BRKR · Read the filing

ITEM 1A RISK FACTORS

The following risk factors should be considered in conjunction with the other information included in this Annual Report on Form 10-K. This report may include forward-looking statements that involve risks and uncertainties. In addition to those risk factors discussed elsewhere in this report, we identify the following risk factors, which could affect our actual results and cause actual results to differ materially from those in the forward-looking statements.

Risk Factor Summary

Our business is subject to numerous risks and uncertainties, including those described in Item 1A “Risk Factors.” These risks include, but are not limited to, the following:

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Risks Related to Our Business and Industry

Our financial condition and results of operations for fiscal 2021 may continue to be adversely affected by the ongoing novel coronavirus disease- 2019, or COVID-19, pandemic.

In December 2019, a novel strain of coronavirus, now referred to as COVID-19, surfaced in Wuhan, China. In March 2020, the COVID-19 outbreak was declared a pandemic by the World Health Organization. The virus has spread globally. The impact of this pandemic has been and will likely continue to be extensive in many aspects of society, which has resulted in and will likely continue to result in disruptions to the global economy, as well as businesses and capital markets around the world. Impacts to our business include temporary closures of many of our government and university customers and our suppliers, disruptions or restrictions on our employees’ and customers’ ability to travel, and delays in product installations or shipments to and from affected countries.

In an effort to halt the outbreak of COVID-19, a number of countries, including the United States, have implemented and continue to implement significant restrictions on travel, shelter in place or stay at home orders, business closures and occupancy limitations. Certain jurisdictions, including many within the United States, have also begun implementing policies with the goal of re-opening these markets only to return to restrictions in the face of increases in new COVID-19 cases or new strains of the virus. For example, a number of states, including California, Massachusetts and New Jersey where we have significant operations, issued shelter in place or stay-at-home orders during the first half of 2020. Although these states have begun implementing phased re-opening policies, many of our employees in these areas continue to work remotely and any re-openings may be delayed or pulled back if the virus continues to spread or if cases increase as a result of children returning to school. We have experienced decreased work efficiency and productivity as a result of the increased number of our employees working from home. In addition, with this remote working model where employees are increasingly accessing our systems through VPN or remote internet connections, we may be subject to increased security risks, including the risks of cyberattacks or data breaches. Additionally, if any of our key leaders contract the virus and are unable to perform their duties for a period of time as the result of illness, our business, results of operations or financial condition could be adversely affected.

In addition, in 2020, a number of our production facilities had to either temporarily close or operate on a reduced capacity. Most commercial activities in sales and marketing, and customer demonstrations and

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applications training, are either being conducted remotely or postponed. Customer purchasing departments are operating at reduced capacity, and many customers have delayed or cut capital expenditures and operating budgets. Even where customers have re-opened their sites, they may not be operating at pre-pandemic productivity levels in an effort to accommodate safety protocols. Any resurgence of the virus or the emergence of new strains of the virus may require us and our customers to close or partially close operations once again. These travel restrictions, business closures and operating reductions at Bruker, our customers, our distributors, and/or our suppliers have adversely impacted and will likely continue to adversely impact our operations worldwide, including our ability to manufacture, sell or distribute our products, as well as cause temporary closures of our foreign distributors, or the facilities of suppliers or customers. These disruptions of our employees, distributors, suppliers or customers have impacted and will likely continue to impact our global sales and operating results. During 2020, our revenue declined 4.1% compared to 2019, primarily due to COVID-19 related disruptions.

We continue to monitor and assess the effects of the COVID-19 pandemic on our commercial operations, including its continued impact on our revenue and operations in 2021 and beyond. However, we cannot at this time accurately predict what effects these conditions will ultimately have on our operations due to continued uncertainties relating to the length or the severity of the disease, the duration of the outbreak, and the length or severity of the travel restrictions, business closures, and other safety and precautionary measures imposed by the governments of impacted countries or the effectiveness of any COVID-19 vaccines.

Unfavorable economic or political conditions in the countries in which we operate may have an adverse impact on our business results or financial condition.

Our businesses and results of operations are affected by international, national and regional economic and political conditions. Our businesses or financial results may be adversely impacted by unfavorable changes in economic or political conditions in the countries and markets in which we operate, including, among others, adverse changes in interest rates or tax rates, volatility in financial and commodity markets, contraction in the availability of credit in the marketplace, and changes in capital spending patterns.

