand,manage,andevaluateourbusinessresultsandmakeoperatingdecisions.Wealsomeasureouremployeesandcompensatethem,inpart,basedonsuchnon-GAAPmeasuresandusethisinformationforourplanningandforecastingactivities.Thepresentationofthesenon-GAAPfinancialmeasuresisnotintendedtobeasubstitutefor,orsuperiorto,thefinancialinformationpreparedandpresentedinaccordancewithGAAPandmaybedifferentfromnon-GAAPfinancialmeasuresusedbyothercompanies,andtherefore,maynotbecomparableamongcompanies.
OVERVIEW
Weareorganizedintofouroperatingsegments:theBrukerBioSpinGroup,theBrukerCALIDGroup,theBrukerNanoGroupandtheBrukerEnergy&SuperconTechnologies(BEST)Segment.
FortheyearendedDecember31,2017,ourrevenueincreasedby$154.6million,or9.6%,to$1,765.9million,comparedto$1,611.3millionfortheyearendedDecember31,2016.Includedinrevenuewereanincreaseofapproximately$77.2millionattributabletoourrecentacquisitionsandanincreaseofapproximately$19.6millionfromtheimpactofforeigncurrencytranslationcausedbytheweakeningoftheU.S.DollarversustheEuroandothercurrencies.Excludingtheeffectsofforeigncurrencytranslationandourrecentacquisitions,ourorganicrevenue,anon-GAAPmeasure,increasedby$57.8million,or3.6%.
Ourgrossprofitmarginremainedapproximatelyconsistentat46.0%duringtheyearendedDecember31,2017ascomparedto46.1%duringtheyearendedDecember31,2016.ThepositiveeffectofhighersalesresultingfromimprovementsinEuropeanandIndustrialendmarketswasoffsetprimarilybyunfavorablebusinessandproductmixcausedhigherrevenuesinournowlargerBESTsegmentwhichhaslowergrossprofitmarginsandunfavorablemixwithintheBioSpinGroup.
Ouroperatingmarginincreasedto12.2%fortheyearendedDecember31,2017from11.0%duringtheyearendedDecember31,2016demonstratingoperatingleveragefollowingBruker'smulti-yearoperationaltransformationwhileappropriatelyinvestinginoursixstrategicgrowthareas.Theoperatingmarginincreaseddueprimarilytopositiveoperatingleverageonhighersales,costdisciplineandsavingsfromrestructuringinitiatives.Thesefactorsmorethanoffsetdilutionfromrecentacquisitionsandforeigncurrencytranslationseffects.
TheincometaxprovisionintheyearsendedDecember31,2017and2016was$117.5millionand$23.1million,respectively,representingeffectivetaxratesof59.4%and13.0%,respectively.TheincreaseinoureffectivetaxratefortheyearendedDecember31,2017,comparedto2016,wasprimarilyattributabletotheimpactofU.S.taxreformin2017offsetbythe2016releaseofourremainingvaluationallowancesandtherecognitionofpreviouslyunrecognizedtaxbenefitsduetotheclosureoftaxauditsin2016.Ourtaxratemaychangeovertimeastheamountandmixofjurisdictionalincomechanges.
OnDecember22,2017(EnactmentDate),thePresidentoftheUnitedStatessignedtaxreformlegislation(2017TaxAct),whichenactedawiderangeofchangestotheU.S.corporateincometax
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system,manyofwhichdiffersignificantlyfromtheprovisionsofthepreviousU.S.taxlaw.Wehavenotyetcompletedtheassessmentofthetaxeffectsassociatedwiththeenactmentofthe2017TaxAct.However,areasonableestimatehasbeenmadeoftheeffectsontheexistingdeferredtaxbalancesandtheone-timetransitiontax.Changesinthetaxratesandlawsareaccountedforintheperiodofenactment.Therefore,duringthefourthquarterof2017,werecordedanincrementalincometaxprovisionof$68.9million,whichisprimarilycomprisedofthefollowing:
• Anestimatedincometaxprovisionof$55.0millionforthefederalandstateimpactsoftheone-timedeemedrepatriationofpre-2018E&P.Inaccordancewiththe2017TaxAct,thefederalportionofthetollchargeliabilitymaybepaidovereightyears.Suchliabilitycanbereducedbycertaincredits.Accordingly,wehaverecorded$30.6millionand$2.7millioninlong-termincometaxliabilitiesandaccruedincometaxes(current),respectively,asofDecember31,2017
• Anestimatednetincometaxbenefitof$1.4million,fortheremeasurementofourdeferredtaxassetsandliabilitiesatthenewlyenactedtaxrateof21%;and
• Asaresultofthe2017TaxActandourexpectationsaboutdistributingcertaincashbalancesfromitsforeignsubsidiariestotheUnitedStates,wealsorecordedestimatedincometaxprovisionsforestimatedstateincometaxesandforeignwithholdingtaxesof$12.5million.
Theactualresultsoftheimplementationofthe2017TaxActmaymateriallydifferfromourcurrentestimatedueto,amongotherthings,furtherguidancethatmaybeissuedbyU.S.taxauthoritiesorregulatorybodiesincludingtheSECandtheFASBtointerpretthe2017TaxAct.Wewillcontinuetoanalyzethe2017TaxActandanyadditionalguidancethatmaybeissuedandfinalizethefulleffectsofapplyingthenewlegislationinthemeasurementperiod.
Earningspersharedecreasedfrom$0.95to$0.49perdilutedsharefortheyearendedDecember31,2017whencomparedtotheyearendedDecember31,2016.ThedecreasewasprimarilyduetotheimpactofU.S.taxreformwhichresultedinasignificantlyhighereffectivetaxratefortheyearendedDecember31,2017.
OperatingcashflowfortheyearendedDecember31,2017wasasourceofcashof$154.4million.FortheyearendedDecember31,2017,ourfreecashflow,anon-GAAPmeasure,was$110.7million,calculatedasfollows:
FortheyearendedDecember31,2017ourfreecashflowwas18%higherthanfortheyearendedDecember31,2016primarilyattributabletohighernetearningsadjustedfornon-cashitems,lowerinventorylevelsandtimingofemployeepayments.Theseeffectswerepartiallyoffsetbyanincreaseinaccountsreceivablescausedbyproportionatelyhighersaleslateinthefourthquarterof2017.
InMay2017,ourBoardofDirectorsapprovedasharerepurchaseprogram(the"RepurchaseProgram")thatauthorizedrepurchasesofupto$225.0millionofcommonstockovertwoyears.Atotalof5,318,063shareswererepurchasedatanaggregatecostof$152.2millioninthetwelvemonthsendedDecember31,2017.
OnFebruary22,2016,weannouncedtheestablishmentofadividendpolicyandthedeclarationbyourBoardofDirectorsofaninitialquarterlycashdividendintheamountof$0.04pershareofourissuedandoutstandingcommonstock.Dividendsamountingto$25.4millionand$25.8millionwere
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YearEndedDecember31, 2017 2016 2015 Netcashprovidedbyoperatingactivities $ 154.4 $ 130.8 $ 229.2Less:Purchasesofproperty,plantandequipment 43.7 37.1 34.2FreeCashFlow $ 110.7 $ 93.7 $ 195.0
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paidduringtheyearsendedDecember31,2017and2016,respectively.Futuredividendpayments,ifanyaresubjecttoapprovalofourBoardofDirectors.Wearetargetingacashdividendtoourshareholdersintheamountof$0.16pershareperannum,payableinequalquarterlyinstallments.
IntheyearsendedDecember31,2017and2016,wecompletedvariousacquisitionsthatcomplementedourexistingmarketofferingsandaddedaftermarketandsoftwarecapabilitiestoourexistingmicrobiologybusiness.Theimpactoftheacquiredcompaniesonrevenues,netincomeandtotalassetswasnotmaterial.
Wecanexperiencequarter-to-quarterfluctuationsinouroperatingresultsasaresultofvariousfactors,someofwhichareoutsideofourcontrol,suchas:
• thetimingofgovernmentalstimulusprogramsandacademicresearchbudgets;
• thetimeittakesbetweenthedatecustomerordersanddepositsarereceived,systemsareshippedandacceptedbyourcustomersandfullpaymentisreceived;
• thetimeittakestosatisfylocalcustomsrequirementsandotherexport/importrequirements;
• thetimeittakesforcustomerstoconstructorpreparetheirfacilitiesforourproducts;and
• thetimerequiredtoobtaingovernmentallicenses.
Thesefactorshaveinthepastaffectedtheamountandtimingofrevenuerecognizedonsalesofourproductsandreceiptofrelatedpaymentsandwillcontinuetodosointhefuture.Accordingly,ouroperatingresultsinanyparticularquartermaynotnecessarilybeanindicationofanyfuturequarter'soperatingperformance.
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RESULTSOFOPERATIONS
Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016
ConsolidatedResults
ThefollowingtablepresentsourresultsfortheyearsendedDecember31,2017and2016(dollarsinmillions,exceptpersharedata):
Revenue
FortheyearendedDecember31,2017,ourrevenueincreasedby$154.6million,or9.6%,to$1,765.9million,comparedto$1,611.3millionfortheyearendedDecember31,2016.Includedinrevenuewereanincreaseofapproximately$77.2millionattributabletoourrecentacquisitionsandan
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YearEndedDecember31,
2017 2016 Productrevenue $ 1,479.5 $ 1,345.4Servicerevenue 278.2 254.7Otherrevenue 8.2 11.2Totalrevenue 1,765.9 1,611.3
Costofproductrevenue 790.7 714.2Costofservicerevenue 160.8 150.0Costofotherrevenue 1.4 4.6Totalcostofrevenue 952.9 868.8Grossprofit 813.0 742.5
Operatingexpenses: Selling,generalandadministrative 415.9 390.5Researchanddevelopment 162.7 149.0Othercharges 19.7 25.8Totaloperatingexpenses 598.3 565.3Operatingincome 214.7 177.2
Interestandotherincome(expense),net (16.9) 0.4Incomebeforeincometaxesandnoncontrollinginterestinconsolidatedsubsidiaries 197.8 177.6Incometaxprovision 117.5 23.1Consolidatednetincome 80.3 154.5Netincomeattributabletononcontrollinginterestinconsolidatedsubsidiaries 1.7 0.9NetincomeattributabletoBrukerCorporation $ 78.6 $ 153.6
Netincomepercommonshareattributableto BrukerCorporationshareholders: Basic $ 0.50 $ 0.95Diluted $ 0.49 $ 0.95
Weightedaveragecommonsharesoutstanding: Basic 158.1 161.4Diluted 159.1 162.2
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increaseofapproximately$19.6millionfromtheimpactofforeigncurrencytranslationcausedbytheweakeningoftheU.S.DollarversustheEuroandothercurrencies.Excludingtheeffectsofforeigncurrencytranslationandourrecentacquisitions,ourorganicrevenue,anon-GAAPmeasure,increasedby$57.8million,or3.6%.
GrossProfit
OurgrossprofitfortheyearendedDecember31,2017was$813.0million,resultinginagrossprofitmarginof46.0%,comparedto$742.5million,resultinginagrossprofitmarginof46.1%,fortheyearendedDecember31,2016.Includedingrossprofitwerevariouschargesforamortizationofacquisition-relatedintangibleassetsandotheracquisition-relatedcostsandrestructuringcoststotaling$36.1millionand$31.9millionfortheyearsendedDecember31,2017and2016,respectively.Excludingthesecharges,ournon-GAAPgrossprofitmarginswas48.1%ineachoftheyearsendedDecember31,2017and2016.
Selling,GeneralandAdministrative
Ourselling,generalandadministrativeexpensesfortheyearendedDecember31,2017increasedto$415.9million,or23.6%ofrevenue,from$390.5million,or24.2%ofrevenue,fortheyearendedDecember31,2016.TheincreasewasprimarilycausedbytheeffectofrecentacquisitionsinourBrukerNanoGroupandBrukerCALIDGroup.Thedecreaseinselling,generalandadministrativeexpensesasapercentageofrevenuewasattributabletocostcontroldisciplineandsavingsassociatedwithrestructuringinitiatives.
ResearchandDevelopment
OurresearchanddevelopmentexpensesfortheyearendedDecember31,2017increasedto$162.7million,or9.2%ofrevenue,from$149.0million,or9.2%ofrevenue,fortheyearendedDecember31,2016.TheincreasewasprimarilycausedbytheeffectofrecentacquisitionsinourBrukerNanoGroupandBrukerCALIDGroup.
OtherCharges,Net
Othercharges,netwas$19.7millionfortheyearendedDecember31,2017,ofwhich$18.7millionrelatedtotheBSISegmentand$1.0millionrelatedtotheBESTSegment.Thechargesconsistedprimarilyof$10.6millionofrestructuringcostsrelatedtoclosingfacilitiesandimplementingoutsourcingandotherrestructuringinitiatives,$4.5millionrelatedprimarilytoadditionalcontingentconsiderationrecognizedfortheacquisitionofJordanValleySemiconductors,Ltd.("JordanValley")baseduponanincreaseinrevenuelevelsoftheacquiredbusinesswhichincreasedtheamountofexpectedearnoutpayments,$4.2millionofcostsassociatedwithourglobalinformationtechnology(IT)transformationinitiativeandimpairmentchargesof$0.2millioncomprisedofotherlong-livedassetsrelatedtotherestructuringactions.
Othercharges,netwas$25.8millionfortheyearendedDecember31,2016,ofwhich$25.2millionrelatedtotheBSISegmentand$0.6millionrelatedtotheBESTSegment.Thechargesconsistedprimarilyof$9.8millionofrestructuringcostsrelatedtoclosingfacilitiesandimplementingoutsourcingandotherrestructuringinitiatives,$9.0millionrelatedprimarilytoadditionalcontingentconsiderationrecognizedfortheJordanValleyacquisitionbaseduponanincreaseinrevenuelevelsoftheacquiredbusinesswhichincreasedtheamountofexpectedearnoutpayments,$6.2millionofcostsassociatedwithourglobalITtransformationinitiativeandimpairmentchargesof$0.8millioncomprisedofotherlong-livedassetsrelatedtotherestructuringactionswithintheBrukerCALIDandBrukerNanoGroupsduringtheyear.
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In2018,weexpecttoincur$7.0to$10.0millionofexpenserelatedtovariousoutsourcinginitiativesandotherrestructuringactivitiesthatwereimplementedin2017orwillcommencein2018.
AtDecember31,2017and2016,weperformedourannualgoodwillandindefinite-livedintangibleimpairmentevaluationandconcludedthefairvaluesofeachofourreportingunitsweresignificantlygreaterthantheircarryingamounts,andtherefore,noadditionalimpairmentisrequired.
Wewillcontinuetomonitorgoodwillandlong-livedintangibleassets,aswellaslong-livedtangibleassets,forpossiblefutureimpairment.
OperatingIncome
OperatingincomefortheyearendedDecember31,2017was$214.7million,resultinginanoperatingmarginof12.2%,comparedtoincomefromoperationsof$177.2million,resultinginanoperatingmarginof11.0%,fortheyearendedDecember31,2016.Theoperatingmarginincreaseddueprimarilytopositiveoperatingleverageonhigherrevenues,costdisciplineandsavingsfromrestructuringinitiatives.Thesefactorsmorethanoffsetdilutionfromrecentacquisitionsandforeigncurrencytranslationeffects.Includedinoperatingincomewerevariouschargesforamortizationofacquisition-relatedintangibleassetsandotheracquisition-relatedcostsandrestructuringcoststotaling$61.4millionand$60.7millionfortheyearsendedDecember31,2017and2016,respectively.Excludingthesecharges,ournon-GAAPoperatingmarginswas15.6%and14.8%intheyearsendedDecember31,2017and2016,respectively.
InterestandOtherIncome(Expense),Net
Interestandotherincome(expense),netduringtheyearendedDecember31,2017was($16.9)million,comparedto$0.4millionfortheyearendedDecember31,2016.
DuringtheyearendedDecember31,2017,themajorcomponentswithininterestandotherincome(expense),netwerenetinterestexpenseof$14.6millionandrealizedandunrealizedlossesonforeigncurrencydenominatedtransactionsof$5.5million,partiallyoffsetby$2.1millionofproceedsfromacargoinsurancesettlementandagainonacquisitionof$0.6million.The$0.6milliongainonacquisitionrelatedtotheacquisitionofMERLINDiagnostikaGmbHwithintheBSISegmentasthevalueoftheassetspurchasedexceededtheconsiderationpaid.DuringtheyearendedDecember31,2016,themajorcomponentswithininterestandotherincome(expense),netwereagainonacquisitionof$9.2million,realizedandunrealizedgainsonforeigncurrencydenominatedtransactionsof$4.1million,partiallyoffsetbynetinterestexpenseof$12.9million.The$9.2milliongainonacquisitionrelatedtotheacquisitionofOxfordInstrumentsSuperconductingWireLLC("OST")withintheBESTSegmentasthevalueoftheassetspurchasedexceededtheconsiderationpaid.
Weexpecttoincurapproximately$13.5millionofinterestexpensein2018.
IncomeTaxProvision
TheincometaxprovisionintheyearsendedDecember31,2017and2016was$117.5millionand$23.1million,respectively,representingeffectivetaxratesof59.4%and13.0%,respectively.TheincreaseinoureffectivetaxratefortheyearendedDecember31,2017,comparedto2016,wasprimarilyattributableimpactofU.S.taxreformin2017whichwasoffsetbythe2016releaseofourremainingvaluationallowancesandtherecognitionofpreviouslyunrecognizedtaxbenefitsduetotheclosureoftaxauditsin2016.Ourtaxratemaychangeovertimeastheamountandmixofjurisdictionalincomechanges.
Weexpectoureffectiveincometaxratetobeapproximately25.0%fortheyearendedDecember31,2018.
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OnDecember22,2017(EnactmentDate),thePresidentoftheUnitedStatessignedtaxreformlegislation(2017TaxAct),whichenactedawiderangeofchangestotheU.S.corporateincometaxsystem,manyofwhichdiffersignificantlyfromtheprovisionsofthepreviousU.S.taxlaw.Wehavenotyetcompletedtheassessmentofthetaxeffectsassociatedwiththeenactmentofthe2017TaxAct.However,areasonableestimatehasbeenmadeoftheeffectsontheexistingdeferredtaxbalancesandtheone-timetransitiontax.Changesinthetaxratesandlawsareaccountedforintheperiodofenactment.Therefore,duringthefourthquarterof2017,werecordedanincrementalincometaxprovisionof$68.9million,whichisprimarilycomprisedofthefollowing:
• Anestimatedincometaxprovisionof$55.0millionforthefederalandstateimpactsoftheone-timedeemedrepatriationofpre-2018E&P.Inaccordancewiththe2017TaxAct,thefederalportionofthetollchargeliabilitymaybepaidovereightyears.Suchliabilitycanbereducedbycertaincredits.Accordingly,wehaverecorded$30.6millionand$2.7millioninlong-termincometaxliabilitiesandaccruedincometaxes(current),respectively,asofDecember31,2017
• Anestimatednetincometaxbenefitof$1.4million,fortheremeasurementofourdeferredtaxassetsandliabilitiesatthenewlyenactedtaxrateof21%;and
• Asaresultofthe2017TaxActandourexpectationsaboutdistributingcertaincashbalancesfromitsforeignsubsidiariestotheUnitedStates,wealsorecordedestimatedincometaxprovisionsforestimatedstateincometaxesandforeignwithholdingtaxesof$12.5million.
Theactualresultsoftheimplementationofthe2017TaxActmaymateriallydifferfromourcurrentestimatedueto,amongotherthings,furtherguidancethatmaybeissuedbyU.S.taxauthoritiesorregulatorybodiesincludingtheSECandtheFASBtointerpretthe2017TaxAct.Wewillcontinuetoanalyzethe2017TaxActandanyadditionalguidancethatmaybeissuedandfinalizethefulleffectsofapplyingthenewlegislationinthemeasurementperiod.
ThemajorityoftheCompany'searningsarederivedinGermanyandSwitzerland.Accountingforthevariousfederalandlocaltaxingauthorities,thestatutoryratesfor2017wereapproximately30.0%and20.0%forGermanyandSwitzerland,respectively.Themixofearningsinthosetwojurisdictionsresultedinareductionof7.8%fromtheU.S.statutoryrateof35.0%in2017.TheCompanyhasnotbeenpartytoanytaxholidayagreements.
NetIncomeAttributabletoNoncontrollingInterests
NetincomeattributabletononcontrollinginterestsfortheyearendedDecember31,2017was$1.7millioncomparedto$0.9millionfortheyearendedDecember31,2016.Thenetincomeattributabletononcontrollinginterestsrepresentedtheminorityshareholders'proportionateshareofthenetincomerecordedbyourmajority-ownedindirectsubsidiaries.
NetIncomeAttributabletoBrukerCorporation
OurnetincomeattributabletoBrukerCorporationfortheyearendedDecember31,2017was$78.6million,or$0.49perdilutedshare,comparedtonetincomeof$153.6million,or$0.95perdilutedshare,for2016.ThedecreasefortheyearendedDecember31,2017wasprimarilycausedbytheimpactofU.S.taxreformasnotedabove.
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SegmentResults
Revenue
Thefollowingtablepresentsrevenue,changeinrevenue,andrevenuegrowthbyreportablesegmentfortheyearsendedDecember31,2017and2016(dollarsinmillions):
BSISegmentRevenues
Forfinancialreportingpurposes,weaggregatetheBrukerBioSpin,BrukerCALIDandBrukerNanooperatingsegmentsintotheBrukerScientificInstruments(BSI)reportablesegment,whichrepresentedapproximately90%oftheCompany'srevenuesduringtheyearendedDecember31,2017.Thisaggregationreflectstheseoperatingsegments'similareconomiccharacteristics,productionprocesses,customerservicesprovided,typesandclassesofcustomers,methodsofdistributionandregulatoryenvironments.OurBESTSegmentisourotherreportablesegmentandrepresentstheremainderofourrevenues.
BSISegmentrevenueincreasedby$91.3million,or6.1%,to$1,583.9millionfortheyearendedDecember31,2017,comparedto$1,492.6millionfortheyearendedDecember31,2016.Includedinrevenuewasanincreaseofapproximately$33.4millionrelatedtoourrecentacquisitionsandapproximately$17.3millionfromtheimpactofforeigncurrencytranslationcausedbytheweakeningoftheU.S.DollarversustheEuroandothercurrencies.Excludingtheeffectsofforeigncurrencytranslationandourrecentacquisitions,organicrevenue,anon-GAAPmeasure,increasedby$40.6million,or2.7%.
BrukerBioSpinGrouprevenueincreasedby$9.2millionto$571.9millionfortheyearendedDecember31,2017,comparedto$562.7millionfortheyearendedDecember31,2016.TheBrukerBioSpinGrouprevenueincreaseddespiteachallengingcomparisonastheyearendedDecember31,2016benefitedfromthesaleofthefirstshieldedultra-highfieldonegigahertzNMRsystemandhigherlevelsofhighfieldNMRsystems.TheincreaseinrevenuewasprimarilyattributabletotheserviceandaftermarketbusinessoftheBrukerBioSpinGroupandforeigncurrencytranslations.
BrukerCALIDGrouprevenueincreasedby$23.6millionto$499.0millionfortheyearendedDecember31,2017comparedto$475.4millionfortheyearendedDecember31,2016.TheBrukerCALIDGroupincreasewasprimarilytheresultofimprovedacademicendmarkets,particularlyformassspectrometryproductsandwithinEurope,andinfraredandRamantechnologiesusedinappliedandindustrialendmarkets,andthecontributionsofacquisitionsandforeigncurrencytranslationeffects.TheseincreaseswerepartlyoffsetbylowerCBRNErevenue,whichbenefitedfromasignificantcontractintheyearendedDecember31,2016.
BrukerNanoGrouprevenueincreasedby$58.4millionto$513.0millionfortheyearendedDecember31,2017,comparedto$454.6millionfortheyearendedDecember31,2016.TheBrukerNanoGrouprevenueincreasewasprimarilyasaresultofrecentacquisitions,growthwithintheacademicandindustrialmarketsforX-rayandnanosurfacesproductsandgrowthinsemiconductormetrologymarkets.
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2017 2016 DollarChange PercentageChange
BSI $ 1,583.9 $ 1,492.6 $ 91.3 6.1%BEST 191.2 130.2 61.0 46.9%Eliminations(a) (9.2) (11.5) 2.3
$ 1,765.9 $ 1,611.3 $ 154.6 9.6%
(a) Representsproductandservicerevenuebetweenreportablesegments.
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SystemrevenueandaftermarketrevenueasapercentageoftotalBSISegmentrevenuewereasfollowsduringtheyearsendedDecember31,2017and2016(dollarsinmillions):
BESTSegmentRevenues
BESTSegmentrevenueincreasedby$61.0million,or46.9%,to$191.2millionfortheyearendedDecember31,2017,comparedto$130.2millionfortheyearendedDecember31,2016.TheincreaseinrevenueresultedfromtheOSTacquisition,whichwascompletedinthefourthquarterof2016,andorganicrevenuegrowthcausedbyhighershipmentsofsuperconductorstolargemagneticresonanceimagingcustomers.
SystemandwirerevenueandaftermarketrevenueasapercentageoftotalBESTSegmentrevenuewereasfollowsduringtheyearsendedDecember31,2017and2016(dollarsinmillions):
GrossProfitandOperatingExpenses
FortheyearendedDecember31,2017,grossprofitmarginintheBSISegmentincreasedto49.6%from48.1%intheyearendedDecember31,2016.TheincreaseingrossmarginwascausedprimarilybyhighersalesattributabletoimprovedEuropeanandindustrialendmarketsandoperatingcostimprovementsresultingfromrecentrestructuringandoperationalinitiatives.AproductmixfavoringlessprofitablelowerfieldNMRsystemswithintheBioSpinGroupwasanoffsettotheyearoveryearBSISegmentgrossmarginexpansion.TheBESTSegmentgrossprofitmargindecreasedto15.3%from17.1%fortheyearendedDecember31,2016.LowergrossmarginsresultedprimarilyfromtheimpactoftheOSTacquisition.IntegrationplansfortheBESTSegment'sOSTbusinessincludecommercialandproductivityimprovementactionsdesignedtoachievepre-acquisitiongrossprofitmarginlevels.
FortheyearendedDecember31,2017,selling,generalandadministrativeexpensesandresearchanddevelopmentexpensesintheBSISegmentincreasedto$557.8million,or35.2%ofsegmentrevenue,from$524.0million,or35.1%ofsegmentrevenue,forthecomparableperiodin2016.Selling,generalandadministrativeexpensesandresearchanddevelopmentexpensesintheBESTSegmentincreasedto$20.7million,or10.8%ofsegmentrevenue,in2017comparedto$15.5million,or11.9%ofsegmentrevenue,in2016.ThedecreaseinBESTSegmentoperatingexpensesasapercentofrevenuewasprimarilyattributabletotheincreasedrevenueduringtheyearendedDecember31,2017.
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2017 2016
Revenue Percentageof
SegmentRevenue Revenue Percentageof
SegmentRevenue Systemrevenue $ 1,147.1 72.4% $ 1,092.8 73.2%Aftermarketrevenue 436.8 27.6% 399.8 26.8%Totalrevenue $ 1,583.9 100.0% $ 1,492.6 100.0%
2017 2016
Revenue Percentageof
SegmentRevenue Revenue Percentageof
SegmentRevenue Systemandwirerevenue $ 187.7 98.2% $ 126.9 97.5%Aftermarketrevenue 3.5 1.8% 3.3 2.5%Totalrevenue $ 191.2 100.0% $ 130.2 100.0%
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OperatingIncome
ThefollowingtablepresentsoperatingincomeandoperatingmarginsonrevenuebyreportablesegmentfortheyearsendedDecember31,2017and2016(dollarsinmillions):
BSISegmentoperatingincomefortheyearendedDecember31,2017was$208.6million,resultinginanoperatingmarginof13.2%,comparedtoincomefromoperationsof$168.9million,resultinginanoperatingmarginof11.3%,fortheyearendedDecember31,2016.Ouroperatingmarginincreasedprimarilybecauseofthegrossprofitimprovementsnotedabove,aswellasoperationalimprovementsasaresultofourrestructuringinitiatives.
BESTSegmentoperatingincomefortheyearendedDecember31,2017was$7.4million,resultinginanoperatingmarginof3.9%,comparedtooperatingincomeof$6.6million,resultinginanoperatingmarginof5.1%,fortheyearendedDecember31,2016.Thedecreaseinoperatingmarginwasprimarilytheresultofthegrossmargindeteriorationnotedabove.
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2017 2016
OperatingIncome
PercentageofSegmentRevenue
OperatingIncome
PercentageofSegmentRevenue
BSI $ 208.6 13.2% $ 168.9 11.3%BEST 7.4 3.9% 6.6 5.1%Corporate,eliminationsandother(a) (1.3) 1.7 Totaloperatingincome $ 214.7 12.2% $ 177.2 11.0%
(a) Representscorporatecostsandeliminationsnotallocatedtothereportablesegments.
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Year Ended December 31, 2016 Compared to the Year Ended December 31, 2015
ConsolidatedResults
ThefollowingtablepresentsourresultsfortheyearsendedDecember31,2016and2015(dollarsinmillions,exceptpersharedata):
Revenue
FortheyearendedDecember31,2016,ourrevenuedecreasedby$12.5million,or0.8%,to$1,611.3million,comparedto$1,623.8millionfortheyearendedDecember31,2015.Includedinrevenuewasanincreaseofapproximately$32.4millionattributableprimarilytotheacquisitionofJordanValleyandadecreaseofapproximately$8.3millionfromtheimpactofforeigncurrencytranslationcausedbythestrengtheningoftheU.S.DollarversustheEuro,SwissFrancandother
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YearEndedDecember31,
2016 2015 Productrevenue $ 1,345.4 $ 1,381.1Servicerevenue 254.7 235.5Otherrevenue 11.2 7.2Totalrevenue 1,611.3 1,623.8
Costofproductrevenue 714.2 774.2Costofservicerevenue 150.0 139.7Costofotherrevenue 4.6 1.3Totalcostofrevenue 868.8 915.2Grossprofit 742.5 708.6
Operatingexpenses: Selling,generalandadministrative 390.5 392.2Researchanddevelopment 149.0 145.7Othercharges 25.8 25.0Totaloperatingexpenses 565.3 562.9Operatingincome 177.2 145.7
Interestandotherincome(expense),net 0.4 (17.7)Incomebeforeincometaxesandnoncontrollinginterestinconsolidatedsubsidiaries 177.6 128.0Incometaxprovision 23.1 23.1Consolidatednetincome 154.5 104.9Netincomeattributabletononcontrollinginterestinconsolidatedsubsidiaries 0.9 3.3NetincomeattributabletoBrukerCorporation $ 153.6 $ 101.6
Netincomepercommonshareattributableto BrukerCorporationshareholders: Basic $ 0.95 $ 0.60Diluted $ 0.95 $ 0.60
Weightedaveragecommonsharesoutstanding: Basic 161.4 168.2Diluted 162.2 169.1
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currencies.Excludingtheeffectsofforeigncurrencytranslationandourrecentacquisitions,ourorganicrevenue,anon-GAAPmeasure,decreasedby$36.6million,or2.3%.
GrossProfit
OurgrossprofitfortheyearendedDecember31,2016was$742.5million,resultinginagrossprofitmarginof46.1%,comparedto$708.6million,resultinginagrossprofitmarginof43.6%,fortheyearendedDecember31,2015.Theincreaseinourgrossprofitmarginwascausedprimarilybyoperatingcostimprovementsasaresultofrecentrestructuringandoperationalinitiatives,theimpactofpricingincreasesandafavorablebusinessmixwithintheBrukerBioSpinGroupandtheimpactoftheJordanValleyacquisition.ThefavorableeffectoftheseitemswaspartiallyoffsetbyweaknessinBrukerNanoGroupindustrialmarketsegmentsanddelaysinEuropeanacademicfundingwithinourBrukerCALIDandBrukerNanoGroupsduringthefirstthreequartersof2016.
Selling,GeneralandAdministrative
Ourselling,generalandadministrativeexpensesfortheyearendedDecember31,2016decreasedto$390.5million,or24.2%ofrevenue,from$392.2million,or24.2%ofrevenue,fortheyearendedDecember31,2015.Selling,generalandadministrativeexpensesremainedconsistentasapercentageofrevenuecomparedtotheyearendedDecember31,2015asthefavorableimpactsofouroutsourcingandrestructuringinitiativeswasoffsetbyadditionalexpensesincurredrelatedtoour2015acquisitionofJordanValleyandotherrecentacquisitions.
ResearchandDevelopment
OurresearchanddevelopmentexpensesfortheyearendedDecember31,2016increasedto$149.0million,or9.2%ofrevenue,from$145.7million,or9.0%ofrevenue,fortheyearendedDecember31,2015.Theincreasewasattributabletonewinitiativesrelatedtoourrecentacquisitionsandourexpandedtechnologicalportfolio.
OtherCharges,Net
Othercharges,netwas$25.8millionfortheyearendedDecember31,2016,ofwhich$25.2millionrelatedtotheBSISegmentand$0.6millionrelatedtotheBESTSegment.Thechargesconsistedprimarilyof$9.8millionofrestructuringcostsrelatedtoclosingfacilitiesandimplementingoutsourcingandotherrestructuringinitiatives,$9.0millionrelatedprimarilytoadditionalcontingentconsiderationrecognizedforJordanValleybaseduponanincreaseinrevenuelevelsoftheacquiredbusinesswhichincreasedtheamountofexpectedearnoutpayments,$6.2millionofcostsassociatedwithourglobalinformationtechnology(IT)transformationinitiativeandimpairmentchargesof$0.8millioncomprisedofotherlong-livedassetsrelatedtotherestructuringactionswithintheBrukerCALIDandBrukerNanoGroupsduringtheyear.
Othercharges,netwas$25.0millionfortheyearendedDecember31,2015andrelatedalmostentirelytotheBSISegment.Thechargesconsistedprimarilyofa$10.2millionone-time,non-cashsettlementchargeastheplanassetsandpensionobligationsfortheretireesandothercertainmembersofthepopulationwithinourpensionplaninSwitzerlandweretransferredtoanoutsideinsuranceprovider,$8.1millionofrestructuringcostsrelatedtoclosingfacilitiesandimplementingoutsourcingandotherrestructuringinitiatives,$8.9millionofcostsassociatedwithourglobalITtransformationinitiativeandimpairmentchargesof$4.6millioncomprisedofgoodwill,definite-livedintangibleassetsandotherlong-livedassets,relatedtotherestructuringactionswithintheBrukerBioSpinGroup,partiallyoffsetby($7.2)millionofcontingentconsiderationreversals,asitwasdeterminedthatcertainfinancialtargetsrelatedtotheapplicableacquisitionswouldnotmeettherequiredthresholdsforpayment.
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AtDecember31,2016and2015,weperformedourannualgoodwillandindefinite-livedintangibleimpairmentevaluationandconcludedthefairvaluesofeachofourreportingunitsweresignificantlygreaterthantheircarryingamounts,andtherefore,noadditionalimpairmentisrequired.
OperatingIncome
OperatingincomefortheyearendedDecember31,2016was$177.2million,resultinginanoperatingmarginof11.0%,comparedtoincomefromoperationsof$145.7million,resultinginanoperatingmarginof9.0%,fortheyearendedDecember31,2015.Theincreaseinoperatingmarginwasprimarilyattributabletothegrossmarginimprovementsdiscussedabove,operatingcostimprovementsasaresultofourrestructuringinitiativesandprudentcostcontrols.
InterestandOtherIncome(Expense),Net
Interestandotherincome(expense),netduringtheyearendedDecember31,2016was$0.4millioncomparedto($17.7)millionfortheyearendedDecember31,2015.
