ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and notes to those statements, appearing elsewhere in this report. This report contains forward-looking statements reflecting our current expectations that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. The cautionary statements made in this report should be read as applying to all related forward-looking statements wherever they appear in this report. Our actual results may differ materially from those indicated in the forward-looking statements due to a number of factors, including those discussed in Item 1A, Risk Factors and elsewhere in this report.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, describes the principal factors affecting the results of our operations, financial condition and changes in financial condition, as well as our critical accounting policies and estimates. Our MD&A is organized as follows:
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Non-GAAP Measures. This section provides appropriate disclosures regarding forward looking statements and our use of Non-GAAP financial measures.
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Overview. This section provides a brief discussion of our reportable segments’ results of operations, significant recent developments in our businesses, and challenges and risks that may impact our businesses in the future.
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Results of Operations. This section provides our analysis of the significant line items on our consolidated statements of income and comprehensive income for the year ended December 31, 2023, compared to the year ended December 31, 2022.
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Liquidity and Capital Resources. This section provides an analysis of our liquidity and cash flow and a discussion of our outstanding debt and commitments.
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Critical Accounting Policies and Estimates. This section discusses the accounting estimates that are considered important to our financial condition and results of operations and require us to exercise subjective or complex judgments in their application. All of our significant accounting policies are summarized in Note 2 to our consolidated financial statements in Item 8 of this Annual Report on Form 10-K.
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Recent Accounting Pronouncements. This section provides a summary of recent accounting pronouncements and discusses their potential impact on our consolidated financial statements.
Non-GAAP Measures
Although our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), we believe describing revenue and expenses, excluding the effects of foreign currency, acquisitions and divestitures, as well as certain other charges, net, provides meaningful supplemental information regarding our performance. We rely internally on certain measures that are not calculated according to GAAP. These measures are organic revenue, free cash flow, non-GAAP gross profit margin and non-GAAP operating margin. Our management believes that these financial measures provide relevant and useful information that is widely used by equity analysts, investors and competitors in our industry, as well as by our management, in assessing both consolidated and business unit performance.
We define the term organic revenue as GAAP revenue excluding the effect of foreign currency translation changes and the effect of acquisitions and divestitures. We define the term non-GAAP gross profit margin as GAAP gross profit margin with certain non-GAAP measures excluded and non-GAAP operating margin as GAAP operating margin with certain non-GAAP measures excluded. These non-GAAP measures exclude costs related to restructuring actions, acquisition and related integration expenses, amortization of acquired intangible assets, costs associated with our global information technology transition initiatives, and other non-operational costs and we believe these are useful measures to evaluate our continuing business.
We define free cash flow as GAAP net cash provided by operating activities less additions to property, plant, and equipment. We believe free cash flow is a useful measure to evaluate our business as it indicates the amount of cash generated after additions to property, plant, and equipment which is available for, among other things, investments in our business, acquisitions, share repurchases, dividends and repayment of debt.
We regularly use these non-GAAP financial measures internally to understand, manage, and evaluate our business results and make operating decisions. We also measure our employees and compensate them, in part, based on such non-GAAP measures and use this information for our planning and forecasting activities. These measures may also be useful to investors in evaluating the underlying operating performance of our business. The presentation of these non-GAAP financial measures is not intended to be a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP and may be different from non-GAAP financial measures used by other companies, and therefore, may not be comparable among companies.
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OVERVIEW
We are a developer, manufacturer and distributor of high-performance scientific instruments and analytical and diagnostic solutions that enable our customers to explore life and materials at microscopic, molecular and cellular levels. Our corporate headquarters are located in Billerica, Massachusetts. We maintain major technical and manufacturing centers in Europe, Asia and North America and we have commercial offices located throughout the world. Bruker is organized into four reportable segments: the BSI BioSpin Segment, the BSI CALID Segment, the BSI Nano Segment and the Bruker Energy & Supercon Technologies (BEST) Segment.
Revenue for the year ended December 31, 2023, increased by $433.8 million, or 17.1%, to $2,964.5 million, compared to $2,530.7 million for the comparable period in 2022. Included in revenue was an increase of approximately $11.2 million from favorable foreign exchange rate movements, and an increase of $56.2 million from acquisitions. Excluding the effects of foreign exchange rate movements and our recent acquisitions, our organic revenue, a non-GAAP measure, increased $366.4 million, or 14.5%. Revenue increases were driven by strong demand for our differentiated high-value scientific instruments and life science solutions in addition to pricing benefits compared to the same period in 2022.
Our gross profit margin decreased to 51.0% for the year ended December 31, 2023, as compared to 51.6% in the same period in 2022, primarily as result of the unfavorable impact of foreign exchange rate movements offset by modest improvement from mix, pricing, and acquisitions compared to 2022.
The income tax provision for the years ended December 31, 2023, and December 31, 2022 was $117.7 million and $116.4 million, respectively, representing effective tax rates of 21.6% and 28.1%, respectively. The decrease in our effective tax rate for the year ended December 31, 2023, compared to 2022, was primarily due to the non-taxable nature of the gain on bargain purchase from the acquisition of PhenomeX.
Diluted earnings per share for the year ended December 31, 2023, was $2.90, an increase of $0.91, compared to $1.99 per share in the same period in 2022. The increase in diluted earnings per share was primarily driven by higher net income including the bargain purchase gain associated with the acquisition of PhenomeX, and reduced diluted outstanding shares resulting from our share repurchase activity during the year.
The following table presents a reconciliation from net cash provided by operating activities, which is the most directly comparable GAAP operating financial measure, to free cash flow as used by management (in millions):
Year EndedDecember 31,
Net cash provided by operating activities $ 350.1 $ 274.4
Less: purchases of property, plant and equipment (106.9 ) (129.2 )
For the year ended December 31, 2023, our free cash flow was $98.0 million higher than the same period in 2022, primarily due to improved working capital performance and lower capital expenditures.
The following table presents a reconciliation from gross profit and gross profit margin, which are the most directly comparable GAAP operating performance measures, to non-GAAP gross profit and non-GAAP gross profit margin as used by management (dollars in millions):
Year Ended December 31,
Non-GAAP adjustments:
Restructuring costs 3.5 0.1 % 0.9 —
Acquisition-related costs 2.5 0.1 % 0.4 —
Purchased intangible amortization 24.3 0.9 % 18.3 0.8 %
Our non-GAAP gross profit margin was 52.2% and 52.6% in the years ended December 31, 2023, and 2022, respectively remaining fairly consistent year over year.
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The following table presents a reconciliation from operating income and operating margin, which are the most directly comparable GAAP operating performance measures, to non-GAAP operating income and non-GAAP operating margin as used by management (in millions):
Year Ended December 31,
Non-GAAP adjustments:
Purchased intangible amortization 47.1 1.6 % 37.1 1.5 %
Our non-GAAP operating margin was 18.4% and 20.0% for the years ended December 31, 2023, and 2022, respectively. The decrease in our non-GAAP operating margins in 2023 was primarily due to acquisitions and the impact of foreign exchange rate movements.
We can experience quarter-to-quarter fluctuations in our operating results as a result of various factors, some of which are outside our control, such as:
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general economic conditions, including inflation, uncertainties caused by recent banking industry volatility, the threat of recession, financial liquidity, and currency volatility or devaluation, supply chain or manufacturing capabilities;
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geopolitical tensions, including those on our customers, such as the conflict between Russia and Ukraine conflict, the conflict in Israel, Palestine and surrounding areas, the possible expansion of such conflicts and potential geopolitical consequences, the ongoing tensions between the United States and China, tariff and trade policy changes, and increasing potential of conflict involving countries in Asia that are critical to our supply chain operations;
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potential energy shortages in Europe where we have significant operations and overall higher energy and transportation costs;
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the impacts of climate change and certain weather-related disruptions;
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the timing of governmental stimulus programs and academic research budgets;
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the time it takes between the date customer orders and deposits are received, systems are shipped and accepted by our customers and full payment is received;
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foreign currency exchange rates;
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the worldwide shortage of semiconductor chips, components and raw materials, such as copper;
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changes in raw material, component and logistics costs;
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the time it takes for us to receive critical materials to manufacture our products;
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the time it takes to satisfy local customs requirements and other export/import requirements;
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the time it takes for customers to construct or prepare their facilities for our products;
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the time required to obtain governmental licenses;
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our ability to identify suitable acquisition targets and successfully integrate and manage acquired business; and
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costs related to acquisitions of technology or businesses.
Several of these factors have in the past affected and may continue to affect the amount and timing of revenue recognized on sales of our products and receipt of related payments and will likely continue to do so in the future. Accordingly, our operating results in any particular quarter may not necessarily be an indication of any future quarter’s operating performance.
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RESULTS OF OPERATIONS
A discussion regarding our results of operations for the fiscal year ended December 31, 2022 compared to 2021 can be found under Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 1, 2023, which is available on the SEC’s website at www.sec.gov and our Investor Relations website at https://.ir.bruker.com under the “Financial Info” section.
Year Ended December 31, 2023, Compared to the Year Ended December 31, 2022
Consolidated Results
The following table presents our results for the years ended December 31, 2023, and 2022 (dollars in millions):
Year Ended December 31,
Operating expenses:
Interest and other income (expense), net (36.8 ) (18.8 ) (18.0 ) 95.7 %
Equity in income of unconsolidated investees, net of tax 2.0 1.0 1.0 100.0 %
Net income attributable to Bruker Corporation $ 427.2 $ 296.6 $ 130.6 44.0 %
Revenue
The following table presents revenue, change in revenue, and revenue growth by reportable segment for the years ended December 31, 2023, and 2022 (dollars in millions):
(a)
Represents product and service revenue between reportable segments.
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Revenue increases were driven by strong demand for our differentiated instruments and solutions as well as pricing actions taken primarily to address inflation cost pressures. The BSI BioSpin Segment revenue increase was related primarily to the strong demand for our instruments across biopharma, academic government, industrial research and applied markets, our new integrated data solutions division and especially our Nuclear Magnetic Resonance (NMR) and related services. We had revenue from 4 gigahertz class NMR systems each in fiscal 2023 and fiscal 2022. The BSI CALID Segment revenue increase reflected strong demand for our differentiated instruments, primarily, in our life science mass spectrometry proteomics solutions, and our optics spectroscopy and microscopy instruments. Our growth in life science mass spectrometry was driven by the timsTOF platform and aftermarket business, as well as strong growth in applied mass spectrometry and our optics infrared, near infrared and Raman business. Microbiology and infectious disease revenue was up slightly as solid demand for MALDI Biotyper consumables was offset by a final drop of our modest COVID-19 molecular diagnostics revenue. The BSI NANO Segment revenue increase was driven by strong demand in its academic, government, industrial and semiconductor metrology markets. Revenue growth was primarily driven by our advanced X-ray solutions and nano surfaces, core tools and fluorescence microscopy. The BEST revenue increase was driven by strong superconductor demand from our magnetic resonance imaging original equipment manufacturer customers as well as by growth in big science, fusion research, and key new extreme ultraviolet EUV technologies for semiconductor lithography tools by large OEM customers, all in support of the strong artificial intelligence demand.
Geographically for the year ended December 31, 2023, our North America revenue grew 11.4% Asia Pacific increased by 22.9%, and European revenue increased by 16.9%, in each case, as compared to the same period in 2022.
Gross Profit
The increase in gross profit was a result of pricing and volume leverage, partially offset by net unfavorable impact of foreign exchange rate movements compared to 2022.
Selling, General and Administrative
Our selling, general and administrative expenses for the year ended December 31, 2023, increased to 24.6% of total revenue from 24.0% of total revenue for the comparable period in 2022. The year over year increase as a percentage of revenue was a result of inflation and increased planned spending in sales and marketing capabilities compared to 2022. Increased spending is related to additional headcount and personnel expenses as well as increased consulting and professional fees related to acquisitions, tax, audit and audit-related fees.
Research and Development
Our research and development expenses for the year ended December 31, 2023, increased to 9.9% of total revenue from 9.3% of total revenue for the comparable period in 2022. The slight increase as a percentage of revenue is a result of our increased investment in research and development capabilities, especially in our key Project Accelerate 2.0 initiatives. Investments are primarily related to additional headcount and personnel expenses as well as increased consulting and professional fees related to research and development activities.