Our revenue from U.S. operations represented approximately 23% and 26% of total consolidated revenue for fiscal 2020 and 2019, respectively. Our revenue from operations in Europe represented approximately 38% and 35% of total consolidated revenue for the fiscal years 2020 and 2019, respectively. Our revenue from operations in the Asia Pacific region represented approximately 32% and 31% of total consolidated revenue in each of the corresponding periods. Economic factors that could adversely influence demand for our products include continued uncertainty about global economic conditions, including as a result of the pandemic, leading to ongoing reductions in investment, changes in government spending levels and/or priorities, the size and availability of government budgets, customers’ and suppliers’ access to credit and other macroeconomic factors affecting government, academic or industrial spending behavior. Slower economic growth or a deterioration in economic conditions could result in a decrease in government funding for scientific research, a delay in orders from current or potential customers or a reduction in purchases of our products.

We cannot predict how changes in economic conditions or political instability will affect our customers and suppliers or how any negative impact on our customers and suppliers might adversely impact our business results or financial condition.

We derive a significant portion of our revenue from international sales and are subject to the operational risks of doing business in foreign countries.

International sales account, and are expected to continue to account, for a significant portion of our total revenues. Our revenue from non-U.S. operations represented approximately 77% and 74% of our total consolidated revenue for fiscal 2020 and 2019, respectively. Our international operations are, and will continue to be, subject to a variety of risks associated with conducting business internationally, many of which are beyond

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our control. These risks, which may adversely affect our ability to achieve and maintain profitability and our ability to sell our products internationally, include:

● changes in foreign currency translation rates;

● changes in regulatory requirements;

● the imposition of government controls;

● costs and risks of deploying systems in foreign countries;

● limited intellectual property rights;

The United States has implemented tariffs on certain imported goods. These additional tariffs could include items imported by us from China or other countries. In addition, China has imposed tariffs on a wide range of American products in retaliation for these new American tariffs. As a result, there is a concern that the imposition of additional tariffs by the United States, could result in the adoption of additional tariffs by China and other countries as well. Any resulting trade war could negatively impact the global market for scientific instruments and could have a significant adverse effect on our business. The imposition of tariffs on items imported by us from China or other countries could increase our costs and could result in lowering our gross margin on products sold. Conversely, China imposing tariffs on items that we export to China, could adversely impact our customers’ ability to purchase our products and our competitive position in China or increase our costs, which could have a material adverse effect on our business and results of operations.

We must also comply with the European Union General Data Protection Regulation (GDPR) and other similar regulations in other countries. The goal of the regulation is to increase individual rights and protections for personal data located in or originating from the European Union. GDPR is extraterritorial in that it applies to all business within the European Union and any business located outside of the European Union that processes personal data of individuals located within the European Union. There are significant fines associated with non-compliance. In 2020, the Court of Justice of the European Union invalidated the EU-US Privacy Shield Framework, removed a key mechanism for transfers of personal data from the European Union to the United States and altered the international data transfer under GDPR. The decision has caused uncertainty for multinational companies about how they can properly transfer personal data from the EU to the US and the cost and effort to comply with such decision could cause disruption of data transfers and have a material adverse effect on our business.

While the impact of these factors is difficult to predict, any one or more of these factors could adversely affect our operations in the future.

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We previously had identified material weaknesses in our internal control over financial reporting, which has now been remediated. Any failure to maintain effective internal control over financial reporting could result in material misstatements in our financial statements and cause investors to lose confidence in our reported financial information, which in turn could cause the trading price of our securities to decline.

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. As disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019, management identified material weaknesses in our internal control over financial reporting as of the end of the end of that fiscal year.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Effective internal controls are necessary for us to provide reliable and accurate financial statements and to effectively prevent fraud. We devote significant resources and time to comply with the internal control over financial reporting requirements of the Sarbanes Oxley Act of 2002 and continue to enhance our controls. In the year ended December 31, 2020, we remediated the previously disclosed material weakness in our internal controls over the accounting for income taxes and revenue recognition. However, we cannot be certain that we will be able to prevent future significant deficiencies or material weaknesses. Inadequate internal controls could cause investors to lose confidence in our reported financial information, which could have a negative effect on investor confidence in our financial statements, the trading price of our stock and our access to capital.

We may lose money when we exchange foreign currency received from international sales into U.S. Dollars.