DuringtheyearendedDecember31,2016,themajorcomponentswithininterestandotherincome(expense),netwereagainonacquisitionof$9.2million,realizedandunrealizedgainsonforeigncurrencydenominatedtransactionsof$4.1million,partiallyoffsetbynetinterestexpenseof$12.9million.The$9.2milliongainonacquisitionrelatedtotheacquisitionofOSTwithintheBESTSegmentasthevalueoftheassetspurchasedexceededtheconsiderationpaid.DuringtheyearendedDecember31,2015,themajorcomponentswithininterestandotherincome(expense),netwerenetinterestexpenseof$11.8millionandrealizedandunrealizedlossesonforeigncurrencydenominatedtransactionsof$5.5million.
IncomeTaxProvision
TheincometaxprovisionineachoftheyearsendedDecember31,2016and2015was$23.1million,representingeffectivetaxratesof13.0%and18.0%,respectively.ThedecreaseinoureffectivetaxratefortheyearendedDecember31,2016,comparedto2015,wasprimarilyattributabletothereleaseofourremainingvaluationallowancesandtherecognitionofpreviouslyunrecognizedtaxbenefitsduetotheclosureoftaxaudits.Ourtaxratemaychangeovertimeastheamountandmixofjurisdictionalincomechanges.
NetIncomeAttributabletoNoncontrollingInterests
NetincomeattributabletononcontrollinginterestsfortheyearendedDecember31,2016was$0.9millioncomparedto$3.3millionfortheyearendedDecember31,2015.Thenetincomeattributabletononcontrollinginterestsrepresentedtheminorityshareholders'proportionateshareofthenetincomerecordedbyourmajority-ownedindirectsubsidiaries.
NetIncomeAttributabletoBrukerCorporation
OurnetincomeattributabletoBrukerCorporationfortheyearendedDecember31,2016was$153.6million,or$0.95perdilutedshare,comparedtonetincomeof$101.6million,or$0.60perdilutedshare,for2015.TheincreasefortheyearendedDecember31,2016wasprimarilycausedbyincreasedgrossprofit,operatingprofitimprovements,alowereffectivetaxrateandthepositiveimpactofforeigncurrencytranslationandoursharerepurchaseprogram.
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SegmentResults
Revenue
Thefollowingtablepresentsrevenue,changeinrevenue,andrevenuegrowthbyreportablesegmentfortheyearsendedDecember31,2016and2015(dollarsinmillions):
BSISegmentRevenues
Forfinancialreportingpurposes,weaggregatetheBrukerBioSpin,BrukerCALIDandBrukerNanooperatingsegmentsintotheBrukerScientificInstruments(BSI)reportablesegment,whichrepresentedapproximately93%oftheCompany'srevenuesduringtheyearendedDecember31,2016.Thisaggregationreflectstheseoperatingsegments'similareconomiccharacteristics,productionprocesses,customerservicesprovided,typesandclassesofcustomers,methodsofdistributionandregulatoryenvironments.OurBESTSegmentisourotherreportablesegmentandrepresentstheremainderofourrevenues.
BSISegmentrevenuedecreasedby$6.6million,or0.4%,to$1,492.6millionfortheyearendedDecember31,2016,comparedto$1,499.2millionfortheyearendedDecember31,2015.Includedinrevenuewasanincreaseofapproximately$26.6millionrelatedtotheacquisitionofJordanValley,offsetinpartbyapproximately$7.6millionfromtheimpactofforeigncurrencytranslationcausedbythestrengtheningoftheU.S.DollarversustheEuro,SwissFrancandothercurrencies.Excludingtheeffectsofforeigncurrencytranslationandourrecentacquisitions,ourorganicrevenue,anon-GAAPmeasure,decreasedby$25.6million,or1.7%.
BrukerBioSpinGrouprevenueincreasedby$15.7millionto$562.7millionfortheyearendedDecember31,2016,comparedto$547.0millionfortheyearendedDecember31,2015.TheBrukerBioSpinGroupincreaseinrevenuewasprimarilyduetoincreasedpricingandtherecognitionofrevenuesfromthesaleofthefirstshieldedultra-highfieldgigahertznuclearmagneticresonancesystem.
BrukerCALIDGrouprevenuedecreasedby$17.2millionto$475.4millionfortheyearendedDecember31,2016,comparedto$492.6millionfortheyearendedDecember31,2015.TheBrukerCALIDGroupexperiencedlowerrevenueprimarilyduetodelaysinEuropeanacademicfundinginthefirstthreequartersof2016andlowersalesofourMALDIBiotyperinChinaandtheUnitedStatesinthefirsthalfof2016.
BrukerNanoGrouprevenuedecreasedby$5.2millionto$454.6millionfortheyearendedDecember31,2016,comparedto$459.8millionfortheyearendedDecember31,2015.TheBrukerNanoGroupexperiencedlowerrevenueprimarilyduetodelaysinEuropeanacademicfundinginthefirstthreequartersof2016aswellascontinuedweakerdemandwithinglobalindustrialmarkets.
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2016 2015 DollarChange PercentageChange
BSI $ 1,492.6 $ 1,499.2 $ (6.6) (0.4)%BEST 130.2 133.7 (3.5) (2.6)%Eliminations(a) (11.5) (9.1) (2.4)
$ 1,611.3 $ 1,623.8 $ (12.5) (0.8)%
(a) Representsproductandservicerevenuebetweenreportablesegments.
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SystemrevenueandaftermarketrevenueasapercentageoftotalBSISegmentrevenuewereasfollowsduringtheyearsendedDecember31,2016and2015(dollarsinmillions):
BESTSegmentRevenues
BESTSegmentrevenuedecreasedby$3.5million,or2.6%,to$130.2millionfortheyearendedDecember31,2016,comparedto$133.7millionfortheyearendedDecember31,2015.ThedeclineinrevenuewasprimarilyattributabletothecompletionandfinalacceptanceoftheROSATOMpilotlineinRussia,andhighmargincustomerprojects(DESYparticleaccelerationandITERmagneticfusion)intheyearendedDecember31,2015.
SystemandwirerevenueandaftermarketrevenueasapercentageoftotalBESTSegmentrevenuewereasfollowsduringtheyearsendedDecember31,2016and2015(dollarsinmillions):
GrossProfitandOperatingExpenses
FortheyearendedDecember31,2016,grossprofitmarginintheBSISegmentincreasedto48.1%from45.5%intheyearendedDecember31,2015.Theincreaseingrossmarginpercentagewascausedprimarilybyoperatingcostimprovementsresultingfromrecentrestructuringandoperationalinitiatives,theimpactofpricingincreaseswithintheBrukerBioSpinGroupandtheimpactoftheJordanValleyacquisitionwithintheBrukerNanoGroup.TheseeffectswerepartiallyoffsetbyrevenueweaknessincertainBrukerNanoandBrukerCALIDGroupmarketsegmentsresultingfromdelaysinEuropeanacademicfundingduringthefirstthreequartersof2016.TheBESTSegmentgrossprofitmargindecreasedto17.1%from19.5%fortheyearendedDecember31,2015.LowergrossmarginsresultedprimarilyfromthecompletionoftheROSATOMpilotlineandtheDESYandITERordersin2015.
FortheyearendedDecember31,2016,selling,generalandadministrativeexpensesandresearchanddevelopmentexpensesintheBSISegmentremainedconsistentat$524.0million,or35.1%ofsegmentrevenue,from$524.2million,or35.0%ofsegmentrevenue,forthecomparableperiodin2015.Selling,generalandadministrativeexpensesandresearchanddevelopmentexpensesintheBESTSegmentincreasedto$15.5million,or11.9%ofsegmentrevenue,in2016comparedto$13.7million,or10.2%ofsegmentrevenue,in2015.TheincreaseinBESTSegmentoperatingexpenseswasprimarilyattributabletoincreasedcostsassociatedwithselectiveresearchanddevelopmentinitiatives.
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2016 2015
Revenue
PercentageofSegmentRevenue Revenue
PercentageofSegmentRevenue
Systemrevenue $ 1,092.8 73.2% $ 1,119.7 74.7%Aftermarketrevenue 399.8 26.8% 379.5 25.3%Totalrevenue $ 1,492.6 100.0% $ 1,499.2 100.0%
2016 2015
Revenue
PercentageofSegmentRevenue Revenue
PercentageofSegmentRevenue
Systemandwirerevenue $ 126.9 97.5% $ 129.7 97.0%Aftermarketandotherrevenue 3.3 2.5% 4.0 3.0%Totalrevenue $ 130.2 100.0% $ 133.7 100.0%
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OperatingIncome
ThefollowingtablepresentsoperatingincomeandoperatingmarginsonrevenuebyreportablesegmentfortheyearsendedDecember31,2016and2015(dollarsinmillions):
BSIoperatingincomefortheyearendedDecember31,2016was$168.9million,resultinginanoperatingmarginof11.3%,comparedtoincomefromoperationsof$133.2million,resultinginanoperatingmarginof8.9%,fortheyearendedDecember31,2015.Ouroperatingmarginincreasedprimarilybecauseofthegrossprofitimprovementsnotedabove,aswellasoperationalimprovementsasaresultofourrestructuringinitiatives.
BESToperatingincomefortheyearendedDecember31,2016was$6.6million,resultinginanoperatingmarginof5.1%,comparedtooperatingincomeof$11.5million,resultinginanoperatingmarginof8.6%,fortheyearendedDecember31,2015.ThedecreaseinoperatingmarginisprimarilytheresultofthedecreasedgrossmarginsasaresultofthecompletionoftheROSATOMpilotlineandtheDESYandITERprojectsin2015.
LIQUIDITYANDCAPITALRESOURCES
Wecurrentlyanticipatethatourexistingcashandcreditfacilitieswillbesufficienttosupportouroperatingandinvestingneedsforatleastthenexttwelvemonths.Ourfuturecashrequirementscouldbeaffectedbyacquisitionsthatwemaycomplete,repurchasesofourcommonstock,orthepaymentofdividendsinthefuture.Historically,wehavefinancedourgrowthandliquidityneedsthroughcashflowgenerationandacombinationofdebtfinancingsandissuancesofcommonstock.Inthefuture,therearenoassurancesthatadditionalfinancingalternativeswillbeavailabletous,ifrequired,orifavailable,willbeobtainedontermsfavorabletous.
DuringtheyearendedDecember31,2017,netcashprovidedbyoperatingactivitieswas$154.4million,resultingprimarilyfromconsolidatednetincomeadjustedfornon-cashitemsof$195.0million,offsetbyanetincreaseinoperatingassetsandliabilities,netofacquisitionsanddivestitures,of$40.6million.Theincreaseinoperatingassetsandliabilities,netofacquisitionsanddivestitures,fortheyearendedDecember31,2017wasprimarilycausedbyanincreaseinaccountsreceivablescausedbyproportionatelyhighersaleslateinthefourthquarterof2017,whichwasoffsetinpartbytheincometaxaccrualsinthefourthquarterof2017relatedtoU.S.taxreformlegislation,aswellashighercompensationandrestructuringaccruals.
DuringtheyearendedDecember31,2016,netcashprovidedbyoperatingactivitieswas$130.8million,resultingprimarilyfromconsolidatednetincomeadjustedfornon-cashitemsof$219.6million,offsetbyanetincreaseinoperatingassetsandliabilities,netofacquisitionsanddivestitures,of$88.8million.Theincreaseinoperatingassetsandliabilities,netofacquisitionsanddivestitures,fortheyearendedDecember31,2016wasprimarilycausedbythetimingofcustomerpayments,asthefourthquarterof2015includedhigherthannormalcollectionsofreceivables,anincreaseininventoryin2016asaresultofinventorybuildfor2017orderswiththeBrukerBioSpin
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2016 2015
OperatingIncome
PercentageofSegmentRevenue
OperatingIncome
PercentageofSegmentRevenue
BSI $ 168.9 11.3% $ 133.2 8.9%BEST 6.6 5.1% 11.5 8.6%Corporate,eliminationsandother(a) 1.7 1.0 Totaloperatingincome $ 177.2 11.0% $ 145.7 9.0%
(a) Representscorporatecostsandeliminationsnotallocatedtothereportablesegments.
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GroupandBESTSegment,incometaxpaymentsforauditsettlementsandwithholdingtaxpaymentsmadeinthefirstquarterof2016relatedtotheCompany's2015Europeancashrepatriation.
DuringtheyearendedDecember31,2017,netcashusedininvestingactivitieswas$30.2million,comparedtonetcashusedininvestingactivitiesof$21.8millionduringtheyearendedDecember31,2016.CashusedininvestingactivitiesduringtheyearendedDecember31,2017wasprimarilyduetothenetcashpaidforacquisitionsof$66.3millionandnetcapitalexpendituresof$32.2million.Theseactivitieswereoffset,inpart,bynetcashproceedsofshort-terminvestmentsof$68.3million.DuringtheyearendedDecember31,2016,netcashusedininvestingactivitieswas$21.8million,comparedtonetcashusedininvestingactivitiesof$102.4millionduringtheyearendedDecember31,2015.CashusedininvestingactivitiesduringtheyearendedDecember31,2016wasprimarilycausedbynetcapitalexpendituresof$36.0millionandcashpaidforacquisitions,netofcashacquired,of$24.3millionoffset,inpart,bymaturities,netofpurchases,ofshort-terminvestmentsof$38.5million.
Weexpectcapitalexpendituresin2018toamounttoapproximately$50.0million.
DuringtheyearendedDecember31,2017,netcashusedinfinancingactivitieswas$159.0million,comparedtonetcashusedinfinancingactivitiesof$27.9millionduringtheyearendedDecember31,2016.CashusedinfinancingactivitiesduringtheyearendedDecember31,2017wasprimarilycausedbytherepurchaseofcommonstockof$152.2million,$130.0millionofrepaymentsundertherevolvinglineofcredit,$25.4millionusedforthepaymentofdividendsand$20.0millionofrepaymentsundertheNotePurchaseAgreement.Thesecashuseswerepartiallyoffsetbyborrowingsof$154.0millionundertherevolvinglineofcreditand$20.0millionofproceedsfromtheissuanceofcommonstockinconnectionwithstockoptionexercises.CashusedinfinancingactivitiesduringtheyearendedDecember31,2016wasprimarilycausedbytherepurchaseofcommonstockof$160.0millionand$25.8millionusedforthepaymentofdividends,partiallyoffsetbyborrowingsof$146.0millionundertherevolvinglineofcreditand$11.5millionofproceedsfromtheissuanceofcommonstockinconnectionwithstockoptionexercises.
InMay2017,ourBoardofDirectorsapprovedasharerepurchaseprogram(the"RepurchaseProgram")underwhichrepurchasesofcommonstockintheamountofupto$225.0millionmayoccurfromtimetotime,inamounts,atprices,andatsuchtimesaswedeemappropriate,subjecttomarketconditions,legalrequirementsandotherconsiderations.Atotalof5,318,063shareswererepurchasedatanaggregatecostof$152.2millionasofDecember31,2017underthisRepurchaseProgram.Weintendtofundanyadditionalrepurchasesfromcashonhand,futurecashflowsfromoperationsandavailableborrowingsunderourrevolvingcreditfacility.
TherepurchasedsharesarereflectedwithinTreasurystockintheaccompanyingconsolidatedbalancesheetatDecember31,2017.
Cash,cashequivalentsandshort-terminvestmentsatDecember31,2017and2016totaled$439.2millionand$500.3million,respectively,ofwhich$405.8millionand$460.9million,respectively,relatedtocash,cashequivalentsandshort-terminvestmentsheldoutsideoftheU.S.inourforeignsubsidiaries,mostsignificantlyintheNetherlandsandSwitzerland.
AtDecember31,2017andinaccordancewiththe2017TaxAct,werecordedstateandforeignwithholdingtaxesonthecashandliquidassetsportionoftheunremittedearningsandprofits(E&P)offoreignsubsidiariesexpectedtoberepatriatedfromitsforeignsubsidiariestotheUnitedStates.Wecontinuetobeindefinitelyreinvestedamountingto$740.0millionofnon-cashE&Pthatisrelatedtothe2017TaxActdeemedrepatriation.IfthisE&PisultimatelydistributedtotheUnitedStatesintheformofdividendsorotherwisewewouldlikelybesubjecttoadditionalwithholdingtax.WewillcontinuetoevaluateourassertionsonthecumulativehistoricaloutsidebasisdifferencesinourforeignsubsidiariesasofDecember31,2017.Weexpecttofinalizeitsanalysisandaccountingrelatedtothetollchargeandanyremainingoutsidebasisdifferencesinourforeignsubsidiariesduringthe
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measurementperiod.WeestimatetheamountofunrecognizeddeferredwithholdingtaxesontheundistributedE&Ptobeapproximately$27millionatDecember31,2017.
AsofDecember31,2017,wehadapproximately$23.2millionofnetoperatinglosscarryforwardsavailabletoreducestatetaxableincome.Wealsohadapproximately$77.4millionofGermanTradeTaxandCorporateIncomeTaxnetoperatinglossesthatarecarriedforwardindefinitely.Additionally,wehad$13.9millionofotherforeignnetoperatinglossesthatareexpectedtoexpireatvarioustimesbeginningin2018.Wealsohadstateresearchanddevelopmenttaxcreditsof$7.5million.UtilizationofthesecreditsandstatenetoperatinglossesmaybesubjecttoannuallimitationsduetotheownershippercentagechangelimitationsprovidedbytheInternalRevenueCodeSection382andsimilarstateprovisions.IntheeventofadeemedchangeincontrolunderInternalRevenueCodeSection382,anannuallimitationontheutilizationofnetoperatinglossesandcreditsmayresultintheexpirationofalloraportionofthenetoperatinglossandcreditcarryforwards.
Uncertaintaxcontingenciesarepositionstakenorexpectedtobetakenonanincometaxreturnthatmayresultinadditionalpaymentstotaxauthorities.Ifataxauthorityagreeswiththetaxpositiontakenorexpectedtobetakenortheapplicablestatuteoflimitationsexpires,thenadditionalpaymentswillnotbenecessary.
AtDecember31,2017,wehadoutstandingdebttotaling$415.6million,consistingof$220.0millionoutstandingundertheNotePurchaseAgreementdescribedbelow,$195.0millionoutstandingundertherevolvingloancomponentofthe2015CreditAgreementdescribedbelowand$1.3millionundercapitalleaseobligationsandotherloans.TheseamountswereoffsetbyunamortizeddebtissuancecostsundertheNotePurchaseAgreementof$0.7million.AtDecember31,2016,wehadoutstandingdebttotaling$411.7million,consistingof$240.0millionoutstandingundertheNotePurchaseAgreementdescribedbelow,$171.0millionoutstandingundertherevolvingloancomponentofthe2015CreditAgreementdescribedbelowand$1.5millionundercapitalleaseobligationsandotherloans.TheseamountswereoffsetbyunamortizeddebtissuancecostsundertheNotePurchaseAgreementof$0.8million.
Thefollowingisasummaryofthemaximumcommitmentsandthenetamountsavailabletousunderthe2015CreditAgreementandotherlinesofcreditwithvariousfinancialinstitutionslocatedprimarilyinGermanyandSwitzerlandthatareunsecuredandtypicallydueupondemandwithinterestpayablemonthly,atDecember31,2017(inmillions):
OnOctober27,2015,weenteredintoarevolvingcreditagreement,referredtoasthe2015CreditAgreement,andterminatedthepriorcreditagreement.The2015CreditAgreementprovidesamaximumcommitmentontherevolvingcreditlineof$500.0millionandamaturitydateofOctober2020.Borrowingsundertherevolvingcreditlineofthe2015CreditAgreementaccrueinterest,attheCompany'soption,ateither(a)thegreatestof(i)theprimerate,(ii)thefederalfundsrateplus0.50%,and(iii)adjustedLIBORplus1.00%,plusmarginsrangingfrom0.00%to0.30%or(b)LIBOR,plusmarginsrangingfrom0.90%to1.30%.Thereisalsoafacilityfeerangingfrom0.10%to0.20%.
Borrowingsunderthe2015CreditAgreementaresecuredbyguaranteesfromcertainmaterialsubsidiaries,asdefinedinthe2015CreditAgreement.The2015CreditAgreementalsorequiresustomaintaincertainfinancialratiosrelatedtomaximumleverageandminimuminterestcoverage.
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WeightedAverage
InterestRate
TotalAmountCommittedbyLenders
OutstandingBorrowings
OutstandingLettersofCredit
TotalAmountAvailable
2015CreditAgreement 2.7% $ 500.0 $ 195.0 $ 1.1 $ 303.9Otherlinesofcredit — 257.9 — 137.7 120.2Totalrevolvingloans $ 757.9 $ 195.0 $ 138.8 $ 424.1
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Specifically,ourleverageratiocannotexceed3.5andourinterestcoverageratiocannotbelessthan2.5.Inadditiontothefinancialratios,the2015CreditAgreementcontainsnegativecovenants,includingamongothers,restrictionsonliens,indebtednessoftheCompanyanditssubsidiaries,assetsales,dividendsandtransactionswithaffiliates.Failuretocomplywithanyoftheserestrictionsorcovenantsmayresultinaneventofdefaultonthe2015CreditAgreement,whichcouldpermitaccelerationofthedebtandrequireustoprepaythedebtbeforeitsscheduledduedate.
AsofDecember31,2017,wewereincompliancewiththecovenants,asdefinedbythe2015CreditAgreement,asourleverageratiowas1.32andourinterestcoverageratiowas15.5.
InJanuary2012,weenteredintoanotepurchaseagreement,referredtoastheNotePurchaseAgreement,withagroupofaccreditedinstitutionalinvestors.UndertheNotePurchaseAgreementweissuedandsold$240.0millionofseniornotes,whichconsistofthefollowing:
• $20.0million3.16%Series2012AseniornotesdueJanuary18,2017;
• $15.0million3.74%Series2012AseniornotesdueJanuary18,2019;
• $105.0million4.31%Series2012AseniornotesdueJanuary18,2022;and
• $100.0million4.46%Series2012AseniornotesdueJanuary18,2024.
OnJanuary18,2017,theoutstanding$20.0millionprincipalamountofTrancheAoftheSeniorNoteswasrepaidinaccordancewiththetermsoftheNotePurchaseAgreement.
UnderthetermsoftheNotePurchaseAgreement,wemayissueandselladditionalseniornotesuptoanaggregateprincipalamountof$600million,subjecttocertainconditions.InterestontheSeniorNotesispayablesemi-annuallyonJanuary18andJuly18ofeachyear.TheSeniorNotesareunsecuredobligationsofoursandarefullyandunconditionallyguaranteedbycertainofourdirectandindirectsubsidiaries.TheSeniorNotesrankparipassuinrightofrepaymentwithourotherseniorunsecuredindebtedness.WemayprepaysomeoralloftheSeniorNotesatanytimeinanamountnotlessthan10%oftheoriginalaggregateprincipalamountoftheSeniorNotestobeprepaid,atapriceequaltothesumof(a)100%oftheprincipalamountthereof,plusaccruedandunpaidinterest,and(b)theapplicablemake-wholeamount,uponnotlessthan30andnomorethan60dayswrittennoticetotheholdersoftheSeniorNotes.IntheeventofachangeincontroloftheCompany,asdefinedintheNotePurchaseAgreement,wemayberequiredtoprepaytheNotesatapriceequalto100%oftheprincipalamountthereof,plusaccruedandunpaidinterest.
TheNotePurchaseAgreementcontainsaffirmativecovenants,including,withoutlimitation,maintenanceofcorporateexistence,compliancewithlaws,maintenanceofinsuranceandproperties,paymentoftaxes,additionofsubsidiaryguarantorsandfurnishingnoticesandotherinformation.TheNotePurchaseAgreementalsocontainscertainrestrictivecovenantsthatrestrictourabilityto,amongotherthings,incurliens,transferorsellassets,engageincertainmergersandconsolidationsandenterintotransactionswithaffiliates.TheNotePurchaseAgreementalsoincludescustomaryrepresentationsandwarrantiesandeventsofdefault.Inthecaseofaneventofdefaultarisingfromspecifiedeventsofbankruptcyorinsolvency,alloutstandingSeniorNoteswillbecomedueandpayableimmediatelywithoutfurtheractionornotice.Inthecaseofpaymenteventsofdefaults,anyholderofSeniorNotesaffectedtherebymaydeclareallSeniorNotesheldbyitdueandpayableimmediately.Inthecaseofanyothereventofdefault,amajorityoftheholdersoftheSeniorNotesmaydeclarealltheSeniorNotestobedueandpayableimmediately.PursuanttotheNotePurchaseAgreement,solongasanySeniorNotesareoutstandingwewillnotpermit(i)ourleverageratio,asdeterminedpursuanttotheNotePurchaseAgreement,asoftheendofanyfiscalquartertoexceed3.50to1.00,(ii)ourinterestcoverageratioasdeterminedpursuanttotheNotePurchaseAgreementasoftheendofanyfiscalquarterforanyperiodoffourconsecutivefiscalquarterstobelessthan2.50to1or(iii)prioritydebt
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atanytimetoexceed25%ofconsolidatednetworth,asdeterminedpursuanttotheNotePurchaseAgreement.
AsofDecember31,2017,wewereincompliancewiththecovenantsoftheNotePurchaseAgreement.Ourleverageratio(asdefinedintheNotePurchaseAgreement)was1.32andourinterestcoverageratio(asdefinedintheNotePurchaseAgreement)was15.5.
ThefollowingtablesummarizesmaturitiesforoursignificantfinancialobligationsasofDecember31,2017(dollarsinmillions):
CRITICALACCOUNTINGPOLICIESANDESTIMATES
Thisdiscussionandanalysisofourfinancialconditionandresultsofoperationsisbaseduponourconsolidatedfinancialstatements,whichhavebeenpreparedinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica,orU.S.GAAP.Thepreparationofthesefinancialstatementsrequiresthatwemakeestimatesandassumptionsthataffectthereportedamountsofassetsandliabilitiesandthedisclosureofcontingentassetsandliabilitiesatthedateofthefinancialstatementsandreportedamountsofrevenuesandexpensesduringthereportingperiod.Onanongoingbasis,managementevaluatesitsestimatesandjudgments,includingthoserelatedto:revenuerecognition;theexpensingandcapitalizationofsoftwaredevelopmentcosts;stock-basedcompensationexpense;restructuringandotherrelatedcharges;incometaxes,includingtherecoverabilityofdeferredtaxassets;allowancesfordoubtfulaccounts;inventoryreductionsforexcessandobsoleteinventories;estimatedfairvaluesoflong-livedassetsusedtomeasuretherecoverabilityoflong-livedassets;intangibleassetsandgoodwill;expectedfuturecashflowsusedtomeasuretherecoverabilityofintangibleassetsandlong-livedassets;warrantycosts;derivativefinancialinstruments;andcontingentliabilities.Webaseourestimatesandjudgmentsonourhistoricalexperience,currentmarketandeconomicconditions,industrytrends,andotherassumptionsthatwebelievearereasonableandform
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ContractualObligations Total Lessthan1
Year 1-3Years 4-5Years Morethan5Years
Revolvinglinesofcredit $ 195.0 $ — $ 195.0 $ — $ —Otherlong-termdebt,includingcurrentportion 220.6 — 14.9 104.9 100.8Interestpayableonlong-termdebtandrevolvinglinesofcredit 65.1 14.8 27.9 15.7 6.7Unconditionalpurchasecommitments(1) 164.0 157.0 6.8 0.2 —Acquisition-relatedcontingentconsideration(2) 12.7 6.5 2.9 3.3 —Operatingleaseobligations 76.9 21.2 27.4 14.7 13.62017TaxActimpact 33.3 2.7 8.0 7.7 14.9Pensionliabilities 45.5 2.7 6.0 8.0 28.8Uncertaintaxcontingencies 4.6 1.1 0.9 0.1 2.5
$ 817.7 $ 206.0 $ 289.8 $ 154.6 $ 167.3
(1) Unconditionalpurchasecommitmentsincludeagreementstopurchasegoods,services,orfixedassetsthatareenforceableandlegallybindingandthatspecifyallsignificantterms,including:fixedorminimumquantitiestobepurchased;fixed,minimumorvariablepriceprovisions;andtheapproximatetimingofthetransaction.Purchasecommitmentsexcludeagreementsthatarecancellableatanytimewithoutpenalty.
(2) Acquisition-relatedcontingentconsiderationsrepresentstheestimatedfairvalueoffuturepaymentstotheformershareholdersofapplicableacquiredcompaniesbasedonachievingannualrevenueandgrossmargintargetsincertainyearsasspecifiedinthepurchaseandsaleagreements.
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thebasisformakingjudgmentsaboutthecarryingvalueofassetsandliabilitiesthatarenotreadilyapparentfromothersources.Actualresultscoulddifferfromtheseestimates.
Webelievethefollowingcriticalaccountingpoliciesandestimatestobeboththosemostimportanttotheportrayalofourfinancialpositionandresultsofoperationsandthosethatrequirethemostestimationandsubjectivejudgment.
Revenue recognition. Werecognizerevenuefromsystemsaleswhenpersuasiveevidenceofanarrangementexists,thepriceisfixedordeterminable,titleandriskoflosshasbeentransferredtothecustomer,andcollectabilityoftheresultingreceivableisreasonablyassured.Titleandriskoflossgenerallytransfersuponshipment,orforcertainsystems,baseduponcustomeracceptanceforasystemthathasbeendeliveredtothecustomerandinstalledatacustomerfacility.Forsystemsthatincludecustomer-specificacceptancecriteria,wearerequiredtoassesswhenwecandemonstratetheacceptancecriteriahasbeenmet,whichgenerallyisuponsuccessfulfactoryacceptancetestingorcustomeracceptanceandevidenceofinstallation.
Whenproductsaresoldthroughanindependentdistributororastrategicdistributionpartnerwhoassumesresponsibilityforinstallation,werecognizethesystemsalewhentheproducthasbeenshippedandtitleandriskoflosshavebeentransferredtothedistributor.Ourdistributorsdonothavepriceprotectionrightsorrightsofreturn;however,ourproductsaretypicallywarrantedtobefreefromdefectforaperiodofoneyear.Revenueisdeferreduntilcashisreceivedwhencollectabilityisnotreasonablyassuredorwhenthepriceisnotfixedordeterminable.
Fortransactionsthatincludemultipleelements,arrangementconsiderationisallocatedtoeachelementusingthefairvaluehierarchyasrequiredbyASUNo.2009-13.Welimittheamountofrevenuerecognizedfordeliveredelementstotheamountthatisnotcontingentonthefuturedeliveryofproductsorservices,futureperformanceobligations,orsubjecttocustomer-specificreturnorrefundprivileges.
Wedeterminethefairvalueofproductsandservicesbaseduponvendorspecificobjectiveevidence("VSOE").WedetermineVSOEbasedonnormalsellingpricinganddiscountingpracticesforthespecificproductorservicewhensoldonastand-alonebasis.IndeterminingVSOE,ourpolicyrequiresasubstantialmajorityofsellingpricesforaproductorservicetobewithinareasonablynarrowrange.Wealsoconsidertheclassofcustomer,methodofdistributionandthegeographiesintowhichproductsandservicesarebeingsoldwhendeterminingVSOE.
IfVSOEcannotbeestablished,weattempttoestablishthesellingpricebasedonthird-partyevidence("TPE").VSOEcannotbeestablishedininstanceswhereaproductorservicehasnotbeensoldseparately,stand-alonesalesaretooinfrequentorproductpricingisnotwithinasufficientlynarrowrange.TPEisdeterminedbasedoncompetitorpricesforsimilardeliverableswhensoldseparately.
WhenwecannotdetermineVSOEorTPE,weuseestimatedsellingprice("ESP")inourallocationofarrangementconsideration.TheobjectiveofESPistodeterminethepriceatwhichwewouldtypicallytransactastand-alonesaleoftheproductorservice.ESPisdeterminedbyconsideringanumberoffactorsincludingourpricingpolicies,internalcostsandgrossprofitobjectives,methodofdistribution,marketresearchandinformation,recenttechnologicaltrends,competitivelandscapeandgeographies.Weanalyzethesellingpricesusedinourallocationofarrangementconsideration,ataminimum,onanannualbasis.Sellingpriceswillbeanalyzedmorefrequentlyifasignificantchangeinourbusinessoccursorotherfactorsnecessitatemorefrequentanalysis,orifweexperiencesignificantvariancesinoursellingprices.
Revenuefromaccessoriesandconsumablepartsisgenerallyrecognizeduponshippingterms.Servicerevenueisrecognizedastheservicesareperformedorratablyoverthecontractualobligation
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andincludesmaintenancecontracts,extendedwarranty,training,applicationsupportandon-demandservices.
Wealsohavecontractsforwhichweapplythepercentage-of-completionmodelandcompletedcontractmodelofrevenuerecognition.Applicationofthepercentage-of-completionmethodrequiresustomakereasonableestimatesoftheextentofprogresstowardcompletionofthecontractandthetotalcostswewillincurunderthecontractandlossesarerecordedimmediatelywhenweestimatethatcontractswillultimatelyresultinaloss.Changesintheestimatescouldaffectthetimingofrevenuerecognition.
Otherrevenuesareprimarilycomprisedofdevelopmentarrangementsrecognizedonacost-plus-fixed-feebasisandlicensingarrangementsrecognizedratablyoverthetermoftherelatedcontracts.
Income taxes. Thedeterminationofincometaxexpenserequiresustomakecertainestimatesandjudgmentsconcerningtheannualeffectivetaxrate,thecalculationofdeferredtaxassetsandliabilities,theforecastedprofitabilityofoursubsidiariesincertaingeographicjurisdictions,aswellasthedeductions,carryforwardsandcreditsthatareavailabletoreducetaxableincome.Deferredtaxassetsandliabilitiesarisefromdifferencesinthetimingoftherecognitionofrevenueandexpensesforfinancialstatementandtaxpurposes.Deferredtaxassetsandliabilitiesaremeasuredusingthetaxratesineffectfortheyearinwhichthesetemporarydifferencesareexpectedtobesettled.Weestimatethedegreetowhichtaxassetsandlosscarryforwardswillresultinabenefitbasedonexpectedprofitabilitybytaxjurisdiction,andweprovideavaluationallowancefortaxassetsandlosscarryforwardsthatwebelievewillmorelikelythannotgounused.Ifitbecomesmorelikelythannotthatataxassetorlosscarryforwardwillbeusedforwhichavaluationallowancehasbeenprovided,wereversetherelatedvaluationallowance.Ifouractualfuturetaxableincomebytaxjurisdictiondiffersfromestimates,additionalallowancesorreversalsofavaluationallowancemaybenecessary.Inaddition,weonlyrecognizebenefitsfortaxpositionsthatwebelievearemorelikelythannotofbeingsustaineduponreviewbyataxingauthoritywithknowledgeofallrelevantinformation.Wereevaluateouruncertaintaxpositionsonaquarterlybasisandanychangestothesepositionsasaresultoftaxaudits,taxlawsorotherfactsandcircumstancescouldresultinadditionalchargesorcreditstooperations.Theexpirationofstatutesoflimitationsaffectingestimatesmadeforuncertaintaxpositionscancausehigherearnings.
OnDecember22,2017(EnactmentDate),thePresidentoftheUnitedStatessignedtaxreformlegislation(2017TaxAct),whichenactedawiderangeofchangestotheU.S.corporateincometaxsystem,manyofwhichdiffersignificantlyfromtheprovisionsofthepreviousU.S.taxlaw.Wehavenotyetcompletedtheassessmentofthetaxeffectsassociatedwiththeenactmentofthe2017TaxAct;however,areasonableestimatehasbeenmadeoftheeffectsontheexistingdeferredtaxbalancesandtheone-timetransitiontax.Changesinthetaxratesandlawsareaccountedforintheperiodofenactment.Theactualresultsoftheimplementationofthe2017TaxActmaymateriallydifferfromourcurrentestimatedueto,amongotherthings,furtherguidancethatmaybeissuedbyU.S.taxauthoritiesorregulatorybodiesincludingtheSECandtheFASBtointerpretthe2017TaxAct.Wewillcontinuetoanalyzethe2017TaxActandanyadditionalguidancethatmaybeissuedandfinalizethefulleffectsofapplyingthenewlegislationinthemeasurementperiod.