Other Charges, Net
Other charges, net for the year ended December 31, 2023, consisted of $16.8 million of acquisition-related charges primarily completed in 2023, $18.8 million of restructuring costs related to closing facilities and implementing outsourcing and other restructuring initiatives mainly related to the PhenomeX acquisition as detailed in Note 21 Other Charges, net, $5.0 million of costs associated with our global IT transformation activities, $0.6 million related to professional fees and $5.7 million related to long-lived asset impairments. Acquisition-related charges relate primarily to the integration cost of newly acquired entities and the cost of post-combination employment services in the period acquired. The IT transformation initiative is a multi-year project aimed at updating and integrating our global enterprise resource planning and human resource information systems.
Other charges, net for the year ended December 31, 2022 consisted primarily of $19.3 million of acquisition-related charges related to transactions completed in 2021 and 2020, $3.9 million of restructuring costs related to closing facilities and implementing outsourcing and other restructuring initiatives, $3.0 million of costs associated with our global IT transformation activities, $2.4 million related to professional fees and $0.3 million related to long-lived asset impairments.
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Operating Income
The following table presents operating income and operating margins on revenue by reportable segment for the years ended December 31, 2023 and 2022 (dollars in millions):
Corporate, eliminations and other (a) $ (109.7 ) (74.7 )
(a)
Represents corporate costs and eliminations not allocated to the reportable segments.
The increase in operating income was due to higher gross profit resulting from, volume leverage, and price realization offset by planned sales and marketing investments, supply chain and logistics challenges, inflationary margin challenges in 2023, as compared to 2022, and investments in research and development capabilities.
Bargain purchase gain
In the fourth quarter of 2023, the Company recorded a gain of $144.1 million, or $0.99 per share, in connection with the PhenomeX acquisition, which closed on October 2, 2023. This bargain purchase gain reflects the excess of identifiable net assets acquired, including deferred tax assets related to acquired tax NOLs, over the purchase consideration paid.
Interest and Other Income (Expense), Net
The increase in interest and other income (expense), net in the year ended December 31, 2023, as compared to the same period in 2022 was primarily due to impairment charges recognized of $18.2 million on certain minority investments and higher foreign currency exchange losses of $13.3 million driven by weakening of the U.S. dollar against other currencies.
Income Tax Provision
The effective tax rates for years ended 2023 and 2022 were 21.6% and 28.1%, respectively. The decrease in our effective tax rate for the year ended December 31, 2023, compared to 2022, was primarily due to the non-taxable nature of the bargain purchase gain from the acquisition of PhenomeX.
Equity in Income of Unconsolidated Investees, net of tax
Equity in income of unconsolidated investees, net of tax represents the Company’s proportionate share of the earnings or losses as reported by equity-method investees.
Net Income Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests
The net income attributable to noncontrolling interests represented the minority shareholders’ proportionate share of the net income recorded by our majority-owned subsidiaries.
Net Income Attributable to Bruker Corporation
The increase in net income and earnings per diluted share was primarily driven by the increase in revenue, gross profit and operating profit as a result of strengthened demand and recovery in our business and end markets.
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LIQUIDITY AND CAPITAL RESOURCES
We anticipate that our existing cash and credit facilities as of December 31, 2023, together with proceeds from notes offerings to be completed pursuant to note purchase agreements entered into in February 2024 and increased borrowing capacity under the amended and restated credit agreement entered into in January 2024, will be sufficient to support our operating and investing needs for at least the next twelve months. Our future cash requirements could be affected by acquisitions that we may complete, purchases of our common stock or the payment of dividends in the future. Historically, we have financed our growth and liquidity needs through cash flow generation from operations and debt financing. In the future, there are no assurances that we will continue to generate cash flow from operations or that additional financing alternatives will be available to us, if required, or if available, will be obtained on terms favorable to us.
Cash, cash equivalents and short-term investments at December 31, 2023, and 2022 totaled $488.3 million and $645.5 million, respectively, of which $398.4 million and $593.8 million, respectively, related to cash, cash equivalents and short-term investments is held outside of the United States in our foreign subsidiaries, most significantly in the Netherlands, Switzerland, China and Hong Kong.
The following table presents our cash flows from operating activities, investing activities and financing activities for the periods presented (in millions):
Year Ended December 31,
Net cash provided by operating activities $ 350.1 $ 274.4
Net cash used in investing activities (326.0 ) (251.6 )
Net cash provided by financing activities (193.4 ) (415.3 )
Net change in cash, cash equivalents and restricted cash $ (157.1 ) $ (423.0 )
Cash provided by operating activities during the year ended December 31, 2023, resulted from consolidated net income adjusted for non-cash items of $437.9 million, including the non-cash bargain purchase gain from the acquisition of PhenomeX, partially offset by a change in operating assets and liabilities, net of acquisitions and divestitures of $87.8 million. During the year ended December 31, 2022, net cash provided by operating activities resulted from consolidated net income adjusted for non-cash items of $418.5 million, partially offset by a change in operating assets and liabilities, net of acquisitions and divestitures of $144.1 million. The increase in net income adjusted for non-cash items was mainly due to higher revenue, gross profit, and operating income. The increase in operating cash flows was due to changes in operating assets and liabilities, and was impacted by improvements in receivable collections, timing of tax payments and accounts payable offset by an increase in inventory purchases and prepayments to meet increased order demand.
Cash used in investing activities during the year ended December 31, 2023, resulted primarily from the acquisitions and advances of $226.6 million, purchases of property, plant and equipment of $106.9 million, and minority investments of $24.8 million, partially offset by net proceeds from sales of property, plant and equipment of $11.1 million. Cash used in investing activities during the year ended December 31, 2022, was primarily from the acquisitions of $182.3 million, purchases of property, plant and equipment of $129.2 million, and minority investments of $60.2 million, partially offset by maturity of short-term investments of $100.0 million and $13.9 million of net proceeds from sales of property, plant and equipment.
We currently expect capital expenditures in 2024 to be approximately $125.0 million.
Net cash used in financing activities during the year ended December 31, 2023, was primarily attributable to cash payments made for shares of common stock under our repurchase program of $152.3 million, and $29.4 million for the payment of dividends. Net cash used in financing activities during the year ended December 31, 2022, was primarily attributable to cash payments made for shares of common stock under our repurchase program of $263.1 million, repayment of our 2012 Note Purchase Agreement of $105.0 million and $29.8 million for the payment of dividends.
Share Repurchase Program
In May 2021, the Company’s Board of Directors approved a share repurchase program (the “2021 Repurchase Program”) authorizing the purchase of up to $500.0 million of the Company’s common stock over a two-year period, in amounts, at prices, and at such times as management deems appropriate, subject to market conditions, legal requirements and other considerations. During the year ended December 31, 2023, the Company purchased a total of 315,318 shares at an aggregate cost of $22.2 million under the 2021 Repurchase Program. During the year ended December 31, 2022, the Company purchased a total of 4,215,094 shares at an aggregate cost of $264.7 million under the 2021 Repurchase Program. Authorization for the remaining $94.4 million on the 2021 Repurchase Program expired in May 2023.
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In May 2023, the Company’s Board of Directors approved a share repurchase program (the “2023 Repurchase Program”) authorizing the purchase of up to $500.0 million of the Company’s common stock over a two-year period, in amounts, at prices, and at such times as management deems appropriate, subject to market conditions, legal requirements and other considerations. During the year ended December 31, 2023, the Company purchased a total of 2,097,119 shares at an aggregate cost of $130.1 million under the 2023 Repurchase Program. At December 31, 2023, $369.9 million remains available for future purchase under the 2023 Repurchase Program. We intend to fund any additional purchases from cash on hand, future cash flows from operations and available borrowings under the revolving credit facility.
In August 2022, the Inflation Reduction Act (“IRA”) was signed into law in the United States. The IRA introduced new tax provisions, including a 1.0% excise tax on stock repurchases. The Company expects additional guidance and regulations to be issued in future periods and will continue to assess its potential impact on its business as further information becomes available. The estimated excise tax on our stock repurchases was not material and was recorded in other current liabilities and additional paid in capital for the year ended December 31, 2023.
Shelf Registration
On June 2, 2023, the Company filed a registration statement on Form S-3ASR with the SEC (“2023 Shelf Registration”) for the issuance of common stock, preferred stock, debt securities, warrants, units, subscription rights and purchase contracts, which became effective immediately upon filing. At the time any of the securities covered by the 2023 Shelf Registration Statement are offered for sale, a prospectus supplement will be prepared and filed with the SEC containing specific information about the terms of any such offering.
Income Taxes
At December 31, 2023 and in accordance with the tax reform legislation signed by the President of the United States on December 22, 2017, or the 2017 Tax Act, we recorded state and foreign withholding taxes, as well as subsequent foreign currency translations on these withholding taxes as they are an obligation of the parent company, on the cash and liquid assets portion of the unremitted earnings and profits (E&P) of foreign subsidiaries expected to be repatriated from our foreign subsidiaries to the United States. We continue to be indefinitely reinvested in the amount of $1.4 billion of non-cash E&P that is subject to the 2017 Tax Act deemed repatriation. If this E&P is ultimately distributed to the United States in the form of dividends or otherwise, we would likely be subject to additional withholding tax. We will continue to evaluate our assertions on the cumulative historical outside basis differences in our foreign subsidiaries as of December 31, 2023. The amount of unrecognized deferred withholding taxes on the undistributed E&P was $95.6 million at December 31, 2023.
As of December 31, 2023, the Company has approximately $588.9 million of U.S. federal net operating loss carryforwards, of which $36.4 million begin to expire at various dates beginning in 2031 and the remainder $552.5 million will be carried forward indefinitely. The Tax Cuts and Jobs Act (TCJA) enacted on December 22, 2017, limits a taxpayer’s ability to utilize NOL deduction in a year to 80% taxable income for federal NOL arising in tax years beginning after 2017. The Company has approximately $676.6 million of state net operating loss carryforwards available to reduce state taxable income that are expected to expire at various times beginning in 2024. The Company also has approximately $97.9 million of German Trade Tax and Corporate Income Tax net operating losses that are carried forward indefinitely. Additionally, the Company has $28.7 million of other foreign net operating losses that are expected to expire at various times in the future. The Company has U.S. federal foreign tax credit carried forwards in the amount of $3.3 million. The Company also has U.S. federal and state research and development tax credit of $1.2 million and $10.3 million respectively. Utilization of these credits and net operating losses may be subject to annual limitations due to the ownership percentage change limitations provided by the Code Section 382 and similar state provisions. In the event of a deemed change in control under Code Section 382, an annual limitation on the utilization of net operating losses and credits may result in the expiration of all or a portion of the net operating loss and credit carryforwards. The Company is in the process of finalizing the impact of Section 382 related to the PhenomeX acquisition but believes the provisions will limit the availability of losses to offset future income. Additionally, the Company has $91.4 million of gross interest expense carryforward as provided by Code Section 163(j) that can be carried forward indefinitely.
Uncertain tax contingencies are positions taken or expected to be taken on an income tax return that may result in additional payments to tax authorities. If a tax authority agrees with the tax position taken or expected to be taken or the applicable statute of limitations expires, then additional payments will not be necessary.
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Credit Facilities and Note Purchase Agreements
On February 8, 2024, the Company entered into a note purchase agreement pursuant to which the Company will issue and sell (i) CHF 50 million aggregate principal amount of 2.60% Series A Senior Notes due April 15, 2036 and (ii) CHF 50 million aggregate principal amount of its 2.62% Series B Senior Notes due April 15, 2039 in an offering exempt from the registration requirements of the Securities Act of 1933, as amended. The issuance and sale of the notes is subject to satisfaction of a variety of customary closing conditions and is expected to occur on or about April 15, 2024.
On February 1, 2024, the Company entered into a note purchase agreement, pursuant to which the Company will issue and sell (i) CHF 50 million aggregate principal amount of 2.56% Series A Senior Notes due April 15, 2034, (ii) CHF 146 million aggregate principal amount of its 2.62% Series B Senior Notes due April 15, 2036 and (iii) CHF 135 million aggregate principal amount of its 2.71% Series C Senior Notes due April 15, 2039 in an offering exempt from the registration requirements of the Securities Act of 1933, as amended. The issuance and sale of the notes is subject to satisfaction of a variety of customary closing conditions and is expected to occur on or about April 15, 2024.