A significant portion of our business is conducted in currencies other than the U.S. Dollar, which is our reporting currency. As a result, currency fluctuations among the U.S. Dollar and the currencies in which we do business have caused, and will continue to cause, foreign currency translation gains and losses. In addition, currency fluctuations could cause the price of our products to be more or less competitive than our principal competitors’ products. Currency fluctuations will increase or decrease our cost structure relative to those of our competitors, which could lessen the demand for our products and affect our competitive position. From time to time we enter into certain hedging transactions and/or option and foreign currency exchange contracts which are intended to offset some of the market risk associated with our sales denominated in foreign currencies. We cannot predict the effectiveness of these transactions or their impact upon our future operating results, and from time to time they may negatively affect our quarterly earnings.

Our reported financial results may be adversely affected by fluctuations in currency exchange rates.

In addition to the foreign currency exposure associated with differences between where our products are manufactured and sold by us and our competitors, our exposure to currency exchange rate fluctuations results from the currency translation exposure associated with the preparation of our consolidated financial statements, as well as from the exposure associated with transactions of our subsidiaries that are denominated in a currency other than the respective subsidiary’s functional currency. While our financial results are reported in U.S. Dollars, the financial statements of many of our subsidiaries outside the U.S. are prepared using the local currency as the functional currency. During consolidation, these results are translated into U.S. Dollars by applying appropriate exchange rates. As a result, fluctuations in the exchange rate of the U.S. Dollar relative to the local currencies in which our foreign subsidiaries report could cause significant fluctuations in our reported results. Moreover, as exchange rates vary, revenue and other operating results may differ materially from our expectations. The effects of changes in currency exchange rates increased our 2020 revenue by approximately $29.4 million, or 1.4%, decreased our 2019 revenue by approximately $50.3 million, or 2.7%, and increased our 2018 revenue by approximately $25.5 million, or 1.4%. Adjustments resulting from financial statement translations are included as a separate component of shareholders’ equity. In the years ended December 31, 2020 and 2019, we recorded net gains from currency translation adjustments of $22.0 million and net losses of $20.0 million, respectively.

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Additionally, to the extent monetary assets and liabilities, including cash and debt, are held in a different currency than the reporting subsidiary’s functional currency, fluctuations in currency exchange rates may have a significant impact on our reported financial results, and may lead to increased earnings volatility. We may record significant gains or losses related to both the translation of assets and liabilities held by our subsidiaries into local currencies and the remeasurement of inter-company receivables and loan balances.

Goodwill, intangible assets and other long-lived assets are subject to impairment which could negatively impact our operating results.

We have recorded goodwill, intangible assets and other long-lived assets that must be periodically evaluated for potential impairment. We assess the realizability of the reported goodwill, intangible assets and other long-lived assets annually, as well as whenever events or changes in circumstances indicate that the assets may be impaired. These events or circumstances generally include operating losses or a significant decline in the earnings associated with the reporting unit these assets are reported within. A decline in our stock price and market capitalization may also cause us to consider whether goodwill, intangible assets and other long-lived assets may require an impairment assessment. Our ability to realize the value of these assets will depend on the future cash flows of the reporting unit in addition to how well we integrate the businesses we acquire. We did not record any impairment losses for the year ended December 31, 2020. We have recorded impairment losses of $1.7 million and $0.6 million for the years ended December 31, 2019 and 2018, respectively.

If our products fail to achieve and sustain sufficient market acceptance across their broad intended range of applications, we will not generate expected revenue.

Our business strategy depends on our ability to successfully commercialize a broad range of products based on our technology platforms, including magnetic resonance technology, pre-clinical imaging technology, mass spectrometry technology, X-ray technology, atomic force microscopy technology, stylus and optical metrology technology, fluorescence microscopy technology, infrared technology and superconducting magnet technologies for use in a variety of life science, chemistry and materials analysis applications. Some of our products have only recently been commercially launched and have achieved only limited sales to date. The commercial success of our products depends on obtaining and expanding market acceptance by a diverse array of industrial, academic, clinical, pharmaceutical, biotechnology, applied, medical research and governmental customers around the world. We may fail to achieve or sustain substantial market acceptance for our products across the full range of our intended applications or in one or more of our principal intended applications. Any such failure could decrease our sales and revenue. To succeed, we must convince substantial numbers of potential customers to invest in new systems or replace their existing techniques with techniques employing our systems. Limited funding available for capital acquisitions by our customers, as well as our customers’ own internal purchasing approval policies, could hinder market acceptance of our products. Our intended customers may be reluctant to make the substantial capital investment generally needed to acquire our products or to incur the training and other costs involved with replacing their existing systems with our products. We also may not be able to convince our intended customers that our systems are an attractive and cost-effective alternative to other technologies and systems for the acquisition, analysis and management of molecular, cellular and microscopic information. Because of these and other factors, our products may fail to gain or sustain market acceptance.