Inventories. Inventoriesarestatedatthelowerofcostandnetrealizablevalue,withcostsdeterminedbythefirst-in,first-outmethodforamajorityofsubsidiariesandbyaveragecostforcertainothersubsidiaries.Werecordprovisionstoaccountforexcessandobsoleteinventorytoreflecttheexpectednon-saleableornon-refundableinventorybasedonanevaluationofslowmovingproductsorproductsnolongerofferedforsale.Inventoriesalsoincludedemonstrationunitslocatedinourdemonstrationlaboratoriesorinstalledatthesitesofpotentialcustomers.Weconsiderourdemonstrationunitstobeavailableforsaleandhaveahistoryofsellingthesedemonstrationunits.We
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reducethecarryingvalueofdemonstrationinventoriesfordifferencesbetweencostandestimatednetrealizablevalue,takingintoconsiderationusageintheprecedingtwelvemonths,expecteddemand,technologicalobsolescenceandotherinformationincludingthephysicalconditionoftheunit.Ifultimateusageordemandvariessignificantlyfromexpectedusageordemand,additionalwrite-downsmayberequired,resultinginadditionalchargestooperations.
Goodwill, other intangible assets and other long-lived assets. Weevaluategoodwillforimpairmentannuallyandwheneventsoccurorcircumstanceschange.Wetestgoodwillforimpairmentatthereportingunitlevel,whichistheoperatingsegmentoronelevelbelowanoperatingsegment.UnderU.S.GAAP,wehavetheoptionofperformingaqualitativeassessmenttodeterminewhetherfurtherimpairmenttestingisnecessarybeforeperformingatwo-stepquantitativeassessment.Thequalitativeassessmentrequiressignificantjudgmentsaboutmacro-economicconditionsincludingtheentity'soperatingenvironment;itsindustryandothermarketconsiderations;entity-specificeventsrelatedtofinancialperformanceorlossofkeypersonnel;andothereventsthatcouldimpactthereportingunit.If,asaresultofourqualitativeassessment,itismore-likely-than-notthatthefairvalueofareportingunitislessthanitscarryingamount,thequantitativeimpairmenttestwillberequired.Otherwise,nofurthertestingisrequired.Ifaquantitativeimpairmenttestisperformed,thefirststepinvolvescomparingthefairvaluesoftheapplicablereportingunitswiththeiraggregatecarryingvalues,includinggoodwill.Wegenerallydeterminethefairvalueofourreportingunitsusingaweightingofboththemarketapproachandtheincomeapproachmethodologies.Theincomeapproachvaluationmethodologyincludesdiscountedcashflowestimates.Estimatingthefairvalueofthereportingunitsrequiressignificantjudgmentaboutthefuturecashflows.Ifthecarryingamountofareportingunitexceedsthefairvalueofthereportingunit,weperformthesecondstepofthegoodwillimpairmenttesttomeasuretheamountoftheimpairment.Inthesecondstepofthegoodwillimpairmenttest,wecomparetheimpliedfairvalueofthereportingunit'sgoodwillwiththecarryingvalueofthatgoodwill.AtDecember31,2017,weperformedourannualgoodwillandindefinite-livedintangibleimpairmentevaluationusingaqualitativeimpairmenttestandconcludedthefairvaluesofeachofourreportingunitsweresignificantlygreaterthantheircarryingamounts,andtherefore,noadditionalimpairmentwasrequired.
Wealsoreviewdefinite-livedintangibleassetsandotherlong-livedassetswhenindicationsofpotentialimpairmentexist.Shouldthefairvalueofourlong-livedassetsdeclinebecauseofreducedoperatingperformance,marketdeclinesorotherindicatorsofanimpairment,achargetooperationsforimpairmentmaybenecessary.
RECENTACCOUNTINGPRONOUNCEMENTS
InJanuary2017,theFinancialAccountingStandardsBoard("FASB")issuedAccountingStandardsUpdate("ASU")2017-04,Intangibles-Goodwill andOther (Topic 350): Simplifying the Test for Goodwill Impairment. Thenewstandardsimplifiesthesubsequentmeasurementofgoodwillbyeliminatingthesecondstepofthegoodwillimpairmenttest.ThisASUwillbeappliedprospectivelyandiseffectiveforannualorinterimgoodwillimpairmenttestsinfiscalyearsbeginningafterDecember15,2019.Theadoptionofthisstandardisnotexpectedtohaveamaterialimpactonourfinancialposition,resultsofoperationsorstatementsofcashflowsuponadoption.
InJanuary2017,theFASBissuedASUNo.2017-01,Business Combinations (Topic 805): Clarifying the Definition of a Business. Thisnewstandardclarifiesthedefinitionofabusinessandprovidesascreentodeterminewhenanintegratedsetofassetsandactivitiesisnotabusiness.Thescreenrequiresthatwhensubstantiallyallofthefairvalueofthegrossassetsacquired(ordisposedof)isconcentratedinasingleidentifiableassetoragroupofsimilaridentifiableassets,thesetisnotabusiness.ThisnewstandardwasadoptedasoftheeffectivedateofJanuary1,2018.WehaveevaluatedtheprovisionsofthisstandardandhavedeterminedthattheimpactofadoptionofASUNo.2017-01wasnotmaterialtoourconsolidatedfinancialstatements.
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InOctober2016,theFASBissuedASUNo.2016-16,Income Taxes (Topic 740)—Intra-Entity Transfer of Assets Other than Inventory .Thenewstandardrequiresrecognitionofcurrentanddeferredincometaxesresultingfromanintra-entitytransferofanyasset(excludinginventory)whenthetransferoccurs.ThisisachangefromexistingU.S.GAAPwhichprohibitsrecognitionofcurrentanddeferredincometaxesuntiltheassetissoldtoathirdparty.ThisnewstandardwasadoptedasoftheeffectivedateofJanuary1,2018.WehaveevaluatedtheprovisionsofthisstandardandhavedeterminedthattheimpactofadoptionofASUNo.2016-16wasnotmaterialtoourconsolidatedfinancialstatements.
InFebruary2016,theFASBissuedASUNo.2016-02,Leases .Thenewstandardprovidesguidanceontherecognition,measurement,presentation,anddisclosureofleases.ThenewstandardsupersedespresentU.S.GAAPguidanceonleasesandrequiressubstantiallyallleasestobereportedonthebalancesheetasright-of-useassetsandleaseliabilities,aswellasadditionaldisclosures.ThenewstandardiseffectiveasofJanuary1,2019,andearlyadoptionispermitted.Weareevaluatingtheprovisionsofthisstandard,includingwhichperiodtoadopt,andhavenotdeterminedwhatimpacttheadoptionofASUNo.2016-02willhaveonourconsolidatedfinancialstatements.
InMay2014,theFASBissuedASUNo.2014-09,Revenue from Contracts with Customers, whichsupersedestherevenuerecognitionrequirementsunderAccountingStandardsCodification(ASC)Topic605.ThenewguidancewastheresultofajointprojectbetweentheFASBandtheInternationalAccountingStandardsBoardtoclarifytheprinciplesforrecognizingrevenueandtodevelopcommonrevenuestandardsforU.S.GAAPandInternationalFinancialReportingStandards.Thecoreprincipleofthenewguidanceisthatrevenueshouldberecognizedtodepictthetransferofpromisedgoodsorservicestocustomersinanamountthatreflectstheconsiderationtowhichtheentityexpectstobeentitledinexchangeforthosegoodsorservices.InAugust2015,theFASBelectedtodefertheeffectivedateofASUNo.2014-09byoneyeartoannualperiodsbeginningafterDecember15,2017,withearlyapplicationpermittedasoftheoriginaleffectivedate.Thenewguidancemaybeappliedonaretrospectivebasisforallpriorperiodspresented,oronamodifiedretrospectivebasiswiththecumulativeeffectofthenewguidanceasofthedateofinitialapplication.ThenewguidancewillbeeffectiveforusasofJanuary1,2018andwecurrentlyintendtousethemodifiedretrospectivetransitionmethod.
WehavesubstantiallycompletedtheimpactassessmentphaseofourevaluationofASUNo.2014-09.Underthenewguidance,therearespecificcriteriatodetermineifaperformanceobligationshouldberecognizedovertimeoratapointintime.Accordingly,wehaveidentifiedcertainproject-basedordersintheBESTSegmentandCBRNEdetectionordersintheBrukerCALIDGroupforwhichthetimingofwhenwerecognizerevenuemaybeimpacted.Duetothecomplexityoftheseproject-basedorders,revenuerecognitionunderthenewstandardishighlydependentonspecificcontractterms.
Duringthefourthquarterof2017,wehavesubstantiallycompletedtheassessmentovertheimpactthatthisnewstandardwillhaveonourconsolidatedbalancesheets.Wepreliminarilyexpecttorecognizeanadjustmentofapproximately$6.0milliontoretainedearningsonJanuary1,2018toreflectthecumulativeeffectoftheaccountingchangesmadeupontheadoptionofthestandard.Thefinalizationoftheassessmentmayresultinsignificantchangestotheestimatesthatmaymateriallyimpactthepreliminaryestimateofthecumulativeeffect.
TRANSACTIONSWITHRELATEDPARTIES
Weleasecertainofficespacefromcertainofourprincipalshareholders,includingadirectorandexecutiveofficerandanothermemberofourBoardofDirectors,andmembersoftheirimmediatefamilies,whichhaveexpirationdatesrangingfrom2017to2020.Totalrentexpenseundertheseleaseswas$3.5million,$3.9millionand$1.8millionfortheyearsendedDecember31,2017,2016and2015,respectively.
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DuringtheyearsendedDecember31,2017,2016and2015,werecordedrevenueof$2.6million,$1.1millionand$0.7million,respectively,arisingfromcommercialtransactionswithalifesciencescompanyinwhichamemberofourBoardofDirectorsisChairmanandChiefExecutiveOfficer.
DuringtheyearendedDecember31,2016and2015,werecordedrevenueof$0.2millionand$0.5million,respectivelyfromcommercialtransactionswithathermalanalysiscompanyforwhichamemberofourBoardofDirectorsservesasaconsultant.
ITEM7AQUANTITATIVEANDQUALITATIVEDISCLOSURESABOUTMARKETRISK
Wearepotentiallyexposedtomarketrisksassociatedwithchangesinforeigncurrencytranslationrates,interestratesandcommodityprices.Weselectivelyusefinancialinstrumentstoreducetheserisks.Alltransactionsrelatedtoriskmanagementtechniquesareauthorizedandexecutedpursuanttoourpoliciesandprocedures.Analyticaltechniquesusedtomanageandmonitorforeigncurrencytranslationandinterestrateriskincludemarketvaluationsandsensitivityanalysis.
ImpactofForeignCurrencies
Wegenerateasubstantialportionofourrevenuesininternationalmarkets,principallyGermanyandothercountriesintheEuropeanUnion,SwitzerlandandJapan,whichexposesouroperationstotheriskofexchangeratefluctuations.Theimpactofcurrencyexchangeratemovementcanbepositiveornegativeinanyperiod.Ourcostsrelatedtosalesinforeigncurrenciesarelargelydenominatedinthesamerespectivecurrencies,limitingourtransactionriskexposure.However,forforeigncurrencydenominatedsalesincertainregions,suchasJapan,wherewedonotincursignificantcostsdenominatedinJapaneseYen,wearemoreexposedtotheimpactofforeigncurrencyfluctuations.ForsalesnotdenominatedinU.S.Dollars,ifthereisanincreaseintherateatwhichaforeigncurrencyisexchangedforU.S.Dollars,itwillrequiremoreoftheforeigncurrencytoequalaspecifiedamountofU.S.Dollarsthanbeforetherateincrease.Insuchcases,ifwepriceourproductsintheforeigncurrency,wewillreceivelessinU.S.Dollarsthanwewouldhavereceivedbeforetherateincreasewentintoeffect.IfwepriceourproductsinU.S.Dollarsandcompetitorspricetheirproductsinlocalcurrency,anincreaseintherelativestrengthoftheU.S.Dollarcouldresultinourpricesnotbeingcompetitiveinamarketwherebusinessistransactedinthelocalcurrency.IntheyearsendedDecember31,2017and2016ourrevenuebygeographywasasfollows(dollarsinmillions):
Changesinforeigncurrencyexchangeratesincreasedourrevenuebyapproximately1.2%intheyearendedDecember31,2017anddecreasedourrevenuebyapproximately0.5%intheyearendedDecember31,2016.
Assetsandliabilitiesofourforeignsubsidiaries,wherethefunctionalcurrencyisthelocalcurrency,aretranslatedintoU.S.Dollarsusingyear-endexchangerates,orhistoricalrates,asappropriate.Revenuesandexpensesofforeignsubsidiariesaretranslatedattheaverageexchangeratesineffectduringtheyear.Adjustmentsresultingfromfinancialstatementtranslationsareincludedasaseparatecomponentofshareholders'equity.IntheyearendedDecember31,2017,werecordednetgainsfromcurrencytranslationadjustmentsof$97.1million.IntheyearendedDecember31,2016,we
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2017 2016
Revenue Percentageof
Revenue Revenue Percentageof
Revenue UnitedStates $ 434.7 24.6% $ 428.2 26.6%Europe 665.2 37.6% 582.9 36.2%AsiaPacific 514.8 29.2% 458.1 28.4%Restofworld 151.2 8.6% 142.1 8.8%Totalrevenue $ 1,765.9 100.0% $ 1,611.3 100.0%
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recordednetlossesfromcurrencytranslationof$27.6million.A10%depreciationinfunctionalcurrencies,relativetotheU.S.Dollar,atDecember31,2017,wouldhaveresultedinareductionofshareholders'equityofapproximately$137.2million.
Gainsandlossesresultingfromforeigncurrencytransactionsarereportedininterestandotherincome(expense),netintheconsolidatedstatementsofincomeandcomprehensiveincome.Ourforeigncurrencytranslationgains(losses),netwere($5.5)millionand$4.1millionforyearsendedDecember31,2017and2016,respectively.
Fromtimetotime,wehaveenteredintoforeigncurrencycontractsinordertominimizethevolatilitythatfluctuationsinexchangerateshaveonourcashflowsrelatedtopurchasesandsalesdenominatedinforeigncurrencies.Underthesearrangements,weagreetopurchaseafixedamountofaforeigncurrencyinexchangeforafixedamountofU.S.Dollarsorothercurrenciesonspecifieddates,typicallywithmaturitiesoflessthantwelvemonths.Thesetransactionsdonotqualifyforhedgeaccountingand,accordingly,theinstrumentisrecordedatfairvaluewiththecorrespondinggainsandlossesrecordedininterestandotherincome(expense),netintheconsolidatedstatementsofincomeandcomprehensiveincome.
AtDecember31,2017and2016,wehadforeigncurrencycontractswithnotionalamountsaggregating$84.2millionand$40.7million,respectively.AtDecember31,2017,theCompanyhadthefollowingnotionalamountsoutstandingunderforeigncurrencycontracts(inmillions):
BasedonthecontractualmaturitiesofthesecontractsandexchangeratesasofDecember31,2017,weanticipatethatthesecontractswillresultinnetcashinflowsof$4.4millionin2018.AtDecember31,2017,assumingallothervariablesareconstant,iftheU.S.Dollarweakenedby10%,themarketvalueofourforeigncurrencycontractswouldhaveincreasedbyapproximately$8.6millionandiftheU.S.Dollarstrengthenedby10%,themarketvalueofourforeigncurrencycontractswouldhavedecreasedbyapproximately$8.6million.
Wewillcontinuetoevaluateourcurrencyrisksandinthefuturemayutilizeforeigncurrencycontractsmorefrequentlyaspartofatransactionalhedgingprogram.
ImpactofInterestRates
Weregularlyinvestexcesscashinshort-terminvestmentsthataresubjecttochangesininterestrates.Webelievethatthemarketriskarisingfromholdingthesefinancialinstrumentsisminimalbecauseofourpolicyofinvestinginshort-termfinancialinstrumentsissuedbyhighlyratedfinancialinstitutions.
Ourexposurerelatedtoadversemovementsininterestratesisderivedprimarilyfromoutstandingfloatingratedebtinstrumentsthatareindexedtoshort-termmarketrates.Wecurrentlyhaveapproximatelyequallevelsoffixedandfloatingratedebt,whichlimitsourexposuretoadversemovementsininterestrates.
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Buy
NotionalAmountinBuy
Currency Sell Maturity
NotionalAmountinU.S.
Dollars FairValueof
Assets FairValueofLiabilities
December31,2017: Euro 59.5 U.S.Dollars January2018 $ 67.0 $ 4.5 $ —
SwissFrancs 11.0 U.S.Dollars January2018 11.3 — —
SingaporeDolar 4.9 U.S.Dollars January2018 3.6 — —
Euro 1.8 PolishZloty January2018 2.3 — 0.1 $ 84.2 $ 4.5 $ 0.1
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ImpactofCommodityPrices
Weareexposedtocertaincommodityrisksassociatedwithpricesforvariousrawmaterials.Thepricesofcopperandcertainotherrawmaterials,particularlyniobium-tin,usedtomanufacturesuperconductorshaveincreasedsignificantlyoverthelastdecade.Copperandniobium-tinarethemaincomponentsoflowtemperaturesuperconductorsandcontinuedcommoditypriceincreasesforcopperandniobium,aswellasotherrawmaterials,maynegativelyaffectourprofitability.Periodically,weenterintocommodityforwardpurchasecontractstominimizethevolatilitythatfluctuationsinthepriceofcopperhaveonoursalesoftheseproducts.AtDecember31,2017and2016,wehadfixedpricecommoditycontractswithnotionalamountsaggregating$3.0millionand$2.7million,respectively.ThefairvalueofthefixedpricecommoditycontractsatDecember31,2017and2016was$0.8millionand$0.2million,respectively.Wewillcontinuetoevaluateourcommodityrisksandmayutilizecommodityforwardpurchasecontractsmorefrequentlyinthefuture.
Inflation
Wedonotbelieveinflationhadamaterialimpactonourbusinessoroperatingresultsduringanyoftheperiodspresented.
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ITEM8FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA
IndexofConsolidatedFinancialStatements
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PageReportsofIndependentRegisteredPublicAccountingFirms 70
ConsolidatedBalanceSheetsasofDecember31,2017and2016
73
ConsolidatedStatementsofIncomeandComprehensiveIncomefortheyearsendedDecember31,2017,2016and2015
74
ConsolidatedStatementsofShareholders'EquityfortheyearsendedDecember31,2017,2016and2015
75
ConsolidatedStatementsofCashFlowsfortheyearsendedDecember31,2017,2016and2015
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NotestoConsolidatedFinancialStatements
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ReportofIndependentRegisteredPublicAccountingFirm
TotheBoardofDirectorsandShareholdersofBrukerCorporation
OpinionsontheFinancialStatementsandInternalControloverFinancialReporting
WehaveauditedtheaccompanyingconsolidatedbalancesheetsofBrukerCorporationanditssubsidiariesasofDecember31,2017and2016,andtherelatedconsolidatedstatementsofincomeandcomprehensiveincome,ofshareholders'equity,andofcashflowsfortheyearsthenended,includingtherelatednotes(collectivelyreferredtoasthe"consolidatedfinancialstatements").WealsohaveauditedtheCompany'sinternalcontroloverfinancialreportingasofDecember31,2017,basedoncriteriaestablishedinInternal Control—Integrated Framework (2013)issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission(COSO).
Inouropinion,theconsolidatedfinancialstatementsreferredtoabovepresentfairly,inallmaterialrespects,thefinancialpositionoftheCompanyasofDecember31,2017and2016,andtheresultsoftheiroperationsandtheircashflowsfortheyearsthenendedinconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica.Alsoinouropinion,theCompanymaintained,inallmaterialrespects,effectiveinternalcontroloverfinancialreportingasofDecember31,2017,basedoncriteriaestablishedinInternal Control—Integrated Framework (2013)issuedbytheCOSO.
Change in Accounting Principles
AsdiscussedinNotes6and16totheconsolidatedfinancialstatements,respectively,theCompanychangedthemannerinwhichitaccountsforthemeasurementofinventoryandthemannerinwhichitaccountsfortheincometaxeffectsofsharebasedpaymenttransactionsin2017.
BasisforOpinions
TheCompany'smanagementisresponsiblefortheseconsolidatedfinancialstatements,formaintainingeffectiveinternalcontroloverfinancialreporting,andforitsassessmentoftheeffectivenessofinternalcontroloverfinancialreporting,includedinManagement'sReportonInternalControloverFinancialReportingappearingunderItem9A.OurresponsibilityistoexpressopinionsontheCompany'sconsolidatedfinancialstatementsandontheCompany'sinternalcontroloverfinancialreportingbasedonouraudits.WeareapublicaccountingfirmregisteredwiththePublicCompanyAccountingOversightBoard(UnitedStates)("PCAOB")andarerequiredtobeindependentwithrespecttotheCompanyinaccordancewiththeU.S.federalsecuritieslawsandtheapplicablerulesandregulationsoftheSecuritiesandExchangeCommissionandthePCAOB.
WeconductedourauditsinaccordancewiththestandardsofthePCAOB.Thosestandardsrequirethatweplanandperformtheauditstoobtainreasonableassuranceaboutwhethertheconsolidatedfinancialstatementsarefreeofmaterialmisstatement,whetherduetoerrororfraud,andwhethereffectiveinternalcontroloverfinancialreportingwasmaintainedinallmaterialrespects.
Ourauditsoftheconsolidatedfinancialstatementsincludedperformingprocedurestoassesstherisksofmaterialmisstatementoftheconsolidatedfinancialstatements,whetherduetoerrororfraud,andperformingproceduresthatrespondtothoserisks.Suchproceduresincludedexamining,onatestbasis,evidenceregardingtheamountsanddisclosuresintheconsolidatedfinancialstatements.Ourauditsalsoincludedevaluatingtheaccountingprinciplesusedandsignificantestimatesmadebymanagement,aswellasevaluatingtheoverallpresentationoftheconsolidatedfinancialstatements.Ourauditofinternalcontroloverfinancialreportingincludedobtaininganunderstandingofinternalcontroloverfinancialreporting,assessingtheriskthatamaterialweaknessexists,andtestingand
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evaluatingthedesignandoperatingeffectivenessofinternalcontrolbasedontheassessedrisk.Ourauditsalsoincludedperformingsuchotherproceduresasweconsiderednecessaryinthecircumstances.Webelievethatourauditsprovideareasonablebasisforouropinions.
AsdescribedinManagement'sReportonInternalControloverFinancialReporting,managementhasexcludedHysitron,Incorporated("Hysitron")fromitsassessmentofinternalcontroloverfinancialreportingasofDecember31,2017becauseitwasacquiredbytheCompanyinapurchasebusinesscombinationduring2017.WehavealsoexcludedHysitronfromourauditofinternalcontroloverfinancialreporting.Hysitronisawholly-ownedsubsidiarywhosetotalassetsandtotalrevenuesexcludedfrommanagement'sassessmentandourauditofinternalcontroloverfinancialreportingrepresent0.7%and0.9%,respectively,oftherelatedconsolidatedfinancialstatementamountsasofandfortheyearendedDecember31,2017.
DefinitionandLimitationsofInternalControloverFinancialReporting
Acompany'sinternalcontroloverfinancialreportingisaprocessdesignedtoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples.Acompany'sinternalcontroloverfinancialreportingincludesthosepoliciesandproceduresthat(i)pertaintothemaintenanceofrecordsthat,inreasonabledetail,accuratelyandfairlyreflectthetransactionsanddispositionsoftheassetsofthecompany;(ii)providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewithgenerallyacceptedaccountingprinciples,andthatreceiptsandexpendituresofthecompanyarebeingmadeonlyinaccordancewithauthorizationsofmanagementanddirectorsofthecompany;and(iii)providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,use,ordispositionofthecompany'sassetsthatcouldhaveamaterialeffectonthefinancialstatements.
Becauseofitsinherentlimitations,internalcontroloverfinancialreportingmaynotpreventordetectmisstatements.Also,projectionsofanyevaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate.
/s/PricewaterhouseCoopersLLPBoston,MassachusettsMarch16,2018
WehaveservedastheCompany'sauditorsince2016.
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ReportofIndependentRegisteredPublicAccountingFirm
TheBoardofDirectorsandShareholdersofBrukerCorporation
Wehaveauditedtheaccompanyingconsolidatedstatementsofincomeandcomprehensiveincome(loss),shareholders'equity,andcashflowsofBrukerCorporationfortheyearendedDecember31,2015.ThesefinancialstatementsaretheresponsibilityoftheCompany'smanagement.Ourresponsibilityistoexpressanopiniononthesefinancialstatementsbasedonouraudit.
WeconductedourauditinaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates).Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhetherthefinancialstatementsarefreeofmaterialmisstatement.Anauditincludesexamining,onatestbasis,evidencesupportingtheamountsanddisclosuresinthefinancialstatements.Anauditalsoincludesassessingtheaccountingprinciplesusedandsignificantestimatesmadebymanagement,aswellasevaluatingtheoverallfinancialstatementpresentation.Webelievethatourauditprovidesareasonablebasisforouropinion.
Inouropinion,thefinancialstatementsreferredtoabovepresentfairly,inallmaterialrespects,theconsolidatedresultsofBrukerCorporation'soperationsanditscashflowsfortheyearendedDecember31,2015,inconformitywithU.S.generallyacceptedaccountingprinciples.
Boston,MassachusettsFebruary26,2016
exceptforNote2—SummaryofSignificantAccountingPolicies—RestrictedCash,astowhichthedateis
March16,2018
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/s/Ernst&YoungLLP
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BRUKERCORPORATION
CONSOLIDATEDBALANCESHEETS
(Inmillions,exceptshareandpersharedata)
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
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December31, 2017 2016
ASSETS Currentassets: Cashandcashequivalents $ 325.0 $ 342.4Short-terminvestments 114.2 157.9Accountsreceivable,net 319.3 243.9Inventories 486.2 440.4Othercurrentassets 114.1 91.3Totalcurrentassets 1,358.8 1,275.9
Property,plantandequipment,net 266.5 239.1Goodwill 169.8 130.6Intangibleassets,net 82.4 69.7Deferredtaxassets 57.0 76.5Otherlong-termassets 14.0 16.6
Totalassets $ 1,948.5 $ 1,808.4LIABILITIESANDSHAREHOLDERS'EQUITY
Currentliabilities: Currentportionoflong-termdebt $ — $ 20.1Accountspayable 90.8 86.1Customeradvances 111.7 149.0Othercurrentliabilities 322.0 269.5Totalcurrentliabilities 524.5 524.7
Long-termdebt 415.6 391.6Long-termdeferredrevenue 48.7 46.8Deferredtaxliabilities 24.3 10.1Accruedpension 105.6 102.5Otherlong-termliabilities 96.3 39.6
Commitmentsandcontingencies(Note14)
Shareholders'equity: Preferredstock,$0.01parvalue5,000,000sharesauthorized,noneissuedoroutstandingatDecember31,2017and2016 — —
Commonstock,$0.01parvalue260,000,000sharesauthorized,171,875,076and170,552,890sharesissuedand155,865,977and159,854,695outstandingatDecember31,2017and2016,respectively 1.7 1.7
Treasurystockatcost,16,009,099and10,698,195sharesatDecember31,2017and2016,respectively (401.2) (249.3)
Additionalpaid-incapital 155.9 124.7Retainedearnings 942.0 885.2Accumulatedothercomprehensiveloss 27.0 (75.9)Totalshareholders'equityattributabletoBrukerCorporation 725.4 686.4
Noncontrollinginterestinconsolidatedsubsidiaries 8.1 6.7Totalshareholders'equity 733.5 693.1Totalliabilitiesandshareholders'equity $ 1,948.5 $ 1,808.4
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BRUKERCORPORATION
CONSOLIDATEDSTATEMENTSOFINCOMEANDCOMPREHENSIVEINCOME
(Inmillions,exceptpersharedata)
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
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YearEndedDecember31, 2017 2016 2015 Productrevenue $ 1,479.5 $ 1,345.4 $ 1,381.1Servicerevenue 278.2 254.7 235.5Otherrevenue 8.2 11.2 7.2Totalrevenue 1,765.9 1,611.3 1,623.8
Costofproductrevenue 790.7 714.2 774.2Costofservicerevenue 160.8 150.0 139.7Costofotherrevenue 1.4 4.6 1.3Totalcostofrevenue 952.9 868.8 915.2Grossprofit 813.0 742.5 708.6
Operatingexpenses: Selling,generalandadministrative 415.9 390.5 392.2Researchanddevelopment 162.7 149.0 145.7Othercharges,net 19.7 25.8 25.0Totaloperatingexpenses 598.3 565.3 562.9Operatingincome 214.7 177.2 145.7
Interestandotherincome(expense),net (16.9) 0.4 (17.7)Incomebeforeincometaxesandnoncontrollinginterestinconsolidatedsubsidiaries 197.8 177.6 128.0Incometaxprovision 117.5 23.1 23.1Consolidatednetincome 80.3 154.5 104.9Netincomeattributabletononcontrollinginterestinconsolidatedsubsidiaries 1.7 0.9 3.3NetincomeattributabletoBrukerCorporation $ 78.6 $ 153.6 $ 101.6NetincomepercommonshareattributabletoBrukerCorporationshareholders: Basic $ 0.50 $ 0.95 $ 0.60Diluted $ 0.49 $ 0.95 $ 0.60
Weightedaveragecommonsharesoutstanding: Basic 158.1 161.4 168.2Diluted 159.1 162.2 169.1
Consolidatednetincome $ 80.3 $ 154.5 $ 104.9Foreigncurrencytranslationadjustments 97.1 (27.6) (63.8)Pensionliabilityadjustments(netoftaxof$2.9million,$2.1millionand$2.1million,respectively) 6.5 (4.4) (9.6)Netcomprehensiveincome 183.9 122.5 31.5
Less:Comprehensiveincomeattributabletononcontrollinginterests 2.4 0.6 2.3ComprehensiveincomeattributabletoBrukerCorporation $ 181.5 $ 121.9 $ 29.2Dividenddeclaredpercommonshare $ 0.16 $ 0.16 $ —
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BRUKERCORPORATIONCONSOLIDATEDSTATEMENTSOFSHAREHOLDERS'EQUITY
(Inmillions,exceptsharedata)
CommonShares
CommonStockAmount
TreasuryShares
TreasuryStockAmount
AdditionalPaid-InCapital
RetainedEarnings
AccumulatedOther
ComprehensiveIncome
TotalShareholders'
EquityAttributable
toBruker
Corporation
NoncontrollingInterestsinConsolidatedSubsidiaries
TotalShareholders'
Equity BalanceatDecember31,2014 168,527,584 $ 1.7 55,404 $ (0.9) $ 81.1 $ 655.8 $ 28.2 $ 765.9 $ 5.8 $ 771.7
Restrictedsharesissued 135,677 — — — — — — — — —
Restrictedsharesterminated (145,857) — 145,857 — — — — — — —
Stockoptionsexercised 926,042 — — — 10.8 — — 10.8 — 10.8
Stockbasedcompensation — — — — 8.0 — — 8.0 — 8.0
Excesstaxbenefitrelatedtoexerciseofstockawards — — — — 2.2 — — 2.2 — 2.2
Sharesrepurchased (4,082,042) — 4,082,042 (89.9) — — — (89.9) — (89.9)Treasurystockacquired (7,224) — 7,224 (0.1) — — — (0.1) — (0.1)
Distributionstononcontrollinginterests — — — — — — — — (1.3) (1.3)
Consolidatednetincome — — — — — 101.6 — 101.6 3.3 104.9
Othercomprehensiveincome(loss) — — — — — — (72.4) (72.4) (1.0) (73.4)
BalanceatDecember31,2015 165,354,180 $ 1.7 4,290,527 $ (90.9) $ 102.1 $ 757.4 $ (44.2) $ 726.1 $ 6.8 $ 732.9
Restrictedsharesissued 13,105 — — — — — — — — —
Restrictedsharesterminated (1,375) — 1,375 — — — — — — —
Stockoptionsexercised 895,078 — — — 12.0 — — 12.0 — 12.0
Stockbasedcompensation — — — — 9.4 — — 9.4 — 9.4
Excesstaxbenefitrelatedtoexerciseofstockawards — — — — 1.3 — — 1.3 — 1.3
Sharesissuedforacquisition 90,066 — (90,066) 2.1 (0.1) — — 2.0 — 2.0
Sharesrepurchased (6,475,480) — 6,475,480 (160.0) — — — (160.0) — (160.0)Treasurystockacquired (20,879) — 20,879 (0.5) — — — (0.5) — (0.5)
Distributionstononcontrollinginterests — — — — — — — — (0.7) (0.7)
Cashdividendspaidtocommonstockholders — — — — — (25.8) — (25.8) — (25.8)
Consolidatednetincome — — — — — 153.6 — 153.6 0.9 154.5
Othercomprehensiveincome(loss) — — — — — — (31.7) (31.7) (0.3) (32.0)
BalanceatDecember31,2016 159,854,695 $ 1.7 10,698,195 $ (249.3) $ 124.7 $ 885.2 $ (75.9) $ 686.4 $ 6.7 $ 693.1
Restrictedsharesterminated (4,053) — 4,053 — — — — — — —
Stockoptionsexercised 1,263,767 — — — 20.4 — — 20.4 — 20.4
Restrictedstockunitsvested 58,419 — — — (0.3) — — (0.3) — (0.3)
Stockbasedcompensation — — — — 11.0 — — 11.0 — 11.0
Excesstaxbenefitrelatedtoexerciseofstockawards — — — — — 3.6 — 3.6 — 3.6
Sharesissuedforacquisition 18,110 — (18,110) 0.5 0.1 — — 0.6 — 0.6
Sharesrepurchased (5,318,063) — 5,318,063 (152.2) — — — (152.2) — (152.2)Treasurystockacquired (6,898) — 6,898 (0.2) — — — (0.2) — (0.2)
Distributionstononcontrollinginterests — — — — — — — — (1.0) (1.0)
Cashdividendspaidtocommonstockholders — — — — — (25.4) — (25.4) — (25.4)
Consolidatednetincome — — — — — 78.6 — 78.6 1.7 80.3
Othercomprehensiveincome(loss) — — — — — — 102.9 102.9 0.7 103.6
BalanceatDecember31,2017 155,865,977 $ 1.7 16,009,099 $ (401.2) $ 155.9 $ 942.0 $ 27.0 $ 725.4 $ 8.1 $ 733.5
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
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BRUKERCORPORATION
CONSOLIDATEDSTATEMENTSOFCASHFLOWS
(Inmillions)
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
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YearEndedDecember31, 2017 2016 2015 Cashflowsfromoperatingactivities: Consolidatednetincome $ 80.3 $ 154.5 $ 104.9Adjustmentstoreconcileconsolidatednetincometocashflowsfromoperatingactivities: Depreciationandamortization 63.9 54.3 53.3Stock-basedcompensationexpense 11.0 9.4 8.0Deferredincometaxes 28.2 (22.7) (29.4)Gain(loss)ondisposalofproductlines — — 0.2Impairmentandothernon-cashexpenses,net 11.6 24.1 45.9
Changesinoperatingassetsandliabilities,netofacquisitions: Accountsreceivable (55.5) (8.4) 45.0Inventories (6.6) (43.2) (5.4)Accountspayableandaccruedexpenses 33.7 (19.6) 12.6Incometaxespayable,net 5.2 (26.8) 22.7Deferredrevenue 4.0 4.9 3.8Customeradvances (27.8) (7.3) 1.4Otherchangesinoperatingassetsandliabilities,net 6.4 11.6 (33.8)
Netcashprovidedbyoperatingactivities 154.4 130.8 229.2Cashflowsfrominvestingactivities: Purchaseofshort-terminvestments (118.5) (126.5) (159.4)Maturityofshort-terminvestments 186.8 165.0 118.7Cashpaidforacquisitions,netofcashacquired (66.3) (24.3) (28.6)Proceedsfromdisposalofproductlines — — 0.2Purchasesofproperty,plantandequipment (43.7) (37.1) (34.2)Proceedsfromsalesofproperty,plantandequipment 11.5 1.1 0.9
Netcashusedininvestingactivities (30.2) (21.8) (102.4)Cashflowsfromfinancingactivities: Repaymentsofrevolvinglinesofcredit (130.0) — (129.5)Proceedsfromrevolvinglinesofcredit 154.0 146.0 42.0RepaymentofNotePurchaseAgreement (20.0) — —Repaymentofotherdebt,net (0.9) (0.1) (0.6)Proceedsfromissuanceofcommonstock,net 20.0 11.5 10.8Paymentofcontingentconsideration (3.5) — (3.0)Paymentofdividendstocommonstockholders (25.4) (25.8) —Repurchaseofcommonstock (152.2) (160.0) (90.0)Cashpaymentstononcontrollinginterests (1.0) (0.7) (1.3)Excesstaxbenefitsrelatedtostockoptionawards — 1.2 2.2
Netcashusedinfinancingactivities (159.0) (27.9) (169.4)Effectofexchangeratechangesoncash,cashequivalentsandrestrictedcash 17.8 (6.4) (11.0)Netchangeincash,cashequivalentsandrestrictedcash (17.0) 74.7 (53.6)Cash,cashequivalentsandrestrictedcashatbeginningofyear 345.9 271.2 324.8Cash,cashequivalentsandrestrictedcashatendofyear $ 328.9 $ 345.9 $ 271.2Supplementalcashflowinformation: Cashpaidforinterest $ 15.2 $ 12.5 $ 12.2Cashpaidfortaxes $ 53.1 $ 72.4 $ 56.6
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BRUKERCORPORATION
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS
Note1—DescriptionofBusiness
BrukerCorporation,togetherwithitsconsolidatedsubsidiaries("Bruker"orthe"Company"),develops,manufacturesanddistributeshigh-performancescientificinstrumentsandanalyticalanddiagnosticsolutionsthatenableitscustomerstoexplorelifeandmaterialsatmicroscopic,molecularandcellularlevels.ManyoftheCompany'sproductsareusedtodetect,measureandvisualizestructuralcharacteristicsofchemical,biologicalandindustrialmaterialsamples.TheCompany'sproductsaddresstherapidlyevolvingneedsofadiversearrayofcustomersinlifescienceresearch,pharmaceuticals,biotechnology,appliedmarkets,cellbiology,clinicalresearch,microbiology,in-vitrodiagnostics,nanotechnologyandmaterialsscienceresearch.