On January 18, 2024, the Company, together with certain of its subsidiaries, as borrowers and guarantors, entered into an amended and restated credit agreement with Deutsche Bank Securities Inc., JPMorgan Chase Bank, N.A., TD Bank, N.A., and Wells Fargo Bank, National Association, as Co-Syndication Agents, BofA Securities, Inc., Deutsche Bank Securities Inc., JPMorgan Chase Bank, N.A., TD Bank, N.A. and Wells Fargo Securities, LLC, as Joint Bookrunners and Joint Lead Arrangers, Citizens Bank, N.A., Credit Suisse (Switzerland) Ltd., and U.S. Bank, N.A., as Co-Documentation Agents, ING Bank B.V. and PNC Bank, N.A., as Managing Agents, Bank of America, N.A., as Administrative Agent, Swing Line Lender and Issuing Bank, and the several banks or other financial institutions or entities from time to time party thereto as lenders. The amended and restated credit agreement amends and restates the credit agreement entered into by the Company and certain of its subsidiaries on December 11, 2019 with the other parties thereto.
The amended and restated credit agreement increases the aggregate principal amount from $600 million to $900 million and extends the maturity date to January 18, 2029, as may be further extended by the Company for the periods and on the terms set forth in the amended and restated credit agreement. In addition, the amended and restated credit agreement increases the uncommitted incremental facility whereby, under certain circumstances, the Company may, at its option, increase the amount of the revolving facility or incur term loans in an aggregate amount not to exceed $400 million.
In addition, we paid the remaining $100 million of our 4.46% Series 2012A Tranche D, private placement notes on January 18, 2024.
On January 12, 2024, the Company borrowed CHF 230 million under the Company's 2019, Revolving Credit Agreement.
As of December 31, 2023, we have several cross-currency and interest rate swap agreements with a notional value of $139.1 million of U.S. Dollar to Swiss Franc and a notional value of $239.1 million of U.S. Dollar to Euro to hedge the variability in the movement of foreign currency exchange rates on portions of our Euro and Swiss Franc denominated net asset investments. As a result of these agreements, we lowered our net interest expense by $18.3 million and $8.6 million during the year ended December 31, 2023, and 2022, respectively. We anticipate these swap agreements will lower net interest expense by approximately $12.7 million in 2024 and $8.8 million in 2025.
For a summary of the fair and carrying values of our outstanding debt as of December 31, 2023, and December 31, 2022, please read Note 12, Debt, to our consolidated financial statements included in our 2023 Form 10-K.
As of December 31, 2023, we had no off-balance sheet arrangements.
As of December 31, 2023, wewere compliant with the financial covenants of these debt agreements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, or U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period.
We consider our accounting estimates to be critical to the consolidated financial statements if (i) the estimate requires significant judgment or is complex in nature and (ii) if different estimates and assumptions were used, the results could have a material impact on our consolidated financial statements. We evaluate our estimates and the application of our policies on an ongoing basis.
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We base our estimates and judgments on our historical experience, current market and economic conditions, industry trends, and other assumptions that we believe are reasonable. Actual results could differ from these estimates. Changes in estimates are recorded in the period in which they become known.
We believe the following critical accounting policies and estimates to be both those most important to the portrayal of our financial position and results of operations and those that require the most estimation and subjective judgment.
Revenue recognition
We recognize revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (ASC 606). The key elements of ASC 606 are: 1) identifying a contract with the customer; 2) identifying the performance obligations in the contract; 3) determining the transaction price; 4) allocating the transaction price to the performance obligations in the contract; and 5) recognizing revenue when (or as) each performance obligation is satisfied.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Some of our contracts have multiple performance obligations, most commonly due to providing additional goods or services along with a system, such as installation, accessories, parts and services. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct good or service being provided to the customer. Our best evidence of standalone selling price is our normal selling pricing and discounting practices for the specific product or service when sold on a standalone basis. Alternatively, when not sold separately, we may determine standalone selling price using an expected cost plus a margin approach.
Our performance obligations are typically satisfied at a point in time, most commonly either on shipment, or customer acceptance. Certain performance obligations, such as maintenance contracts and extended warranty, are recognized over time based on the contractual obligation period. In addition, certain arrangements to provide more customized deliverables may be satisfied over time based on the extent of progress towards completion. For performance obligations recognized over time, revenue is measured by progress toward completion of the performance obligation that reflects the transfer of control. Typically, progress is measured using a cost-to-cost method based on cost incurred to date relative to total estimated costs upon completion as this best depicts the transfer of control to the customer. Application of the cost-to-cost method requires us to make reasonable estimates of the extent of progress toward completion and the total costs we expect to incur. Losses are recorded immediately when we estimate that contracts will ultimately result in a loss. Changes in the estimates could affect the timing of revenue recognition.
We include costs incurred in connection with shipping and handling of products within selling, general and administrative costs. Amounts billed to customers in connection with these costs are included in total revenues. When control of the goods transfers prior to the completion of our obligation to ship the products to our customers, we have elected the practical expedient to account for the shipping services as a fulfillment cost. We expense incremental costs of obtaining a contract as and when incurred if the expected amortization period is one year or less or the amount is immaterial. We exclude from the transaction price all taxes assessed by a governmental authority on revenue-producing transactions that are collected by us from a customer.
We recognize revenue from systems sales upon transfer of control in an amount that reflects the consideration we expect to receive. Transfer of control generally occurs upon shipment, or for certain systems, based upon customer acceptance for a system once installed at a customer facility. For systems that include customer-specific acceptance criteria, we are required to assess when we can demonstrate the acceptance criteria has been met, which generally is upon successful factory acceptance testing or customer acceptance and evidence of installation. For systems that require installation and where system revenue is recognized upon shipment, the standalone selling price of installation is deferred until customer acceptance. Revenue from accessories and parts is generally recognized based on shipment. Service revenue is recognized as the services are performed or ratably over the contractual obligation and includes maintenance contracts, extended warranties, training, application support and on-demand services.
When products are sold through an independent distributor or a strategic distribution partner, we recognize the system sale upon transfer of control which is typically on shipment. When we are responsible for installation, the standalone selling price of installation is deferred until customer acceptance. Our distributors do not have price protection rights or rights of return; however, our products are typically warranted to be free from defect for a period of one year.
We require an advance deposit based on the terms and conditions of contracts with customers for many of our contracts. Typically, revenue is recognized within one year of receiving an advance deposit. We do not have any material payment terms that extend beyond one year. There is minimal variable consideration included in the transaction price of our contracts.
Other revenues are primarily comprised of development arrangements recognized on a cost-plus-fixed-fee basis and licensing arrangements recognized either when the licenses are provided or ratably over the contract term depending on the nature of the arrangement.
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Income taxes
The provision for income taxes includes federal, state, local and foreign taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences of temporary differences between the financial statement carrying amounts and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be recovered or settled. We evaluate the realizability of our deferred tax assets and establish a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based upon the level of historical taxable income and income tax liability and projections for future taxable income over the periods in which the deferred tax assets are utilizable, we believe it is more likely than not that we will realize the net benefits of the deferred tax assets of our wholly owned subsidiaries, net of the recorded valuation allowance. In the event that actual results differ from our estimates, or we adjust our estimates in future periods, we may need to adjust or establish a valuation allowance, which could materially impact our consolidated financial position and results of operations.
We record liabilities related to uncertain tax positions in accordance with the guidance that clarifies the accounting for uncertainty in income taxes recognized in our financial statements. This guidance prescribes a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We include accrued interest and penalties related to unrecognized tax benefits and income tax liabilities, when applicable, in income tax expense.
Goodwill, other intangible assets and other long-lived assets
Goodwill and indefinite-lived intangible assets are not amortized, but are evaluated for impairment on an annual basis, or on an interim basis when events or changes in circumstances indicate that the carrying value may not be recoverable. In assessing the recoverability of goodwill and indefinite-lived intangible assets, we must make assumptions regarding the estimated future cash flows, including forecasted revenue growth and the discount rate to determine the fair value of these assets. If these estimates or their related assumptions change in the future, we may be required to record impairment charges against these assets in the reporting period in which the impairment is determined.
We test goodwill for impairment at the reporting unit level, which is the operating segment or one level below an operating segment. We have the option of performing a qualitative assessment to determine whether further impairment testing is necessary before performing the quantitative assessment. If as a result of the qualitative assessment, it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, a quantitative impairment test will be required. Otherwise, no further testing will be required. If a quantitative impairment test is performed, we compare the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. We determine the fair value of reporting units using a weighting of both the market and the income methodologies. Estimating the fair value of the reporting units requires significant judgment by management. If the carrying amount of a reporting unit exceeds the fair value of the reporting unit, an impairment charge is recognized for the amount by which the carrying value amount exceeds the reporting unit’s fair value up to the total amount of goodwill allocated to the reporting unit.
In process research and development, or IPR&D, acquired as part of business combinations under the acquisition method represents ongoing development work associated with enhancements to existing products, as well as the development of next generation products. IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment on an annual basis, or when indicators of impairment are identified. When the IPR&D project is complete, it is reclassified as a finite-lived intangible asset and is amortized over its estimated useful life. If an IPR&D project is abandoned before completion or is otherwise determined to be impaired, the value of the asset or the amount of the impairment is charged to the consolidated statements of income and comprehensive income in the period the project is abandoned or impaired.
Business Combinations
We account for business combinations under the acquisition method of accounting. Accordingly, at the date of each acquisition, we measure the fair value of all identifiable assets acquired (including intangible assets), liabilities assumed and any remaining noncontrolling interests and allocate the amounts paid to all items measured. The fair value of identifiable intangible assets acquired is based on valuations that use information and assumptions determined by management and which consider management’s best estimates of inputs and assumptions that a market participant would use. Any excess of fair value of acquired net assets, including identifiable intangible assets over the acquisition consideration, results in a bargain purchase gain.
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RECENT ACCOUNTING PRONOUNCEMENTS
Information regarding recently issued accounting pronouncements may be found in Note 3 to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are potentially exposed to market risks associated with changes in foreign currency translation rates, interest rates and commodity prices. We selectively use financial instruments to reduce these risks. All transactions related to risk management techniques are authorized and executed pursuant to our policies and procedures. Analytical techniques used to manage and monitor foreign currency translation and interest rate risk include market valuations and sensitivity analysis.
We have estimated our market risk exposure using sensitivity analysis. To test the sensitivity of our market risk exposure, we have estimated the changes in fair value of market risk sensitive instruments assuming a hypothetical 10 percent adverse change in market prices or rates. The results of the sensitivity analyses are summarized below.
Foreign Currency Risk
We generate a substantial portion of our revenues in international markets, principally Germany and other countries in the European Union, Switzerland and Japan, which exposes our operations to the risk of exchange rate fluctuations. The impact of currency exchange rate movement can be positive or negative in any period. Our costs related to sales in foreign currencies are largely denominated in the same respective currencies, reducing our transaction risk exposure. However, for foreign currency denominated sales in certain regions, such as Japan, where we do not incur significant costs denominated in Japanese Yen, we are more exposed to the impact of foreign currency fluctuations.
For sales not denominated in U.S. Dollars, if there is an increase in the rate at which a foreign currency is exchanged for U.S. Dollars, it will require more of the foreign currency to equal a specified amount of U.S. Dollars than before the rate increase. In such cases, if we price our products in the foreign currency, we will receive less in U.S. Dollars than we would have received before the rate increase went into effect. If we price our products in U.S. Dollars and competitors price their products in local currency, an increase in the relative strength of the U.S. Dollar could result in our prices not being competitive in a market where business is transacted in the local currency. For example, if the U.S. Dollar strengthened against the Japanese Yen, our Japanese-based competitors would have a greater pricing advantage over us.
Our revenue by geography was as follows (dollars in millions):
Revenue Percentage ofRevenue Revenue Percentage ofRevenue
Changes in foreign currency exchange rates increased our revenue by approximately 0.4% in the year ended December 31, 2023, and decreased it by 2.2% in the year ended December 31, 2022.
Assets and liabilities of our foreign subsidiaries, where the functional currency is the local currency, are translated into U.S. Dollars using period-end exchange rates. Revenues and expenses of foreign subsidiaries are translated at the average exchange rates in effect during the year. Adjustments resulting from financial statement translations are included as a separate component of shareholders’ equity. We recorded a net gain of $15.1 million and a net loss of $22.0 million, in the years ended December 31, 2023, and December 31, 2022, respectively, from currency translation adjustments. A 10% depreciation in functional currencies, relative to the U.S. Dollar, at December 31, 2023, would have resulted in a reduction of shareholders’ equity of approximately $303.6 million. Gains and losses resulting from foreign currency transactions are reported in interest and other income (expense), net in the consolidated statements of income and comprehensive income. Our foreign currency transaction gain (loss), net were net losses of $13.3 million and $5.8 million for years ended December 31, 2023, and 2022, respectively.