Our products compete in markets that are subject to rapid technological change, and one or more of the technologies underlying our products could be made obsolete by new technology.

The market for discovery and analysis tools is characterized by rapid technological change and frequent new product introductions. Rapidly changing technology could make some or all of our product lines obsolete unless we are able to continually improve our existing products and develop new products. Because substantially all of our products are based on our technology platforms, including magnetic resonance technology, mass spectrometry technology, X-ray technology, atomic force microscopy technology, fluorescence microscopy technology, stylus and optical metrology technology and infrared technology, we are particularly vulnerable to any technological advances that would make these techniques obsolete as the basis for analytical systems in any

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of our markets. To meet the evolving needs of our customers, we must rapidly and continually enhance our current and planned products and services and develop and introduce new products and services. In addition, our product lines are based on complex technologies that are subject to rapid change as new technologies are developed and introduced in the marketplace. We may have difficulty in keeping abreast of the rapid changes affecting each of the different markets we serve or intend to serve. If we fail to develop and introduce products in a timely manner in response to changing technology, market demands or the requirements of our customers, our product sales may decline, and we could experience significant losses.

We face substantial competition. If we fail to compete effectively, it could harm our business results and materially impact the value of our company.

We face substantial competition in our industries and we expect that competition in all of our markets will increase further. Currently, our principal competition comes from established companies providing products using existing technologies that perform many of the same functions for which we market our products. A number of our competitors have expanded their market share in recent years through business combinations. Other companies also may choose to enter our fields in the future. Our competitors may develop or market products that are more effective or commercially attractive than our current or future products or that may render our products obsolete. Competition has in the past subjected, and is likely in the future to subject, our products to pricing pressure. Many of our competitors have more experience in the market and substantially greater financial, operational, marketing and technical resources than we do, which could give them a competitive advantage in areas such as research and development, production, marketing and distribution. Our ability to compete successfully will depend, in part, on our ability to develop proprietary products that reach the market in a timely manner and are technologically superior to, less expensive than, or more cost-effective than, other currently marketed products.

If investment in life and material science research spending declines, our ability to generate revenue may suffer.

We are dependent, both directly and indirectly, upon general investment in life science research, particularly in the research and development budgets of the pharmaceutical and biotechnology industries, and in material science research as well as upon the financial condition and funding priorities of various governments and government agencies. Since our inception, both we and our academic collaborators and customers have benefited from various governmental contracts and research grants. Whether we or our academic collaborators will continue to be able to attract these grants depends not only on the quality of our products, but also on general spending patterns of public institutions.

Any reduction in the capital resources or government funding of our customers could reduce our sales and impede our ability to generate revenue.

A significant portion of our sales are capital purchases by our customers. The spending policies of our customers could have a significant effect on the demand for our products. These policies are based on a wide variety of factors, including the resources available to make purchases, the spending priorities among various types of equipment, policies regarding spending during recessionary periods and changes in the political climate.

Any changes in capital spending or changes in the capital budgets of our customers could significantly reduce demand for our products. The capital resources of our life science and other corporate customers may be limited by the availability of equity or debt financing. Any significant decline in research and development expenditures by our life science and material science customers could significantly decrease our sales. In addition, a substantial portion of our sales are to non-profit and government entities, which are dependent on government support for scientific research. Any decline in this support could decrease the ability of these customers to purchase our products.

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Disruptions at any of our manufacturing facilities could adversely affect our business.

We have manufacturing facilities located in the United States, Europe, Israel and Malaysia. Many of our products are developed and manufactured at single locations, with limited alternate facilities. If we experience any significant disruption of those facilities for any reason, such as strikes or other labor unrest, power interruptions, fire, earthquakes, or other events beyond our control, we may be unable to manufacture the relevant products at previous levels or at all. A reduction or interruption in manufacturing could harm our customer relationships, impede our ability to generate revenues from our backlog or obtain new orders and could have a material adverse effect on our business, results of operations, financial condition and cash flows.