TheCompanyhastworeportablesegments,Bruker Scientific Instruments (BSI) ,whichrepresentedapproximately90%and93%oftheCompany'srevenuesduringtheyearendedDecember31,2017and2016,respectively,andBruker Energy & Supercon Technologies (BEST) ,whichrepresentedtheremainderoftheCompany'srevenues.WithinBSI,theCompanyisorganizedintothreeoperatingsegments:theBrukerBioSpinGroup,theBrukerCALIDGroupandtheBrukerNanoGroup.Forfinancialreportingpurposes,theBrukerBioSpin,BrukerCALIDandBrukerNanooperatingsegmentsareaggregatedintotheBSIreportablesegmentbecauseeachhassimilareconomiccharacteristics,productionprocesses,serviceofferings,typesandclassesofcustomers,methodsofdistributionandregulatoryenvironments.
Bruker BioSpin —TheBrukerBioSpinGroupdesigns,manufacturesanddistributesenablinglifesciencetoolsbasedonmagneticresonancetechnology.ThemajorityoftheBrukerBioSpinGroup'srevenuesaregeneratedbyacademicandgovernmentresearchcustomers.Othercustomersincludepharmaceuticalandbiotechnologycompaniesandnonprofitlaboratories,aswellaschemical,foodandbeverage,clinicalandotherindustrialcompanies.
Bruker CALID ( C hemicals, A pplied Markets, L ife Science, I n-Vitro Diagnostics, D etection) —TheBrukerCALIDGroupdesigns,manufacturesanddistributeslifesciencemassspectrometryandionmobilityspectrometrysolutions,analyticalandprocessanalysisinstrumentsandsolutionsbasedoninfraredandRamanmolecularspectroscopytechnologies;andradiological/nucleardetectorsforChemical,Biological,Radiological,NuclearandExplosive(CBRNE)detection.CustomersoftheBrukerCALIDGroupinclude:academicinstitutionsandmedicalschools;pharmaceutical,biotechnologyanddiagnosticscompanies;contractresearchorganizations;nonprofitorfor-profitforensicslaboratories;agriculture,foodandbeveragesafetylaboratories;environmentalandclinicalmicrobiologylaboratories;hospitalsandgovernmentdepartmentsandagencies.
Bruker Nano —TheBrukerNanoGroupdesigns,manufacturesanddistributesadvancedX-rayinstruments;atomicforcemicroscopyinstrumentation;advancedfluorescenceopticalmicroscopyinstruments;analyticaltoolsforelectronmicroscopesandX-raymetrology;defect-detectionequipmentforsemiconductorprocesscontrol;handheld,portableandmobileX-rayfluorescencespectrometryinstruments;andsparkopticalemissionspectroscopysystems.CustomersoftheBrukerNanoGroupincludeacademicinstitutions,governmentalcustomers,nanotechnologycompanies,semiconductorcompanies,rawmaterialmanufacturers,industrialcompanies,biotechnologyandpharmaceuticalcompaniesandotherbusinessesinvolvedinmaterialsanalysis.
TheCompany'sBESTreportablesegmentdevelopsandmanufacturessuperconductingandnon-superconductingmaterialsanddevicesforuseinrenewableenergy,energyinfrastructure,healthcareand"bigscience"research.Thesegmentfocusesonmetalliclowtemperaturesuperconductorsforuseinmagneticresonanceimaging,nuclearmagneticresonance,fusionenergy
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researchandotherapplications,aswellasceramichightemperaturesuperconductorsprimarilyforenergygridandmagnetapplications.
Note2—SummaryofSignificantAccountingPolicies
Theaccompanyingconsolidatedfinancialstatementsreflecttheapplicationofcertainsignificantaccountingpoliciesasdescribedbelowandelsewhereinthenotestotheconsolidatedfinancialstatements.
PrinciplesofConsolidation
TheaccompanyingconsolidatedfinancialstatementsincludetheaccountsoftheCompanyandallmajorityandwholly-ownedsubsidiaries.Allintercompanyaccountsandtransactionshavebeeneliminated.
NoncontrollingInterests
Noncontrollinginterestsrepresentstheminorityshareholders'proportionateshareoftheCompany'smajority-ownedsubsidiaries.Theportionofnetincomeornetlossattributabletonon-controllinginterestsispresentedasnetincomeattributabletononcontrollinginterestsinconsolidatedsubsidiariesintheconsolidatedstatementsofincomeandcomprehensiveincome,andtheportionofothercomprehensiveincomeofthesesubsidiariesispresentedintheconsolidatedstatementsofshareholders'equity.
SubsequentEvents
TheCompanyhasevaluatedallsubsequenteventsanddeterminedthattherearenomaterialrecognizedorunrecognizedsubsequentevents,oranysubsequenteventsrequiredtobementionedinthefootnotestotheconsolidatedfinancialstatements.
CashandCashEquivalents
Cashandcashequivalentsprimarilyincludecashonhand,moneymarketfundsandtimedepositswithoriginalmaturitiesofthreemonthsorlessatthedateofacquisition.Timedepositsrepresentamountsondepositinbanksandtemporarilyinvestedininstrumentswithmaturitiesofthreemonthsorlessatthetimeofpurchase.CertainoftheseinvestmentsrepresentdepositswhicharenotinsuredbytheFDICoranyothergovernmentagency.Cashequivalentsarecarriedatcost,whichapproximatesfairvalue.
Short-termInvestments
Short-terminvestmentsrepresenttimeandcalldepositswithoriginalmaturitiesofgreaterthanthreemonthsatthedateofacquisition.Short-terminvestmentsareclassifiedasavailable-for-saleandarereportedatfairvalue.Therewerenounrealizedgains(losses)recordedasofDecember31,2017and2016,ascostapproximatescurrentfairvalue.
RestrictedCash
InNovember2016,theFinancialAccountingStandardsBoard(FASB)issuedAccountingStandardsUpdate(ASU)2016-18,Statement of Cash Flows,Restricted Cash ,requiringrestrictedcashandrestrictedcashequivalentstobeincludedwithcashandcashequivalentsonthestatementofcashflowswhenreconcilingthebeginning-of-periodandend-of-periodtotalamountsshownonthestatementofcashflows.TheguidanceiseffectiveforinterimandannualperiodsbeginningafterDecember15,2017,withearlyadoptionpermitted.TheCompanyadoptedthisstandardduringthefirst
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quarterof2017.Restrictedcashisnowincludedasacomponentofcash,cashequivalents,andrestrictedcashontheCompany'sconsolidatedstatementofcashflows.TheCompanyhascertainsubsidiarieswhicharerequiredbylocalgovernancetomaintainrestrictedcashbalancestocoverfutureemployeebenefitpayments.Restrictedcashbalancesareclassifiedasnon-currentunless,underthetermsoftheapplicableagreements,thefundswillbereleasedfromrestrictionswithinoneyearfromthebalancesheetdate.Thecurrentandnon-currentportionofrestrictedcashisrecordedwithinothercurrentassetsandotherlong-termassets,respectively,intheaccompanyingconsolidatedbalancesheets.
Theinclusionofrestrictedcashincreasedthebalancesoftheconsolidatedstatementofcashflowsasfollows:
DerivativeFinancialInstrumentsandHedgingActivities
Allderivatives,whetherdesignatedinahedgingrelationshipornot,arerecordedontheconsolidatedbalancesheetsatfairvalue.Theaccountingforchangesinfairvalueofaderivativeinstrumentdependsonwhetherithasbeendesignatedandqualifiesaspartofahedgingrelationshipandfurther,onthetypeofhedgingrelationship.Forthosederivativeinstrumentsthataredesignatedandqualifyashedginginstruments,theCompanymustdesignatethehedginginstrument,basedontheexposurebeinghedged,asafairvaluehedge,cashflowhedge,foreigncurrencyhedgeorahedgeofanetinvestmentinaforeignoperation.
FairValueofFinancialInstruments
TheCompanyappliesthefollowinghierarchytodeterminethefairvalueoffinancialinstruments,whichprioritizestheinputsusedtomeasurefairvalueintothreelevelsandbasesthecategorizationwithinthehierarchyuponthelowestlevelofinputthatisavailableandsignificanttothefairvaluemeasurement.Thelevelsinthehierarchyaredefinedasfollows:
• Level 1: Inputstothevaluationmethodologyarequotedprices(unadjusted)foridenticalassetsorliabilitiesinactivemarkets.
• Level 2: Inputstothevaluationmethodologyincludequotedpricesforsimilarassetsandliabilitiesinactivemarkets,andinputsthatareobservablefortheassetorliability,eitherdirectlyorindirectly,forsubstantiallythefulltermofthefinancialinstrument.
• Level 3: Inputstothevaluationmethodologyareunobservableandsignificanttothefairvaluemeasurement.
ThevaluationtechniquesthatmaybeusedbytheCompanytodeterminethefairvalueofLevel2andLevel3financialinstrumentsarethemarketapproach,theincomeapproachandthecostapproach.Themarketapproachusespricesandotherrelevantinformationgeneratedbymarkettransactionsinvolvingidenticalorcomparableassetsorliabilities.Theincomeapproachusesvaluationtechniquestoconvertfutureamountstoasinglepresentvaluebasedoncurrentmarketexpectationsaboutthosefutureamounts,includingpresentvaluetechniques,option-pricingmodelsandtheexcessearningsmethod.Thecostapproachisbasedontheamountthatwouldberequiredtoreplacetheservicecapacityofanasset(replacementcost).
TheCompany'sfinancialinstrumentsconsistprimarilyofcashequivalents,short-terminvestments,restrictedcash,derivativeinstrumentsconsistingofforwardforeignexchangecontracts,commoditycontracts,derivativesembeddedincertainpurchaseandsalecontracts,accountsreceivable,accounts
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2017 2016 2015 BeginningBalance $ 3.5 $ 4.1 $ 5.2EndingBalance 4.0 3.5 4.1
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payable,contingentconsiderationandlong-termdebt.ThecarryingamountsoftheCompany'scashequivalents,short-terminvestmentsandrestrictedcash,accountsreceivable,borrowingsunderarevolvingcreditagreementandaccountspayableapproximatefairvaluebecauseoftheirshort-termnature.Derivativeassetsandliabilitiesaremeasuredatfairvalueonarecurringbasis.TheCompany'slong-termdebtconsistsprincipallyofaprivateplacementarrangemententeredintoin2012withvariousfixedinterestratesbasedonthematuritydateandborrowingsunderarevolvingcreditagreement,
TheCompanyhasevaluatedtheestimatedfairvalueoffinancialinstrumentsusingavailablemarketinformationandmanagement'sestimates.Theuseofdifferentmarketassumptionsand/orestimationmethodologiescouldhaveasignificanteffectontheestimatedfairvalueamounts.
ConcentrationofCreditRisk
FinancialinstrumentsthatsubjecttheCompanytocreditriskconsistofcash,cashequivalents,short-terminvestments,derivativeinstruments,accountsreceivablesandrestrictedcash.Theriskwithrespecttocash,cashequivalentsandshort-terminvestmentsisminimizedbytheCompany'spolicyofinvestinginshort-termfinancialinstrumentsissuedbyhighly-ratedfinancialinstitutions.TheriskwithrespecttoderivativeinstrumentsisminimizedbytheCompany'spolicyofenteringintoarrangementswithhighly-ratedfinancialinstitutions.TheriskwithrespecttoaccountsreceivablesisminimizedbythecreditworthinessanddiversityoftheCompany'scustomers.TheCompanyperformsperiodiccreditevaluationsofitscustomers'financialconditionandgenerallyrequiresanadvanceddepositforaportionofthepurchaseprice.Creditlosseshavebeenwithinmanagement'sexpectationsandtheallowancefordoubtfulaccountstotaled$4.7millionand$7.9millionasofDecember31,2017and2016,respectively.AsofDecember31,2017and2016,nosinglecustomerrepresented10%ormoreoftheCompany'saccountsreceivable.FortheyearsendedDecember31,2017,2016and2015,nosinglecustomerrepresented10%ormoreoftheCompany'stotalrevenue.
Inventories
Componentsofinventoryincluderawmaterials,work-in-process,demonstrationunitsandfinishedgoods.DemonstrationunitsincludesystemswhicharelocatedintheCompany'sdemonstrationlaboratoriesorinstalledatthesitesofpotentialcustomersandareconsideredavailableforsale.Finishedgoodsincludein-transitsystemsthathavebeenshippedtotheCompany'scustomers,butnotyetinstalledandacceptedbythecustomer.Allinventoriesarestatedatthelowerofcostandnetrealizablevalue.Costisdeterminedprincipallybythefirst-in,first-outmethodforamajorityofsubsidiariesandbyaverage-costforcertainothersubsidiaries.TheCompanyreducesthecarryingvalueofitsinventoriesfordifferencesbetweencostandestimatednetrealizablevalue,takingintoconsiderationusageintheprecedingtwelvemonths,expecteddemand,technologicalobsolescenceandotherinformationincludingthephysicalconditionofdemonstrationinventories.TheCompanyrecordsachargetocostofproductrevenuefortheamountrequiredtoreducethecarryingvalueofinventorytonetrealizablevalue.Costsassociatedwiththeprocurementofinventories,suchasinboundfreightchargesandpurchasingandreceivingcosts,arecapitalizedaspartofinventoryandarealsoincludedinthecostofproductrevenuelineitemwithintheconsolidatedstatementsofincomeandcomprehensiveincome.
Property,PlantandEquipment
Property,plantandequipmentarestatedatcostlessaccumulateddepreciationandamortization.Majorimprovementsarecapitalizedwhileexpendituresformaintenance,repairsandminorimprovementsarechargedtoexpenseasincurred.Whenassetsareretiredorotherwisedisposedof,theassetsandrelatedaccumulateddepreciationandamortizationareeliminatedfromtheaccountsandanyresultinggainorlossisreflectedintheconsolidatedstatementsofincomeandcomprehensive
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income.Depreciationandamortizationarecalculatedonastraight-linebasisovertheestimatedusefullivesoftheassetsasfollows:
GoodwillandIntangibleAssets
Goodwillandindefinite-livedintangibleassetsarenotamortized,butareevaluatedforimpairmentonanannualbasis,oronaninterimbasiswheneventsorchangesincircumstancesindicatethatthecarryingvaluemaynotberecoverable.Inassessingtherecoverabilityofgoodwillandindefinite-livedintangibleassets,theCompanymustmakeassumptionsregardingtheestimatedfuturecashflows,andotherfactors,todeterminethefairvalueoftheseassets.Iftheseestimatesortheirrelatedassumptionschangeinthefuture,theCompanymayberequiredtorecordimpairmentchargesagainsttheseassetsinthereportingperiodinwhichtheimpairmentisdetermined.
TheCompanytestsgoodwillforimpairmentatthereportingunitlevel,whichistheoperatingsegmentoronelevelbelowanoperatingsegment.TheCompanyhastheoptionofperformingaqualitativeassessmenttodeterminewhetherfurtherimpairmenttestingisnecessarybeforeperformingthetwo-stepquantitativeassessment.Ifasaresultofthequalitativeassessment,itismore-likely-than-notthatthefairvalueofareportingunitislessthanitscarryingamount,aquantitativeimpairmenttestwillberequired.Otherwise,nofurthertestingwillberequired.Ifaquantitativeimpairmenttestisperformed,thefirststepinvolvescomparingthefairvaluesoftheapplicablereportingunitswiththeiraggregatecarryingvalues,includinggoodwill.TheCompanygenerallydeterminesfairvalueofreportingunitsusingaweightingofboththemarketandtheincomemethodologies.Estimatingthefairvalueofthereportingunitsrequiressignificantjudgmentbymanagement.Ifthecarryingamountofareportingunitexceedsthefairvalueofthereportingunit,theCompanyperformsthesecondstepofthegoodwillimpairmenttesttomeasuretheamountoftheimpairment.InthesecondstepofthegoodwillimpairmenttesttheCompanycomparestheimpliedfairvalueofthereportingunit'sgoodwillwiththecarryingvalueofthatgoodwill.
Inprocessresearchanddevelopment,orIPR&D,acquiredaspartofbusinesscombinationsundertheacquisitionmethodrepresentsongoingdevelopmentworkassociatedwithenhancementstoexistingproducts,aswellasthedevelopmentofnextgenerationproducts.IPR&Disinitiallycapitalizedatfairvalueasanintangibleassetwithanindefinitelifeandassessedforimpairmentonanannualbasis,orwhenindicatorsofimpairmentareidentified.WhentheIPR&Dprojectiscomplete,itisreclassifiedasafinite-livedintangibleassetandisamortizedoveritsestimatedusefullife.IfanIPR&Dprojectisabandonedbeforecompletionorisotherwisedeterminedtobeimpaired,thevalueoftheassetortheamountoftheimpairmentischargedtotheconsolidatedstatementsofincomeandcomprehensiveincomeintheperiodtheprojectisabandonedorimpaired.
Intangibleassetswithafiniteusefullifeareamortizedonastraight-linebasisovertheirestimatedusefullivesasfollows:
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Buildings 25-40years Machineryandequipment 3-10years Computerequipmentandsoftware 3-5years Furnitureandfixtures 3-10years Leaseholdimprovements Lesserof15yearsortheremainingleaseterm
Existingtechnologyandrelatedpatents 3-10years Customeranddistributorrelationships 5-12years Tradenames 5-10years
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ImpairmentofLong-LivedAssets
Impairmentlossesarerecordedonlong-livedassetsusedinoperationswhenindicatorsofimpairmentarepresentandthequotedmarketprice,ifavailableortheestimatedfairvalueofthoseassetsarelessthantheassets'carryingvalueandarenotrecoverable.Determinationofrecoverabilityisbasedonanestimateofundiscountedfuturecashflowsresultingfromtheuseoftheassetanditseventualdisposition.Intheeventthatsuchcashflowsarenotexpectedtobesufficienttorecoverthecarryingamountoftheassets,theassetsarewritten-downtotheirfairvalues.Impairmentlossesarechargedtotheconsolidatedstatementsofincomeandcomprehensiveincomeforthedifferencebetweenthefairvalueandcarryingvalueoftheasset.
WarrantyCostsandDeferredRevenue
TheCompanytypicallyprovidesaoneyearpartsandlaborwarrantywiththepurchaseofequipment.Theanticipatedcostforthiswarrantyisaccrueduponrecognitionofthesaleandisincludedasacurrentliabilityontheaccompanyingconsolidatedbalancesheets.TheCompany'swarrantyreservereflectsestimatedmaterialandlaborcostsforpotentialproductissuesforwhichtheCompanyexpectstoincuranobligation.TheCompany'sestimatesofanticipatedratesofwarrantyclaimsandcostsareprimarilybasedonhistoricalinformation.TheCompanyassessestheadequacyofthewarrantyreserveonaquarterlybasisandadjuststheamountasnecessary.Ifthehistoricaldatausedtocalculatetheadequacyofthewarrantyreserveisnotindicativeoffuturerequirements,additionalorreducedwarrantyreservesmayberequired.
TheCompanyalsoofferstoitscustomersextendedwarrantyandserviceagreementsextendingbeyondtheinitialwarrantyforafee.Thesefeesarerecordedasdeferredrevenueandrecognizedratablyintoincomeoverthelifeoftheextendedwarrantycontractorserviceagreement.
IncomeTaxes
Deferredtaxassetsandliabilitiesarerecognizedfortheexpectedfuturetaxconsequencesoftemporarydifferencesbetweenthefinancialstatementcarryingamountsandtheincometaxbasisofassetsandliabilities.Avaluationallowanceisappliedagainstanynetdeferredtaxassetif,basedontheavailableevidence,itismorelikelythannotthatsomeorallofthedeferredtaxassetswillnotberealized.
TheCompanyrecordsliabilitiesrelatedtouncertaintaxpositionsinaccordancewiththeguidancethatclarifiestheaccountingforuncertaintyinincometaxesrecognizedinaCompany'sfinancialstatements.Thisguidanceprescribesaminimumrecognitionthresholdandmeasurementattributeforthefinancialstatementrecognitionandmeasurementofataxpositiontakenorexpectedtobetakeninataxreturn.TheCompanyincludesaccruedinterestandpenaltiesrelatedtounrecognizedtaxbenefitsandincometaxliabilities,whenapplicable,inincometaxexpense.
CustomerAdvances
TheCompanytypicallyrequiresanadvancedepositunderthetermsandconditionsofcontractswithcustomers.Thesedepositsarerecordedasacurrentorlong-termliabilityuntilrevenueisrecognizedonthespecificcontractinaccordancewiththeCompany'srevenuerecognitionpolicy.
RevenueRecognition
TheCompanyrecognizesrevenuefromsystemssaleswhenpersuasiveevidenceofanarrangementexists,thepriceisfixedordeterminable,titleandriskoflosshasbeentransferredtothecustomerandcollectabilityoftheresultingreceivableisreasonablyassured.Titleandriskoflossgenerallytransfersuponshipment,orforcertainsystems,baseduponcustomeracceptanceforasystemthathasbeen
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deliveredandinstalledatacustomerfacility.Forsystemsthatincludecustomer-specificacceptancecriteria,theCompanyisrequiredtoassesswhenitcandemonstratetheacceptancecriteriahasbeenmet,whichgenerallyisuponsuccessfulfactoryacceptancetestingorcustomeracceptanceandevidenceofinstallation.
Whenproductsaresoldthroughanindependentdistributororastrategicdistributionpartnerwhoassumesresponsibilityforinstallation,theCompanyrecognizesthesystemsalewhentheproducthasbeenshippedandtitleandriskoflosshavebeentransferredtothedistributor.TheCompany'sdistributorsdonothavepriceprotectionrightsorrightsofreturn;however,theCompany'sproductsaretypicallywarrantedtobefreefromdefectforaperiodofoneyear.Revenueisdeferreduntilcashisreceivedwhencollectabilityisnotreasonablyassuredorwhenthepriceisnotfixedordeterminable.
Fortransactionsthatincludemultipleelements,arrangementconsiderationisallocatedtoeachelementusingthefairvaluehierarchyasrequiredbyASUNo.2009-13.TheCompanylimitstheamountofrevenuerecognizedfordeliveredelementstotheamountthatisnotcontingentonthefuturedeliveryofproductsorservices,futureperformanceobligations,orsubjecttocustomer-specificreturnorrefundprivileges.
TheCompanydeterminesthefairvalueofitsproductsandservicesbaseduponvendorspecificobjectiveevidence("VSOE").TheCompanydeterminesVSOEbasedonitsnormalsellingpricinganddiscountingpracticesforthespecificproductorservicewhensoldonastand-alonebasis.IndeterminingVSOE,theCompany'spolicyrequiresasubstantialmajorityofsellingpricesforaproductorservicetobewithinareasonablynarrowrange.TheCompanyalsoconsiderstheclassofcustomer,methodofdistributionandthegeographiesintowhichproductsandservicesarebeingsoldwhendeterminingVSOE.
IfVSOEcannotbeestablished,theCompanyattemptstoestablishthesellingpricebasedonthird-partyevidence("TPE").VSOEcannotbeestablishedininstanceswhereaproductorservicehasnotbeensoldseparately,stand-alonesalesaretooinfrequentorproductpricingisnotwithinasufficientlynarrowrange.TPEisdeterminedbasedoncompetitorpricesforsimilardeliverableswhensoldseparately.
WhentheCompanycannotdetermineVSOEorTPE,itusesestimatedsellingprice("ESP")initsallocationofarrangementconsideration.TheobjectiveofESPistodeterminethepriceatwhichtheCompanywouldtypicallytransactastand-alonesaleoftheproductorservice.ESPisdeterminedbyconsideringanumberoffactorsincludingtheCompany'spricingpolicies,internalcostsandgrossprofitobjectives,methodofdistribution,marketresearchandinformation,recenttechnologicaltrends,competitivelandscapeandgeographies.TheCompanyanalyzesthesellingpricesusedinitsallocationofarrangementconsideration,ataminimum,onanannualbasis.SellingpriceswillbeanalyzedmorefrequentlyifasignificantchangeintheCompany'sbusinessorotherfactorsnecessitatemorefrequentanalysisoriftheCompanyexperiencessignificantvariancesinitssellingprices.
Revenuefromaccessoriesandpartsisgenerallyrecognizedbasedonshippingterms.Servicerevenueisrecognizedastheservicesareperformedorratablyoverthecontractualobligationandincludesmaintenancecontracts,extendedwarranty,training,applicationsupportandon-demandservices.
TheCompanyalsohascontractsforwhichitappliesthepercentage-of-completionmodelandcompletedcontractmodelofrevenuerecognition.Applicationofthepercentage-of-completionmethodrequirestheCompanytomakereasonableestimatesoftheextentofprogresstowardcompletionofthecontractandthetotalcoststheCompanywillincurunderthecontractandlossesarerecordedimmediatelywhenweestimatethatcontractswillultimatelyresultinaloss.Changesintheestimatescouldaffectthetimingofrevenuerecognition.
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Otherrevenuesareprimarilycomprisedofdevelopmentarrangementsrecognizedonacost-plus-fixed-feebasisandlicensingarrangementsrecognizedratablyoverthetermoftherelatedcontracts.
ShippingandHandlingCosts
TheCompanyincludescostsincurredinconnectionwithshippingandhandlingofproductswithinselling,generalandadministrativeexpensesintheaccompanyingconsolidatedstatementsofincomeandcomprehensiveincome.Shippingandhandlingcostswere$23.2million,$21.3millionand$20.6millionintheyearsendedDecember31,2017,2016and2015,respectively.Amountsbilledtocustomersinconnectionwiththesecostsareincludedintotalrevenues.
ResearchandDevelopment
TheCompanycommitssubstantialcapitalandresourcestointernalandcollaborativeresearchanddevelopmentprojectsinordertoprovideinnovativeproductsandsolutionstotheircustomers.TheCompanyconductsresearchprimarilytoenhancesystemperformanceandimprovethereliabilityofexistingproducts,andtodeveloprevolutionarynewproductsandsolutions.Researchanddevelopmentcostsareexpensedasincurredandincludesalaries,wagesandotherpersonnelrelatedcosts,materialcostsanddepreciation,consultingcostsandfacilitycosts.
CapitalizedSoftware
Purchasedsoftwareiscapitalizedatcostandisamortizedovertheestimatedusefullife,whichisgenerallythreeyears.SoftwaredevelopedforuseintheCompany'sproductsisexpensedasincurredtoresearchanddevelopmentexpenseuntiltechnologicalfeasibilityisachieved.Subsequenttotheachievementoftechnologicalfeasibility,amountsarecapitalizable;however,todatesuchamountshavenotbeenmaterial.
Advertising
TheCompanyexpensesadvertisingcostsasincurred.Advertisingexpenseswere$14.0million,$12.7millionand$12.9millionduringtheyearsendedDecember31,2017,2016and2015,respectively.
Stock-BasedCompensation
TheCompanyrecognizesstock-basedcompensationexpenseintheconsolidatedstatementsofincomeandcomprehensiveincomebasedonthefairvalueoftheshare-basedawardatthegrantdate.TheCompany'sprimarytypesofshare-basedcompensationarestockoptions,restrictedstockawardsandrestrictedstockunits.TheCompanyrecordedstock-basedcompensationexpensefortheyearsendedDecember31,2017,2016and2015,asfollows(inmillions):
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2017 2016 2015 Stockoptions $ 6.2 $ 7.5 $ 7.1Restrictedstockawards 1.4 1.6 0.9Restrictedstockunits 3.4 0.3 —Totalstock-basedcompensation $ 11.0 $ 9.4 $ 8.0
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Compensationexpenseisamortizedonastraight-linebasisovertheunderlyingvestingtermsoftheshare-basedaward.StockoptionstopurchasetheCompany'scommonstockareperiodicallyawardedtoexecutiveofficersandotheremployeesoftheCompanysubjecttoavestingperiodofthreetofouryears.ThefairvalueofeachoptionawardisestimatedonthedateofgrantusingtheBlack-Scholesoption-pricingmodel.Assumptionsregardingvolatility,expectedterm,dividendyieldandrisk-freeinterestratesarerequiredfortheBlack-Scholesmodelandarepresentedinthetablebelow:
Risk-freeinterestratesarebasedontheyieldonzero-couponU.S.Treasurysecuritiesforaperiodthatiscommensuratewiththeexpectedlifeassumption.ExpectedlifeisdeterminedthroughacalculationbasedonhistoricaldataandtheCompanybelievesthatthisisthebestestimateoftheexpectedtermofanewoption.Expectedvolatilityisbasedonanumberoffactors,buttheCompanycurrentlybelievesthattheexclusiveuseofitshistoricalvolatilityresultsinthebestestimateoftheexpectationsoffuturevolatilityovertheexpectedterm.TheexpecteddividendyieldwasincludedintheoptionpricingformulabeginninginFebruaryof2016astheCompanyadoptedadividendpolicy.Inaddition,theCompanyutilizesanestimatedforfeitureratewhencalculatingthestock-basedcompensationexpensefortheperiod.TheCompanyhasappliedestimatedforfeitureratesderivedfromananalysisofhistoricaldataof6.7%,6.2%and5.8%fortheyearsendedDecember31,2017,2016and2015,respectively,indeterminingtheexpenserecordedintheaccompanyingconsolidatedstatementsofincomeandcomprehensiveincome.
Startingin2017,membersoftheCompany'sBoardofDirectorsreceiveanannualawardofrestrictedstockunitswhichvestoveraoneyearserviceperiod.
EarningsPerShare
NetincomepercommonshareattributabletoBrukerCorporationshareholdersiscalculatedbydividingnetincomeattributabletoBrukerCorporationbytheweighted-averagesharesoutstandingduringtheperiod.Thedilutednetincomepersharecomputationincludestheeffectofshareswhichwouldbeissuableupontheexerciseofoutstandingstockoptionsandthevestingofrestrictedstock,reducedbythenumberofshareswhichareassumedtobepurchasedbytheCompanyunderthetreasurystockmethod.
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2017 2016 2015 Costsofproductrevenue $ 1.7 $ 1.4 $ 1.2Selling,generalandadministrative 7.6 6.6 5.6Researchanddevelopment 1.7 1.4 1.2Totalstock-basedcompensation $ 11.0 $ 9.4 $ 8.0
2017 2016 2015 Risk-freeinterestrates 1.78%-2.09% 1.23%-2.21% 1.58%-1.91%Expectedlife 5.56years 5.75-7.02years 6.0-6.25yearsVolatility 30.78%-34.13% 33.57%-41.60% 35.10%-52.23%Expecteddividendyield 0.55%-0.74% 0.0%-0.78% —
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ThefollowingtablesetsforththecomputationofbasicanddilutedweightedaveragesharesoutstandingfortheyearsendedDecember31,(inmillions,exceptpersharedata):
Stockoptionsandrestrictedstockunitstopurchaseapproximately0.3millionshares,0.6millionsharesand1.3millionshareswereexcludedfromthecomputationofdilutedearningspersharefortheyearsendedDecember31,2017,2016and2015,respectively,becausetheireffectwouldhavebeenanti-dilutive.
PostRetirementBenefitPlans
TheCompanyrecognizestheover-fundedorunder-fundedstatusofdefinedbenefitpensionandotherpostretirementdefinedbenefitplansasanassetorliability,respectively,initsconsolidatedbalancesheetsandrecognizeschangesinthefundedstatusintheyearinwhichthechangesoccurthroughothercomprehensiveincome.
OtherComprehensiveIncome(Loss)
Othercomprehensiveincome(loss)referstorevenues,expenses,gainsandlossesthatareexcludedfromnetincomeastheseamountsarerecordeddirectlyasanadjustmenttoshareholders'equity,netoftax.TheCompany'sothercomprehensiveincome(loss)wascomposedofforeigncurrencytranslationadjustmentsandpensionliabilityadjustments.
ForeignCurrencyTranslation
AssetsandliabilitiesoftheCompany'sforeignsubsidiaries,wherethefunctionalcurrencyisthelocalcurrency,aretranslatedintoU.S.Dollarsusingyear-endexchangerates,orhistoricalrates,asappropriate.Revenuesandexpensesofforeignsubsidiariesaretranslatedattheaverageexchangeratesineffectduringtheyear.Adjustmentsresultingfromfinancialstatementtranslationsareincludedasaseparatecomponentofshareholders'equity.Gainsandlossesresultingfromtranslationofforeigncurrencymonetarytransactionsarereportedininterestandotherincome(expense),netintheconsolidatedstatementsofincomeandcomprehensiveincomeforallperiodspresented.TheCompanyhascertainintercompanyforeigncurrencytransactionsthataredeemedtobeofalong-terminvestmentnature.Exchangeadjustmentsrelatedtothosetransactionsaremadedirectlytoaseparatecomponentofshareholders'equity.
RiskandUncertainties
TheCompanyissubjecttoriskscommontoitsindustryincluding,butnotlimitedto,globaleconomicconditions,rapidtechnologicalchange,governmentandacademicfundinglevels,changesin
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2017 2016 2015 NetincomeattributabletoBrukerCorporation,asreported $ 78.6 $ 153.6 $ 101.6Weightedaveragesharesoutstanding: Weightedaveragesharesoutstanding-basic 158.1 161.4 168.2Effectofdilutivesecurities: Stockoptions,restrictedstockawardsandrestrictedstockunits 1.0 0.8 0.9
159.1 162.2 169.1NetincomepercommonshareattributabletoBrukerCorporationshareholders: Basic $ 0.50 $ 0.95 $ 0.60Diluted $ 0.49 $ 0.95 $ 0.60
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commodityprices,spendingpatternsfromitscustomers,protectionofitsintellectualproperty,availabilityofkeyrawmaterialsandcomponents,compliancewithexistingandfutureregulationbygovernmentagenciesandfluctuationsinforeigncurrencyexchangerates.