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The impact of currency exchange rate movement can be positive or negative in any period. We periodically enter into foreign currency contracts in order to minimize the volatility that fluctuations in currency translation have on our monetary transactions. Under these arrangements, we typically agree to purchase a fixed amount of a foreign currency in exchange for a fixed amount of U.S. Dollars or other currencies on specified dates with maturities of less than twelve months, with some agreements extending to longer periods. These transactions do not qualify for hedge accounting and, accordingly, the instrument is recorded at fair value with the corresponding gains and losses recorded in the consolidated statements of income and comprehensive income.
As of December 31, 2023, we have several cross-currency and interest rate swap agreements with a notional value of $139.1 million of U.S. Dollar to Swiss Franc and a notional value of $239.1 million of U.S. Dollar to Euro to hedge the variability in the movement of foreign currency exchange rates on portions of our Euro and Swiss Franc denominated net asset investments. Under the U.S. GAAP hedge accounting guidance, changes in fair value of the derivative that relates to changes in the foreign currency spot rate are recorded in the currency translation adjustment in comprehensive income (loss) and remain in accumulated comprehensive income (loss) in shareholders’ equity until the sale or substantial liquidation of the foreign operation. The difference between the interest rate received and paid under the interest rate cross-currency swap derivative agreement is recorded in interest income in the statement of income.
From time to time, we have entered into forward currency contracts designed to minimize the volatility that fluctuations in foreign currency have on our cash flows related to purchases and sales denominated in foreign currencies. Under these arrangements, we agree to purchase a fixed amount of a foreign currency in exchange for a fixed amount of U.S. Dollars or other currencies on specified dates typically with maturities of less than twelve months with some agreements extending to longer periods. These transactions are recorded at fair value with the corresponding gains and losses recorded in interest and other income (expense), net in the consolidated statements of income and comprehensive income. At December 31, 2023, and 2022, we had forward currency contracts with notional amounts aggregating $489.5 million and $187.2 million, respectively. We will continue to evaluate our currency risks, and in the future, may utilize foreign currency contracts more frequently.
Interest Rate Risk
We regularly invest excess cash in short-term investments that are subject to changes in interest rates. We believe that the market risk arising from holding these financial instruments is minimal because of our policy of investing in short-term financial instruments issued by highly rated financial institutions.
Our exposure related to adverse movements in interest rates is derived primarily from outstanding floating rate debt instruments that are indexed to short-term market rates. We currently have a higher level of fixed rate debt than variable rate debt, which limits the exposure to adverse movements in interest rates.
Commodity Price Risk
We are exposed to certain commodity risks associated with prices for various raw materials. The prices of copper and certain other raw materials, particularly niobium-tin, used to manufacture superconductors have increased significantly over the last decade. Copper and niobium-tin are the main components of low temperature superconductors and continued commodity price increases for copper and niobium, as well as other raw materials, may negatively affect our profitability. Periodically, we enter into commodity forward purchase contracts to minimize the volatility that fluctuations in the price of copper have on our sales of these products. At December 31, 2023, and 2022, we had fixed price commodity contracts with notional amounts aggregating $8.4 million and $8.9 million, respectively. The fair value of the fixed price commodity contracts at December 31, 2023, and 2022 was $0.3 million and $0.6 million, respectively. As commodity contracts settle, gains (losses) as a result of changes in fair values are adjusted to the contracts with the customers through revenues. We will continue to evaluate our commodity risks and may utilize commodity forward purchase contracts more frequently in the future.
Inflation Risk
We are subject to inflationary cost pressures across global operating supply networks. Certain components, parts, or materials are experiencing significant cost pressures that have impacted or may impact our cost of operations in future periods. Further, inflation has increased our selling, general and administrative expenses and may vary between countries in which we operate. We continue to evaluate these cost increases in relation to our new orders and may continue to see a negative impact on our financial results for a period of time.
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ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index of Consolidated Financial Statements
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID 238) 52
Consolidated Balance Sheets as of December 31, 2023, and 2022 54
Notes to Consolidated Financial Statements 59
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Bruker Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Bruker Corporation and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of income, of comprehensive income, of redeemable noncontrolling interests and shareholders’ equity and of cash flows for each of the three years in the period ended December 31, 2023, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Biognosys AG, Osthus Beteiligungs GmbH, MIRO Analytical AG, PhenomeX Inc. (Bruker Cellular Analysis), Acquifer Imaging GmbH, Deltabyte GmbH, Pinpoint Testing LLC, Fasmatech Science and Technology SA, Interherence GmbH, and Signals GmbH & Co. KG, from its assessment of internal control over financial reporting as of December 31, 2023 because they were acquired by the Company in purchase business combinations during 2023. We have also excluded Biognosys AG, Osthus Beteiligungs GmbH, MIRO Analytical AG, PhenomeX Inc. (Bruker Cellular Analysis), Acquifer Imaging GmbH, Deltabyte GmbH, Pinpoint Testing LLC, Fasmatech Science and Technology SA, Interherence GmbH, and Signals GmbH & Co. KG, from our audit of internal control over financial reporting. The total assets and total revenues of these acquired entities excluded from management’s assessment and our audit of internal control over financial reporting collectively represent approximately 9% and 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2023.
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Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition – System Sales
As described in Note 2 to the consolidated financial statements, the Company recognizes revenue from systems sales upon transfer of control in an amount that reflects the consideration it expects to receive. Transfer of control generally occurs upon shipment, or for certain systems, based upon customer acceptance for a system once delivered and installed at a customer facility. For systems that include customer-specific acceptance criteria, management is required to assess when it can demonstrate the acceptance criteria has been met, which generally is upon successful factory acceptance testing or customer acceptance and evidence of installation. The Company’s product revenue for the year ended December 31, 2023, was $2,457.6 million, of which a significant portion relates to system sales.
The principal consideration for our determination that performing procedures relating to revenue recognition for system sales is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company’s system sales revenue recognition.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to system sales revenue recognition. These procedures also included, among others, evaluating the recognition of revenue for a sample of system sales transactions by obtaining and inspecting source documents, such as invoices, customer purchase orders, shipping or delivery documents, acceptance documents, and cash receipts, where applicable.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 29, 2024
We have served as the Company’s auditor since 2016.
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BRUKER CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data)
December 31,
ASSETS
Current assets:
Cash and cash equivalents $ 488.3 $ 645.5
Assets held for sale — 1.4
Property, plant and equipment, net 599.7 487.0
Operating lease assets 91.7 51.2
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt $ 121.2 $ 18.7
Deferred revenue and customer advances 400.0 370.2
Long-term deferred revenue and customer advances 91.5 101.6
Deferred tax liabilities 67.7 62.3
Operating lease liabilities 74.8 34.8
Commitments and contingencies (Note 18)
Redeemable noncontrolling interests 18.7 6.1
Shareholders’ equity:
Accumulated other comprehensive income, net of tax 6.0 14.8
Total shareholders’ equity attributable to Bruker Corporation 1,377.2 1,113.8
Noncontrolling interests in consolidated subsidiaries 17.4 11.9
The accompanying notes are an integral part of these consolidated financial statements.
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BRUKER CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share data)
Year Ended December 31,
Cost of other revenue 0.1 0.2 0.8
Operating expenses:
Bargain purchase gain 144.1 — —
Interest and other income (expense), net (36.8 ) (18.8 ) (19.7 )
Equity in income of unconsolidated investees, net of tax 2.0 1.0 —
Net income attributable to Bruker Corporation $ 427.2 $ 296.6 $ 277.1
Net income per common share attributable to Bruker Corporation shareholders:
Weighted average common shares outstanding:
The accompanying notes are an integral part of these consolidated financial statements.
55
BRUKER CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
Year Ended December 31,
Other comprehensive income (loss):
Pension and other postretirement benefit liability adjustments:
Total other comprehensive income (loss) (7.7 ) 21.8 (11.9 )
Less: Comprehensive income attributable to noncontrolling interests 2.5 1.6 1.0
The accompanying notes are an integral part of these consolidated financial statements.
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BRUKER CORPORATION
CONSOLIDATED STATEMENTS OF REDEEMABLE NONCONTROLLING INTERESTS AND SHAREHOLDERS’ EQUITY
(in millions, except share data)
Restricted stock units vested — 278,769 — — — (4.7 ) — — (4.7 ) — (4.7 )
Stock-based compensation — — — — — 14.5 — — 14.5 — 14.5
Distributions to noncontrolling interests — — — — — — — — — — —
Formation of Acuity Spatial Genomics, Inc. 0.3 — — — —
Other comprehensive loss — — — — — — — (11.9 ) (11.9 ) (2.6 ) (14.5 )
Restricted stock units vested — 233,545 — — — (3.0 ) — — (3.0 ) — (3.0 )
Stock-based compensation — — — — — 15.7 — — 15.7 — 15.7
Distributions to noncontrolling interests — (1.2 ) (1.2 )
PreOmics Acquisition - other shareholders 6.8 — — — — —
Acquisition of minority interest — — (0.3 ) (0.2 ) (0.5 ) (2.6 ) (3.1 )
Other comprehensive (loss) income (0.3 ) — — — — — — 23.2 23.2 (0.9 ) 22.3
Restricted stock units vested — 215,959 — — — (3.4 ) — — (3.4 ) — (3.4 )
Stock-based compensation 0.1 — — — — 17.6 — — 17.6 — 17.6
Employee stock purchase plan — 53,130 — — — 3.9 — — 3.9 — 3.9
Shares repurchased — — — — — — — — — —
Other shareholders of majority-owned acquisitions 12.6 — — — — — — — — -
Distributions to noncontrolling interest — — — — — — — — — (2.0 ) (2.0 )
Other comprehensive income (loss) 0.6 — (8.8 ) (8.8 ) 0.5 (8.3 )
The accompanying notes are an integral part of these consolidated financial statements.
57
BRUKER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Year Ended December 31,
Cash flows from operating activities:
Stock-based compensation expense 24.0 27.7 17.2
Deferred income taxes (24.4 ) (14.8 ) (5.8 )
Bargain purchase gain on acquisition (144.1 ) — —
Impairment of minority investments and other long-lived assets 22.2 1.6 —
Gain on sale of minority investment (6.8 ) — —
Gain on sale of property, plant and equipment (8.5 ) (10.1 ) (1.1 )
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (0.9 ) (67.9 ) (95.3 )
Accounts payable and accrued expenses 23.1 13.2 61.4
Deferred revenue and customer advances (0.6 ) 52.7 38.8
Other changes in operating assets and liabilities (28.1 ) 2.6 (19.2 )
Cash flows from investing activities:
Purchases of property, plant and equipment (106.9 ) (129.2 ) (92.0 )
Purchases of short-term investments — — (148.0 )
Maturity of short-term investments — 100.0 98.2
Proceeds from sale of minority investment 14.8 — —
Cash paid for minority investments (24.8 ) (60.2 ) (0.5 )
Cash paid for acquisitions, net of cash acquired (226.6 ) (182.3 ) (65.0 )
Proceeds from sales of property, plant and equipment 11.1 13.9 4.9
Net proceeds from cross-currency swap agreements 6.4 6.2 10.0
Net cash used in investing activities (326.0 ) (251.6 ) (192.4 )
Cash flows from financing activities:
Proceeds from issuance (repayment) of long-term debt (6.5 ) 0.3 490.5
Repayment of 2012 Note Purchase Agreement — (105.0 ) —
Repayment of 2019 Term Loan Agreement (15.0 ) (6.0 ) (0.8 )
Payment of deferred financing costs — — (0.1 )
Proceeds from issuance of common stock, net 9.5 2.8 7.0
Payment of contingent consideration (2.7 ) (2.7 ) (0.4 )
Payment of dividends to common shareholders (29.4 ) (29.8 ) (24.2 )
Net cash (used in) provided by financing activities (193.4 ) (415.3 ) 318.7
Net change in cash, cash equivalents and restricted cash (157.1 ) (423.0 ) 386.2
Supplemental cash flow information:
Restricted cash period beginning balance $ 3.2 $ 3.5 $ 3.7
Restricted cash period ending balance $ 3.3 $ 3.2 $ 3.5
The accompanying notes are an integral part of these consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
Bruker Corporation, together with its consolidated subsidiaries (Bruker or the Company), develops, manufactures and distributes high-performance scientific instruments and analytical and diagnostic solutions that enable its customers to explore life and materials at microscopic, molecular and cellular levels. Many of the Company’s products are used to detect, measure and visualize structural characteristics of chemical, biological and industrial material samples. The Company’s products address the rapidly evolving needs of a diverse array of customers in life science research, pharmaceuticals, biotechnology, applied markets, cell biology, clinical research, microbiology, in-vitro diagnostics, nanotechnology and materials science research.