If employees were to engage in a strike or other work stoppage or interruption, our business, results of operations, financial condition and liquidity could be materially adversely affected.

Many of our employees are represented by workers’ councils and labor unions in certain jurisdictions, primarily in Germany and France. If disputes with these employees arise, or if our workers engage in a strike or other work stoppage or interruption, we could experience a significant disruption of, or inefficiencies in, our operations or incur higher labor costs, which could have a material adverse effect on our business, results of operations, financial condition and liquidity.

In addition to the risks applicable to our life science and materials analysis products, our CBRNE detection products are subject to a number of additional risks, including lengthy product development and contract negotiation periods and certain risks inherent in long-term government contracts.

Our CBRNE detection products are subject to many of the same risks associated with our life science products, including vulnerability to rapid technological change, dependence on mass spectrometry and other technologies and substantial competition. In addition, our CBRNE detection products and certain FT-IR products are generally sold to government agencies under long-term contracts. These contracts generally involve lengthy pre-contract negotiations and product development. We may be required to devote substantial working capital and other resources prior to obtaining product orders. As a result, we may incur substantial costs before we recognize revenue from these products. Moreover, in return for larger, longer-term contracts, our customers for these products often demand more stringent acceptance criteria. These criteria may also cause delays in our ability to recognize revenue from sales of these products. Furthermore, we may not be able to accurately predict in advance our costs to fulfill our obligations under these long-term contracts. If we fail to accurately predict our costs, due to inflation or other factors, we could incur significant losses. Also, the presence or absence of such contracts may cause substantial variation in our results of operations between fiscal periods and, as a result, our results of operations for any given fiscal period may not be predictive of our results for subsequent fiscal periods. The resulting uncertainty may have an adverse impact on our stock price.

We rely on information technology to support our operations and reporting environments. A security failure of that technology, including with respect to cybersecurity, could impact our ability to operate our businesses effectively, adversely affect our financial results, damage our reputation and expose us to potential liability or litigation.

We use information systems to carry out our operations and maintain our business records. Some systems are internally managed and some are maintained by third-party service providers. Our ability to conduct business could be materially and adversely affected if these systems or resources are compromised, damaged or fail. This could be a result of a cyber-incident, social engineering scam, hacking, phishing attempts, malware, natural disaster, hardware or software corruption, failure or error, telecommunications system failure, service provider error or failure, intentional or unintentional personnel actions or other disruption.

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In the ordinary course of business, we collect and store sensitive data, including intellectual property, other proprietary information and personally identifiable information. Despite our security measures, our information technology and infrastructure may be vulnerable to cyber-attacks by hackers or breached due to employee error, malfeasance, or other disruptions. If this data is compromised, destroyed or inappropriately disclosed, it could have a material adverse effect, including damage to our reputation, loss of customers, significant expenses to address and resolve the issues, fines or litigation or other proceedings by affected individuals, business partners or regulatory authorities.

Our debt may adversely affect our cash flow and may restrict our investment opportunities or limit our activities.

As of December 31, 2020, we had outstanding an aggregate principal amount of debt totaling approximately $846.9 million. We also had the ability to borrow an additional $599.9 million available under our existing credit facility. Most of our outstanding debt is in the United States and there are substantial cash requirements in the United States to service debt interest obligations, fund operations, capital expenditures and our declared dividends and finance potential acquisitions or share repurchases. Our ability to satisfy our debt obligations and meet our other liquidity needs depends on our future operating performance and on economic, financial, competitive and other factors beyond our control. Our business may not generate sufficient cash flow to meet our debt obligations or provide sufficient funds for our other objectives. If we are unable to service our debt or obtain additional financing, we may be forced to delay strategic acquisitions, capital expenditures or research and development expenditures or suspend our dividend payments and share repurchases. We may not be able to obtain additional financing on terms acceptable to us or at all. Furthermore, a majority of our cash, cash equivalents and short-term investments is generated from foreign operations, with $514.9 million, or 70.4% held by foreign subsidiaries as of December 31, 2020. Our financial condition and results of operations could be adversely impacted if we are unable to maintain a sufficient level of cash flow in the United States to address our funding requirements through cash from operations and timely repatriation of cash from overseas or other sources obtained at an acceptable cost.