LossContingencies
Losscontingencyprovisionsarerecordedifthepotentiallossfromanyclaim,assertedorunasserted,orlegalproceedingrelatedtopatents,productsandothermatters,isconsideredprobableandtheamountcanbereasonablyestimatedorarangeoflosscanbedetermined.Theseaccrualsrepresentmanagement'sbestestimateofprobableloss.Disclosureisprovidedwhenitisreasonablypossiblethatalosswillbeincurredorwhenitisreasonablypossiblethattheamountofalosswillexceedtherecordedprovision.
UseofEstimates
ThepreparationoffinancialstatementsinconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmericarequiresmanagementtomakeestimatesandassumptionsthataffectthereportedamountsofassetsandliabilitiesanddisclosureofcontingentassetsandliabilitiesatthedateofthefinancialstatementsandreportedamountsofrevenuesandexpensesduringthereportingperiod.
Significantestimatesandjudgmentsmadebymanagementinpreparingthesefinancialstatementsincluderevenuerecognition,allowancesfordoubtfulaccounts,write-downsforexcessandobsoleteinventory,estimatedfairvaluesusedtorecordimpairmentchargesrelatedtointangibleassets,goodwill,andotherlong-livedassets,amortizationperiods,expectedfuturecashflowsusedtoevaluatetherecoverabilityoflong-livedassets,stock-basedcompensationexpense,warrantyallowances,restructuringandotherrelatedcharges,contingentliabilitiesandtherecoverabilityoftheCompany'snetdeferredtaxassets.
AlthoughtheCompanyregularlyreassessestheassumptionsunderlyingtheseestimates,actualresultscoulddiffermateriallyfromtheseestimates.Changesinestimatesarerecordedintheperiodinwhichtheybecomeknown.TheCompanybasesitsestimatesonhistoricalexperienceandvariousotherassumptionsthatitbelievestobereasonableunderthecircumstances.Actualresultsmaydifferfrommanagement'sestimatesiftheseresultsdifferfromhistoricalexperienceorotherassumptionsprovenottobesubstantiallyaccurate,evenifsuchassumptionswerereasonablewhenmade.
Note3—Acquisitions
2017
OnMay5,2017,theCompanyacquired100%ofthesharesofLuxendoGmbH("Luxendo"),aprivatelyheldspin-offoftheEuropeanMolecularBiologyLaboratory,forapurchasepriceofEuro17million(approximately$18.8million),withthepotentialforadditionalconsiderationbasedonrevenueachievementsin2018through2021.Luxendoisadeveloperandmanufacturerofproprietarylight-sheetfluorescencemicroscopyinstruments.TheCompanybelievestheacquisitionenhancestheCompany'sportfolioofswept-fieldconfocal,super-resolution,andmultiphotonfluorescencemicroscopeproductlinesforsmallorganismembryology,live-cellimaging,braindevelopmentandclearedbraintissueandoptogeneticsapplications.LuxendoislocatedinHeidelberg,GermanyandisbeingintegratedintotheBrukerNanoGroupwithintheBSIreportablesegment.TheacquisitionofLuxendo
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wasaccountedforundertheacquisitionmethod.Thecomponentsandfairvalueallocationoftheconsiderationtransferredinconnectionwiththeacquisitionwereasfollows(inmillions):
Thepreliminaryfairvalueallocationincludedcontingentconsiderationintheamountof$3.1million,whichrepresentedtheestimatedfairvalueoffuturepaymentstotheformershareholdersofLuxendobasedonachievingannualrevenuetargetsfortheyears2018through2021.TheCompanycompletedthefairvalueallocationinthethirdquarterof2017.TheamortizationperiodforintangibleassetsacquiredinconnectionwiththeacquisitionofLuxendois10yearsfortradenamesand7yearsfortechnology.
TheresultsofLuxendo,includingtheamountallocatedtogoodwillthatisattributabletoexpectedsynergiesandnotexpectedtobedeductiblefortaxpurposes,havebeenincludedintheBSISegmentfromthedateofacquisition.ProformafinancialinformationreflectingtheacquisitionofLuxendohasnotbeenpresentedbecausetheimpactonrevenues,netincomeandtotalassetsisnotmaterial.
OnJanuary23,2017,theCompanyacquired100%ofthesharesofHysitron,Incorporated("Hysitron").TheacquisitionaddsHysitron'snanomechanicaltestinginstrumentstotheCompany'sexistingportfolioofatomicforcemicroscopes,surfaceprofilometers,andtribologyandmechanicaltestingsystems.HysitronisincludedintheBrukerNanoGroupwithintheBSIreportablesegment.TheacquisitionofHysitronwasaccountedforundertheacquisitionmethod.Thecomponentsandfair
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ConsiderationTransferred: Cashpaid $ 20.1Cashacquired (1.3)Contingentconsideration 3.1Totalconsiderationtransferred $ 21.9
AllocationofConsiderationTransferred: Inventories 1.1Othercurrentandnon-currentassets 0.4Property,plantandequipment 0.3Intangibleassets: Existingtechnology 10.9Tradename 0.8
Goodwill 11.2Deferredtaxes,net (2.4)Liabilitiesassumed (0.4)Totalconsiderationtransferred $ 21.9
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valueallocationoftheconsiderationtransferredinconnectionwiththeacquisitionofHysitronwereasfollows(inmillions):
Thefairvalueallocationincludedcontingentconsiderationintheamountof$1.6million,whichrepresentedtheestimatedfairvalueoffuturepaymentstotheformershareholdersofHysitronbasedonachievingannualrevenuetargetsfortheyears2017through2018.TheCompanycompletedthefairvalueallocationinthesecondquarterof2017.Themaximumpotentialfuturepaymentsrelatedtothecontingentconsiderationis$10million.TheamortizationperiodforintangibleassetsacquiredinconnectionwithHysitronis7yearsforcustomerrelationships,trademarksandotherintangiblesand5yearsforexistingtechnology.
TheresultsofHysitron,includingtheamountallocatedtogoodwillthatisattributabletoexpectedsynergiesandnotexpectedtobedeductiblefortaxpurposes,havebeenincludedintheBSISegmentfromthedateofacquisition.ProformafinancialinformationreflectingtheacquisitionofHysitronhasnotbeenpresentedbecausetheimpactonrevenues,netincomeandtotalassetsisnotmaterial.
Inadditiontotheacquisitionsnotedabove,intheyearendedDecember31,2017,theCompanycompletedvariousotheracquisitionsthatcollectivelycomplementedtheCompany'sexistingproductofferingsoraddedaftermarketandsoftwarecapabilitiestotheCompany'sexistingmicrobiologybusiness.Theimpactoftheseacquisitions,individuallyandcollectively,onrevenues,netincomeandtotalassetswasnotmaterial.Proformafinancialinformationreflectingtheseacquisitionshasnotbeenpresentedbecausetheimpact,individuallyandcollectively,onrevenues,netincomeandtotalassetsis
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ConsiderationTransferred: Cashpaid $ 27.9Cashacquired (0.7)Contingentconsideration 1.6Totalconsiderationtransferred $ 28.8
AllocationofConsiderationTransferred: Accountsreceivable,net $ 3.0Inventories 3.8Othercurrentassets 0.2Property,plantandequipment 0.6Intangibleassets: Customerrelationships 5.8Existingtechnology 4.7Tradename 1.2Other 0.6
Goodwill 16.6Deferredtaxes,net (4.1)Capitallease (0.2)Liabilitiesassumed (3.4)Totalconsiderationtransferred $ 28.8
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notmaterial.Thefollowingtablereflectstheconsiderationtransferredandtherespectivereportingsegmentforeachoftheacquisitions:
2016
OnDecember14,2016,weacquired100%ofthestockofActiveSpectrumInc.,amanufacturerofmagneticresonancespectroscopy.OnNovember17,2016,weacquired100%ofthemembershipinterestsofOxfordInstrumentsSuperconductingWireLLC(OST),amanufactureroflow-temperaturesuperconductors.OnNovember2,2016,weacquiredtheassetsofRenishawDiagnosticsLtd.,adeveloperandproducerofmolecularassaysforapplicationsinmicrobiology.OnNovember21,2016,weacquiredthepreclinicalimagingbusinessofOncoVision,aleadingproviderofinnovativemedicalimagingdevices.OnJune20,2016,weacquiredtheassetsofYingshengTechnologyPtyLtd.,whichcompriseatechnologyforadvancedmineralsidentificationandcharacterization.TheproductsoftheacquiredcompaniesareintendedtocomplementtheCompany'sexistingproductportfolioandtechnologybase.Thefollowingtablereflectstheconsiderationtransferredandtherespectivereportingsegmentforeachoftheacquisitions:
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NameofAcquisition DateAcquired Segment Consideration CashConsideration InVivoBiotechSvsGmbH. January2,2017 BSI $ 9.1 $ 9.1SCIILsGmbH January2,2017 BSI 3.1 3.1Hysitron,Incorporated January23,2017 BSI 28.8 27.2LuxendoGmbH May5,2017 BSI 21.9 18.8XGLabS.r.l. August1,2017 BSI 5.5 5.5thepTD/ePaTOXIIbusinessofAnalytikJenaAG August2,2017 BSI 0.4 0.4MERLINDiagnostikaGmbH September20,2017 BSI 2.5 2.2
$ 71.3 $ 66.3
NameofAcquisition Segment Consideration CashConsideration YingshengTechnologyPtyLtd BSI $ 1.7 $ 1.2RenishawDiagnosticsLtd. BSI 3.6 1.2OxfordInstrumentsSuperconductingWireLLC BEST 15.9 15.9PreclinicalImagingBusinessofOncoVision BSI 7.4 6.0ActiveSpectrumInc. BSI 2.8 —
$ 31.4 $ 24.3
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Thecomponentsandfairvalueallocationoftheconsiderationtransferredinconnectionwiththeseacquisitionswereasfollows(inmillions):
TheCompanycompletedthefairvalueallocationfortheseacquisitionsatDecember31,2016.Thefairvalueallocationincludedcontingentconsiderationintheamountof$5.1million,whichrepresentedtheestimatedfairvalueoffuturepaymentstotheformershareholdersoftheacquiredcompaniesbasedonachievingannualrevenueandgrossmargintargetsinfutureyears.Thefuturepaymentsofthecontingentconsiderationmaydifferfromthefairvaluerecordedbasedonthefinancialresultsoftheacquiredbusinesses.Theamortizationperiodforintangibleassetsisbetween5and7years.Thebargainpurchasegainof$9.2millionrelatedtotheacquisitionofOST,andhasbeenrecordedwithininterestandotherincome,netontheconsolidatedstatementsofincomeandcomprehensiveincome.Theacquisitionresultedinabargainpurchasegainbecausetheassetsacquiredexceededtheconsiderationpaid.Proformafinancialinformationreflectingtheseacquisitionshavenotbeenpresentedbecausetheimpactonrevenues,netincomeandtotalassetsisnotmaterial.
2015
InOctober2015,theCompanycompletedtheacquisitionofJordanValleySemiconductors,Ltd.("JordanValley"),acompanyheadquarteredinIsraelthatprovidesX-raymetrologyanddefect-detectionequipmentforsemiconductorprocesscontrol.TheacquisitionofJordanValleywasaccounted
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ConsiderationTransferred: Cashpaid $ 25.9Cashacquired (1.6)Sharesissued 2.0Contingentconsideration 5.1Totalconsiderationtransferred $ 31.4
AllocationofConsiderationTransferred: Accountsreceivable $ 6.9Inventories 19.1Othercurrentassets 0.1Property,plantandequipment 7.5Intangibleassets: Customerrelationships 2.0Existingtechnology 14.6Tradename 0.6
Goodwill 1.0Bargainpurchasegain (9.2)Deferredtaxes,net (1.0)Liabilitiesassumed (10.2)Totalconsiderationtransferred $ 31.4
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forundertheacquisitionmethod.ThecomponentsandfairvalueallocationoftheconsiderationtransferredinconnectionwiththeacquisitionofJordanValleywereasfollows(inmillions):
TheCompanycompletedthefairvalueallocationinthefourthquarterof2015.Thefairvalueallocationincludedcontingentconsiderationintheamountof$4.1million,whichrepresentedtheestimatedfairvalueoffuturepaymentstotheformershareholdersofJordanValleybasedonachievingannualrevenueandgrossmargintargetsfortheyears2016-2017.DuringtheyearendedDecember31,2016,theCompanyrecordedanadditional$7.7milliontoothercharges,netforadditionalconsiderationbasedon2016revenueandgrossmarginachievements.Themaximumpotentialfuturepaymentsrelatedtothecontingentconsiderationis$4.1millionatDecember31,2016.TheamortizationperiodforintangibleassetsacquiredinconnectionwithJordanValleyis7yearsforcustomerrelationships,existingtechnologyandtradename.
TheresultsofJordanValley,includingtheamountallocatedtogoodwillwhichisattributabletoexpectedsynergiesandnotexpectedtobedeductiblefortaxpurposes,havebeenincludedintheBSISegmentfromthedateofacquisition.ProformafinancialinformationreflectingtheacquisitionofJordanValleyhasnotbeenpresentedbecausetheimpactonrevenues,netincomeandtotalassetsisnotmaterial.
Note4—FairValueofFinancialInstruments
TheCompanymeasuresthefollowingfinancialassetsandliabilitiesatfairvalueonarecurringbasis.ThefollowingtablessetforththeCompany'sfinancialinstrumentsandpresentsthemwithinthe
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ConsiderationTransferred: Cashpaid $ 35.4Cashacquired (6.8)Contingentconsideration 4.1Totalconsiderationtransferred $ 32.7
AllocationofConsiderationTransferred: Accountsreceivable $ 3.8Inventories 10.5Othercurrentassets 2.2Property,plantandequipment 1.6Intangibleassets: Customerrelationships 6.8Existingtechnology 6.0Tradename 1.5
Goodwill 6.3Liabilitiesassumed (6.0)Totalconsiderationtransferred $ 32.7
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fairvaluehierarchyusingthelowestlevelofinputthatissignificanttothefairvaluemeasurementatDecember31,2017and2016(inmillions):
Derivativefinancialinstrumentsareclassifiedwithinlevel2becausethereisnotanactivemarketforeachderivativecontract.However,theinputsusedtocalculatethevalueoftheinstrumentsareobtainedfromactivemarkets.
Thefairvalueofthelong-termfixedinterestratedebt,whichhasbeenclassifiedasLevel2,was$231.3millionand$253.3millionatDecember31,2017and2016,respectively,basedonmarketandobservablesourceswithsimilarmaturitydates.
TheCompanymeasurescertainassetsandliabilitiesatfairvaluewithchangesinfairvaluerecognizedinearnings.Fairvaluetreatmentmaybeelectedeitheruponinitialrecognitionofaneligibleassetorliabilityor,foranexistingassetorliability,ifaneventtriggersanewbasisofaccounting.TheCompanydidnotelecttoremeasureanyofitsexistingfinancialassetsorliabilitiesduringtheyearsendedDecember31,2017and2016.
Excludedfromthetableabovearecashequivalents,restrictedcashandshort-terminvestmentsasthecostapproximatescurrentfairvalue.TheCompanyhasaprogramtoenterintotimedepositsandcalldepositandmoneymarketfunds.ThetimeandcalldepositshavevaryingmaturitydatesrangingfromonetotwelvemonthforwhichtheCompanyhastheabilitytoredeemtheinvestedamountsover
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December31,2017 Total
QuotedPricesinActiveMarketsAvailable(Level1)
SignificantOther
ObservableInputs(Level2)
SignificantUnobservable
Inputs(Level3)
Assets: Foreignexchangecontracts $ 4.5 $ — $ 4.5 $ —Embeddedderivativesinpurchaseanddeliverycontracts 0.9 — 0.9 —Fixedpricecommoditycontracts 0.8 — 0.8 —Totalassetsrecordedatfairvalue $ 6.2 $ — $ 6.2 $ —
Liabilities: Contingentconsideration $ 12.7 $ — $ — $ 12.7Foreignexchangecontracts 0.1 — 0.1 —Embeddedderivativesinpurchaseanddeliverycontracts 2.9 — 2.9 —Totalliabilitiesrecordedatfairvalue $ 15.7 $ — $ 3.0 $ 12.7
December31,2016 Total
QuotedPricesinActiveMarketsAvailable(Level1)
SignificantOther
ObservableInputs(Level2)
SignificantUnobservable
Inputs(Level3)
Assets: Embeddedderivativesinpurchaseanddeliverycontracts $ 4.0 $ — $ 4.0 $ —Fixedpricecommoditycontracts 0.2 — 0.2 —Totalassetsrecordedatfairvalue $ 4.2 $ — $ 4.2 $ —
Liabilities: Contingentconsideration $ 16.6 $ — $ — $ 16.6Foreignexchangecontracts 1.4 — 1.4 —Embeddedderivativesinpurchaseanddeliverycontracts 0.3 — 0.3 —Totalliabilitiesrecordedatfairvalue $ 18.3 $ — $ 1.7 $ 16.6
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aperiodof31to95days.TheCompanyhasclassifiedtheseinvestmentswithincashandcashequivalentsorshort-terminvestmentswithintheconsolidatedbalancesheetsbasedoncallandmaturitydates.Therearenocashequivalents,$4.0millionand$3.4millionofrestrictedcashand$114.2millionand$157.9millionofshort-terminvestmentsoutstandingasofDecember31,2017and2016,respectively.Onaquarterlybasis,theCompanyreviewsitsshort-terminvestmentstodetermineiftherehavebeenanyeventsthatcouldcreateanimpairment.NonewerenotedfortheyearsendedDecember31,2017and2016.
Aspartofcertainacquisitionsin2017,2016,and2015,theCompanyrecordedcontingentconsiderationliabilitiesthathavebeenclassifiedasLevel3inthefairvaluehierarchy.Thecontingentconsiderationrepresentstheestimatedfairvalueoffuturepaymentstotheformershareholdersofapplicableacquiredcompaniesbasedonachievingannualrevenueandgrossmargintargetsincertainyearsasspecifiedinthepurchaseandsaleagreements.TheCompanyinitiallyvaluesthecontingentconsiderationsbyusingaMonteCarlosimulationoranincomeapproachmethod.TheMonteCarlomethodmodelsfuturerevenueandcostsofgoodssoldprojectionsanddiscountstheaverageresultstopresentvalue.Theincomeapproachmethodinvolvescalculatingtheearnoutpaymentbasedontheforecastedcashflows,adjustingthefutureearnoutpaymentfortheriskofreachingtheprojectedfinancials,andthendiscountingthefuturepaymentstopresentvaluebythecounterpartyrisk.Thecounterpartyriskconsiderstheriskofthebuyerhavingthecashtomaketheearnoutpaymentsandiscommensuratewiththecostofdebtoveranappropriateterm.
ChangestothefairvalueofthecontingentconsiderationrecognizedinearningsfortheyearsendedDecember31,2017andDecember31,2016were$2.3millionand$6.9million,respectively,Theseamountswererecordedtoothercharges,netintheconsolidatedstatementsofincomeandcomprehensiveincomeforincreasesofcontingentconsiderationrepresentingexpectedachievementoffinancialtargets.ThefollowingtablesetsforththechangesincontingentconsiderationliabilitiesfortheyearsendedDecember31,2017and2016(inmillions):
Note5—AccountsReceivable
ThefollowingisasummaryoftradeaccountsreceivableatDecember31,(inmillions):
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BalanceatDecember31,2015 $ 4.6Currentperiodadditions 5.1Currentperiodadjustments 6.9
BalanceatDecember31,2016 16.6Currentperiodadditions 5.0Currentperiodadjustments 2.3Currentperiodsettlements (11.7)Foreigncurrencyeffect 0.5
BalanceatDecember31,2017 $ 12.7
2017 2016 Grossaccountsreceivable $ 324.0 $ 251.8Allowancefordoubtfulaccounts (4.7) (7.9)Accountsreceivable,net $ 319.3 $ 243.9
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Theallowancefordoubtfulaccountsismanagement'sestimateofcreditlossesintheaccountsreceivable.Theallowancefordoubtfulaccountsisbasedonanumberoffactors,includinganevaluationofcustomercreditworthiness,theageoftheoutstandingreceivable,economictrendsandhistoricalexperience.Theallowancefordoubtfulaccountsisreviewedonaquarterlybasisandchangesinestimatesarereflectedintheperiodinwhichtheybecomeknown.TheCompanyrecordsaccountbalancesagainsttheallowanceafterallmeansofcollectionhavebeenexhaustedandthepotentialforrecoveryisconsideredremote.Provisionsfordoubtfulaccountsarerecordedinselling,generalandadministrativeexpensesintheaccompanyingconsolidatedstatementsofincomeandcomprehensiveincome.
ThefollowingisasummaryoftheactivityintheCompany'sallowancefordoubtfulaccountsatDecember31,(inmillions):
Note6—Inventories
InventoriesconsistedofthefollowingatDecember31,(inmillions):
Finishedgoodsincludein-transitsystemsthathavebeenshippedtotheCompany'scustomersbutnotyetinstalledandacceptedbythecustomer.AsofDecember31,2017and2016,inventory-in-transitwas$41.4millionand$37.5million,respectively.
InJuly2015,theFASBissuedASUNo.2015-11,Simplifying the Measurement of Inventory .Thisguidanceeliminatesthemeasurementofinventoryatmarketvalue,andinventoryisnowmeasuredatthelowerofcostandnetrealizablevalue.TheASUdefinesnetrealizablevalueastheestimatedsellingpricesintheordinarycourseofbusiness,lessreasonablypredictablecostsofcompletion,disposal,andtransportation.Nootherchangesweremadetothecurrentguidanceoninventorymeasurement.TheCompanyadoptedASUNo.2015-11onaprospectivebasisinthefirstquarterof2017.
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BalanceatBeginning
ofPeriod
AdditionsChargedtoExpense
DeductionsAmountsWrittenOff
ForeignCurrencyImpact
BalanceatEndofPeriod
2017 $ 7.9 $ 0.5 $ (4.4) $ 0.7 4.72016 9.1 0.9 (2.0) (0.1) 7.92015 10.1 2.1 (2.5) (0.6) 9.1
2017 2016 Rawmaterials $ 152.0 $ 132.8Work-in-process 183.1 181.0Finishedgoods 96.6 91.8Demonstrationunits 54.5 34.8Inventories $ 486.2 $ 440.4
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Note7—Property,PlantandEquipment,Net
Thefollowingisasummaryofproperty,plantandequipment,netbymajorassetclassatDecember31,(inmillions):
Depreciationexpense,whichincludestheamortizationofleaseholdimprovements,fortheyearsendedDecember31,2017,2016and2015was$34.3million,$32.6millionand$32.6million,respectively.
DuringtheyearsendedDecember31,2017,2016and2015,theCompanyrecordedimpairmentchargesof$1.1million,$0.8millionand$2.1million,respectively,representingthewritedowntofairvalueofcertainproperty,plantandequipment,netrelatedtorestructuringandoutsourcingactivitiesundertakenduringtherespectiveyears.Theseimpairmentchargesarerecordedwithinothercharges,netintheaccompanyingconsolidatedstatementsofincomeandcomprehensiveincome.PleaseseeNote17—othercharges,net,foradditionaldetailsontherestructuringactivities.
Note8—GoodwillandIntangibleAssets
Goodwill
ThefollowingtablesetsforththechangesinthecarryingamountofgoodwillfortheyearsendedDecember31,2017,2016and2015(inmillions):
AtDecember31,2017and2016,allgoodwillwasallocatedwithintheBSISegment.TheCompanyperformeditsannualimpairmentevaluationusingaqualitativeapproachatDecember31,2017and2016andaquantitativeapproachatDecember31,2015andconcludeditwasmorelikelythannotthatgoodwillhasnotbeenimpaired.Basedonthemostrecentquantitativeanalysisthefairvaluesofeachofourreportingunitswassignificantlygreaterthantheircarryingamountsand,therefore,noadditionalimpairmentwasrequired.
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2017 2016 Land $ 28.1 $ 26.7Buildingandleaseholdimprovements 294.8 266.7Machinery,equipment,softwareandfurnitureandfixtures 364.9 323.1
687.8 616.5Lessaccumulateddepreciationandamortization (421.3) (377.4)Property,plantandequipment,net $ 266.5 $ 239.1
BalanceatDecember31,2014 $ 127.8Currentperiodadditions/adjustments 6.8Impairment (0.7)Foreigncurrencyimpact (3.3)
BalanceatDecember31,2015 $ 130.6Currentperiodadditions/adjustments 1.0Foreigncurrencyimpact (1.0)
BalanceatDecember31,2016 130.6Currentperiodadditions/adjustments 33.8Foreigncurrencyimpact 5.4
BalanceatDecember31,2017 $ 169.8
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IntangibleAssets
ThefollowingisasummaryofintangibleassetsatDecember31,(inmillions):
FortheyearsendedDecember31,2017,2016and2015,theCompanyrecordedamortizationexpenseofapproximately$29.6million,$21.7millionand$20.7million,respectively,intheconsolidatedstatementsofincomeandcomprehensiveincome.DuringtheyearendedDecember31,2015,theCompanyrecordedanimpairmentchargeof$1.8millionrepresentingtheimpairmentofintangibleassetsintheBrukerBioSpinGrouprelatedtocertainrestructuringandoutsourcingactivitiesduringtheyear.
TheestimatedfutureamortizationexpenserelatedtoamortizableintangibleassetsatDecember31,2017isasfollows(inmillions):
Note9—OtherCurrentLiabilities
ThefollowingisasummaryofothercurrentliabilitiesatDecember31,(inmillions):
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2017 2016
GrossCarryingAmount
AccumulatedAmortization
NetCarryingAmount
GrossCarryingAmount
AccumulatedAmortization
NetCarryingAmount
Existingtechnologyandrelatedpatents $ 195.4 $ (138.9) $ 56.5 $ 169.0 $ (113.9) $ 55.1Customerrelationships 34.6 (12.9) 21.7 20.0 (7.9) 12.1Noncompeteconracts 1.8 (1.5) 0.3 1.8 (1.1) 0.7Tradenames 4.2 (0.9) 3.3 1.6 (0.4) 1.2Intangibleassetssubjecttoamortization 236.0 (154.2) 81.8 192.4 (123.3) 69.1
In-processresearchanddevelopment 0.6 — 0.6 0.6 — 0.6Intangibleassets $ 236.6 $ (154.2) $ 82.4 $ 193.0 $ (123.3) $ 69.7
2018 $ 24.42019 16.62020 13.32021 12.62022 6.9Thereafter 8.0Total $ 81.8
2017 2016 Deferredrevenue $ 87.0 $ 75.5Accruedcompensation 105.4 83.8Accruedwarranty 20.6 18.7Contingentconsideration 6.5 13.5Incometaxespayable 28.1 11.3Othertaxespayable 16.7 12.4Derivativeliabilities 2.4 1.8Otheraccruedexpenses 55.3 52.5Othercurrentliabilities $ 322.0 $ 269.5
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ThefollowingtablesetsforththechangesinaccruedwarrantyfortheyearsendedDecember31,2017,2016and2015(inmillions):
Note10—Debt
TheCompany'sdebtobligationsconsistofthefollowingasofDecember31,(inmillions):
CreditAgreements
OnOctober27,2015,theCompanyenteredintoanewrevolvingcreditagreement,referredtoasthe2015CreditAgreement.The2015CreditAgreementprovidesamaximumcommitmentontheCompany'srevolvingcreditlineof$500millionandamaturitydateofOctober2020.Borrowingsundertherevolvingcreditlineofthe2015CreditAgreementaccrueinterest,attheCompany'soption,ateither(a)thegreatestof(i)theprimerate,(ii)thefederalfundsrateplus0.50%and(iii)adjustedLIBORplus1.00%,plusmarginsrangingfrom0.00%to0.30%or(b)LIBOR,plusmarginsrangingfrom0.90%to1.30%.Thereisalsoafacilityfeerangingfrom0.10%to0.20%.
Borrowingsunderthe2015CreditAgreementaresecuredbyguaranteesfromcertainmaterialsubsidiaries,asdefinedinthe2015CreditAgreement.The2015CreditAgreementalsorequirestheCompanytomaintaincertainfinancialratiosrelatedtomaximumleverageandminimuminterestcoverage(asdefinedinthe2015CreditAgreement).Specifically,theCompany'sleverageratiocannotexceed3.5andtheCompany'sinterestcoverageratiocannotbelessthan2.5.Inadditiontothefinancialratios,the2015CreditAgreementcontainsnegativecovenants,includingamongothers,restrictionsonliens,indebtednessoftheCompanyanditssubsidiaries,assetsales,dividendsandtransactionswithaffiliates.Failuretocomplywithanyoftheserestrictionsorcovenantsmayresultinaneventofdefaultonthe2015CreditAgreement,whichcouldpermitaccelerationofthedebtandrequiretheCompanytoprepaythedebtbeforeitsscheduledduedate.
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BalanceatDecember31,2014 $ 21.6Accrualsforwarrantiesissuedduringtheyear 21.1Settlementsofwarrantyclaims (21.7)Foreigncurrencyimpact (1.4)
BalanceatDecember31,2015 19.6Accrualsforwarrantiesissuedduringtheyear 17.4Settlementsofwarrantyclaims (17.8)Foreigncurrencyimpact (0.5)
BalanceatDecember31,2016 18.7Accrualsforwarrantiesissuedduringtheyear 17.0Settlementsofwarrantyclaims (17.0)Foreigncurrencyimpact 1.9
BalanceatDecember31,2017 $ 20.6
2017 2016 USDollarrevolvingloanunderthe2015CreditAgreement $ 195.0 $ 171.0USDollarnotesundertheNotePurchaseAgreement 220.0 240.0UnamortizeddebtissuancecostsundertheNotePurchaseAgreement (0.7) (0.8)Capitalleaseobligationsandotherloans 1.3 1.5Totaldebt 415.6 411.7Currentportionoflong-termdebt — (20.1)Totallong-termdebt,lesscurrentportion $ 415.6 $ 391.6
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AsofDecember31,2017,theCompanywasincompliancewiththecovenantsofthe2015CreditAgreement.TheCompany'sleverageratio(asdefinedinthe2015CreditAgreement)was1.32andinterestcoverageratio(asdefinedinthe2015CreditAgreement)was15.5.
ThefollowingisasummaryofthemaximumcommitmentsandthenetamountsavailabletotheCompanyunderthe2015CreditAgreementandotherlinesofcreditwithvariousfinancialinstitutionslocatedprimarilyinGermanyandSwitzerlandthatareunsecuredandtypicallydueupondemandwithinterestpayablemonthly,atDecember31,2017(inmillions):
NotePurchaseAgreement
InJanuary2012,theCompanyenteredintoanotepurchaseagreement,referredtoastheNotePurchaseAgreement,withagroupofaccreditedinstitutionalinvestors.PursuanttotheNotePurchaseAgreement,theCompanyissuedandsold$240.0millionofseniornotes,referredtoastheSeniorNotes,whichconsistofthefollowing:
• $20million3.16%Series2012ASeniorNotes,TrancheA,dueJanuary18,2017;
• $15million3.74%Series2012ASeniorNotes,TrancheB,dueJanuary18,2019;
• $105million4.31%Series2012ASeniorNotes,TrancheC,dueJanuary18,2022;and
• $100million4.46%Series2012ASeniorNotes,TrancheD,dueJanuary18,2024.
OnJanuary18,2017,theoutstanding$20.0millionprincipalamountofTrancheAoftheSeniorNoteswasrepaidinaccordancewiththetermsoftheNotePurchaseAgreement.
UnderthetermsoftheNotePurchaseAgreement,theCompanymayissueandselladditionalseniornotesuptoanaggregateprincipalamountof$600million,subjecttocertainconditions.InterestontheSeniorNotesispayablesemi-annuallyonJanuary18andJuly18ofeachyear.TheSeniorNotesareunsecuredobligationsoftheCompanyandarefullyandunconditionallyguaranteedbycertainoftheCompany'sdirectandindirectsubsidiaries.TheSeniorNotesrankparipassuinrightofrepaymentwiththeCompany'sotherseniorunsecuredindebtedness.TheCompanymayprepaysomeoralloftheSeniorNotesatanytimeinanamountnotlessthan10%oftheoriginalaggregateprincipalamountoftheSeniorNotestobeprepaid,atapriceequaltothesumof(a)100%oftheprincipalamountthereof,plusaccruedandunpaidinterest,and(b)theapplicablemake-wholeamount,uponnotlessthan30andnomorethan60dayswrittennoticetotheholdersoftheSeniorNotes.IntheeventofachangeincontroloftheCompany,asdefinedintheNotePurchaseAgreement,theCompanymayberequiredtoprepaytheNotesatapriceequalto100%oftheprincipalamountthereof,plusaccruedandunpaidinterest.
TheNotePurchaseAgreementcontainsaffirmativecovenants,including,withoutlimitation,maintenanceofcorporateexistence,compliancewithlaws,maintenanceofinsuranceandproperties,paymentoftaxes,additionofsubsidiaryguarantorsandfurnishingnoticesandotherinformation.TheNotePurchaseAgreementalsocontainscertainrestrictivecovenantsthatrestricttheCompany'sabilityto,amongotherthings,incurliens,transferorsellassets,engageincertainmergersandconsolidationsandenterintotransactionswithaffiliates.TheNotePurchaseAgreementalsoincludescustomary
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WeightedAverageInterestRate
TotalAmountCommittedby
Lenders OutstandingBorrowings
OutstandingLettersofCredit
TotalAmountAvailable
2015CreditAgreement 2.7%$ 500.0 $ 195.0 $ 1.1 $ 303.9Otherlinesofcredit — 257.9 — 137.7 120.2Totalrevolvingloans $ 757.9 $ 195.0 $ 138.8 $ 424.1
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representationsandwarrantiesandeventsofdefault.Inthecaseofaneventofdefaultarisingfromspecifiedeventsofbankruptcyorinsolvency,alloutstandingSeniorNoteswillbecomedueandpayableimmediatelywithoutfurtheractionornotice.Inthecaseofpaymenteventsofdefaults,anyholderofSeniorNotesaffectedtherebymaydeclareallSeniorNotesheldbyitdueandpayableimmediately.Inthecaseofanyothereventofdefault,amajorityoftheholdersoftheSeniorNotesmaydeclarealltheSeniorNotestobedueandpayableimmediately.PursuanttotheNotePurchaseAgreement,solongasanySeniorNotesareoutstandingtheCompanywillnotpermit(i)itsleverageratio,asdeterminedpursuanttotheNotePurchaseAgreement,asoftheendofanyfiscalquartertoexceed3.50to1.00,(ii)itsinterestcoverageratioasdeterminedpursuanttotheNotePurchaseAgreementasoftheendofanyfiscalquarterforanyperiodoffourconsecutivefiscalquarterstobelessthan2.50to1or(iii)prioritydebtatanytimetoexceed25%ofconsolidatednetworth,asdeterminedpursuanttotheNotePurchaseAgreement.
AsofDecember31,2017,theCompanywasincompliancewiththecovenantsoftheNotePurchaseAgreement.TheCompany'sleverageratio(asdefinedintheNotePurchaseAgreement)was1.32andinterestcoverageratio(asdefinedintheNotePurchaseAgreement)was15.5.
Annualmaturitiesofdebtoutstanding,lessdeferredfinancingcostamortization,atDecember31,2017areasfollows(inmillions):
InterestexpensefortheyearsendedDecember31,2017,2016and2015,was$15.4million,$13.2millionand$13.0million,respectively.