The Company has four reportable segments, Bruker Scientific Instruments (BSI) BioSpin, BSI CALID, BSI Nano and Bruker Energy & Supercon Technologies (BEST).
The BSI BioSpin Segment designs, manufactures and distributes enabling life science tools based on magnetic resonance technology. BSI BioSpin Segment’s revenues are generated by academic and government research customers, pharmaceutical and biotechnology companies and nonprofit laboratories, as well as chemical, food and beverage, clinical and other industrial companies.
The BSI CALID (Chemicals, Applied Markets, Life Science, In-Vitro Diagnostics, Detection) Segment designs, manufactures and distributes life science mass spectrometry and ion mobility spectrometry solutions, analytical and process analysis instruments and solutions based on infrared and Raman molecular spectroscopy technologies and radiological/nuclear detectors for Chemical, Biological, Radiological, Nuclear and Explosive (CBRNE) detection. Customers of the BSI CALID Segment include academic institutions and medical schools; pharmaceutical, biotechnology and diagnostics companies; contract research organizations; nonprofit and for-profit forensics laboratories; agriculture, food and beverage safety laboratories; environmental and clinical microbiology laboratories; hospitals and government departments and agencies.
The BSI Nano Segment designs, manufactures and distributes advanced X-ray instruments; atomic force microscopy instrumentation; advanced fluorescence optical microscopy instruments; analytical tools for electron microscopes and X-ray metrology; defect-detection equipment for semiconductor process control; handheld, portable and mobile X-ray fluorescence spectrometry instruments; spark optical emission spectroscopy systems; chipcytometry products and services for targeted spatial proteomics, multi-omic services, and products and services for spatial genomics research. Customers of the BSI Nano Segment include academic institutions, governmental customers, nanotechnology companies, semiconductor companies, raw material manufacturers, industrial companies, biotechnology and pharmaceutical companies and other businesses involved in materials research and life science research analysis.
The BEST reportable segment develops and manufactures superconducting and non-superconducting materials and devices for use in renewable energy, energy infrastructure, healthcare and “big science” research. The segment focuses on metallic low temperature superconductors for use in magnetic resonance imaging, nuclear magnetic resonance, fusion energy research and other applications.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and all majority and wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated.
Noncontrolling Interests
Noncontrolling interests represents the minority shareholders’ proportionate share of the Company’s majority-owned subsidiaries. The portion of net income or net loss attributable to non-controlling interests is presented as net income attributable to noncontrolling interests in consolidated subsidiaries in the consolidated statements of income and comprehensive income, and the portion of other comprehensive income of these subsidiaries is presented in the consolidated statements of shareholders’ equity.
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Redeemable Noncontrolling Interests
The Company has agreements with noncontrolling interest holders that provide the Company with the right to purchase, and the noncontrolling interest holders with the right to sell, their remaining minority interest at a contractually defined redemption value. These rights can be accelerated in certain events. As the redemptions are contingently redeemable at the option of the noncontrolling interest shareholders, the Company classifies the carrying amount of the redeemable noncontrolling interest in the mezzanine section on the consolidated balance sheet, which is presented above the equity section and below liabilities. The redeemable noncontrolling interests are measured at the greater of the amount that would be paid if settlement occurred as of the balance sheet date based on the contractually defined redemption value and its carrying amount adjusted for net income (loss) attributable to the noncontrolling interest. Adjustments to the carrying value of the redeemable noncontrolling interest are recorded through retained earnings. During the years ended December 31, 2023, 2022 and 2021, carrying value adjustments were immaterial.
Business Combinations
The Company accounts for business combinations under the acquisition method of accounting. Accordingly, at the date of each acquisition, the Company measures the fair value of all identifiable assets acquired (including intangible assets), liabilities assumed and any remaining noncontrolling interests and allocates the amounts paid to all items measured. The fair value of identifiable intangible assets acquired is based on valuations that use information and assumptions determined by management and which consider management’s best estimates of inputs and assumptions that a market participant would use.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period.
Significant estimates and judgments made by management in preparing these financial statements include revenue recognition, write-downs for excess and obsolete inventory, estimated fair values used to record impairment charges related to intangible assets, goodwill, and other long-lived assets, amortization periods, expected future cash flows used to evaluate the recoverability of long-lived assets and to record intangible assets in business combinations, stock-based compensation expense, warranty allowances, restructuring and other related charges, contingent liabilities and the recoverability of the Company’s net deferred tax assets.
Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results may differ from management’s estimates if these results differ from historical experience or other assumptions prove not to be substantially accurate, even if such assumptions were reasonable when made.
Subsequent Events Considerations
The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated as required. The Company has evaluated all subsequent events and determined that, other than as reported herein, there are no material recognized or unrecognized subsequent events.
Cash and Cash Equivalents
Cash and cash equivalents primarily include cash on hand, money market funds and time deposits with original maturities of three months or less at the date of acquisition. Time deposits represent amounts on deposit in banks and temporarily invested in instruments with maturities of three months or less at the time of purchase. Certain of these investments represent deposits which are not insured by the Federal Deposit Insurance Corporation or any other government agency. Cash equivalents are carried at cost, which approximates fair value.
Short-term Investments
Short-term investments represent time and call deposits maturing within twelve months and with original maturities of greater than three months at the date of acquisition. Short-term investments are classified as available-for-sale and are reported at fair value.
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Restricted Cash
Restricted cash is included as a component of cash, cash equivalents, and restricted cash on the Company’s consolidated statement of cash flows. The Company has certain subsidiaries that are required by local laws and regulations to maintain restricted cash balances to cover future employee benefit payments. Restricted cash balances are classified as non-current unless, under the terms of the applicable agreements, the funds will be released from restrictions within one year from the balance sheet date. The current and non-current portion of restricted cash is recorded within other current assets and other long-term assets, respectively, in the accompanying consolidated balance sheets.
Accounts Receivable, net
Accounts receivable have been reduced by an allowance for doubtful accounts. The allowance for doubtful accounts represents the Company’s best estimate of the amount of probable credit losses in our accounts receivable. The Company’s allowance is based on a number of factors, including an evaluation of customer credit worthiness, the age of the outstanding receivable, economic trends and historical experience. Provisions for doubtful accounts are recorded in selling, general and administrative expenses in the accompanying consolidated statements of income and comprehensive income.
Derivative Financial Instruments and Hedging Activities
All derivatives, whether designated in a hedging relationship or not, are recorded on the consolidated balance sheets at fair value. The accounting for changes in fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, the Company must designate the hedging instrument, based on the exposure being hedged, as a fair value hedge, cash flow hedge, foreign currency hedge or a hedge of a net investment in a foreign operation. If a derivative is designated as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of the hedged item through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. Derivatives that are not designated as hedges are recorded at fair value through earnings. The Company presents the cross-currency swap periodic settlements in investing activities and the interest rate swap periodic settlements in operating activities in the consolidated statements of cash flows. The Company records derivative assets and liabilities on a gross basis in the consolidated balance sheets.
Fair Value of Financial Instruments
The Company applies the following hierarchy to determine the fair value of financial instruments, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. The levels in the hierarchy are defined as follows:
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Level 1: Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
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Level 2: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
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Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The valuation techniques that may be used by the Company to determine the fair value of Level 2 and Level 3 financial instruments are the market approach, the income approach and the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value based on current market expectations about those future amounts, including present value techniques, option-pricing models and the excess earnings method. The cost approach is based on the amount that would be required to replace the service capacity of an asset (replacement cost).
The Company’s financial instruments consist primarily of cash equivalents, restricted cash, derivative instruments consisting of forward foreign exchange contracts, cross-currency interest rate swap agreements, commodity contracts, derivatives embedded in certain purchase and sale contracts, derivatives embedded within noncontrolling interests, accounts receivable, accounts payable, contingent consideration and long-term debt. The carrying amounts of the Company’s cash equivalents, short-term investments and restricted cash, accounts receivable, borrowings under a revolving credit agreement and accounts payable approximate fair value because of their short-term nature. Derivative assets and liabilities are measured at fair value on a recurring basis.
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The Company has evaluated the estimated fair value of financial instruments using available market information and management’s estimates. The use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts.
Concentration of Credit Risk
Financial instruments that subject the Company to credit risk consist of cash, cash equivalents, derivative instruments, accounts receivables and restricted cash. The risk with respect to cash and cash equivalents is minimized by the Company’s policy of investing in short-term financial instruments issued by highly rated financial institutions. The risk with respect to derivative instruments is minimized by the Company’s policy of entering into arrangements with highly rated financial institutions. The risk with respect to accounts receivables is minimized by the creditworthiness and diversity of the Company’s customers. The Company performs periodic credit evaluations of its customers’ financial condition and generally requires an advanced deposit for a portion of the purchase price. Credit losses have been within management’s expectations and the allowance for doubtful accounts totaled $4.6 million and $5.3 million at December 31, 2023 and 2022, respectively. At December 31, 2023, and 2022, no single customer represented 10% or more of the Company’s accounts receivable. For the years ended December 31, 2023, 2022, and 2021, no single customer represented 10% or more of the Company’s total revenue.
Inventories
Components of inventory include raw materials, work-in-process, demonstration units and finished goods. Demonstration units include systems which are located in the Company’s demonstration laboratories or installed at the sites of potential customers and are considered available for sale. Finished goods include in-transit systems that have been shipped to the Company’s customers, but not yet installed and accepted by the customer. All inventories are stated at the lower of cost and net realizable value. Cost is determined principally by the first-in, first-out method for a majority of subsidiaries and by average-cost for certain other subsidiaries. The Company reduces the carrying value of its inventories for differences between cost and estimated net realizable value, taking into consideration usage in the preceding twelve months, expected demand, technological obsolescence and other information including the physical condition of demonstration inventories. The Company records a charge to cost of revenue for the amount required to reduce the carrying value of inventory to net realizable value. Costs associated with the procurement of inventories, such as inbound freight charges and purchasing and receiving costs, are capitalized as part of inventory and are also included in the cost of product revenue line item within the consolidated statements of income and comprehensive income.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Major improvements that extend the useful lives are capitalized while expenditures for maintenance, repairs and minor improvements are charged to expense as incurred. When assets are retired or otherwise disposed of, the assets and related accumulated depreciation and amortization are eliminated from the accounts and any resulting gain or loss is reflected in the consolidated statements of income and comprehensive income. Depreciation and amortization are calculated on a straight-line basis over the estimated useful lives of the assets as follows:
Estimated Useful Life
Buildings 25 to 40 years
Machinery and equipment 3 to 10 years
Computer and fixtures 3 to 5 years
Furniture and fixtures 3 to 10 years
Leasehold improvements Lesser of 15 years or the remaining lease term
Goodwill and Intangible Assets
Goodwill and indefinite-lived intangible assets are not amortized, but are evaluated for impairment on an annual basis, or on an interim basis when events or changes in circumstances indicate that the carrying value may not be recoverable. In assessing the recoverability of goodwill and indefinite-lived intangible assets, the Company must make assumptions regarding the estimated future cash flows, including forecasted revenue growth, to determine the fair value of these assets. If these estimates or their related assumptions change in the future, the Company may be required to record impairment charges against these assets in the reporting period in which the impairment is determined.
The Company tests goodwill for impairment at the reporting unit level, which is the operating segment or one level below an operating segment. The Company has the option of performing a qualitative assessment to determine whether further impairment testing is necessary before performing the quantitative assessment. If as a result of the qualitative assessment, it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, a quantitative impairment test will be required. Otherwise, no
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further testing will be required. If a quantitative impairment test is performed, the Company compares the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. The Company determines the fair value of reporting units using a weighting of both the market and the income methodologies. Estimating the fair value of the reporting units requires significant judgment by management. If the carrying amount of a reporting unit exceeds the fair value of the reporting unit, an impairment charge is recognized for the amount by which the carrying value amount exceeds the reporting unit’s fair value up to the total amount of goodwill allocated to the reporting unit.