Additionally, the agreements governing our debt require that we maintain certain financial ratios related to maximum leverage and minimum interest coverage and contain affirmative and negative covenants, including among others, timely provision of audited financial statements, restrictions on liens, indebtedness of the Company and its subsidiaries, asset sales, dividends and transactions with affiliates. Our ability to comply with these financial restrictions and covenants is dependent on our operations and performance, which is subject to prevailing economic conditions and other factors, including factors that are beyond our control such as foreign currency translation rates and interest rates. Our failure to comply with any of these restrictions or covenants may result in an event of default under the applicable debt instrument, which could permit acceleration of the debt under the facility and require us to prepay the debt before its scheduled due date.

The transition away from LIBOR may adversely affect our cost to obtain financing.

On July 27, 2017, the U.K. Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit London Interbank Offered Rate, or LIBOR, rates after 2021. As a result, LIBOR may be discontinued in 2021. While there is no consensus on what rate or rates may become accepted alternatives to LIBOR, the Alternative Reference Rates Committee, a steering committee comprised of U.S. financial market participants, selected and the Federal Reserve Bank of New York started in May 2018 to publish the Secured Overnight Finance Rate, or SOFR, as an alternative to LIBOR. SOFR is a broad measure of the cost of borrowing cash in the overnight U.S. treasury repo market. At this time, it is impossible to predict whether the SOFR or another reference rate will become an accepted alternative to LIBOR. The manner and impact of this transition may materially adversely affect the trading market for LIBOR-based securities, which may result in an increase in borrowing costs under our credit agreements and term loan agreement. Any replacement for LIBOR may result in an effective increase in the applicable interest rate on our current or future debt obligations, including our credit agreements and term loan agreement.

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Changes in our effective income tax rate could adversely affect our results of operations.

We are subject to income taxes in both the United States and various foreign jurisdictions and our domestic and international tax liabilities are largely dependent upon the distribution of income among these different jurisdictions. Various factors may have favorable or unfavorable effects on our effective income tax rate. These factors include interpretations of existing tax laws, the accounting for stock options and other share-based compensation, changes in tax laws and rates, future levels of research and development spending, changes in accounting standards, changes in the mix of earnings in the various tax jurisdictions in which we operate, the outcome of examinations by the U.S. Internal Revenue Service and other tax authorities, the accuracy of our estimates for unrecognized tax benefits and realization of deferred tax assets and changes in overall levels of pre-tax earnings. A change in tax laws, treaties or regulations, or their interpretation, of any country in which we operate could result in a higher tax rate on our earnings, which could result in a significant negative impact on our earnings and cash flow from operations. In addition to the passage of the Tax Cuts and Jobs Act in 2017 in the United States, there are currently multiple initiatives for comprehensive tax reform underway in other key jurisdictions where we have operations. We assess the impact of various international tax reform proposals and modifications to existing tax treaties in all jurisdictions where we have operations that could result in a material impact on our income taxes. We cannot predict whether any other specific legislation will be enacted or the terms of any such legislation. However, if such proposals were enacted, or if modifications were to be made to certain existing treaties, the consequences could have a materially adverse impact on us, including increasing our tax burden, increasing costs of our tax compliance or otherwise adversely affecting our financial condition, results of operations and cash flows.

Various international tax risks could adversely affect our earnings and cash flows.

We are subject to international tax risks. We could be subject to double taxation on income related to operations in certain countries that do not have tax treaties with the country of the trading partner. In addition, we may have a higher effective income tax rate than that of other companies in our industry if losses incurred by one operating company are not available to offset the income of an operating company located in another country. Also, distributions of earnings and other payments received from our subsidiaries may be subject to withholding taxes imposed by the countries where they are operating or are incorporated. If these foreign countries do not have income tax treaties with the United States or the countries where our subsidiaries are incorporated, we could be subject to high rates of withholding taxes on these distributions and payments. Additionally, the amount of the credit that we may claim against our U.S. federal income tax for foreign income taxes paid or accrued is subject to many limitations which may significantly restrict our ability to claim a credit for all of the foreign taxes we pay.

We currently have reserves established for potential tax liabilities. If these reserves are challenged, and we are unable to successfully defend our tax positions, a negative impact to our cash flows could result.

The unpredictability and fluctuation of our quarterly results may adversely affect the trading price of our common stock.