InApril2015,theFinancialAccountingStandardsBoard(FASB)issuedAccountingStandardsUpdate(ASU)2015-03,Simplifying the Presentation of DebtIssuance Costs, whichamendedtheexistingguidancetorequirethatdebtissuancecostsbepresentedintheconsolidatedbalancesheetasareductionfromthecarryingamountoftherelateddebtliabilityinsteadofasanotherasset.TheCompanyadoptedASU2015-03onaretrospectivebasisfortheyearendedDecember31,2016.AsofDecember31,2017and2016,therewere$0.7millionand$0.8million,respectively,indebtissuancecostsrecordedasareductioninthecarryingvalueoftherelateddebtliabilityundertheNotePurchaseAgreement.The$0.7millionindebtissuancecostsasofDecember31,2017willbeamortizedovertheremainingtermoftheNotePurchaseAgreement.TheCompanyalsoadoptedASUNo.2015-15,Presentation and Subsequent Measurement ofDebt Issuance Costs Associated with Line-of-Credit Arrangements, andelectednottoreclassifythedebtissuancecostsrelatedtoline-of-creditarrangementsforthe2015CreditAgreement.
Note11—DerivativeInstrumentsandHedgingActivities
InterestRateRisks
TheCompany'sexposuretointerestrateriskrelatesprimarilytooutstandingvariableratedebtandadversemovementsintherelatedshort-termmarketrates.ThemostsignificantcomponentoftheCompany'sinterestrateriskrelatestoamountsoutstandingunderthe2015CreditAgreement,whichtotaled$195.0millionatDecember31,2017.TheCompanycurrentlyhasapproximatelyequallevelsoffixedandfloatingratedebt,whichlimitstheexposuretoadversemovementsininterestrates.
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2018 $ —2019 15.02020 194.92021 —2022 104.9Thereafter 100.8Total $ 415.6
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ForeignExchangeRateRiskManagement
TheCompanygeneratesasubstantialportionofitsrevenuesandexpensesininternationalmarkets,principallyGermanyandothercountriesintheEuropeanUnionandSwitzerland,whichsubjectsitsoperationstotheexposureofforeignratefluctuations.Theimpactofforeignexchangeratemovementcanbepositiveornegativeinanyperiod.TheCompanyperiodicallyentersintoforeigncurrencycontractsinordertominimizethevolatilitythatfluctuationsincurrencytranslationhaveonitsmonetarytransactions.Underthesearrangements,theCompanytypicallyagreestopurchaseafixedamountofaforeigncurrencyinexchangeforafixedamountofU.S.Dollarsorothercurrenciesonspecifieddateswithmaturitiesoflessthantwelvemonths.Thesetransactionsdonotqualifyforhedgeaccountingand,accordingly,theinstrumentisrecordedatfairvaluewiththecorrespondinggainsandlossesrecordedintheconsolidatedstatementsofincomeandcomprehensiveincome.TheCompanyhadthefollowingnotionalamountsoutstandingunderforeigncurrencycontractsatDecember31,(inmillions):
Inaddition,theCompanyperiodicallyentersintopurchaseandsalescontractsdenominatedincurrenciesotherthanthefunctionalcurrencyofthepartiestothetransaction.TheCompanyaccountsforthesetransactionsseparatelyvaluingthe"embeddedderivative"componentofthesecontracts.Thecontracts,denominatedincurrenciesotherthanthefunctionalcurrencyofthetransactingparties,amountedto$98.3millionforthedeliveryofproductsand$3.6millionforthepurchaseofproductsatDecember31,2017and$120.7millionforthedeliveryofproductsand$2.3millionforthepurchaseofproductsatDecember31,2016.Thechangesinthefairvalueoftheseembeddedderivativesarerecordedininterestandotherincome(expense),netintheconsolidatedstatementsofincomeandcomprehensiveincome.
CommodityPriceRiskManagement
TheCompanyhasanarrangementwithacustomerunderwhichithasafirmcommitmenttodelivercopperbasedsuperconductorsatafixedprice.InordertominimizethevolatilitythatfluctuationsinthepriceofcopperhaveontheCompany'ssalesofthesecommodities,theCompanyentersintocommodityhedgecontracts.AtDecember31,2017and2016,theCompanyhasfixedpricecommoditycontractswithnotionalamountsaggregating$3.0millionand$2.7million,respectively.Thechangesinthefairvalueofthesecommoditycontractsarerecordedininterestandotherincome(expense),netintheconsolidatedstatementsofincomeandcomprehensiveincome.
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Buy
NotionalAmountin
BuyCurrency Sell Maturity
NotionalAmountinU.S.Dollars
FairValueofAssets
FairValueofLiabilities
December31,2017: Euro 59.5 U.S.Dollars January2018 $ 67.0 $ 4.5 $ —SwissFrancs 11.0 U.S.Dollars January2018 11.3 — —SingaporeDollar 4.9 U.S.Dollars January2018 3.6 — —Euro 1.8 PolishZloty January2018 2.3 — 0.1
$ 84.2 $ 4.5 $ 0.1December31,2016: Euro 21.1 U.S.Dollars January2017 $ 23.3 $ — $ 1.1SwissFrancs 7.9 U.S.Dollars January2017 8.0 — 0.3U.S.Dollars 4.0 IsraelShekel January2017 4.0 — —IsraelShekel 15.3 U.S.Dollars January2017 4.0 — —Euro 1.4 PolishZloty January2017 1.4 — —
$ 40.7 $ — $ 1.4
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ThefairvalueofthederivativeinstrumentsdescribedabovewererecordedintheconsolidatedbalancesheetsfortheyearsendedDecember31,2017and2016asfollows(inmillions):
TheimpactonnetincomeofunrealizedgainsandlossesresultingfromchangesinthefairvalueofderivativeinstrumentsfortheyearsendingDecember31areasfollows(inmillions)andarerecordedwithininterestandotherincome(expense),netintheconsolidatedstatementsofincomeandcomprehensiveincome:
Note12—IncomeTaxes
OnDecember22,2017(EnactmentDate),thePresidentoftheUnitedStatessignedtaxreformlegislation(2017TaxAct),whichenactedawiderangeofchangestotheU.S.corporateincometaxsystem,manyofwhichdiffersignificantlyfromtheprovisionsofthepreviousU.S.taxlaw.The2017TaxActcontainsseveralkeyprovisionsincluding,amongotherthings:
• Aone-timetaxonthemandatorydeemedrepatriationofpost-1986untaxedforeignearningsandprofits(E&P),referredtoasthe"tollcharge";
• Areductioninthecorporatetaxratefrom35.0%to21.0%forthetaxyearsbeginningafterDecember31,2017;
• TheintroductionofanewU.S.taxoncertainoff-shoreearningsreferredtoasthe"GlobalIntangibleLow-TaxedIncome"(GILTI)ataneffectivetaxrateof10.5%fortaxyearsbeginningafterDecember31,2017(increasingto13.125%fortaxyearsbeginningafterDecember31,2025)withapartialoffsetbyforeigntaxcredits;and
• Theintroductionofaterritorialtaxsystembeginningin2018byprovidinga100%dividendsreceiveddeductiononcertainqualifieddividendsfromforeignsubsidiaries.
AlsoonDecember22,2017,theSecuritiesandExchangeCommission(SEC)issuedStaffAccountingBulletin(SAB)No.118,whichprovidescompanieswithadditionalguidanceonhowtoimplementtheprovisionsofthe2017TaxActintheirfinancialstatements.Theguidanceprovidesforameasurementperiod,uptooneyearfromtheEnactmentDate,inwhichprovisionalamountsmaybeadjustedwhenadditionalinformationisobtained,preparedoranalyzedaboutfactsandcircumstancesthatexistedasoftheEnactmentDate,ifknown,whichwouldhaveimpactedtheamountsthatwereinitiallyrecordedbytheCompany.
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BalanceSheetLocation 2017 2016 Derivativeassets: Foreignexchangecontracts Othercurrentassets $ 4.5 $ —Embeddedderivativesinpurchaseanddeliverycontracts Othercurrentassets 0.9 2.7Fixedpricecommoditycontracts Othercurrentassets 0.8 0.2Embeddedderivativesinpurchaseanddeliverycontracts Otherlong-termassets — 1.3
Derivativeliabilities: Foreignexchangecontracts Othercurrentliabilities $ 0.1 $ 1.4Embeddedderivativesinpurchaseanddeliverycontracts Othercurrentliabilities 1.5 0.3Embeddedderivativesinpurchaseanddeliverycontracts Otherlong-termliabilities 1.4 —
2017 2016 2015 Foreignexchangecontracts $ 5.8 $ (0.1) $ 3.8Embeddedderivativesinpurchaseanddeliverycontracts (5.7) 3.7 (0.2)Fixedpricecommoditycontracts 0.6 0.6 (0.2)Income(expense),net $ 0.7 $ 4.2 $ 3.4
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TheCompanyhasnotyetcompletedtheassessmentofthetaxeffectsassociatedwiththeenactmentofthe2017TaxAct;however,areasonableestimatehasbeenmadeoftheeffectsontheexistingdeferredtaxbalancesandtheone-timetransitiontax.Changesinthetaxratesandlawsareaccountedforintheperiodofenactment.Therefore,duringthefourthquarterof2017,theCompanyrecordedanincrementalincometaxprovisionof$68.9million,whichisprimarilycomprisedofthefollowing:
• Anestimatedincometaxprovisionof$55.0millionforthefederalandstateimpactsoftheone-timedeemedrepatriationofpre-2018E&P.Inaccordancewiththe2017TaxAct,thefederalportionofthetollchargeliabilitymaybepaidovereightyears.Suchliabilitycanbereducedbycertaincredits.Accordingly,wehaverecorded$30.6millionand$2.7millioninlong-termincometaxliabilitiesandaccruedincometaxes(current),respectively,asofDecember31,2017
• Anestimatednetincometaxbenefitof$1.4million,fortheremeasurementofourdeferredtaxassetsandliabilitiesatthenewlyenactedtaxrateof21%;and
• Asaresultofthe2017TaxActandourexpectationsaboutdistributingcertaincashbalancesfromitsforeignsubsidiariestotheUnitedStates,wealsorecordedestimatedincometaxprovisionsforestimatedstateincometaxesandforeignwithholdingtaxesof$12.5million.
Thenetchargeof$68.9millionrecordedwasbasedoncurrentlyavailableinformationandinterpretationsofapplyingtheprovisionsofthe2017TaxActasofthetimeoffilingthisAnnualReportonForm10-K.TheCompanyexpectstofinalizetheseprovisionalestimatesbeforetheendof2018aftercompletingthereviewandanalysis,includingreviewsandanalysisofanyinterpretationsissuedduringthismeasurementperiod.
TheCompanyisstillevaluatingtheGILTIprovisionsofthe2017TaxActanditsimpact,ifany,totheconsolidatedfinancialstatementsasofDecember31,2017.CompaniesareallowedtoadoptanaccountingpolicytoeitherrecognizedeferredtaxesforGILTIortreatsuchasataxcostintheyearincurred.TheCompanyhasnotyetdeterminedtheaccountingpolicybecausedeterminingtheimpactoftheGILTIprovisionsrequiresanalysisoftheexistinglegalentitystructure,thereversalofU.S.GAAPandU.S.taxbasisdifferencesintheassetsandliabilitiesofforeignsubsidiaries,andtheabilitytooffsetanytaxwithforeigntaxcredits.Assuch,theCompanydidnotrecordadeferredincometaxexpenseorbenefitrelatedtotheGILTIprovisionsofthe2017TaxActintheconsolidatedstatementofincomefortheyearendedDecember31,2017.Thiswillalsobefinalizedduringthemeasurementperiod.
TheCompanyrecordedaprovisionalamountforthetollcharge,whichrepresentsitsreasonableestimateoftheliabilitydueforthemandatorydeemedrepatriationofitspost-1986untaxedforeignE&P.Determiningtheprovisionaltollchargeliabilityrequiredasignificanteffortbasedonanumberoffactorsincluding:
• AnalyzingtheaccumulateduntaxedforeignE&Psince1986includinghistoricalpracticesandassertionsmadeindeterminingsuch;
• Determiningthecomposition,includingintercompanyreceivablesandpayablesofspecifiedforeigncorporations,ofourpost-1986untaxedforeignE&Pthatisheldincashorliquidassetsandotherassetsatseveralmeasurementdates.Thisisrequiredbecauseadifferenttaxrateisappliedtoeachwhendeterminingthetollchargeliability;and
• AssessingthepotentialimpactofexistinguncertaintaxpositionsindeterminingouraccumulatedundistributedE&P.
DuetothetimingoftheEnactmentDate,theCompanyhadlimitedtimetounderstandthe2017TaxActanditsvariousinterpretations,toassesshowtoapplythenewtaxlawtothespecificfactsand
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circumstancesoftheCompanyandtodeterminethetollcharge.Assuchtheamountsrecordedforthetollchargeareprovisional.
Theactualresultsoftheimplementationofthe2017TaxActmaymateriallydifferfromtheCompany'scurrentestimatedueto,amongotherthings,furtherguidancethatmaybeissuedbyU.S.taxauthoritiesorregulatorybodiesincludingtheSECandtheFASBtointerpretthe2017TaxAct.TheCompanywillcontinuetoanalyzethe2017TaxActandanyadditionalguidancethatmaybeissuedandfinalizethefulleffectsofapplyingthenewlegislationinthemeasurementperiod.
ThedomesticandforeigncomponentsofincomebeforetaxesareasfollowsfortheyearsendedDecember31,(inmillions):
ThecomponentsoftheincometaxprovisionareasfollowsfortheyearsendedDecember31,(inmillions):
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2017 2016 2015 Domestic $ (14.0) $ 18.4 $ 31.6Foreign 211.8 159.2 96.4
$ 197.8 $ 177.6 $ 128.0
2017 2016 2015 Currentincometax(benefit)expense: Federal $ 32.2 $ (2.4) $ 5.7State 2.0 0.3 1.3Foreign 42.7 59.8 50.0Totalcurrentincometaxexpense 76.9 57.7 57.0
Deferredincometax(benefit)expense: Federal 35.5 3.1 (31.1)State (0.4) (5.3) (2.4)Foreign 5.5 (32.4) (0.4)Totaldeferredincometax(benefit)expense 40.6 (34.6) (33.9)Incometaxprovision $ 117.5 $ 23.1 $ 23.1
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TheincometaxprovisiondiffersfromthetaxprovisioncomputedattheU.SfederalstatutoryrateduetothefollowingsignificantcomponentsfortheyearsendedDecember31:
ThetaxeffectoftemporaryitemsthatgiverisetosignificantportionsofthedeferredtaxassetsandliabilitiesasofDecember31,2017and2016areasfollows(inmillions):
TheCompanyusestheliabilitymethodtoaccountforincometaxes.Underthismethod,deferredincometaxesarerecognizedforthefuturetaxconsequencesofdifferencesbetweenthetaxandfinancialaccountingbasesofassetsandliabilitiesateachreportingperiod.Deferredincometaxesare
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2017 2016 2015 Statutorytaxrate 35.0% 35.0% 35.0%Foreigntaxratedifferential (11.7) (11.6) (3.6)Permanentdifferences (0.5) 8.2 (2.0)MandatoryRepatriation 27.0 — —Taxcontingencies (1.3) (3.0) 2.3Changeintaxrates 0.9 0.2 1.3Withholdingtaxes 2.2 1.3 8.1PermanentReinvestmentAssertionAccrual 7.8 — —Stateincometaxes,netoffederalbenefits 1.3 (2.9) (0.9)Purchaseaccounting 0.5 1.6 0.8Taxcredits (0.3) (3.0) (1.1)Other (1.2) 4.3 (2.7)Changeinvaluationallowanceforunbenefittedlosses (0.3) (17.1) (19.2)Effectivetaxrate 59.4% 13.0% 18.0%
2017 2016 Deferredtaxassets: Accountsreceivable $ 3.9 $ 2.9Accruedexpenses 6.7 4.6Compensation 27.9 30.6Deferredrevenue 0.4 2.0Netoperatinglosscarryforwards 19.1 14.1Fixedassets — 0.8Inventory 2.8 3.2Foreigntaxandothertaxcreditcarryforwards 5.9 17.2Unrealizedcurrencygain/loss 3.2 3.0Grossdeferredtaxassets 69.9 78.4
Lessvaluationallowance — (0.5)Totaldeferredtaxassets 69.9 77.9
Deferredtaxliabilities: Fixedassets 0.3 —Foreignstatutoryreserves 0.9 1.1Intangibles 13.0 7.2Accruedexpenses 0.6 1.2AccruedWithholdingTax 16.1 2.0Other 6.4 —Totaldeferredtaxliabilities 37.3 11.5Netdeferredtaxassets $ 32.6 $ 66.4
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basedonenactedtaxlawsandstatutorytaxratesapplicabletotheperiodinwhichthesedifferencesareexpectedtoaffecttaxableincome.Avaluationallowanceisestablishedwhennecessarytoreducedeferredtaxassetstotheexpectedrealizableamounts.
TheCompanycanonlyrecognizeadeferredtaxassettotheextentthisitis"morelikelythannot"thattheseassetswillberealized.Judgmentsaroundrealizabilitydependontheavailabilityandweightofbothpositiveandnegativeevidence.ChangesinthevaluationallowancefordeferredtaxassetsduringtheyearsendedDecember31,2017,2016and2015wereasfollows:
Thedecreasesrelatedprimarilytotherealizabilityofforeignnetoperatingandcapitallossesbasedonfuturetaxableincome.
AsofDecember31,2017,theCompanyhasapproximately$23.2millionnetoperatinglosscarryforwardsavailabletoreducestatetaxableincome.TheCompanyalsohasapproximately$77.4millionofGermanTradeTaxandCorporateIncomeTaxnetoperatinglossesthatarecarriedforwardindefinitely.Additionally,theCompanyhas$13.9millionofotherforeignnetoperatinglossesthatareexpectedtoexpireatvarioustimesbeginningin2018.TheCompanyalsohasstateresearchanddevelopmenttaxcreditsof$7.5million.UtilizationofthesecreditsandstatenetoperatinglossesmaybesubjecttoannuallimitationsduetotheownershippercentagechangelimitationsprovidedbytheInternalRevenueCodeSection382andsimilarstateprovisions.IntheeventofadeemedchangeincontrolunderInternalRevenueCodeSection382,anannuallimitationontheutilizationofnetoperatinglossesandcreditsmayresultintheexpirationofalloraportionofthenetoperatinglossandcreditcarryforwards.
TheCompanyreflectscertainstatutoryreservesinitstabularreconciliationofunrecognizedtaxbenefits.EffectivefortheyearendedDecember31,2013andthereafter,theseunrecognizedtaxbenefitsarepresentedasareductionoftheassociatednetdeferredtaxassets.
AtDecember31,2017andinaccordancewiththe2017TaxAct,theCompanyrecordedstateandforeignwithholdingtaxesonthecashandliquidassetsportionoftheunremittedearningsandprofits(E&P)offoreignsubsidiariesexpectedtoberepatriatedfromitsforeignsubsidiariestotheUnitedStates.TheCompanycontinuestobeindefinitelyreinvestedamountingto$740.0millionofnon-cashE&Pthatisrelatedtothe2017TaxActdeemedrepatriation.IfthisE&PisultimatelydistributedtotheUnitedStatesintheformofdividendsorotherwisetheCompanywouldlikelybesubjecttoadditionalwithholdingtax.TheCompanywillcontinuetoevaluateitsassertionsonthecumulativehistoricaloutsidebasisdifferencesinitsforeignsubsidiariesasofDecember31,2017.TheCompanyexpectstofinalizeitsanalysisandaccountingrelatedtothetollchargeandanyremainingoutsidebasisdifferencesinitsforeignsubsidiariesduringthemeasurementperiod.TheCompanyestimatestheamountofunrecognizeddeferredwithholdingtaxesontheundistributedE&Ptobeapproximately$27millionatDecember31,2017.
TheCompanyhadgrossunrecognizedtaxbenefits,excludinginterest,ofapproximately$4.4millionasofDecember31,2017,thatifrecognized,wouldreducetheCompany'seffectivetaxrate.InthenexttwelvemonthsitisreasonablypossiblethattheCompanywillreduceitsunrecognized
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BalanceatDecember31,2014 $ 57.4Decreasesrecordedasabenefittoincometaxprovision (20.2)
BalanceatDecember31,2015 $ 37.2Decreasesrecordedasabenefittoincometaxprovision (36.7)
BalanceatDecember31,2016 $ 0.5Decreasesrecordedasabenefittoincometaxprovision (0.5)
BalanceatDecember31,2017 $ —
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taxbenefitsby$0.8millionduetotheexpirationofstatutesoflimitationsandfavorablesettlementwithtaxingauthoritieswhichwouldreducetheCompany'seffectivetaxrate.Atabularreconciliationofthebeginningandendingamountofunrecognizedtaxbenefitsisasfollows(inmillions):
TheCompany'spolicyistoincludeaccruedinterestandpenaltiesrelatedtounrecognizedtaxbenefitsandincometaxliabilities,whenapplicable,inincometaxexpense.AsofDecember31,2017and2016,theCompanyhadapproximately$0.2millionand$0.5million,respectively,ofaccruedinterestandpenaltiesrelatedtouncertaintaxpositionsincludedinotherlong-termliabilitiesintheconsolidatedbalancesheets.TheCompanyrecordedabenefitof$0.3millionand$1.8millionforpenaltiesandinterestrelatedtounrecognizedtaxbenefitsintheprovisionforincometaxesduringtheyearendedDecember31,2017andDecember31,2016,respectively.
TheCompanyfilestaxreturnsintheUnitedStates,whichincludesfederal,stateandlocaljurisdictions,andmanyforeignjurisdictionswithvaryingstatutesoflimitations.TheCompanyconsidersGermany,theUnitedStatesandSwitzerlandtobeitssignificanttaxjurisdictions.ThemajorityoftheCompany'searningsarederivedinGermanyandSwitzerland.Accountingforthevariousfederalandlocaltaxingauthorities,thestatutoryratesfor2017wereapproximately30.0%and20.0%forGermanyandSwitzerland,respectively.Themixofearningsinthosetwojurisdictionsresultedinareductionof7.8%fromtheU.S.statutoryrateof35.0%in2017.TheCompanyhasnotbeenapartytoanytaxholidayagreements.Thetaxyears2013to2016areopentoexaminationinGermanyandSwitzerland.Inthethirdquarterof2015,theCompanysettledtaxauditsinGermanyandItaly.In2016,theCompanysettledtaxauditsinGermanyandSwitzerland.Thesettlementswereimmaterialtotheconsolidatedfinancialstatements.Taxyears2011to2016remainopenforexaminationintheUnitedStates.
Note13—PostRetirementBenefitPlans
DefinedContributionPlans
TheCompanysponsorsvariousdefinedcontributionplansthatcovercertaindomesticandinternationalemployees.TheCompanymaymakecontributionstotheseplansatitsdiscretion.TheCompanycontributed$6.4million,$6.0millionand$6.5milliontosuchplansintheyearsendedDecember31,2017,2016and2015,respectively.
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GrossunrecognizedtaxbenefitsatDecember31,2014 $ 40.0Grossdecreases—taxpositionsinpriorperiods (1.5)Grossincreases—currentperiodtaxpositions 0.4Settlements (2.7)Lapseofstatutes (3.0)
GrossunrecognizedtaxbenefitsatDecember31,2015 33.2Grossdecreases—taxpositionsinpriorperiods (4.8)Grossincreases—currentperiodtaxpositions 0.9Settlements (21.3)Lapseofstatutes (1.8)
GrossunrecognizedtaxbenefitsatDecember31,2016 6.2Lapseofstatutes (1.8)
GrossunrecognizedtaxbenefitsatDecember31,2017 $ 4.4
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DefinedBenefitPlans
SubstantiallyalloftheCompany'semployeesinSwitzerland,FranceandJapan,aswellascertainemployeesinGermany,arecoveredbyCompany-sponsoreddefinedbenefitpensionplans.Retirementbenefitsaregenerallyearnedbasedonyearsofserviceandcompensationduringactiveemployment.Eligibilityisgenerallydeterminedinaccordancewithlocalstatutoryrequirements,however,thelevelofbenefitsandtermsofvestingvariesamongplans.
ThecomponentsofnetperiodicbenefitcostsfortheyearsendedDecember31,2017,2016and2015wereasfollows(inmillions):
ThenetperiodicbenefitcostsfortheyearendedDecember31,2015includesaone-time,non-cashsettlementlossof$10.2millionastheCompanyoutsourceditspensionplaninSwitzerlandtoanoutsideinsuranceprovider,transferredcertainplanassetsandpensionobligationsforretireesandothercertainmembersofthepopulation,madecertainplandesignchangesandre-measuredtheliability.
TheCompanymeasuresitsbenefitobligationandthefairvalueofplanassetsasofDecember31steachyear.Thechangesinbenefitobligationsandplanassetsunderthedefinedbenefitpensionplans,projectedbenefitobligationandfundedstatusoftheplanswereasfollowsatDecember31,(inmillions):
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2017 2016 2015 Componentsofnetperiodicbenefitcosts: Servicecost $ 7.8 $ 6.8 $ 7.2Interestcost 1.7 2.2 2.5Expectedreturnonplanassets (1.7) (1.8) (2.3)Settlementlossrecognized — — 10.2Amortizationofnetloss 4.8 4.1 4.1Netperiodicbenefitcosts $ 12.6 $ 11.3 $ 21.7
2017 2016 Changeinbenefitobligation: Benefitobligationatbeginningofyear $ 210.1 $ 199.2Servicecost 7.8 6.8Interestcost 1.7 2.2Planparticipantcontributions 4.1 4.0Benefitspaid (3.6) (7.1)Actuarialloss(gain) (3.6) 11.1Premiumspaid (1.5) (1.4)Impactofforeigncurrencyexchangerates 13.0 (4.7)Benefitobligationatendofyear 228.0 210.1
Changeinplanassets: Fairvalueofplanassetsatbeginningofyear 105.9 106.1Returnonplanassets 5.0 1.3Planparticipantandemployercontributions 9.5 9.2Benefitspaid (3.6) (7.1)Premiumspaid (1.5) (1.4)Impactofforeigncurrencyexchangerates 5.0 (2.2)Fairvalueofplanassetsatendofyear 120.3 105.9Netunderfundedstatus $ (107.7) $ (104.2)
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Theaccumulatedbenefitobligationforthedefinedbenefitpensionplansis$217.2millionand$199.9millionatDecember31,2017and2016,respectively.AlldefinedbenefitpensionplanshaveanaccumulatedbenefitobligationandprojectedbenefitobligationinexcessofplanassetsatDecember31,2017and2016.
ThefollowingamountswererecognizedintheaccompanyingconsolidatedbalancesheetsfortheCompany'sdefinedbenefitplansatDecember31,(inmillions):
Thefollowingpre-taxamountswererecognizedinaccumulatedothercomprehensiveincomefortheCompany'sdefinedbenefitplansatDecember31,(inmillions):
TheamountinaccumulatedothercomprehensiveincomeatDecember31,2017expectedtoberecognizedasamortizationofnetlosswithinnetperiodicbenefitcostin2018is$3.9million.
Forthedefinedbenefitpensionplans,theCompanyusesacorridorapproachtoamortizeactuarialgainsandlosses.Underthisapproach,netactuarialgainsorlossesinexcessoftenpercentofthelargeroftheprojectedbenefitobligationorthefairvalueofplanassetsareamortizedovertheaverageremainingserviceofactiveparticipantswhoareexpectedtoreceivebenefitsundertheplans.
Therangeofassumptionsusedfordefinedbenefitpensionplansreflectsthedifferenteconomicenvironmentswithinthevariouscountries.TherangeofassumptionsusedtodeterminetheprojectedbenefitobligationsfortheyearsendedDecember31,areasfollows:
Todeterminetheexpectedlong-termrateofreturnonpensionplanassets,theCompanyconsiderscurrentassetallocations,aswellashistoricalandexpectedreturnsonvariousassetcategoriesofplanassets.Forthedefinedbenefitpensionplans,theCompanyappliestheexpectedrateofreturntoamarket-relatedvalueofassets,whichstabilizesvariabilityinassetstowhichtheexpectedreturnisapplied.
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2017 2016 Currentliabilities $ (2.1) $ (1.7)Non-currentliabilities (105.6) (102.5)Netbenefitobligation $ (107.7) $ (104.2)
2017 2016 Reconciliationofamountsrecognizedintheconsolidatedbalancesheets: Priorservicecost $ (9.7) $ (10.6)Netactuarialloss (48.9) (56.0)Accumulatedothercomprehensiveloss (58.6) (66.6)Accumulatedcontributionsinexcessofnetperiodicbenefitcost (49.1) (37.6)Netamountrecognized $ (107.7) $ (104.2)
2017 2016 2015Discountrates 0.2%-2.1% 0.2%-2.1% 0.3%-2.5%Expectedreturnonplanassets 0.0%-3.0% 0.0%-3.0% 0.0%-3.0%Expectedrateofcompensationincrease 1.0%-3.0% 1.0%-3.0% 1.0%-3.0%
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AssetAllocationsbyAssetCategory
ThefairvalueoftheCompany'spensionplanassetsatDecember31,2017and2016,byassetcategoryandbylevelinthefairvaluehierarchy,isasfollows(inmillions):
ContributionsandEstimatedFutureBenefitPayments
During2018,theCompanyexpectscontributionstobeconsistentwith2017.TheestimatedfuturebenefitpaymentsarebasedonthesameassumptionsusedtomeasuretheCompany'sbenefitobligation
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December31,2017 Total
QuotedPricesinActiveMarkets
Available(Level1)
SignificantOtherObservableInputs
(Level2)
SignificantUnobservableInputs
(Level3) PlanAssets: GroupBPCELife(a) $ 1.1 $ — $ 1.1 $ —SwissLifeCollectiveBVGFoundation(b) 119.2 — 119.2 —Totalplanassets $ 120.3 $ — $ 120.3 $ —
December31,2016 Total
QuotedPricesinActiveMarkets
Available(Level1)
SignificantOtherObservableInputs
(Level2)
SignificantUnobservableInputs
(Level3) PlanAssets: GroupBPCELife(a) $ 1.3 $ — $ 1.3 $ —SwissLifeCollectiveBVGFoundation(b) 104.6 — 104.6 —Totalplanassets $ 105.9 $ — $ 105.9 $ —
(a) TheCompany'spensionplaninFranceisinvestedinalargerfundthatinvestsinavarietyofinstruments.TheassetsarenotdirectlydedicatedtotheFrenchpensionplan.TheGroupBPCELifefundinvestsindebtsecuritiesofforeigncorporationsandgovernments,equitysecuritiesofforeigngovernmentfundsandprivaterealestatefunds.
(b) TheCompany'spensionplaninSwitzerlandisoutsourcedtoSwissLifeAG,anoutsideinsuranceprovider.Undertheinsurancecontract,theplanassetsareinvestedinSwissLifeCollectiveBVGFoundation(theFoundation),whichisanumbrellafundforwhichtheretirementsavingsandinterestratesareguaranteedaminimumof1.75%onthemandatorywithdrawalportion,asdefinedbySwisslaw,and0.75%and1.25%fortheyearsendedDecember31,2017and2016,respectivelyonthenon-mandatoryportion.TheFoundationutilizesplanadministratorsandinvestmentmanagerstooverseetheinvestmentallocationprocess,setlong-termstrategictargetsandmonitorassetallocations.Thetargetallocationsare75%bonds,includingcash,5%equityinvestmentsand20%realestateandmortgages.ShouldtheFoundationyieldareturngreaterthantheguaranteedamounts,theCompany,accordingtoSwisslaw,shallreceive90%oftheadditionalreturnwithSwissLifeAGretaining10%.ThewithdrawalbenefitsandinterestallocationsaresecuredatalltimesbySwissLifeAG.
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atDecember31,2017.Thefollowingbenefitpaymentsreflectfutureemployeeserviceasappropriate(inmillions):
Note14—CommitmentsandContingencies
InaccordancewithASCTopic450,Contingencies,theCompanyaccruesanticipatedcostsofsettlement,damages,orothercoststotheextentspecificlossesareprobableandestimable.
LitigationandRelatedContingencies
Lawsuits,claimsandproceedingsofanatureconsiderednormaltoitsbusinessesmaybependingfromtimetotimeagainsttheCompany.ThirdpartiesmightallegethattheCompanyoritscollaboratorsareinfringingtheirpatentrightsorthattheCompanyisotherwiseviolatingtheirintellectualpropertyrights.Losscontingencyprovisionsarerecordedifthepotentiallossfromanyclaim,assertedorunasserted,orlegalproceedingisconsideredprobableandtheamountcanbereasonablyestimatedorarangeoflosscanbedetermined.Theseaccrualsrepresentmanagement'sbestestimateofprobableloss.Disclosurealsoisprovidedwhenitisreasonablypossiblethatalosswillbeincurredorwhenitisreasonablypossiblethattheamountofalosswillexceedtherecordedprovision.TheCompanybelievestheoutcomeofpendingproceedings,individuallyandintheaggregate,willnothaveamaterialimpactontheCompany'sfinancialstatements.AsofDecember31,2017and2016,nomaterialaccrualshavebeenrecordedforpotentialcontingencies.
GovernmentalInvestigations
TheCompanyissubjectfromtimetotimetoinvestigationsbyU.S.orforeigngovernmentalagencies,fromwhichcivil,criminaloradministrativeproceedingscouldresult.
OnOctober19,2017,theCompanyreceivedanoticeofinvestigationandsubpoenatoproducedocumentsfromtheDivisionofEnforcementoftheSEC.ThesubpoenaseeksinformationrelatedtoanemployeeterminatedaspartofarestructuringandcertainmattersinvolvingtheCompany'spoliciesandaccountingpracticesrelatedtorevenuerecognitionandrestructuringactivities,aswellasrelatedfinancialreporting,disclosureandcompliancematters,sinceJanuary1,2013.Thesubpoenaalsoseeksinformationconcerning,amongotherthings,theCompany'spreviouslyidentifiedmaterialweaknessininternalcontrolsovertheaccountingforincometaxes,relatedfinancialreportingmattersandcertainpaymentsfornon-employeetravelexpenses.TheCompanyisproducingdocumentsinresponsetothesubpoenaandintendstocontinuetocooperatefullywiththeSEC'sinvestigation.Atthistime,theCompanyisunabletopredicttheduration,scopeoroutcomeofthisinvestigation.
TheKoreaFairTradeCommission("KFTC")hasconductedaninvestigationintoimproperbiddingbyBrukerKoreaCo.,Ltd.andseveralothercompaniesinconnectionwithbidsforsalesofX-raysystemsin2010and2012.ThreeofthebidsunderinvestigationinvolvedBrukerKorea.TheCompanycooperatedfullywiththeKFTCregardingthismatter.InSeptember2016,theKFTCfinedBrukerKoreaapproximately$15,000andreferredthemattertotheKoreanPublicProsecutor'sOffice("PPO")forcriminalprosecution.OnMay31,2017,thePPOissuedofficialnoticeofitsdecisionnottopursuecriminalproceedingsagainstBrukerKorea.Additionally,sinceDecember2016,variousKoreangovernmentalentitiesimposedsuspensionsonBrukerKorea,withoverlapping
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2018 $ 2.72019 2.82020 3.22021 3.82022 4.22023-2027 28.8
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suspensionperiodsrangingfromthreetosixmonths.Duringtheperiodsofthesesuspensions,BrukerKoreawasprohibitedfrombiddingfororconductingsalestoKoreangovernmentalagencies.Salestothesecustomerswerelessthan1%oftheCompany'srevenuefortheyearendedDecember31,2016.AtDecember31,2017,allsuchsuspensionperiodshavelapsed.TheCompanyconsidersthesemattersresolvedandnoadditionalpaymentsareowedoraccruedasofDecember31,2017inconnectionwithsuchresolutions.