In process research and development, or IPR&D, acquired as part of business combinations under the acquisition method represents ongoing development work associated with enhancements to existing products, as well as the development of next generation products. IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment on an annual basis, or when indicators of impairment are identified. When the IPR&D project is complete, it is reclassified as a finite-lived intangible asset and is amortized over its estimated useful life. If an IPR&D project is abandoned before completion or is otherwise determined to be impaired, the value of the asset or the amount of the impairment is charged to the consolidated statements of income and comprehensive income in the period the project is abandoned or impaired.
Intangible assets with a finite useful life are amortized on a straight-line basis over their estimated useful lives as follows:
Estimated Useful Life
Existing technology and related patents 3 to 15 years
Customer relationships 5 to 15 years
Trade names 5 to 15 years
Impairment of Long-Lived Assets
Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the quoted market price, if available or the estimated fair value of those assets are less than the assets’ carrying value and are not recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written down to their fair values. Impairment losses are charged to the consolidated statements of income and comprehensive income for the difference between the fair value and carrying value of the asset.
Warranty Costs and Deferred Revenue
The Company typically provides a one-year parts and labor warranty with the purchase of equipment. The anticipated cost for this warranty is accrued upon recognition of the sale and is included as a current liability on the accompanying consolidated balance sheets. The Company’s warranty reserve reflects estimated material and labor costs for potential product issues for which the Company expects to incur an obligation. The Company’s estimates of anticipated rates of warranty claims and costs are primarily based on historical information. The Company assesses the adequacy of the warranty reserve on a quarterly basis and adjusts the amount as necessary. If the historical data used to calculate the adequacy of the warranty reserve is not indicative of future requirements, additional or reduced warranty reserves may be required.
The Company also offers to its customers extended warranty and service agreements extending beyond the initial warranty for a fee. These fees are recorded as deferred revenue and recognized ratably into income over the life of the extended warranty contract or service agreement.
Income Taxes
The provision for income taxes includes federal, state, local and foreign taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences of temporary differences between the financial statement carrying amounts and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be recovered or settled. The Company evaluates the realizability of its deferred tax assets and establishes a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based upon the level of historical taxable income and income tax liability and projections for future taxable income over the periods in which the deferred tax assets are utilizable, we believe it is more likely than not that we will realize the net benefits of the deferred tax assets of our wholly owned subsidiaries, net of the recorded valuation allowance. In the event that actual results differ from our estimates, or we adjust our estimates in future periods, we may need to adjust or establish a valuation allowance, which could materially impact our consolidated financial position and results of operations.
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The Company records liabilities related to uncertain tax positions in accordance with the guidance that clarifies the accounting for uncertainty in income taxes recognized in a Company’s financial statements. This guidance prescribes a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company includes accrued interest and penalties related to unrecognized tax benefits and income tax liabilities, when applicable, in income tax provision.
Customer Advances
The Company typically requires an advance deposit under the terms and conditions of contracts with customers. These deposits are recorded as a current or long-term liability until revenue is recognized on the specific contract in accordance with the Company’s revenue recognition policy.
Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. The key elements of ASC 606 are: 1) identifying a contract with the customer; 2) identifying the performance obligations in the contract; 3) determining the transaction price; 4) allocating the transaction price to the performance obligations in the contract; and 5) recognizing revenue when (or as) each performance obligation is satisfied.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Some of the Company’s contracts have multiple performance obligations, most commonly due to providing additional goods or services along with a system, such as installation, accessories, parts and services. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct good or service being provided to the customer. The Company’s best evidence of standalone selling price is its normal selling pricing and discounting practices for the specific product or service when sold on a standalone basis. Alternatively, when not sold separately, the Company may determine standalone selling price using an expected cost plus a margin approach.
The Company’s performance obligations are typically satisfied at a point in time, most commonly either on shipment, or customer acceptance. Certain performance obligations, such as maintenance contracts and extended warranty, are recognized over time based on the contractual obligation period. In addition, certain arrangements to provide more customized deliverables may be satisfied over time based on the extent of progress towards completion. For performance obligations recognized over time, revenue is measured by progress toward completion of the performance obligation that reflects the transfer of control. Typically, progress is measured using a cost-to-cost method based on cost incurred to date relative to total estimated costs upon completion as this best depicts the transfer of control to the customer. Application of the cost-to-cost method requires the Company to make reasonable estimates of the extent of progress toward completion and the total costs the Company expects to incur. Losses are recorded immediately when the Company estimates that contracts will ultimately result in a loss. Changes in the estimates could affect the timing of revenue recognition.
The Company includes costs incurred in connection with shipping and handling of products within selling, general and administrative costs. Amounts billed to customers in connection with these costs are included in total revenues. When control of the goods transfers prior to the completion of the Company’s obligation to ship the products to its customers, the Company has elected the practical expedient to account for the shipping services as a fulfillment cost. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period is one year or less or the amount is immaterial. The Company excludes from the transaction price all taxes assessed by a governmental authority on revenue-producing transactions that are collected by the Company from a customer.
The Company recognizes revenue from systems sales upon transfer of control in an amount that reflects the consideration it expects to receive. Transfer of control generally occurs upon shipment, or for certain systems, based upon customer acceptance for a system once delivered and installed at a customer facility. For systems that include customer-specific acceptance criteria, the Company is required to assess when it can demonstrate the acceptance criteria has been met, which generally is upon successful factory acceptance testing or customer acceptance and evidence of installation. For systems that require installation and where system revenue is recognized upon shipment, the standalone selling price of installation is deferred until customer acceptance. Revenue from accessories and parts is generally recognized based on shipment. Service revenue is recognized as the services are performed or ratably over the contractual obligation and includes maintenance contracts, extended warranties, training, application support and on-demand services.
When products are sold through an independent distributor or a strategic distribution partner, the Company recognizes the system sale upon transfer of control which is typically on shipment. When the Company is responsible for installation, the standalone
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selling price of installation is deferred until customer acceptance. The Company’s distributors do not have price protection rights or rights of return; however, the Company’s products are typically warranted to be free from defect for a period of one year.
The Company requires an advance deposit based on the terms and conditions of contracts with customers for many of its contracts. Typically, revenue is recognized within one year of receiving an advance deposit. The Company does not have any material payment terms that extend beyond one year. There is minimal variable consideration included in the transaction price of the Company’s contracts.
Other revenues are primarily comprised of development arrangements recognized on a cost-plus-fixed-fee basis and licensing arrangements recognized either when the licenses are provided or ratably over the contract term depending on the nature of the arrangement.
Contract Assets and Liabilities
Contract assets represent unbilled receivables when revenue recognized exceeds the amount billed to the customer, and the right to payment is not just subject to the passage of time. Contract assets typically result from system revenue recorded where a portion of the transaction price is not billable until a future event, such as customer acceptance, or from contracts recognized on a cost-to-cost or cost-plus-fixed-fee basis as revenue exceeds the amount billed to the customer. Amounts may not exceed their net realizable value. Contract assets are generally classified as current.
Contract liabilities consist of customer advances, deferred revenue and billings in excess of revenue from contracts recognized on a cost-to-cost or cost-plus-fixed-fee basis. Contract liabilities are classified as current or long-term based on the timing of when the Company expects to recognize revenue. Contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period.
Deferred revenue previously included in other current liabilities on the consolidated balance sheets is currently presented together with customer advances. The change in the prior period was made to conform to the current period presentation.
Leases
The Company accounts for leases in accordance with ASC 842, Leases. At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Leases with a term greater than 12 months are recognized on the balance sheet as Right-of-use (“ROU”) assets with a corresponding lease liability. The Company has elected not to recognize on the consolidated balance sheets leases with an initial term of 12 months or less. Leases with an initial term of 12 months or less are directly expensed as incurred. Leases are classified as either operating or finance depending on the specific terms of the arrangement.
The Company’s leases mainly consist of facilities, office equipment, and vehicles. The majority of leases are classified as operating. The remaining lease term ranges from 2024 to 2039, with some leases including an option to extend the lease for varying periods of time or to terminate prior to the end of the lease term. Certain lease agreements contain provisions for future rent increases. Lease payments included in the measurement of the lease liability comprise fixed payments, future rent increases tied to an index or rate, and the exercise price of a Company option to purchase the underlying asset if the Company is reasonably certain to exercise the option. Future rent increases dependent on an index or rate are initially measured at the index or rate at the commencement date. The Company’s leases typically do not contain residual value guarantees.
At the commencement date, operating and finance lease liabilities, and their corresponding ROU assets, are recorded based on the present value of lease payments over the expected lease term. The lease term includes the non-cancelable period of the lease, plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. The interest rate implicit in lease contracts is typically not readily determinable, therefore an incremental borrowing rate is used to calculate the lease liability. The incremental borrowing rate is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Certain adjustments to the ROU asset may be required for items such as prepayments, lease incentives received, or initial direct costs paid.
Shipping and Handling Costs
The Company includes costs incurred in connection with shipping and handling of products within selling, general and administrative expenses in the accompanying consolidated statements of income and comprehensive income. Shipping and handling costs were $40.3 million, $39.4 million and $36.3 million in the years ended December 31, 2023, 2022 and 2021, respectively. Amounts billed to customers in connection with these costs are included in total revenues.
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Research and Development
The Company commits substantial capital and resources to internal and collaborative research and development projects in order to provide innovative products and solutions to its customers. The Company conducts research primarily to enhance system performance and improve the reliability of existing products, and to develop revolutionary new products and solutions. Research and development costs are expensed as incurred and include salaries, wages and other personnel related costs, material costs and depreciation, consulting costs and facility costs.
Capitalized Software
Purchased software is capitalized at cost and is amortized over the estimated useful life, which is generally three years. Software developed for use in the Company’s products is expensed as incurred to research and development expense until technological feasibility is achieved. Subsequent to the achievement of technological feasibility, amounts are capitalizable; however, to date such amounts have not been material.
Advertising
The Company expenses advertising costs as incurred. Advertising expenses were $23.7 million, $19.3 million and $13.8 million during the years ended December 31, 2023, 2022 and 2021, respectively.
Stock-Based Compensation
The Company recognizes stock-based compensation expense in the consolidated statements of income and comprehensive income based on the fair value of the share-based award at the grant date. The Company’s primary types of share-based compensation are stock options, restricted stock awards and restricted stock units.
Compensation expense is amortized on a straight-line basis over the underlying vesting terms of the share-based award. Stock options to purchase the Company’s common stock are periodically awarded to executive officers and other employees of the Company subject to a vesting period of three to four years. The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model.
The determination of the fair value of stock-based payment awards using the Black-Scholes model is affected by our stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rates and expected dividends. Risk-free interest rates are based on the yield on zero-coupon U.S. Treasury securities for a period that is commensurate with the expected life assumption. Expected life is determined through a calculation based on historical experience. Expected volatility is based the Company’s historical volatility results. Expected dividend yield is based on the estimated annualized dividend yield on our stock based on our history of paying dividends. The Company utilizes an estimated forfeiture rate derived from an analysis of historical data.
Assumptions regarding volatility, expected term, dividend yield and risk-free interest rates are required for the Black-Scholes model and are presented in the table below:
Expected life 4.5 years 4.4 years 4.4 years
Weighted-average fair value per share $ 23.02 $ 19.68 $ 21.69
Stock-based compensation for restricted stock awards and restricted stock units is expensed ratably over the vesting period based on the grant date fair value.
Earnings Per Share
Net income per common share attributable to Bruker Corporation shareholders is calculated by dividing net income attributable to Bruker Corporation, adjusted to reflect changes in the redemption value of the redeemable noncontrolling interest, by the weighted-average shares outstanding during the period. The diluted net income per share computation includes the effect of shares which would be issuable upon the exercise of outstanding stock options and the vesting of restricted stock, reduced by the number of shares which are assumed to be purchased by the Company under the treasury stock method. There was no redemption value adjustment of the redeemable noncontrolling interest for the years ended December 31, 2023, 2022 and 2021.
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Post Retirement Benefit Plans
The Company recognizes the over-funded or under-funded status of defined benefit pension and other post retirement defined benefit plans as an asset or liability, respectively, in its consolidated balance sheets and recognizes changes in the funded status in the year in which the changes occur through other comprehensive income.