Our revenues and results of operations have in the past and will in the future vary from quarter to quarter due to a number of factors, many of which are outside our control and any of which may cause our stock price to fluctuate. The primary factors that may affect us include the following:

● the timing of sales of our products and services;

● the timing of recognizing revenue and deferred revenue under U.S. GAAP;

● changes in our pricing policies or the pricing policies of our competitors;

● the mix of services provided by us and third-party contractors;

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● our ability to attain and maintain quality levels for our products;

● costs related to acquisitions of technology or businesses; and

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:

● the timing of governmental stimulus programs and academic research budgets;

● foreign currency exchange rates;

● general economic conditions;

● the time required to obtain governmental licenses.

These factors have in the past affected the amount and timing of revenue recognized on sales of our products and receipt of related payments and will 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.

Historically we have higher levels of revenue in the fourth quarter of the year compared to the first, second and third quarters, which we believe is primarily the result of our customers’ budgeting cycles. Quarter-to-quarter comparisons of our results of operations should not be relied upon as an indication of our future performance. It is likely that in some future quarters, our results of operations may be below the expectations of public market analysts and investors. In this event, the price of our common stock may fall.

The ownership of our shares is highly concentrated, which could cause or exacerbate volatility in our share price as well as have significant influence over us.

As of February 18, 2021, Laukien family members, including our Chairman, President and Chief Executive Officer Frank Laukien and his brother, Joerg Laukien, owned, in the aggregate, approximately 31% of our outstanding common stock. We may also repurchase shares in the future, which could further increase the concentration of our share ownership. Because of this reduced liquidity, the trading of relatively small quantities of shares by our shareholders could disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously if a large number of our shares were sold on the market without commensurate demand, as compared to a company with greater trading liquidity that could better absorb those sales without adverse impact on its share price. These stockholders may also exercise substantial influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This could have the effect of delaying or preventing a change in control of our company and will make some transactions difficult to accomplish without the support of these stockholders.

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The loss of key personnel or an inability to attract and retain additional personnel could affect our ability to successfully grow our business.

We are highly dependent upon the continued service and performance of our CEO and other members of senior management and key finance, technical, scientific and production personnel, any of whom may cease their employment with us at any time with minimal advance notice. Because the expertise of these individuals is highly specific and takes years to develop, we face intense competition for these individuals from many other companies. The loss of one or more of our key employees may significantly delay or prevent the achievement of our business objectives, and our failure to attract and retain suitably qualified individuals or to adequately plan for succession could have an adverse effect on our ability to implement our business plan.

Dividends on our common stock could be reduced or eliminated in the future.

In recent years, we have paid dividends on our common stock. In February 2021, we announced that our Board had declared a quarterly dividend of $0.04 per share that will be payable in March 2021. There is no guarantee that such dividends will continue indefinitely. In the future, our Board may determine to reduce or eliminate our common stock dividend in order to fund investments for growth, repurchase shares or conserve capital resources.

Risks Related to Our Dependence on Third Parties

If we lose our strategic partners, our marketing and sales efforts could be impaired.

A substantial portion of our sales of selected products consists of sales to third parties who incorporate our products into their systems. These third parties are responsible for the marketing and sales of their systems. We have little or no control over their marketing and sales activities or how they use their resources. Our present or future strategic partners may or may not purchase sufficient quantities of products from us or perform appropriate marketing and sales activities. In addition, if we are unable to maintain our relationships with strategic partners, our businesses may suffer. Failures by our present or future strategic partners, or our inability to maintain existing or enter into new arrangements with strategic partners for product distribution, could materially impede the growth of our businesses and our ability to generate sufficient revenue and profits.

We face risks related to sales through distributors and other third parties that we do not control, which could harm our business.

We sell some products through third party agents, including distributors and value-added resellers. This exposes us to various risks, including competitive pressure, concentration of sales volumes, credit risks, and compliance risks. We may rely on one or a few key distributors for a product or market, and the loss of these distributors could reduce our revenue and net earnings. Distributors may also face financial difficulties, including bankruptcy, which could harm our collection of accounts receivable. Risks related to our use of distributors may reduce sales, increase expenses, and weaken our competitive position. Moreover, violations of the FCPA or similar anti-bribery laws by distributors or other third-party agents could materially and adversely impact our business, reputation and results of operations.