OperatingLeases
Certainbuildings,officeequipmentandvehiclesareleasedunderagreementsthatareaccountedforasoperatingleases.Totalrentalexpenseunderoperatingleaseswas$23.7million,$22.0millionand$23.0millionduringtheyearsendedDecember31,2017,2016and2015,respectively.Futureminimumleasepaymentsundernon-cancelableoperatingleasesatDecember31,2017,foreachofthenextfiveyearsandthereafterareasfollows(inmillions):
CapitalLeases
TheCompanyleasescertainassetsunderagreementsthatareclassifiedascapitalleases.Thecostoftheseassetsunderthecapitalleasesisincludedintheconsolidatedbalancesheetsasproperty,plantandequipmentandwas$0.9millionatDecember31,2017.AccumulatedamortizationoftheleasedbuildingsatDecember31,2017was$0.5million.TherewerenoassetsundercapitalleaseagreementsasofDecember31,2016.Amortizationexpenserelatedtoassetsundercapitalleaseswasincludedindepreciationexpense.Theobligationsrelatedtocapitalleaseswasrecordedasacomponentoflong-termdebtorthecurrentportionoflong-termdebtintheconsolidatedbalancesheets,dependingonwhentheleasepaymentsaredue.
UnconditionalPurchaseCommitments
TheCompanyhasenteredintounconditionalpurchasecommitments,intheordinarycourseofbusiness,thatincludeagreementstopurchasegoods,servicesorfixedassetsandtopayroyaltiesthatareenforceableandlegallybindingandthatspecifyallsignificanttermsincluding:fixedorminimumquantitiestobepurchased;fixed,minimumorvariablepriceprovisions;andtheapproximatetimingofthetransaction.Purchasecommitmentsexcludeagreementsthatarecancelableatanytimewithoutpenalty.TheaggregateamountoftheCompany'sunconditionalpurchasecommitmentstotaled$164.0millionatDecember31,2017andthemajorityofthesecommitmentsareexpectedtobesettledduring2018.
LicenseAgreements
TheCompanyhasenteredintocross-licensingagreementsforvarioustechnologiesthatallowothercompaniestoutilizecertainofitspatentsandrelatedtechnologiesovervariousperiodsorintoperpetuity.IncomefromtheseagreementsfortheyearsendedDecember31,2017,2016and2015was$2.1million,$1.9millionand$2.5million,respectively,andisclassifiedinotherrevenueintheconsolidatedstatementsofincomeandcomprehensiveincome.Theunearnedportionsofproceedsfromthecross-licensingagreementsareclassifiedasshort-termorlong-termdeferredrevenuedependingonwhentherevenuewillbeearned.
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2018 $ 21.22019 15.42020 12.02021 9.12022 5.6Thereafter 13.6Total $ 76.9
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TheCompanyhasalsoenteredintolicenseagreementsallowingittoutilizecertainpatents.Ifthesepatentsareusedinconnectionwithacommercialproductsale,theCompanypaysroyaltiesontherelatedproductrevenues.LicensingfeesfortheyearsendedDecember31,2017,2016and2015,were$3.5million,$3.0millionand$3.2million,respectively,andarerecordedincostofproductrevenueintheconsolidatedstatementsofincomeandcomprehensiveincome.
LettersofCreditandGuarantees
AtDecember31,2017and2016,theCompanyhadbankguaranteesof$138.8millionand$131.5million,respectively,relatedprimarilytocustomeradvances.Thesearrangementsguaranteetherefundofadvancepaymentsreceivedfromcustomersintheeventthatthemerchandiseisnotdeliveredorwarrantyobligationsarenotfulfilledincompliancewiththetermsofthecontract.TheseguaranteesaffecttheavailabilityoftheCompany'slinesofcredit.
Indemnifications
TheCompanyentersintostandardindemnificationarrangementsintheCompany'sordinarycourseofbusiness.Pursuanttothesearrangements,theCompanyindemnifies,holdsharmless,andagreestoreimbursetheindemnifiedpartiesforlossessufferedorincurredbytheindemnifiedparty.ThesepartiesaregenerallytheCompany'sbusinesspartnersorcustomers,inconnectionwithanypatent,oranycopyrightorotherintellectualpropertyinfringementclaimbyanythirdpartywithrespecttoitsproducts.Thetermoftheseindemnificationagreementsisgenerallyperpetualanytimeaftertheexecutionoftheagreement.ThemaximumpotentialamountoffuturepaymentstheCompanycouldberequiredtomakeundertheseagreementsisunlimited.TheCompanybelievestheestimatedfairvalueoftheseagreementsisminimalbasedonhistoricalexperiences.
Note15—Shareholders'Equity
ShareRepurchaseProgram
InMay2015,theCompany'sBoardofDirectorsapprovedasharerepurchaseprogram(the"Anti-DilutiveRepurchaseProgram")underwhichtheCompanywasauthorizedtorepurchasetheCompany'scommonstockinamountsintendedtoapproximatelyoffset,onanannualbasis,thedilutiveeffectofsharesthathavebeen,ormaybe,issuedpursuanttooptionorrestrictedstockawardsundertheCompany'sincentivecompensationplans.In2015,atotalof1,245,000shareswererepurchasedatanaggregatecostof$24.9millionundertheAnti-DilutiveRepurchaseProgram.
InNovember2015,theCompany'sBoardofDirectorssuspendedtheAnti-DilutiveRepurchaseProgramuntilJanuary1,2017andapprovedanadditionalsharerepurchaseprogram.Thisprogramauthorizedrepurchasesofcommonstockupto$225millionfromtimetotime,inamounts,atprices,andatsuchtimesastheCompanydeemedappropriate,subjecttomarketconditions,legalrequirementsandotherconsiderations.Atotalof9,312,522shareswererepurchasedatanaggregatecostof$225.0millionasofDecember31,2016underthatcompletedrepurchaseprogram.
InMay2017,theCompany'sBoardofDirectorsapprovedanadditionalsharerepurchaseprogram(the"RepurchaseProgram")underwhichrepurchasesofcommonstockupto$225.0millionwereauthorizedtooccurfromtimetotime,inamounts,atprices,andatsuchtimesastheCompanydeemsappropriate,subjecttomarketconditions,legalrequirementsandotherconsiderations.Atotalof5,318,063shareswererepurchasedatanaggregatecostof$152.2millionintheyearendedDecember31,2017undertheRepurchaseProgram.Anyfuturerepurchaseswillbefundedfromcashonhand,futurecashflowsfromoperationsandavailableborrowingsundertherevolvingcreditfacility.
TherepurchasedsharesarereflectedwithinTreasurystockintheaccompanyingconsolidatedbalancesheetatDecember31,2017and2016.
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CashDividendsonCommonStock
OnFebruary22,2016,theCompanyannouncedtheestablishmentofadividendpolicyandthedeclarationbyitsBoardofDirectorsofaninitialquarterlycashdividendintheamountof$0.04pershareoftheCompany'sissuedandoutstandingcommonstock.Underthedividendpolicy,theCompanywilltargetacashdividendtotheCompany'sshareholdersintheamountof$0.16pershareperannum,payableinequalquarterlyinstallments.ThefollowingisasummaryofthedividendspaidintheyearsendedDecember31,2017and2016(inmillions):
Subsequentdividenddeclarationsandtheestablishmentofrecordandpaymentdatesforsuchfuturedividendpayments,ifany,aresubjecttotheBoardofDirectors'continuingdeterminationthatthedividendpolicyisinthebestinterestsoftheCompany'sshareholders.ThedividendpolicymaybesuspendedorcancelledatthediscretionoftheBoardofDirectorsatanytime.
AccumulatedOtherComprehensiveIncome(Loss)
Thefollowingisasummaryofthecomponentsofaccumulatedothercomprehensiveincome(loss),netoftax,atDecember31,(inmillions):
Note16—Stock-BasedCompensation
InFebruary2010,theBrukerBioSciencesCorporationAmendedandRestated2000StockOptionPlan(the"2000Plan"),expiredattheendofitsscheduledten-yearterm.OnMarch9,2010,theCompany'sBoardofDirectorsunanimouslyapprovedandadoptedtheBrukerCorporation2010IncentiveCompensationPlan(the"2010Plan"),andonMay14,2010,the2010PlanwasapprovedbytheCompany'sstockholders.The2010Planprovidedfortheissuanceofupto8,000,000sharesoftheCompany'scommonstock.The2010PlanallowedacommitteeoftheBoardofDirectors(the
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2017DividendsPaidon March24 June23 September22 December22ShareholdersofRecordasof March8 June5 September5 December4AggregateCost $6.4 $6.4 $6.3 $6.3
2016DividendsPaidon March24 June24 September23 December23ShareholdersofRecordasof March4 June6 September6 December5AggregateCost $6.5 $6.5 $6.4 $6.4
ForeignCurrencyTranslation
PensionLiability
Adjustment
AccumulatedOther
ComprehensiveIncome(Loss)
BalanceatDecember31,2014 $ 66.0 $ (37.8) $ 28.2Othercomprehensiveincome(loss) (62.8) (23.6) (86.4)Realizedlossonreclassification — 14.0 14.0
BalanceatDecember31,2015 3.2 (47.4) (44.2)Othercomprehensiveincome(loss) (27.3) (8.4) (35.7)Realizedlossonreclassification — 4.0 4.0
BalanceatDecember31,2016 (24.1) (51.8) (75.9)Othercomprehensiveincome 96.3 1.8 98.1Realizedlossonreclassification — 4.8 4.8
BalanceatDecember31,2017 $ 72.2 $ (45.2) $ 27.0
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"CompensationCommittee")tograntincentivestockoptions,non-qualifiedstockoptionsandrestrictedstockawards.TheCompensationCommitteehadtheauthoritytodeterminewhichemployeeswouldreceivetheawards,theamountoftheawardsandothertermsandconditionsofanyawards.Awardsgrantedunderthe2010Plantypicallyweremadesubjecttoavestingperiodofthreetofiveyears.
InMay2016,theBrukerCorporation2016IncentiveCompensationPlan(the"2016Plan")wasapprovedbytheCompany'sstockholders.Withtheapprovalofthe2016Plan,nofurthergrantswillbemadeunderthe2010Plan.The2016Planprovidesfortheissuanceofupto9,500,000sharesoftheCompany'scommonstockandpermitsthegrantofawardsofnon-qualifiedstockoptions,incentivestockoptions,stockappreciationrights,restrictedstock,unrestrictedstock,restrictedstockunits,performancesharesandperformanceunits,aswellascash-basedawards.The2016PlanisadministeredbytheCompensationCommittee.TheCompensationCommitteehastheauthoritytodeterminewhichemployeeswillreceiveawards,theamountofanyawards,andothertermsandconditionsofsuchawards.Stockoptionawardsgrantedunderthe2016Plantypicallyvestoveraperiodofthreetofouryears.
StockoptionactivityfortheyearendedDecember31,2017wasasfollows:
Theweightedaveragefairvalueofoptionsgrantedwas$7.61,$7.72and$7.82persharefortheyearsendedDecember31,2017,2016and2015,respectively.
Thetotalintrinsicvalueofoptionsexercisedwas$16.2million,$11.2millionand$8.2millionfortheyearsendedDecember31,2017,2016and2015,respectively.
Unrecognizedpre-taxstock-basedcompensationexpenseof$8.3millionrelatedtostockoptionsawardedunderthe2010and2016Plansisexpectedtoberecognizedovertheweightedaverageremainingserviceperiodof2.2yearsforstockoptionsoutstandingatDecember31,2017.
RestrictedsharesoftheCompany'scommonstockareperiodicallyawardedtoexecutiveofficers,directorsandcertainkeyemployeesoftheCompany,subjecttoservicerestrictions,whichvestratablyoverperiodsofonetofouryears.Therestrictedsharesofcommonstockmaynotbesoldor
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SharesSubjecttoOptions
WeightedAverage
OptionPrice
WeightedAverageRemainingContractualTerm(Yrs)
AggregateIntrinsicValue(inmillions)(b)
OutstandingatDecember31,2016 4,625,678 $ 18.73 Granted 180,677 27.97 Exercised (1,263,767) 16.17 Forfeited/Expired (306,915) 19.54
OutstandingatDecember31,2017 3,235,673 $ 20.16 6.3 $ 45.8ExercisableatDecember31,2017 1,786,898 $ 18.31 5.4 $ 28.6Exercisableandexpectedtovestat December31,2017(a) 3,138,460 $ 20.09 6.3 $ 44.6
(a) InadditiontotheoptionsthatarevestedatDecember31,2017,theCompanyexpectsaportionoftheunvestedoptionstovestinthefuture.OptionsexpectedtovestinthefuturearedeterminedbyapplyinganestimatedforfeitureratetotheoptionsthatareunvestedasofDecember31,2017.
(b) TheaggregateintrinsicvalueisbasedonthepositivedifferencebetweenthefairvalueoftheCompany'scommonstockpriceof$34.32onDecember31,2017,orthedateofexercises,asappropriate,andtheexercisepriceoftheunderlyingstockoptions.
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transferredduringtherestrictionperiod.Stock-basedcompensationforrestrictedstockisrecordedbasedonthestockpriceonthegrantdateandchargedtoexpenseratablythroughouttherestrictionperiod.
ThefollowingtablesummarizesinformationaboutrestrictedstockawardactivityduringtheyearendedDecember31,2017:
Thetotalfairvalueofrestrictedstockvestedwas$2.3million,$1.5millionand$1.0millionfortheyearsendedDecember31,2017,2016and2015,respectively.
Unrecognizedpre-taxstock-basedcompensationexpenseof$1.1millionrelatedtorestrictedstockawardedunderthe2010Planisexpectedtoberecognizedovertheweightedaverageremainingserviceperiodof1.44yearsforawardsoutstandingatDecember31,2017.
RestrictedstockunitsoftheCompany'scommonstockareperiodicallyawardedtoexecutiveofficers,directorsandcertainemployeesoftheCompanywhichvestratablyoveraserviceperiodsofonetofouryears.Stock-basedcompensationforrestrictedstockunitsisrecordedbasedonthestockpriceonthegrantdateandchargedtoexpenseratablythroughoutthevestingperiod.
ThefollowingtablesummarizesinformationaboutrestrictedstockunitactivityforyearendedDecember31,2017:
Thetotalfairvalueofrestrictedstockvestedwas$2.0millionfortheyearendedDecember31,2017.NorestrictedstockunitsvestedintheyearsendedDecember31,2016and2015.
Unrecognizedpre-taxstock-basedcompensationexpenseof$13.2millionrelatedtorestrictedstockunitsawardedunderthe2016Planisexpectedtoberecognizedovertheweightedaverageremainingserviceperiodof3.38yearsforunitsoutstandingatDecember31,2017.
InMarch2016,theFASBissuedASUNo.2016-09,Stock Compensation—Improvements to Employee Share-Based Payment Accounting .Thenewstandardsimplifiesaccountingforshare-basedpaymenttransactions,includingincometaxconsequencesandtheclassificationofthetaximpactonthestatementofcashflows.TheCompanyadoptedthisstandardeffectiveJanuary1,2017.TheASUrequiresthatthedifferencebetweentheactualtaxbenefitrealizeduponexerciseorvesting,asapplicable,andthetaxbenefitrecordedbasedonthefairvalueofthestockawardatthetimeofgrant(the"excesstaxbenefits")bereflectedasareductionofthecurrentperiodprovisionforincometaxes
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SharesSubjecttoRestriction
WeightedAverageGrant
DateFairValue
OutstandingatDecember31,2016 172,506 $ 19.37Vested (82,924) 18.17Forfeited (4,053) 22.46
OutstandingatDecember31,2017 85,529 $ 20.39
SharesSubjecttoRestriction
WeightedAverageGrant
DateFairValue
OutstandingatDecember31,2016 262,317 $ 22.32Granted 488,552 26.55Vested (67,057) 22.27Forfeited (31,689) 22.81
OutstandingatDecember31,2017 652,123 $ 25.47
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withanyshortfallrecordedasanincreaseinthetaxprovisionratherthanasacomponentofchangestoadditionalpaid-incapital.TheASUalsorequiredtheexcesstaxbenefitrealizedbereflectedasanoperatingcashflowratherthanafinancingcashflow.ThisstandardwasadoptedbytheCompanyonamodifiedretrospectivebasiswithrespecttothepreviouslyunrecognizedwindfalls,whichresultedinacumulativeadjustmenttoretainedearningsof$3.6millionasofJanuary1,2017relatedtothetimingofwhenexcesstaxbenefitsarerecognized.TheCompanyadoptedthisstandardonaprospectivebasiswithrespecttothestatementsofincomeandcashflowsandrecognizedanexcesstaxbenefitrelatedtostockcompensationwhichdecreasedincometaxexpenseintheamountof$1.9millionfortheyearendedDecember31,2017.Theexcesstaxbenefitswerepreviouslyrecordedinequity.TheCompanycontinuestoutilizeahistoricalforfeitureratetoestimatefutureforfeitures.
Note17—OtherCharges,Net
Thecomponentsofothercharges,netfortheyearsendedDecember31,2017,2016and2015,wereasfollowsinmillions):
RestructuringInitiatives
2016
TheCompanycommencedarestructuringinitiativein2016toaddresslowerdemandintheBrukerCALIDandBrukerNanoGroupsasaresultofdelaysinEuropeanacademicfundingandongoingweaknessinseveraloftheindustrialendmarketsegmentsthataffecttheBrukerNanoGroup.ThisinitiativewasintendedtoimprovetheBrukerCALIDandBrukerNanoGroupoperatingresultsinresponsetothesemarketconditions.Restructuringactionswillresultinareductionofapproximately125employeeswithintheBrukerCALIDandBrukerNanoGroups.
ThefollowingisasummaryoftherestructuringexpensesrelatedtothisinitiativewhicharerecordedintheaccompanyingconsolidatedstatementsofincomeandcomprehensiveincomefortheyearsendedDecember31,2017and2016:
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2017 2016 2015 Acquisition-relatedexpenses(income),net $ 4.5 $ 9.0 $ (7.2)Professionalfeesincurredinconnectionwithinvestigationmatters 0.2 — 0.4Pensionsettlementcharge — — 10.2Informationtechnologytransformationcosts 4.2 6.2 8.9Restructuringcharges 10.6 9.8 8.1Long-livedassetimpairments 0.2 0.8 4.6Othercharges,net $ 19.7 $ 25.8 $ 25.0
2017 2016
SeveranceandExitCosts
InventoryWritedownandAssetImpairment Total
SeveranceandExitCosts
InventoryWritedownandAssetImpairment Total
Costofrevenues $ 3.5 $ 0.5 $ 4.0 $ 4.4 $ 2.4 $ 6.8Othercharges,net 3.0 — 3.0 3.4 0.2 3.6
$ 6.5 $ 0.5 $ 7.0 $ 7.8 $ 2.6 $ 10.4
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2015
TheCompanycommencedarestructuringinitiativeinthesecondquarterof2015withintheBrukerBioSpinGroup,whichwasdevelopedasaresultofarevenuedeclinethatoccurredduringthesecondhalfof2014andcontinuedduringthefirsthalfof2015.ThisinitiativewasintendedtoimproveBrukerBioSpinGroup'soperatingresults.RestructuringactionsresultedinareductionofemployeeheadcountwithintheBrukerBioSpinGroupofapproximately9%andtheclosureandconsolidationofaBrukerBioSpinGroupmanufacturingfacility.
ThefollowingisasummaryoftherestructuringexpensesrelatedtothisinitiativewhicharerecordedintheaccompanyingconsolidatedstatementsofincomeandcomprehensiveincomeforyearsendedDecember31,2017,2016and2015:
AsofDecember31,2017,expensesincurredunderthisrestructuringinitiativeweresubstantiallycomplete.
RestructuringchargesfortheyearsendedDecember31,2017,2016and2015includedchargesforvariousotherprogramswhichwererecordedintheaccompanyingconsolidatedstatementsofincomeandcomprehensiveincomeasfollows:
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2017 2016 2015
SeveranceandExitCosts
InventoryWritedownandAssetImpairment Total
SeveranceandExitCosts
InventoryWritedownandAssetImpairment Total
SeveranceandExitCosts
InventoryWritedownandAssetImpairment Total
Costofrevenues $ (2.7) $ — $ (2.7) $ 2.2 $ — $ 2.2 $ 10.2 $ 2.1 $ 12.3
Othercharges,net — — — 1.1 — 1.1 1.8 2.1 3.9
$ (2.7) $ — $ (2.7) $ 3.3 $ — $ 3.3 $ 12.0 $ 4.2 $ 16.2
2017 2016 2015 Costofrevenues $ 4.3 $ 2.0 $ 8.9Othercharges,net 7.6 5.1 4.2
$ 11.9 $ 7.1 $ 13.1
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ThefollowingtablesetsforththechangesintherestructuringreservesfortheyearsendedDecember31,2017,2016and2015(inmillions):
RestructuringchargesbysegmentasofandfortheyearsendedDecember31,areasfollows(inmillions):
Note18—InterestandOtherIncome(Expense),Net
Thecomponentsofinterestandotherincome(expense),netfortheyearsendedDecember31,2017,2016and2015,wereasfollows(inmillions):
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Total Severance ExitCosts
ProvisionsforExcess
Inventory BalanceatDecember31,2014 $ 16.1 $ 7.1 $ 1.3 $ 7.7Restructuringcharges 29.3 15.9 6.4 7.0Cashpayments (18.0) (11.9) (5.1) (1.0)Non-cashadjustments (2.9) (0.2) (0.2) (2.5)Foreigncurrencyimpact (1.4) (0.6) — (0.8)
BalanceatDecember31,2015 $ 23.1 $ 10.3 $ 2.4 $ 10.4Restructuringcharges 20.8 10.6 7.2 3.0Cashpayments (22.1) (15.6) (5.6) (0.9)Non-cashadjustments (5.4) (0.4) (0.3) (4.7)Foreigncurrencyimpact (0.2) — — (0.2)
BalanceatDecember31,2016 $ 16.2 $ 4.9 $ 3.7 $ 7.6Restructuringcharges 16.2 7.7 6.2 2.3Cashpayments (17.1) (10.1) (6.8) (0.2)Non-cashadjustments (5.5) (0.7) (1.0) (3.8)Foreigncurrencyimpact 1.0 0.2 — 0.8
BalanceatDecember31,2017 $ 10.8 $ 2.0 $ 2.1 $ 6.7
2017 2016 2015 BSI $ 14.1 $ 20.8 $ 28.4BEST 2.1 — 0.9
$ 16.2 $ 20.8 $ 29.3
2017 2016 2015 Interestincome $ 0.8 $ 0.3 $ 1.2Interestexpense (15.4) (13.2) (13.0)Exchangegains(losses)onforeigncurrencytransactions (5.5) 4.1 (5.5)Gainonbargainpurchase 0.6 9.2 —(Loss)gainondisposalofproductline — — (0.2)Other 2.6 — (0.2)Interestandotherincome(expense),net $ (16.9) $ 0.4 $ (17.7)
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Note19—BusinessSegmentInformation
TheCompanyhastworeportablesegments,BSIandBEST,asdiscussedinNote1totheconsolidatedfinancialstatements.
SelectedbusinesssegmentinformationispresentedbelowfortheyearsendedDecember31,(inmillions):
TheCompanyrecordedanimpairmentchargeof$1.1million,$0.8millionand$4.6millionfortheyearsendedDecember31,2017,2016and2015,respectively,withintheBSIandBESTSegments.PleaseseeNote7—Property,PlantandEquipment,netandNote8—GoodwillandOtherIntangibleAssets,fordescriptionofimpairmentchargesrecordedin2017,2016and2015.Theseimpairmentchargesareincludedwithinothercharges,netintheaccompanyingconsolidatedstatementsofincomeandcomprehensiveincome.
TotalassetsbysegmentasofandfortheyearsendedDecember31,areasfollows(inmillions):
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2017 2016 2015 Revenue: BSI $ 1,583.9 $ 1,492.6 $ 1,499.2BEST 191.2 130.2 133.7Eliminations(a) (9.2) (11.5) (9.1)Totalrevenue $ 1,765.9 $ 1,611.3 $ 1,623.8
OperatingIncome: BSI $ 208.6 $ 168.9 $ 133.2BEST 7.4 6.6 11.5Corporate,eliminationsandother(b) (1.3) 1.7 1.0Totaloperatingincome $ 214.7 $ 177.2 $ 145.7
(a) Representsproductandservicerevenuebetweenreportablesegments.
(b) Representscorporatecostsandeliminationsnotallocatedtothereportablesegments.
2017 2016 Assets: BSI $ 1,917.8 $ 1,779.8BEST 35.6 36.0Eliminationsandother(a) (4.9) (7.4)Totalassets $ 1,948.5 $ 1,808.4
(a) Assetsnotallocatedtothereportablesegmentsandeliminationsofintercompanytransactions.
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TotalcapitalexpendituresanddepreciationandamortizationbysegmentarepresentedbelowfortheyearsendedDecember31,(inmillions):
Revenueandproperty,plantandequipment,netbygeographicalareaasofandfortheyearendedDecember31,areasfollows(inmillions):
Note20—RelatedParties
TheCompanyleasescertainofficespacefromcertainofitsprincipalshareholders,includingadirectorandexecutiveofficerandanothermemberoftheCompany'sBoardofDirectors,andmembersoftheirimmediatefamilies,whichhaveexpirationdatesrangingfrom2018to2020.Totalrentexpenseundertheseleaseswas$3.5million,$3.9millionand$1.8millionforeachoftheyearsendedDecember31,2017,2016and2015,respectively.
DuringtheyearsendedDecember31,2017,2016and2015,theCompanyrecordedrevenueof$2.6million,$1.1millionand$0.7million,respectively,arisingfromcommercialtransactionswithalifesciencescompanyinwhichamemberoftheCompany'sBoardofDirectorsisChairmanandChiefExecutiveOfficer.
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2017 2016 2015 CapitalExpenditures: BSI $ 38.5 $ 34.6 $ 30.1BEST 5.2 2.5 4.1Totalcapitalexpenditures $ 43.7 $ 37.1 $ 34.2
DepreciationandAmortization: BSI $ 59.8 $ 51.3 $ 50.5BEST 4.1 3.0 2.8Totaldepreciationandamortization $ 63.9 $ 54.3 $ 53.3
2017 2016 2015 Revenue: UnitedStates $ 434.7 $ 428.2 $ 380.4Germany 200.2 189.5 198.9RestofEurope 465.0 393.4 479.6AsiaPacific 514.8 458.1 414.9Other 151.2 142.1 150.0Totalrevenue $ 1,765.9 $ 1,611.3 $ 1,623.8
2017 2016 Property,plantandequipment,net: UnitedStates $ 46.2 $ 46.4Germany 140.9 122.5RestofEurope 71.9 63.3AsiaPacific 5.4 4.4Other 2.1 2.5Totalproperty,plantandequipment,net $ 266.5 $ 239.1
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DuringtheyearendedDecember31,2016and2015,theCompanyrecordedrevenueof$0.2millionand$0.5million,respectively,fromcommercialtransactionswithathermalanalysiscompanyinwhichoneoftheformermembersofitsBoardofDirectorsservesasaconsultant.
Note21—RecentAccountingPronouncements
InJanuary2017,theFinancialAccountingStandardsBoard("FASB")issuedAccountingStandardsUpdate("ASU")2017-04,Intangibles-Goodwill andOther (Topic 350): Simplifying the Test for Goodwill Impairment. Thenewstandardsimplifiesthesubsequentmeasurementofgoodwillbyeliminatingthesecondstepofthegoodwillimpairmenttest.ThisASUwillbeappliedprospectivelyandiseffectiveforannualorinterimgoodwillimpairmenttestsinfiscalyearsbeginningafterDecember15,2019.TheadoptionofthisstandardisnotexpectedtohaveamaterialimpactontheCompany'sconsolidatedfinancialstatementsuponadoption.
InJanuary2017,theFASBissuedASUNo.2017-01,Business Combinations (Topic 805): Clarifying the Definition of a Business. Thisnewstandardclarifiesthedefinitionofabusinessandprovidesascreentodeterminewhenanintegratedsetofassetsandactivitiesisnotabusiness.Thescreenrequiresthatwhensubstantiallyallofthefairvalueofthegrossassetsacquired(ordisposedof)isconcentratedinasingleidentifiableassetoragroupofsimilaridentifiableassets,thesetisnotabusiness.ThisnewstandardwasadoptedasoftheeffectivedateofJanuary1,2018.TheCompanyhasevaluatedtheprovisionsofthisstandardandhasdeterminedthattheimpactofadoptionofASUNo.2017-01wasnotmaterialtotheconsolidatedfinancialstatements.
InOctober2016,theFASBissuedASUNo.2016-16,Income Taxes (Topic 740)—Intra-Entity Transfer of Assets Other than Inventory .Thenewstandardrequiresrecognitionofcurrentanddeferredincometaxesresultingfromanintra-entitytransferofanyasset(excludinginventory)whenthetransferoccurs.ThisisachangefromexistingU.S.GAAPwhichprohibitsrecognitionofcurrentanddeferredincometaxesuntiltheassetissoldtoathirdparty.ThisnewstandardwasadoptedasoftheeffectivedateofJanuary1,2018.TheCompanyhasevaluatedtheprovisionsofthisstandardandhasdeterminedthattheimpactofadoptionofASUNo.2016-16wasnotmaterialtotheconsolidatedfinancialstatements.
InFebruary2016,theFASBissuedASUNo.2016-02,Leases .Thenewstandardprovidesguidanceontherecognition,measurement,presentation,anddisclosureofleases.ThenewstandardsupersedespresentU.S.GAAPguidanceonleasesandrequiressubstantiallyallleasestobereportedonthebalancesheetasright-of-useassetsandleaseliabilities,aswellasadditionaldisclosures.ThenewstandardiseffectiveasofJanuary1,2019,andearlyadoptionispermitted.TheCompanyisevaluatingtheprovisionsofthisstandardandhasnotdeterminedwhatimpacttheadoptionofASUNo.2016-02willhaveontheCompany'sconsolidatedfinancialstatements.
InMay2014,theFASBissuedASUNo.2014-09,Revenue from Contracts with Customers ,whichsupersedestherevenuerecognitionrequirementsunderAccountingStandardsCodification(ASC)Topic605.ThenewguidancewastheresultofajointprojectbetweentheFASBandtheInternationalAccountingStandardsBoardtoclarifytheprinciplesforrecognizingrevenueandtodevelopcommonrevenuestandardsforU.S.GAAPandInternationalFinancialReportingStandards.Thecoreprincipleofthenewguidanceisthatrevenueshouldberecognizedtodepictthetransferofpromisedgoodsorservicestocustomersinanamountthatreflectstheconsiderationtowhichtheentityexpectstobeentitledinexchangeforthosegoodsorservices.InAugust2015,theFASBelectedtodefertheeffectivedateofASUNo.2014-09byoneyeartoannualperiodsbeginningafterDecember15,2017,withearlyapplicationpermittedasoftheoriginaleffectivedate.Thenewguidancemaybeappliedonaretrospectivebasisforallpriorperiodspresented,oronamodifiedretrospectivebasiswiththecumulativeeffectofthenewguidanceasofthedateofinitialapplication.Thenewguidancewillbe
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effectivefortheCompanyasofJanuary1,2018andtheCompanycurrentlyintendstousethemodifiedretrospectivetransitionmethod.
Underthenewguidance,therearespecificcriteriatodetermineifaperformanceobligationshouldberecognizedovertimeoratapointintime.Accordingly,theCompanyhasidentifiedcertainproject-basedordersintheBESTSegmentandCBRNEdetectionordersintheBrukerCALIDGroupforwhichthetimingofwhentheCompanyrecognizesrevenuemaybeimpacted.Duetothecomplexityoftheseproject-basedorders,revenuerecognitionunderthenewstandardishighlydependentonspecificcontractterms.
Duringthefourthquarterof2017,theCompanysubstantiallycompletedtheassessmentovertheimpactthatthisnewstandardwillhaveonitsconsolidatedbalancesheets.TheCompanypreliminarilyexpectstorecognizeanadjustmentofapproximately$6.0milliontoretainedearningsonJanuary1,2018toreflectthecumulativeeffectoftheaccountingchangesmadeupontheadoptionofthestandard.Thefinalizationoftheassessmentmayresultinsignificantchangestotheestimatesthatmaymateriallyimpactthepreliminaryestimateofthecumulativeeffect.
Note22—QuarterlyFinancialData(Unaudited)
AsummaryofoperatingresultsforthequarterlyperiodsintheyearsendedDecember31,2017and2016,issetforthbelow(inmillions,exceptpersharedata):
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QuarterEnded March31(1) June30(2) September30(3) December31(1)(2)(3)(4)(5) YearendedDecember31,2017 Netrevenue $ 384.9 $ 414.9 $ 435.6 $ 530.5Grossprofit 176.4 183.4 198.0 255.2Operatingincome 37.6 33.5 49.9 93.7Netincome(loss)attributabletoBrukerCorporation 21.6 23.4 37.0 (3.4)
Netincome(loss)percommonshareattributabletoBrukerCorporationshareholders: Basic $ 0.14 $ 0.15 $ 0.23 $ (0.02)Diluted $ 0.13 $ 0.15 $ 0.23 $ (0.02)
YearendedDecember31,2016 Netrevenue $ 375.4 $ 371.7 $ 393.9 $ 470.3Grossprofit 166.8 170.1 185.2 220.4Operatingincome 34.0 20.4 45.9 76.9NetincomeattributabletoBrukerCorporation 23.6 14.5 46.5 69.0NetincomepercommonshareattributabletoBrukerCorporationshareholders: Basic $ 0.14 $ 0.09 $ 0.29 $ 0.43Diluted $ 0.14 $ 0.09 $ 0.29 $ 0.43
(1) Thefirstandfourthquarterof2017includesimpairmentofassetsof$0.3millionand$0.8million,respectively,comprisedofotherlong-livedassets.
(2) Thesecondandfourthquarterof2016includesimpairmentofassetsof$0.7millionand$0.1million,respectively,comprisedofotherlong-livedassets.
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(3) Thethirdquarterof2017includesbargainpurchasegainof$1.1millionrelatedtotheMerlinDiagnostikaGmbHacquisitionandthefourthquarterof2017includesanadjustmenttothebargainpurchasegainof$0.5millionrelatedtothesameacquisition.
(4) Thefourthquarterof2016includesbargainpurchasegainof$9.2millionrelatedtotheOxfordInstrumentsSuperconductingWireLLC.,acquisition.
(5) Thefourthquarterof2017includes$68.9millionofincrementalincometaxprovisionrelatedtothe2017TaxAct.
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ITEM9CHANGESINANDDISAGREEMENTSWITHACCOUNTANTSONAUDITINGANDFINANCIALDISCLOSURE
AtameetingheldonJune1,2016,theauditcommitteeoftheCompany'sBoardofDirectorsapprovedthedismissalofErnst&YoungLLP("Ernst&Young")astheCompany'sindependentregisteredpublicaccountingfirm,effectiveJune1,2016,andtheappointmentofPricewaterhouseCoopersLLPastheCompany'sindependentregisteredpublicaccountingfirm,effectiveJune1,2016,toperformindependentauditservicesforthefiscalyearendingDecember31,2016.
ThereportofErnst&YoungontheconsolidatedfinancialstatementsoftheCompanyforthefiscalyearendedDecember31,2015didnotcontainanadverseopinionordisclaimerofopinionandwerenotqualifiedormodifiedastouncertainty,auditscope,oraccountingprinciples.
InconnectionwiththeauditofourfinancialstatementsforthefiscalyearendedDecember31,2015,andinthesubsequentinterimperiodthroughJune1,2016,therewereno"disagreements"(asthattermisdefinedinItem304(a)(1)(iv)ofRegulationS-Kandtherelatedinstructions)withErnst&Youngonanymatterofaccountingprinciplesorpractices,financialstatementdisclosure,orauditingscopeandprocedures,which,ifnotresolvedtothesatisfactionofErnst&Young,wouldhavecausedErnst&Youngtomakereferencetothematterintheirreportsforsuchyears.Therewereno"reportableevents"asthattermisdescribedinItem304(a)(1)(v)ofRegulationS-K,exceptforamaterialweaknessintheCompany'sinternalcontroloverfinancialreportingasofDecember31,2015concerningtheaccountingforincometaxes,whichmaterialweaknesswasidentifiedsubsequenttothefilingofourAnnualReportonForm10-KfortheyearendedDecember31,2015.