Other Comprehensive Income (Loss)
Other comprehensive income (loss) refers to revenues, expenses, gains and losses that are excluded from net income as these amounts are recorded directly as an adjustment to shareholders’ equity, net of tax. The Company’s other comprehensive income (loss) was composed of foreign currency translation adjustments, derivatives designated as hedging instruments and pension liability adjustments.
Foreign Currency Translation
Assets and liabilities of the Company’s foreign subsidiaries, where the functional currency is the local currency, are translated into U.S. Dollars using the current exchange rate as of the consolidated balance sheet date and shareholders’ equity is translated using historical rates. Revenues and expenses of foreign subsidiaries are translated at the average exchange rates in effect during the year. Adjustments resulting from financial statement translations are included as a separate component of shareholders’ equity. Gains and losses resulting from translation of foreign currency monetary transactions are reported in interest and other income (expense), net in the consolidated statements of income and comprehensive income for all periods presented. The Company has certain intercompany foreign currency transactions that are deemed to be of a long-term investment nature. Exchange adjustments related to those transactions are made directly to a separate component of shareholders’ equity.
Equity-method investments
The Company accounts for investments in common stock under the equity method if the Company has the ability to exercise significant influence, but not control, over an investee. Investments in equity-method investees are included within “Other long-term assets” in the consolidated balance sheets. The Company’s proportional share of the earnings or losses as reported by equity-method investees are classified as “Equity in income of unconsolidated investees, net of tax” in the consolidated statements of income and comprehensive income. The Company records investments, including incremental investments, of common shares in equity-method investees at cost. In the event the Company no longer has the ability to exercise significant influence over an equity-method investee, the Company would discontinue accounting for the investment under the equity method. The Company regularly evaluates these investments, which are not carried at fair value, for other-than-temporary impairment and records any impairment charge in earnings when the decline in value below the carrying amount of its equity method investment is determined to be other-than-temporary.
Minority investments
When the Company does not have control or the ability to exercise significant influence over an investee, it accounts for its minority investments in equity interests without a readily determinable fair value using the measurement alternative. The equity interest is initially recorded at cost, less impairment. The carrying amount is subsequently remeasured to its fair value when observable price changes occur or it is impaired. Any adjustments to the carrying amount are recorded in earnings.
The Company accounts for its minority investments in debt securities classified as available-for-sale at fair value. The Company regularly evaluates these investments for impairment. An available-for-sale debt security is impaired if its fair value is below its amortized cost basis. For available-for-sale debt securities with unrealized losses, management performs an analysis to assess whether the Company intends to sell or whether the Company would more likely than not be required to sell the security before the expected recovery of the amortized cost basis. Where the Company intends to sell a security, or may be required to do so, the security’s decline in fair value is deemed to be other-than-temporary and the full amount of the unrealized loss is reflected in earnings as an impairment loss. Regardless of the Company's intent to sell a security, additional analysis is performed on all securities with unrealized losses to evaluate losses associated with the creditworthiness of the security. Credit losses are identified where the Company does not expect to receive cash flows sufficient to recover the amortized cost basis of a security. If the Company does not intend to sell the security or is not more likely than not to sell the security and the decline in fair value is not due to credit-related factors, the loss is recorded in other comprehensive income.
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Any impairment charges are included in “Interest and other income (expense), net” in the Consolidated Statements of Income and Comprehensive Income.
Risks and Uncertainties
The Company is subject to risks common to its industry including, but not limited to, global economic conditions, such as increasing inflation, uncertainties caused by recent banking industry volatility, rapid technological change, government and academic funding levels, geopolitical uncertainties, changes in commodity prices, spending patterns of its customers, protection of its intellectual property, availability of key raw materials and components and other supply chain challenges, compliance with existing and future regulation by government agencies and fluctuations in foreign currency exchange rates and interest rates.
The Company has experienced supply chain interruptions as a result of general global economic conditions, including inflation and the threat of a potential recession, a tighter labor market and other factors including natural events and disasters. Various factors, including increased demand for certain components and production delays, are contributing to shortages of certain components used in the Company’s products and increased difficulties in the Company’s ability to obtain a consistent supply of materials at stable pricing levels. Supply shortages and longer lead teams for components used in the Company's products, including limited source components, has resulted and may continue to cause disruptions to the Company’s production activities, which has had and may continue to have an adverse effect on the Company’s financial condition or result of operations. These factors have impacted and may continue to impact the timing of the Company’s revenue, and have also resulted, and may result in a delay of revenue, and an increase in manufacturing costs, all of which have adversely impacted and may continue to adversely impact the Company's operating results.
Additionally, world events, such as the conflict between Russia and Ukraine and related economic sanctions, the conflict in Israel, Palestine and surrounding areas, the possible expansion of such conflicts and potential geopolitical consequences, the ongoing tensions between the United States and China, tariff and trade policy changes, and increasing potential of conflict involving countries in Asia that are significant to the Company’s supply network operations, such as Taiwan and China, have resulted in increasing global instability and have created uncertainty for global commerce. As a result of the adverse economic impacts resulting from the conflict between Russia and Ukraine, such as increased prices for and a reduced supply of key metals used in our products, the Company has ceased its Russian operations. Sustained or worsening global economic conditions and increasing inflation and geopolitical tensions have increased the Company's cost of doing business, impacted the Company's supply chain operations, caused some of the Company's customers to reduce or delay spending and further intensified pricing pressures. Combined with increased inflation, potential energy shortages in Europe where we have significant operations, and overall higher energy and transportation costs, these factors have affected and may continue to affect the Company's financial condition and results of operations.
The preparation of the consolidated financial statements requires the Company to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis the Company evaluates estimates, judgments and methodologies. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and on various other assumptions that it believes are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of revenues and expenses. The full extent to which the global supply chain interruptions, higher energy costs and shortages, the global economy, including inflation and the threat of recession, and geopolitical instability will directly or indirectly impact future business, results of operations and financial condition, including sales, expenses, reserves and allowances, manufacturing, research and development costs and employee cost related amounts, will depend on future developments that are highly uncertain, including as a result of new developments concerning global supply chain and various global conflicts. The Company has made estimates of the impact of these disruptions within the financial statements and there may be changes to those estimates in future periods. Actual results may differ from management’s estimates if these results differ from historical experience.
Loss Contingencies
Loss contingency provisions are recorded if the potential loss from any claim, asserted or unasserted, or legal proceeding related to patents, products and other matters, is considered probable and the amount can be reasonably estimated, or a range of loss can be determined. These accruals represent management’s best estimate of probable loss. Disclosure is provided when a loss is considered probable but the loss is not reasonably estimable and when a material loss is reasonably possible but not probable.
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3. Recent Accounting Pronouncements
In December 2023, the FASB issued ASU No. 2023-09 – Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires enhanced income tax disclosures, including disaggregation of information in the rate reconciliation table and disaggregation of information related to income taxes paid as presented on the Cash Flow Statement. This guidance is effective for annual reporting periods ending after December 15, 2024. The Company is evaluating the potential impact of this adoption on the consolidated financial statements and related disclosures.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segments Disclosures (“ASU 2023-07”). The ASU expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”). These significant segment expenses are included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. All disclosure requirements under ASC 2023-07 are also required for public entities with a single reportable segment. This guidance is effective for annual reporting periods beginning after December 15, 2023, and interim periods after December 15, 2024. The Company is evaluating the potential impact of this adoption on the consolidated financial statements and related disclosures.
In March 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-01, Leases (Topic 842): Common Control Arrangements (“ASU 2023-01”), which provides additional guidance concerning related party leasing arrangements between entities under common control. Specifically, ASU 2023-01 provides a practical expedient for private companies in determining whether a related party arrangement qualifies as a lease and provides new guidance for all entities on the amortization period of leasehold improvements for common control arrangements. As the Company is a public company, the practical expedient for related party arrangements is not applicable to Bruker. This guidance is effective for annual and interim reporting periods beginning after December 15, 2023. Additionally, the Company evaluated the impact of adopting this new guidance regarding the amortization period of leasehold improvements for common control arrangements and concluded it is not expected to have a material impact on the consolidated financial statements and related disclosures.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The guidance provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. These transactions include: contract modifications, hedging relationships, and sale or transfer of debt securities classified as held-to-maturity. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, to clarify that certain optional expedients and exceptions under the reference rate reform guidance for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. Specifically, certain provisions in the reference rate reform guidance, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. This temporary guidance is effective for all entities as of March 12, 2020, through December 31, 2023. The Company elected to apply this guidance for all contract modifications or eligible hedging relationships during that time period subject to certain criteria.
4. Revenue
The following table presents the Company’s revenues by Segment for the years ended December 31 (in millions):
Revenue by Segment:
(a) Represents corporate costs and eliminations not allocated to the reportable segments.
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Revenue for the Company recognized at a point in time versus over time is as follows for the years ended December 31 (in millions):
Remaining Performance Obligations
Remaining performance obligations represent the aggregate transaction price allocated to a promise to transfer a good or service that is fully or partially unsatisfied at the end of the period. As of December 31, 2023, remaining performance obligations were approximately $2,226.7 million.
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, notes receivables and unbilled receivables (contract assets) and deferred revenue, customer deposits and billings in excess of revenue recognized (contract liabilities) on the Company’s consolidated balance sheets.
Contract assets—Most of the Company’s long-term contracts are billed as work progresses in accordance with the contract terms and conditions, either at periodic intervals or upon achievement of certain milestones. Billing often occurs subsequent to revenue recognition, resulting in contract assets. Contract assets are classified as either other current assets or other long-term assets in the condensed consolidated balance sheets. The balance of contract assets as of December 31, 2023, and December 31, 2022, was $85.8 million and $61.3 million, respectively.
Contract liabilities—The Company often receives cash payments from customers in advance of the Company’s performance, resulting in contract liabilities. These contract liabilities are classified as either current or long-term in the consolidated balance sheet based on the timing of when revenue recognition is expected. The balance of contract liabilities as of December 31, 2023, and December 31, 2022, was $491.4 million and $471.7 million, respectively. The increase in the contract liability balance during the year ended December 31, 2023, is primarily a result of new performance obligations entered into during the period and delays in certain system installations due to supply chain and logistics challenges. Approximately $342.9 million of the contract liability balance on December 31, 2022, was recognized as revenue during the year ended December 31, 2023.
5. Other Current Assets
Other current assets consisted of the following (in millions):
Unbilled and notes receivable $ 83.9 $ 60.8
Income and other taxes receivable 45.9 61.8
Deposits with vendors 28.8 19.0
Interest rate cross-currency swap agreements 12.0 14.8
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6. Acquisitions
Pro forma financial information has been presented for the PhenomeX acquisition and not for others because the impact, individually and collectively from the other acquisitions, on revenues and net income is not material. Amounts allocated to goodwill that are attributable to expected synergies are not expected to be deductible for tax purposes.
2023
On October 2, 2023, the Company acquired 100% of the outstanding stock of PhenomeX Inc. (“PhenomeX”), a publicly traded company, for a purchase price of $109.4 million, net of $11.8 million in cash acquired. Total cash consideration of $121.2 million consisted of $107.2 million for the acquisition of the outstanding stock including an $8.0 million payment to settle an employee award, and settlement of a $14.0 million note previously issued by the Company to PhenomeX during 2023. PhenomeX isa life science tools company with a focus on functional cell biology. Their products and services provide customers with, among other offerings, Optofluidic platforms such as the Beacon, Beacon Select and Beacon Quest as well as Proteomic Barcoding Platforms, such as the IsoLight System and the IsoSpark System. PhenomeX is domiciled in Emeryville, California and was integrated into the BSI Nano Segment. The Company renamed PhenomeX to Bruker Cellular Analytics (“BCA”) following acquisition.
The fair value of the identifiable intangible assets has been estimated by using the income approach through a discounted cash flow analysis of certain cash flow projections. The cash flow projections are based on forecasts used by the Company to price the acquisition, and the discount rates applied were benchmarked by referencing the implied rate of return of the Company’s pricing model and the weighted average cost of capital. The amortization period for the intangible assets acquired ranges from eight to twelve years for the technology and fifteen years for the customer relationships.
The components and fair value allocation of the consideration transferred in connection with the acquisition are as follows (in millions).
PhenomeX Inc.