Asaresultofsuchmaterialweakness,ourmanagementconcludedinNovember2016thattheCompany'sinternalcontroloverfinancialreportingwasnoteffectiveatDecember31,2015.OnNovember15,2016,theCompanyfiledAmendmentNo.1toitsAnnualReportonForm10-KforthefiscalyearendedDecember31,2015,aswellasamendmentstoeachofitsQuarterlyReportsonForm10-QfortheperiodsendedMarch31,2016,andJune30,2016,toreflecttheconclusionbymanagementthattherewasamaterialweaknessininternalcontroloverfinancialreportingasoftheendoftheperiodscoveredbythosereports.TheCompany'sAmendmentNo.1toitsAnnualReportonForm10-KforthefiscalyearendedDecember31,2015alsoincludedrevisedauditor'sreportsfromErnst&YoungstatingthattheCompany'sinternalcontroloverfinancialreportingatDecember31,2015wasnoteffective.
ITEM9ACONTROLSANDPROCEDURES
DisclosureControlsandProcedures
Wehaveestablisheddisclosurecontrolsandprocedures(assuchtermisdefinedinRules13a-15(e)and15d-15(e)undertheSecuritiesExchangeActof1934,asamended(the"ExchangeAct"))thataredesignedtoensurethatinformationrequiredtobedisclosedinthereportsthatwefileorsubmitundertheExchangeActisrecorded,processed,summarizedandreportedwithinthetimeperiodsspecifiedintherulesandformsoftheSECandtoensurethatinformationrequiredtobedisclosedisaccumulatedandcommunicatedtomanagement,includingourChiefExecutiveOfficer(principalexecutiveofficer)andChiefFinancialOfficer(principalfinancialofficer),toallowtimelydecisionsregardingrequireddisclosures.Underthesupervisionandwiththeparticipationofourmanagement,includingourChiefExecutiveOfficerandChiefFinancialOfficer,weconductedanevaluationoftheeffectivenessofourdisclosurecontrolsandproceduresasofDecember31,2017.Basedonthisevaluation,ourChiefExecutiveOfficerandChiefFinancialOfficerconcludedthatourdisclosurecontrolsandprocedureswereeffectiveatareasonableassurancelevelasofDecember31,2017.
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Management'sReportonInternalControloverFinancialReporting
Ourmanagementisresponsibleforestablishingandmaintainingadequateinternalcontroloverfinancialreporting.Underthesupervisionandwiththeparticipationofourmanagement,includingourChiefExecutiveOfficerandChiefFinancialOfficer,weconductedanevaluationoftheeffectivenessofourinternalcontroloverfinancialreportingasofDecember31,2017,basedonthecriteriasetforthbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission(COSO)inInternal Control—Integrated Framework (2013).Basedonthisevaluation,managementconcludedthatourinternalcontroloverfinancialreportingwaseffectiveasofDecember31,2017.
WeexcludedHysitron,Incorporated("Hysitron")fromourassessmentofinternalcontroloverfinancialreportingasofDecember31,2017becauseitwasacquiredbytheCompanyinapurchasebusinesscombinationduring2017.ThetotalassetsandtotalrevenuesofHysitron,represent0.7%and0.9%,respectively,oftherelatedconsolidatedfinancialstatementamountsasofandfortheyearendedDecember31,2017.
TheeffectivenessofourinternalcontroloverfinancialreportingasofDecember31,2017hasbeenauditedbyPricewaterhouseCoopersLLP,anindependentregisteredpublicaccountingfirm,asstatedintheirreportwhichappearsherein.
ChangesinInternalControloverFinancialReporting
TherewerenochangesinourinternalcontroloverfinancialreportingthatoccurredduringthequarterendedDecember31,2017thatmateriallyaffected,orarereasonablylikelytomateriallyaffect,ourinternalcontroloverfinancialreporting.
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ITEM9BOTHERINFORMATION
None.
PARTIII
ITEM10DIRECTORS,EXECUTIVEOFFICERSANDCORPORATEGOVERNANCE
ThefulltextoftheCompany'scodeofethics,whichappliestoitsPrincipalExecutiveOfficer,PrincipalFinancialOfficer,PrincipalAccountingOfficerandBoardofDirectorsispublishedontheCompany'sInvestorRelationswebsiteatwww.bruker.com .WeintendtodisclosefutureamendmentstocertainprovisionsofourCode,orwaiversofsuchprovisionsgrantedtoexecutiveofficersanddirectors,onthewebsitewithinfourbusinessdaysfollowingthedateofsuchamendmentorwaiver.
Informationregardingourexecutiveofficersmaybefoundunderthecaption"Executive Officers "inourdefinitiveproxystatementforour2018AnnualMeetingofStockholders.Informationregardingourdirectors,includingcommitteesofourBoardofDirectorsandourAuditCommitteeFinancialExperts,maybefoundunderthecaptions"Election of Directors," "Board Meetings, Committees and Compensation," and"Audit Committee Report" inourdefinitiveproxystatementforour2018AnnualMeetingofStockholders.InformationregardingcompliancewithSection16(a)oftheExchangeActmaybefoundinourdefinitiveproxystatementforour2018AnnualMeetingofStockholdersunderthecaption"Section 16(a) Beneficial Ownership Reporting Compliance. "InformationregardingtheproceduresbywhichsecurityholdersmayrecommendnomineestoourBoardofDirectorsmaybefoundinourdefinitiveproxystatementforour2018AnnualMeetingofStockholdersunderthecaption"Director Nominations. "Suchinformationisincorporatedhereinbyreference.
ITEM11EXECUTIVECOMPENSATION
Informationregardingexecutivecompensationmaybefoundunderthecaptions"Compensation of Directors," "Compensation Discussion and Analysis,""Summary of Executive Compensation," "Compensation Committee Interlocks and Insider Participation," and"Compensation Committee Report" inourdefinitiveproxystatementforour2018AnnualMeetingofStockholders.Suchinformationisincorporatedhereinbyreference.
ITEM12SECURITYOWNERSHIPOFCERTAINBENEFICIALOWNERSANDMANAGEMENTANDRELATEDSTOCKHOLDERMATTERS
ThefollowingtablesummarizesinformationaboutourequitycompensationplansasofDecember31,2017:
TheBrukerCorporation2016IncentiveCompensationPlan,orthe2016Plan,wasapprovedbyourstockholdersinMay2016.The2016Planhasatermoftenyearsandprovidesfortheissuanceof
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PlanCategory
NumberofSecuritiestobeIssued
UponExerciseofOutstandingOptions,WarrantsandRights
Weighted-AverageExercisePriceof
OutstandingOptions,WarrantsandRights
NumberofSecuritiesRemainingAvailableforFutureIssuance
UnderEquityCompensationPlans(excludingsecuritiesreflectedincolumn(a))
Equitycompensationplansapprovedbysecurityholders 3,973,325 $ 21.04 11,016,454Equitycompensationplansnotapprovedbysecurityholders N/A N/A N/A
3,973,325 $ 21.04 11,016,454
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upto9,500,000sharesoftheCompany'scommonstock.Withtheapprovalofthe2016Plan,noadditionalgrantscanbemadefromtheCompany's2010IncentiveCompensationPlan.Outstandingawardsunderthe2010IncentiveCompensationPlanwillcontinueinaccordancewiththeirterms.
Theinformationcontainedinourdefinitiveproxystatementforour2018AnnualMeetingofStockholdersunderthecaption"Security Ownership of CertainBeneficial Owners and Management" isincorporatedhereinbyreference.
ITEM13CERTAINRELATIONSHIPSANDRELATEDTRANSACTIONS,ANDDIRECTORINDEPENDENCE
Theinformationcontainedinourdefinitiveproxystatementforour2018AnnualMeetingofStockholdersunderthecaptions"Related Persons Transactions"and"Board Meetings, Committees and Compensation" isincorporatedhereinbyreference.
ITEM14PRINCIPALACCOUNTINGFEESANDSERVICES
Theinformationcontainedinourdefinitiveproxystatementforour2018AnnualMeetingofStockholdersunderthecaptions"Independent Registered PublicAccounting Firm" and"Ratification of Independent Registered Public Accounting Firm" isincorporatedhereinbyreference.
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PARTIV
ITEM15EXHIBITS,FINANCIALSTATEMENTSANDSCHEDULES
(a) FinancialStatementsandSchedules
(1) FinancialStatements
ThefollowingconsolidatedfinancialstatementsofBrukerCorporationarefiledaspartofthisreportunderItem8—FinancialStatementsandSupplementaryData:
(2) FinancialStatementSchedules
AllscheduleshavebeenomittedbecausetheyarenotrequiredorbecausetherequiredinformationisprovidedintheConsolidatedFinancialStatementsorNotestheretosetforthunderItem8above.
(3) Exhibits
(b) ListofExhibits
129
ReportofPricewaterhouseCoopersLLP,IndependentRegisteredPublicAccountingFirmReportofErnst&YoungLLP,IndependentRegisteredPublicAccountingFirmConsolidatedBalanceSheetsasofDecember31,2017and2016ConsolidatedStatementsofIncomeandComprehensiveIncomefortheyearsendedDecember31,2017,2016and2015ConsolidatedStatementsofShareholders'EquityfortheyearsendedDecember31,2017,2016and2015ConsolidatedStatementsofCashFlowsfortheyearsendedDecember31,2017,2016and2015NotestoConsolidatedFinancialStatements
IncorporatedbyReference(1)Exhibit
No.
Filed
Herewith Description Form Date3.1 AmendedCertificateofIncorporationoftheRegistrant 10-K December31,2007
3.2 BylawsoftheRegistrant S-1 August3,2000
4.1 SpecimenstockcertificaterepresentingsharesofcommonstockoftheRegistrant
10-K December31,2016
10.1† BrukerCorporation2010IncentiveCompensationPlan S-8 June4,2010
10.2† BrukerCorporation2010IncentiveCompensationPlanFormofIncentiveStockOptionAgreement
10-Q June30,2010
10.3† BrukerCorporation2010IncentiveCompensationPlanFormofNon-QualifiedStockOptionAgreement
10-Q June30,2010
10.4† BrukerCorporation2010IncentiveCompensationPlanFormofRestrictedStockAgreement
10-Q June30,2010
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IncorporatedbyReference(1)Exhibit
No.
Filed
Herewith Description Form Date10.30 AmendedandRestatedCreditAgreementdatedasofMay24,2011among
theCompany,BrukerAXSGmbH,BrukerDaltonikGmbH,BrukerOptikGmbH,BrukerPhysikGmbH,BrukerBioSpinInvestAG,BrukerBioSpinAGandBrukerBioSpinInternationalAG,theotherforeignsubsidiaryborrowersfromtimetotimepartythereto,thelendersfromtimetotimepartythereto,DeutscheBankSecuritiesInc.,CommerzbankAg,NewYork,GrandCaymanAndStuttgartBranchesandRBSCitizens,NationalAssociation,asCo-DocumentationAgents,BankofAmerica,N.A.asSyndicationAgentandJPMorganChaseBank,N.A.,asAdministrativeAgent
8-K May25,2011
10.31* NotePurchaseAgreementdatedasofJanuary18,2012. 8-K January18,2012
10.34† BrukerEnergy&SuperconTechnologies,Inc.2009StockOptionPlan 10-K December31,2009
10.35† FormofBrukerEnergy&SuperconTechnologies,Inc.IncentiveStockOptionAgreement
10-K December31,2009
10.36† FormofBrukerEnergy&SuperconTechnologies,Inc.Non-QualifiedStockOptionAgreement
10-K December31,2009
10.41† EmploymentofferletteragreementdatedJune25,2012betweenBrukerCorporationandJuergenSrega
10-Q March31,2013
10.43* CreditAgreement,datedOctober27,2015,byandamongtheCompanyandcertainofitsforeignsubsidiariesasborrowers,CitizensBank,N.A.,DeutscheBankSecuritiesInc.andTDBank,N.A.,asCo-DocumentationAgents,BankofAmerica,N.A.andWellsFargoBank,NationalAssociation,asCo-SyndicationAgents,JPMorganChaseBank,N.A.,asAdministrativeAgentforitselfandtheotherlenderspartythereto,andtheseveralbanksorotherfinancialinstitutionsorentitiesfromtimetotimepartytheretoaslenders(incorporatedbyreferencetoExhibit10.1totheCompany'sCurrentReportontheForm8-KfiledonOctober27,2015,FileNo.000-30833)
8-K October27,2015
10.44† EmploymentagreementwithaneffectivedateofNovember1,2015betweenBrukerCorporationandDr.RenéLenggenhager
10-Q November6,2015
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131
IncorporatedbyReference(1)Exhibit
No.
Filed
Herewith Description Form Date10.45† BrukerCorporation2016IncentiveCompensationPlanFormofIncentive
StockOptionAwardAgreement 10-Q August5,2016
10.46† BrukerCorporation2016IncentiveCompensationPlanFormofNon-QualifiedStockOptionAwardAgreement
10-Q August5,2016
10.47† BrukerCorporation2016IncentiveCompensationPlanFormofRestrictedStockUnitAwardAgreement
10-Q August5,2016
10.48† BrukerCorporation2016IncentiveCompensationPlanFormofDirectorRestrictedStockUnitAwardAgreement
10-K March1,2017
10.49† ProjectCompletionAgreementdatedMarch23,2017 10-Q May10,2017
21.1 SubsidiariesoftheRegistrant X
23.1 ConsentofPricewaterhouseCoopersLLP,IndependentRegisteredPublicAccountingFirm
X
23.2 ConsentofErnst&YoungLLP,IndependentRegisteredPublicAccountingFirm
X
24.1 Powerofattorney(includedonsignaturepagehereto) X
31.1 CertificationbyPrincipalExecutiveOfficerpursuanttoSection302oftheSarbanes-OxleyActof2002
X
31.2 CertificationbyPrincipalFinancialOfficerpursuanttoSection302oftheSarbanes-OxleyActof2002
X
32.1 CertificationbyChiefExecutiveOfficerandChiefFinancialOfficerpursuantto18U.S.C.Section1350,asadoptedpursuanttoSection906oftheSarbanes-OxleyActof2002
X
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ITEM16FORM10-KSUMMARY
NotApplicable.
132
IncorporatedbyReference(1)Exhibit
No.
Filed
Herewith Description Form Date101 ThefollowingmaterialsfromtheBrukerCorporationAnnualReporton
Form10-KforthefiscalyearendedDecember31,2017formattedinExtensibleBusinessReportingLanguage(XBRL):(i)theConsolidatedBalanceSheets,(ii)ConsolidatedStatementsofIncomeandComprehensiveIncome,(iii)ConsolidatedStatementsofShareholders'EquityandComprehensiveIncome(Loss),(iv)ConsolidatedStatementsofCashFlowsand(iv)NotestotheConsolidatedFinancialStatements
X
* CertainportionshavebeenomittedpursuanttoanordergrantingconfidentialtreatmentandhavebeenfiledseparatelywiththeSecuritiesandExchangeCommission.
† Designatesmanagementcontractorcompensatoryplanorarrangement.
(1) InaccordancewithRule12b-32undertheExchangeActreferenceismadetothedocumentspreviouslyfiledwiththeSecuritiesandExchangeCommission,whichdocumentsareherebyincorporatedbyreference.ThedateslistedforForms8-Karedatestherespectiveformswerefiledon,thedateslistedforForms10-Q,Forms10-KandForms10-K/AareforthequarterlyorannualperiodendeddatesandthedateslistedforFormsS-1,FormsS-3andFormsS-4aredatesonwhichtheSecuritiesandExchangeCommissiondeclaredthemeffective.
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SIGNATURES
PursuanttotherequirementsofSection13or15(d)oftheSecuritiesExchangeActof1934,theregistranthasdulycausedthisreporttobesignedonitsbehalfbytheundersigned,thereuntodulyauthorized.
We,theundersignedofficersanddirectorsofBrukerCorporation,herebyseverallyconstituteandappointFrankH.Laukien,Ph.D.tosignforusandinournamesinthecapacitiesindicatedbelow,thereportonForm10-Kfiledherewithandanyandallamendmentstosuchreport,andtofilethesame,withallexhibitstheretoandotherdocumentsinconnectiontherewith,ineachcase,withtheSecuritiesandExchangeCommission,andgenerallytodoallsuchthingsinournamesandonourbehalfinourcapacitiesconsistentwiththeprovisionsoftheSecuritiesExchangeActof1934,asamended,andallrequirementsoftheSecuritiesandExchangeCommission.
PursuanttotherequirementsoftheSecuritiesExchangeActof1934,thisreporthasbeensignedbelowbythefollowingpersonsonbehalfoftheregistrantandinthecapacitiesandonthedatesindicated.
133
BRUKERCORPORATION
Date:March16,2018 By: /s/FRANKH.LAUKIEN,PH.D.
Name:FrankH.Laukien,Ph.D.Title:President, Chief Executive Officer and Chairman
Name Title Date
/s/FRANKH.LAUKIEN,PH.D.
FrankH.Laukien,Ph.D. President,ChiefExecutiveOfficerandChairman(PrincipalExecutiveOfficer)
March16,2018
/s/ANTHONYL.MATTACCHIONE
AnthonyL.Mattacchione ChiefFinancialOfficerandSeniorVicePresident(PrincipalFinancialOfficer)
March16,2018
/s/GERALDN.HERMAN
GeraldN.Herman VicePresidentandCorporateControllerPrincipalAccountingOfficer
March16,2018
/s/CYNTHIAM.FRIEND,PH.D.
CynthiaFriend,PH.D. Director March16,2018
/s/MARCA.KASTNER,PH.D.
MarcA.Kastner,PH.D. Director March16,2018
/s/RICHARDD.KNISS
RichardD.Kniss Director March16,2018
TableofContents
134
Name Title Date/s/JOERGC.LAUKIEN
JoergC.Laukien Director March16,2018
/s/WILLIAMA.LINTON
WilliamA.Linton Director March16,2018
/s/GILLESG.MARTIN,PH.D.
GillesG.Martin Director March16,2018
/s/JOHNORNELL
JohnOrnell Director March16,2018
/s/RICHARDA.PACKER
RichardA.Packer Director March16,2018
/s/ADELENEQ.PERKINS
AdeleneQ.Perkins Director March16,2018
/s/HERMANNREQUARDT,PH.D.
HermannRequardt,PH.D. Director March16,2018
/s/ROBERTROSENTHAL,PH.D.
RobertRosenthal,PH.D Director March16,2018
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EXHIBIT21.1
SUBSIDIARIESOFBRUKERCORPORATION
NameofSubsidiary JurisdictionofIncorporationBrukerEnergy&SuperconTechnologies,Inc. Delaware,U.S.A.BrukerHTSGmbH(1) GermanyBrukerAdvancedSuperconGmbH(2) GermanyBrukerEASGmbH(2) GermanyHydrostaticExtrusionsLtd.(1) UnitedKingdomRIResearchInstrumentsGmbH(3) GermanyBrukerAXSInc. Delaware,U.S.A.BrukerAXSGmbH(4) GermanyBrukerAustriaGmbH(5) AustriaBrukerdoBrasilLtda.(5) BrazilBrukerNanoGmbH(5) GermanyBrukerMexicanaS.A.deC.V.(6) MexicoBrukerPolskaSp.Zo.o.(5) PolandBrukerSouthAfrica(Pty)Ltd.(5) SouthAfricaInCoaTecGmbH(7) GermanyBrukerAXSHandheldInc.(8) Delaware,U.S.A.BrukerAXSK.K.(25) JapanBrukerNano,Inc.(8) Arizona,U.S.A.VutaraLLC(9) Delaware,U.S.A.BrukerBioSciencesSecuritiesCorporation Massachusetts,U.S.A.BrukerBioSpinCorporation Massachusetts,U.S.A.BrukerInvestAG(10) SwitzerlandBrukerBioSpinAG(11) SwitzerlandBrukerEspanolaS.A.(11) SpainBruker(Malaysia)SDNBHD(11) MalaysiaBrukerSingaporePte.Ltd.(11) SingaporeBruker(Beijing)ScientificTechnologyCo.,Ltd.(12) ChinaBrukerLtd.(11) RussiaBrukerIndiaScientificPVT,Ltd.(26) IndiaBrukerBioSpinK.K.(11) JapanBrukerKoreaCo.Ltd.(11) KoreaBrukerBioSpinMRIGmbH(11) GermanyBrukerBioSpinMRIInc.(11) Massachusetts,U.S.A.BrukerNederlandB.V.(11) NetherlandsBrukerLtd.(11) CanadaBrukerUKLtd.(11) UnitedKingdomBrukerAXSLtd.(14) UnitedKingdomOxfordResearchSystemsLtd.(15) UnitedKingdomBrukerPTYLtd.(11) AustraliaBrukerFranceS.AS..(11) FranceBrukerBelgiumS.A./N.V.(11) BelgiumBrukerItaliaS.r.l.(11) ItalyXGLabsS.r.l.(27)) ItalyBrukerPortugalUnipessoalLDA(11) PortugalBrukerScientificInstrumentsHongKongCo.,Ltd.(11) HongKongBrukerMicroCTN.V.(11) BelgiumBrukerTurkeyTeknolojikSistemlerTicaretLtd.Sirketi(11) TurkeyLuxendoGmbH(11) GermanyBrukerScientificIsraelLtd.(11) Israel
NameofSubsidiary JurisdictionofIncorporationBrukerJVIsraelLtd.(16) IsraelBrukerJVUKLtd.(17) UnitedKingdomBrukerPhysikGmbH(18) GermanyBrukerBioSpinGmbH(19) GermanyBrukerDaltonicsInc. Delaware,U.S.A.BrukerDaltonikGmbH(20) GermanyBrukers.r.o.(21) CzechRepublicInVivoBiotechSvsGmbH.(21) GermanyMerlinDiagnostikaGmbH(21) GermanyBrukerTaiwanCo.Ltd.(22) TaiwanBrukerDaltonicsK.K.(25) JapanBrukerDaltonicsPty.Ltd.(22) SouthAfricaBrukerNordicAB(22) SwedenBrukerChemicalAnalysisB.V.(22) NetherlandsBrukerDaltonicsGmbH(22) SwitzerlandBrukerDaltonicsLtd.(22) UnitedKingdomBrukerDaltonicsS.r.l.(22) ItalyBrukerDetectionCorporation(22) Massachusetts,U.S.A.BrukerOpticsInc. Delaware,U.S.A.BrukerOpticsK.K.(25) JapanBrukerOpticsGmbH(23) SwitzerlandBrukerOptikGmbH(23) GermanyBrukerOpticsUkraine(24) UkraineBrukerFinanceB.V. NetherlandsBrukerBusinessSupportCentersp.zo.o(28) PolandBrukerOSTLLC(1) UnitedStates
(1) Theseentitiesarewholly-ownedsubsidiariesofBrukerEnergy&SuperconTechnologies,Inc.
(2) Theseentitiesarewholly-ownedsubsidiariesofBrukerHTSGmbH.
(3) RIResearchInstrumentsGmbHisanindirectsubsidiaryofBrukerEnergy&SuperconTechnologies,Inc.RIResearchInstrumentsGmbHis51%ownedbyBrukerEnergy&SuperconTechnologies,Inc.
(4) BrukerAXSGmbHis90%ownedbyBrukerAXSInc.and10%ownedbyBrukerCorporation.
(5) Theseentitiesarewholly-ownedsubsidiariesofBrukerAXSGmbH.
(6) BrukerMexicanaS.AdeC.V.is99.99%ownedbyBrukerAXSGmbHand0.01%ownedbyBrukerAXSInc.
(7) InCoaTecGmbHisanindirectsubsidiaryofBrukerAXSGmbH.InCoaTecGmbHis66%ownedbyBrukerAXSGmbH.
(8) Theseentitiesarewholly-ownedsubsidiariesofBrukerAXSInc.
(9) VutaraLLCisawholly-ownedsubsidiaryofBrukerNano,Inc.
(10) BrukerInvestAGis90%ownedbyBrukerBioSpinCorporationand10%ownedbyBrukerCorporation.
(11) Theseentitiesarewholly-ownedsubsidiariesofBrukerInvestAG.
(12) Bruker(Beijing)ScientificTechnologyCo.,Ltd.isawholly-ownedsubsidiaryofBrukerSingaporePte.Ltd.
(13) BrukerIndiaSuppliersPVT,Ltd.isawholly-ownedsubsidiaryofBrukerIndiaScientificPVT,Ltd.
(14) BrukerAXSLtd.is50%ownedbyBrukerInvestAGand50%ownedbyBrukerUKLtd.
(15) OxfordResearchSystems,Ltd.is50%ownedbyBrukerInvestAGand50%ownedbyBrukerUKLtd.
(16) BrukerJVIsraelLtd.isawholly-ownedsubsidiaryofBrukerScientificIsraelLtd.
(17) BrukerJVUKLtd.isawholly-ownedsubsidiaryofBrukerJVIsraelLtd.
(18) BrukerPhysikGmbHis50.5%ownedbyBrukerBioSpinCorporation,24.75%ownedbyBrukerDaltonikGmbHand24.75%ownedbyBrukerOptikGmbH.
(19) BrukerBioSpinGmbHisawholly-ownedsubsidiaryofBrukerPhysikGmbH.
(20) BrukerDaltonikGmbHis90%ownedbyBrukerDaltonicsInc.and10%ownedbyBrukerCorporation.
(21) Theseentitiesarewholly-ownedsubsidiariesofBrukerDaltonikGmbH.
(22) Theseentitiesarewholly-ownedsubsidiariesofBrukerDaltonicsInc.
(23) Theseentitiesarewholly-ownedsubsidiariesofBrukerOpticsInc.
(24) Theseentitiesarewholly-ownedsubsidiariesofBrukerOptikGmbH.
(25) Theseentitiesarewholly-ownedsubsidiariesofBrukerBioSpinK.K.
(26) BrukerIndiaScientificPVT,Ltd.is73.59%ownedbyBrukerInvestAG,6.53%ownedbyBrukerDaltonikGmbHand19.88%ownedbyBrukerAXSGmbH
(27) XGLabsS.r.l.isawholly-ownedsubsidiaryofBrukerItaliaS.r.l.
(28) BrukerBusinessSupportCentersp.zo.o.isawholly-ownedsubsidiaryofBrukerFinanceB.V.
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EXHIBIT21.1
SUBSIDIARIESOFBRUKERCORPORATION
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EXHIBIT23.1
CONSENTOFINDEPENDENTREGISTEREDPUBLICACCOUNTINGFIRM
WeherebyconsenttotheincorporationbyreferenceintheRegistrationStatementonFormS-3(No.333-159982)andFormsS-8(Nos.333-211686,333-167333,333-150430,333-137090,333-107294,and333-47836)ofBrukerCorporationofourreportdatedMarch16,2018relatingtothefinancialstatementsandtheeffectivenessofinternalcontroloverfinancialreporting,whichappearsinthisForm10-K.
/s/PricewaterhouseCoopersLLP
Boston,MassachusettsMarch16,2018
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EXHIBIT23.1
CONSENTOFINDEPENDENTREGISTEREDPUBLICACCOUNTINGFIRM
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EXHIBIT23.2
CONSENTOFINDEPENDENTREGISTEREDPUBLICACCOUNTINGFIRM
WeconsenttotheincorporationbyreferenceinthefollowingRegistrationStatements:
(1) RegistrationStatement(FormS-8,No.333-211686)pertainingtotheBrukerCorporation2016IncentiveCompensationPlan,
(2) RegistrationStatement(FormS-8,No.333-167333)pertainingtotheBrukerCorporation2010IncentiveCompensationPlan,
(3) RegistrationStatement(FormS-3,No.333-159982)andrelatedProspectusofBrukerCorporationfortheregistrationof70,000,000sharesofitscommonstock,and
(4) RegistrationStatements(FormS-8,Nos.333-150430,333-137090,333-107294,and333-47836)pertainingtotheBrukerBioSciencesCorporationAmendedandRestated2000StockOptionPlan;
ofourreportdatedFebruary26,2016,exceptforNote2—SummaryofSignificantAccountingPolicies—RestrictedCash,astowhichthedateisMarch16,2018,withrespecttotheconsolidatedfinancialstatementsofBrukerCorporationincludedinthisAnnualReport(Form10-K)ofBrukerCorporationfortheyearendedDecember31,2017.
Boston,MassachusettsMarch16,2018
/s/Ernst&YoungLLP
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EXHIBIT23.2
CONSENTOFINDEPENDENTREGISTEREDPUBLICACCOUNTINGFIRM
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EXHIBIT31.1
CERTIFICATION
I,FrankH.Laukien,certifythat:
1. IhavereviewedthisannualreportonForm10-KofBrukerCorporation;
2. Basedonmyknowledge,thisreportdoesnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactnecessarytomakethestatementsmade,inlightofthecircumstancesunderwhichsuchstatementsweremade,notmisleadingwithrespecttotheperiodcoveredbythisreport;
3. Basedonmyknowledge,thefinancialstatements,andotherfinancialinformationincludedinthisreport,fairlypresentinallmaterialrespectsthefinancialcondition,resultsofoperationsandcashflowsoftheregistrantasof,andfor,theperiodspresentedinthisreport;
4. Theregistrant'sothercertifyingofficerandIareresponsibleforestablishingandmaintainingdisclosurecontrolsandprocedures(asdefinedinExchangeActRules13a-15(e)and15d-15(e))andinternalcontroloverfinancialreporting(asdefinedinExchangeActRules13a-15(f)and15d-15(f))fortheregistrantandhave:
a. designedsuchdisclosurecontrolsandprocedures,orcausedsuchdisclosurecontrolsandprocedurestobedesignedunderoursupervision,toensurethatmaterialinformationrelatingtotheregistrant,includingitsconsolidatedsubsidiaries,ismadeknowntousbyotherswithinthoseentities,particularlyduringtheperiodinwhichthisreportisbeingprepared;
b. designedsuchinternalcontroloverfinancialreporting,orcausedsuchinternalcontroloverfinancialreportingtobedesignedunderoursupervision,toprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples;
c. evaluatedtheeffectivenessoftheregistrant'sdisclosurecontrolsandproceduresandpresentedinthisreportourconclusionsabouttheeffectivenessofthedisclosurecontrolsandprocedures,asoftheendoftheperiodcoveredbythisreportbasedonsuchevaluation;and
d. disclosedinthisreportanychangeintheregistrant'sinternalcontroloverfinancialreportingthatoccurredduringtheregistrant'smostrecentfiscalquarter(theregistrant'sfourthfiscalquarterinthecaseofanannualreport)thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,theregistrant'sinternalcontroloverfinancialreporting;and
5. Theregistrant'sothercertifyingofficerandIhavedisclosed,basedonourmostrecentevaluationofinternalcontroloverfinancialreporting,totheregistrant'sauditorsandtheauditcommitteeofregistrant'sboardofdirectors(orpersonsperformingtheequivalentfunctions):
a. allsignificantdeficienciesandmaterialweaknessesinthedesignoroperationofinternalcontroloverfinancialreportingwhicharereasonablylikelytoadverselyaffecttheregistrant'sabilitytorecord,process,summarizeandreportfinancialinformation;and
b. anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignificantroleintheregistrant'sinternalcontroloverfinancialreporting.
Date:March16,2018 By: /s/FRANKH.LAUKIEN,PH.D.
FrankH.Laukien,Ph.D.President, Chief Executive Officer and Chairman (Principal Executive Officer)
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EXHIBIT31.1
CERTIFICATION
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EXHIBIT31.2
CERTIFICATION
I,AnthonyL.Mattacchione,certifythat:
1. IhavereviewedthisannualreportonForm10-KofBrukerCorporation;
2. Basedonmyknowledge,thisreportdoesnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactnecessarytomakethestatementsmade,inlightofthecircumstancesunderwhichsuchstatementsweremade,notmisleadingwithrespecttotheperiodcoveredbythisreport;
3. Basedonmyknowledge,thefinancialstatements,andotherfinancialinformationincludedinthisreport,fairlypresentinallmaterialrespectsthefinancialcondition,resultsofoperationsandcashflowsoftheregistrantasof,andfor,theperiodspresentedinthisreport;
4. Theregistrant'sothercertifyingofficerandIareresponsibleforestablishingandmaintainingdisclosurecontrolsandprocedures(asdefinedinExchangeActRules13a-15(e)and15d-15(e))andinternalcontroloverfinancialreporting(asdefinedinExchangeActRules13a-15(f)and15d-15(f))fortheregistrantandhave:
a. designedsuchdisclosurecontrolsandprocedures,orcausedsuchdisclosurecontrolsandprocedurestobedesignedunderoursupervision,toensurethatmaterialinformationrelatingtotheregistrant,includingitsconsolidatedsubsidiaries,ismadeknowntousbyotherswithinthoseentities,particularlyduringtheperiodinwhichthisreportisbeingprepared;
b. designedsuchinternalcontroloverfinancialreporting,orcausedsuchinternalcontroloverfinancialreportingtobedesignedunderoursupervision,toprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples;
c. evaluatedtheeffectivenessoftheregistrant'sdisclosurecontrolsandproceduresandpresentedinthisreportourconclusionsabouttheeffectivenessofthedisclosurecontrolsandprocedures,asoftheendoftheperiodcoveredbythisreportbasedonsuchevaluation;and
d. disclosedinthisreportanychangeintheregistrant'sinternalcontroloverfinancialreportingthatoccurredduringtheregistrant'smostrecentfiscalquarter(theregistrant'sfourthfiscalquarterinthecaseofanannualreport)thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,theregistrant'sinternalcontroloverfinancialreporting;and
5. Theregistrant'sothercertifyingofficerandIhavedisclosed,basedonourmostrecentevaluationofinternalcontroloverfinancialreporting,totheregistrant'sauditorsandtheauditcommitteeofregistrant'sboardofdirectors(orpersonsperformingtheequivalentfunctions):
a. allsignificantdeficienciesandmaterialweaknessesinthedesignoroperationofinternalcontroloverfinancialreportingwhicharereasonablylikelytoadverselyaffecttheregistrant'sabilitytorecord,process,summarizeandreportfinancialinformation;and
b. anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignificantroleintheregistrant'sinternalcontroloverfinancialreporting.
Date:March16,2018 By: /s/ANTHONYL.MATTACCHIONE
AnthonyL.MattacchioneChief Financial Officer and Senior Vice President (Principal Financial Officer)
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EXHIBIT31.2
CERTIFICATION
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EXHIBIT32.1
CERTIFICATIONPURSUANTTO18U.S.C.SECTION1350,ASADOPTEDPURSUANTTOSECTION906OFTHESARBANES-OXLEYACTOF2002
InconnectionwiththeAnnualReportofBrukerCorporation(the"Company")onForm10-KfortheyearendedDecember31,2017,asfiledwiththeSecuritiesandExchangeCommissiononthedatehereof(the"Report"),eachoftheundersigned,FrankH.Laukien,President,ChiefExecutiveOfficerandChairmanoftheBoardofDirectorsoftheCompany,andAnthonyL.Mattacchione,ChiefFinancialOfficerandSeniorVicePresidentoftheCompany,certifies,pursuantto18U.S.C.section1350,asadoptedpursuanttoSection906oftheSarbanes-OxleyActof2002,thattothebestofhisknowledge:
(1) TheReportfullycomplieswiththerequirementsofsection13(a)oftheSecuritiesExchangeActof1934;and
(2) TheinformationcontainedintheReportfairlypresents,inallmaterialrespects,thefinancialconditionandresultsofoperationsoftheCompany.
Date:March16,2018 By: /s/FRANKH.LAUKIEN,PH.D.
FrankH.Laukien,Ph.D.President, Chief Executive Officer and Chairman (Principal Executive Officer)
Date:March16,2018 By: /s/ANTHONYL.MATTACCHIONE
AnthonyL.MattacchioneChief Financial Officer and Senior Vice President (Principal Financial Officer)
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EXHIBIT32.1
CERTIFICATIONPURSUANTTO18U.S.C.SECTION1350,ASADOPTEDPURSUANTTOSECTION906OFTHESARBANES-OXLEYACTOF2002
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