Segment BSI NANO
Consideration Transferred:
Cash acquired (11.8 )
Total consideration transferred $ 109.4
Allocation of Consideration Transferred:
Accounts receivable $ 5.6
Inventories 42.1
Other current assets 7.6
Property, plant and equipment 33.5
Deferred tax assets 182.7
Other assets 24.3
Intangible assets:
Customer relationships 8.0
Liabilities assumed (74.3 )
Total consideration allocated $ 253.5
Bargain purchase gain $ 144.1
The financial data presented above represents the provisional determination of the fair value of the identifiable assets acquired and liabilities assumed based on the information available to us as of the time of the issuance of these financial statements. The Company is in the process of reviewing and identifying acquisition accounting adjustments for several acquired tax positions including the final calculation of the acquired federal and state net operating loss carryforwards “NOLs”. Section 382(h) of the Tax Reform Act of 1986 imposed highly complex rules for the annual base limitation for NOL utilization, including the determination of built-in gains and losses. PhenomeX incurred significant losses prior to its acquisition by the Company and has undergone several ownership changes. Accordingly, the values recognized related to the deferred tax assets are based on provisional amounts and are subject to change until the Company finalizes its Section 382(h) study during the measurement period which is no later than one year from acquisition date. The final determination may result in asset and liability values that are different than the preliminary estimates and may result in an adjustment to the bargain purchase gain recorded in earnings.
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ASC 805, Business Combinations, requires that any excess of fair value of acquired net assets, including identifiable intangible assets over the acquisition consideration, results in a gain from bargain purchase. The PhenomeX acquisition resulted in a gain on bargain purchase due to the estimated fair value of the identifiable net assets acquired exceeding the purchase consideration transferred by $144.1 millionand is shown as a gain on bargain purchase on our consolidated statement of income. Prior to recognizing the gain, the Company reassessed the measurement and recognition of identifiable assets acquired, and liabilities assumed and concluded that the valuation procedures and resulting measures were appropriate. The acquisition resulted in a bargain purchase gain due to the following factors: (i) the sellers were motivated and were looking for new management to lead the strategic direction of the company, create economies of scale and return the company to profitable operations, (ii) recurring operating losses resulted in a valuation of PhenomeX that significantly affected its market capitalization that resulted in a sustained decrease in stock price and fair value and (iii) PhenomeX has accumulated significant NOL’s that can be utilized by the Company, subject to annual limitations, to reduce its US taxable income which could not be benefited by PhenomeX.
Results of acquired operations of BCA
The results of the acquired operations of BCA have been included in the consolidated financial statements of the Company since its acquisition date of October 2, 2023. For the period from October 2, 2023, through December 31, 2023, BCA had total revenues of $7.0 million and pre-tax net loss of $43.4 million. The tax effect on pre-tax net loss of BCA is included in the consolidated US tax return of Bruker Corporation.
In connection with the acquisition of PhenomeX, the Company incurred $10 million of acquisition-related expenses. These expenses primarily include legal and professional services. These acquisition-related expenses were recorded within Other Charges, Net in the consolidated statement of operations.
Shortly after acquiring PhenomeX, the Company initiated a restructuring plan. See Note 21, Other Charges, Net.
Supplemental Pro Forma Information (unaudited)
The supplemental pro forma financial information presented below is for illustrative purposes only, does not include the pro forma adjustments that would be required under Article 11 of Regulation S-X for pro forma financial information, is not necessarily indicative of the financial position or results of operations that would have been realized if the combination with PhenomeX had been completed on January 1, 2023, does not reflect synergies that might have been achieved, nor is it indicative of future operating results or financial position. The pro forma adjustments are based upon currently available information and certain assumptions that the Company believes are reasonable under the circumstances.
On March 21, 2023, pursuant to a merger agreement (“IsoPlexis Merger”), Berkeley Lights, Inc. (“BLI”) acquired and merged with IsoPlexis Corporation (“IsoPlexis”) with IsoPlexis surviving the merger as a wholly owned subsidiary of BLI. The newly merged company was renamed PhenomeX Inc. Historical financial statements of PhenomeX for periods prior to the IsoPlexis Merger are the historical financial statements of BLI. As a result, it would not be meaningful and would be impracticable to present comparative pro forma financial information as though the acquisition of PhenomeX had occurred as of the beginning of the comparable prior annual reporting period as if the business combination with PhenomeX had been completed on January 1, 2022.
Before Adjustments Pro formaAdjustments After Adjustments
The supplemental pro forma financial information reflects pro forma adjustments which primarily include:
•
A net increase in amortization and depreciation expense of tangible and intangible assets which are assumed to be recorded at their assigned fair values as of January 1, 2023.
•
The related income tax effects of the adjustments noted above were not material.
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In the year ended December 31, 2023, the Company completed various other acquisitions that collectively complemented its existing product offerings of the Company’s existing businesses. The following table reflects the consideration transferred and the respective reportable segment for certain of the 2023 acquisitions (in millions):
Biognosys, AG Zontal Inc. Miro Analytical AG
Segment BSI CALID BSI BioSpin BSI CALID
Consideration Transferred:
Cash acquired (9.5 ) (0.3 ) (0.5 )
Fair value of hybrid financial instruments - founders — 18.5 9.3
Fair value of redeemable noncontrolling interest - other shareholders 2.5 — 0.5
Fair value of contingent consideration — 0.5 —
Total consideration transferred $ 66.8 $ 33.5 $ 18.9
Allocation of Consideration Transferred:
Accounts receivable $ 3.6 $ 0.7 $ —
Inventories 0.4 — 0.8
Other current assets 0.9 0.3 —
Property, plant and equipment 8.0 — 0.1
Other assets 4.3 2.5 —
Intangible assets:
Liabilities assumed (a) (25.4 ) (7.0 ) (2.5 )
Total consideration allocated $ 66.8 $ 33.5 $ 18.9
(a) This amount includes an assumed liability for vested employee awards of $6.3 million on the acquisition date which was settled in the post-closing period ended March 31, 2023, for Biognosys, AG.
Biognosys, AG
On January 3, 2023, the Company acquired 97.15% of the outstanding stock of Biognosys, AG (“Biognosys”), a privately held company, for a cash consideration of CHF 75 million (approximately $80.1 million) less assumed liability for employee awards of CHF 5.9 million (approximately $6.3 million). Biognosys offers mass spectrometry based next-generation proteomics contract research services as well as proprietary proteomics software and laboratory consumables to support academic, pharma and biotech research and clinical development. Biognosys is domiciled in Zurich, Switzerland, and was integrated into the BSI CALID Segment.
Concurrent with the acquisition, the Company entered into an agreement with the noncontrolling interest holders that provides the Company with the right to purchase, and the noncontrolling interest holders with the right to sell, the remaining 2.85% of Biognosys for cash to the founders at a contractually defined redemption value exercisable beginning in 2028. The option price to acquire the remaining 2.85% equity interest will have a minimum redemption, or floor, value at each purchase or sell date, subject to post combination employment. The fair value at acquisition date of these put option rights has been bifurcated into two financial instruments to separately account for the amounts attributable to the put option rights to sell the non-controlling interests on exercise dates at (1) above the minimum redemption value and (2) the minimum redemption value or floor value that is subject to post combination employment (the hybrid instrument) services.
The rights (embedded derivative) to the option shares can be sold at a minimum redemption value provided certain post combination employment services are met or at fair value, if above the floor, on the purchase or sell date. Therefore, the portion assigned to the minimum redemption value of option value of the hybrid instrument, which is tied to continued employment of the noncontrolling interest holders, was classified as a long-term liability on the consolidated balance sheet. The hybrid instrument was initially measured at fair value on the acquisition date and shall be accreted over the post combination service period. The acquisition date fair value of the hybrid instrument which is an embedded derivative was not material.
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The rights associated with the portion of the noncontrolling interest above the minimum redemption value are contingently redeemable at the option of the Company or the noncontrolling interest holders. As redemption of the rights is contingently redeemable at the option of the noncontrolling interest shareholders, the Company classifies the carrying amount of these rights in the mezzanine section on the consolidated balance sheet, which is presented above the equity section and below liabilities. The redeemable noncontrolling interest is initially measured at fair value on acquisition date and subsequently at the greater of the amount that would be paid if settlement occurred as of the balance sheet date based on fair value as defined in the purchase agreement and its carrying amount adjusted for net income (loss) attributable to the noncontrolling interest. Adjustments to the carrying value of the redeemable noncontrolling interest are recorded through retained earnings.
The amortization period for the intangible assets acquired is seven years for the technology and nine years for the customer relationships. The trade name was determined to have an indefinite life. The Company expects to amortize backlog through the end of 2025.
Zontal, Inc.
On May 4, 2023, the Company acquired 60% of the outstanding share capital of OSTHUS Beteiligungs GmbH and its wholly owned subsidiaries: OSTHUS Group GmbH, Zontal Inc., Zontal GmbH, and Zontal Data Information Technology (Dalian) co., Ltd, (hereinafter, the “Zontal Companies”) for cash consideration of EUR 13.4 million (approximately $14.8 million) with the potential for additional consideration of up to $14.4 million if certain revenue and EBITDA targets are met through 2025. Zontal, Inc, is the main operating company. The Zontal Companies offer various software applications and integrations including data management (Informatics and SDMS), which enables customers to harmonize, preserve and reuse their data to generate efficiencies and automate workflows. The Zontal Companies are domiciled in Aachen, Germany, and are integrated into the BSI BioSpin Segment.
Concurrent with the acquisition, the Company entered into an agreement with the noncontrolling interest holders that provides the Company with the right to purchase, and the noncontrolling interest holders with the right to sell, the remaining 40% of the Zontal Companies at a contractually defined redemption value exercisable beginning in 2027 and in 2031. The rights (embedded derivative) to the option shares can be exercised at a discounted redemption value upon certain events related to post combination employment services. As the options are tied to continued employment, the Company classified the hybrid instrument (noncontrolling interest with an embedded derivative) as a long-term liability on the consolidated balance sheet. The hybrid instrument associated with the options is initially measured at fair value on the acquisition date. Subsequent to the acquisition, the carrying value of the hybrid instrument is remeasured to fair value with changes recorded to stock-based compensation expense in proportion to the requisite service period vested.
The amortization period for the intangible assets acquired is eight years for technology, ten years for the trade name, and thirteen years for the customer relationships. The Company expects to amortize backlog through 2028.
MIRO Analytical AG
On October 2, 2023, the Company acquired 58.26% of the outstanding share capital of MIRO Analytical AG, (hereinafter, “MIRO”) for cash consideration of CHF 8.8 million (approximately $9.6 million). MIRO operates in the development, production, and distribution of equipment for gas analysis and related components. MIRO provides companies with tools to monitor and report on air pollution and greenhouse gases and therefore, empower them to act against air pollution and climate change. MIRO is domiciled in Switzerland and is integrated into the BSI CALID segment.
Concurrent with the acquisition, the Company entered into an agreement with the noncontrolling interest holders that provides the Company with the right to purchase, and the noncontrolling interest holders with the right to sell, the remaining 41.74% of MIRO at a contractually defined redemption value exercisable beginning in 2028 and in 2031. The redemption value and rights related to the noncontrolling interest vary for the founders and the other shareholder. The fair value of these rights has been bifurcated into two financial instruments to separately account for the amounts attributable to the founders and the amount attributable to other shareholders.
The rights (embedded derivative) associated with the founders shared may be exercised at a discounted redemption value upon certain events related to post combination employment services. As the options are tied to continued employment, the Company classified the hybrid instrument (noncontrolling interest with an embedded derivative) as a long-term liability on the consolidated balance sheet. The hybrid instrument associated with the founder’s options is initially measured at fair value on the acquisition date. Subsequent to the acquisition, the carrying value of the hybrid instrument is remeasured to fair value with changes recorded to stock-based compensation expense in proportion to the requisite service period vested.
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The rights associated with the other noncontrolling interest holders are contingently redeemable at the option of the Company or the noncontrolling interest holders. As redemption of the rights is contingently redeemable at the option of the noncontrolling interest shareholders, the Company classifies the carrying amount of these rights in the mezzanine section on the consolidated balance sheet, which is presented above the equity section and below liabilities. The redeemable noncontrolling interest is initially measured at fair value and subsequently at the greater of the amount that would be paid if settlement occurred as of the balance sheet date based on the contractually defined redemption value and its carrying amount adjusted for net income (loss) attributable to the noncontrolling interest. Adjustments to the carrying value of the redeemable noncontrolling interest are recorded through retained earnings.
The amortization period for the intangible assets acquired is eleven years for technology. The Company has fully amortized the trade name and customer relationships as of December 31, 2023.
Other 2023 Acquisitions