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Dependence on contract manufacturing may adversely affect our ability to bring products to market and damage our reputation.

As part of our efforts to streamline our operations and reduce our operating costs, we outsource certain aspects of our manufacturing processes and continue to evaluate additional outsourcing. If our contract manufacturers fail to perform their obligations in a timely manner or at satisfactory quality levels, our ability to bring products to market and our reputation could suffer. For example, during a market upturn, our contract manufacturers may be unable to meet our demand requirements, which may preclude us from fulfilling our customers’ orders on a timely basis. The ability of these manufacturers to perform is largely outside our control. Additionally, changing or replacing our contract manufacturers could cause disruptions or delays. Problems with outsourced manufacturing could result in lower revenues and unexecuted efficiencies, and adversely affect our financial condition and results of operations.

Our operations are dependent upon a limited number of suppliers and contract manufacturers.

We currently purchase components used in our products from a limited number of outside suppliers. Our reliance on a limited number of suppliers could result in time delays associated with redesigning a product due to an inability to obtain an adequate supply of required components and reduced control over pricing, quality and timely delivery. Any of these factors could adversely affect our revenues and profitability. In particular, our X-ray microanalysis business, which manufactures and sells accessories for electron microscopes, is partially dependent on cooperation from larger manufacturers of electron microscopes. Additionally, our elemental analysis business purchases certain optical detectors from a single supplier, PerkinElmer, Inc., the sole supplier of these detector components. Bruker CALID purchases detectors and power supplies from sole or limited source suppliers and its focal plane array detectors from a single supplier, Lockheed Martin Corporation. Similarly, Bruker BioSpin obtains various components from sole or limited source suppliers and BEST obtains various raw materials and uses key production equipment from sole or limited source suppliers or contract manufacturers. There are limited, if any, available alternatives to these suppliers. The existence of shortages of these components or the failure of delivery with regard to these components could have a material adverse effect upon our revenues and margins. In addition, price increases from these suppliers or contract manufacturers could have a material adverse effect upon our gross margins.

Because of the scarcity of some components, we may be unable to obtain an adequate supply of components, or we may be required to pay higher prices or to purchase components of lesser quality. Any delay or interruption in the supply of these or other components could impair our ability to manufacture and deliver our products, harm our reputation and cause a reduction in our revenues. In addition, any increase in the cost of the components that we use in our products could make our products less competitive and decrease our gross profits. We may not be able to obtain sufficient quantities of required components on the same or substantially the same terms. Additionally, consolidation among our suppliers could result in other sole source suppliers for us in the future. Other events that could affect our ability to source materials, manufacture or distribute our products include fire, natural disaster or extreme weather or a pandemic and the impact of those events on our and our suppliers’ and contract manufacturers’ operations.

Supply shortages and increasing prices of raw materials could adversely affect the gross profit of the Bruker BioSpin Group and the BEST Segment.

The last few years have seen periodic supply shortages and sharp increases in the prices for various raw materials, in part due to high demand from developing countries. Bruker BioSpin and BEST rely on some of these materials for the production of their products. In particular, for its superconducting magnet production, both for the horizontal and vertical magnet series, Bruker BioSpin relies on the availability of copper, steel and the metallic raw materials for traditional low-temperature superconducting wires. Similarly, BEST relies on the availability of niobium titanium for its production of low-temperature superconducting materials and devices. Higher prices for these commodities will increase the production cost of superconducting wires and superconducting magnets and may adversely affect gross profits.

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The prices of copper and certain other raw materials used for superconductors have increased significantly over the last decade. Since copper is a main constituent of low temperature superconductors, this may affect the price of superconducting wire. This type of increase would have an immediate effect on the production costs of superconducting magnets and may negatively affect the profit margins for those products. In addition, an increase in raw material costs could affect the production cost of the superconducting wire produced by BEST and of superconducting wire used by Bruker BioSpin.

Bruker BioSpin and its customers also rely on liquid helium to operate superconducting magnets. Helium is controlled by the Federal Helium Reserve and is subject to price changes. Shortages of liquid helium associated with federal price controls or depleted natural reserves could have an adverse impact on producing and operating BioSpin’s superconducting magnets and may also drive increases in helium pricing and negatively impact the profit margins of those products.

Risks Related to Our Intellectual Property Rights

Our success depends on our ability to operate without infringing or misappropriating the proprietary rights of others.

Our commercial success depends on avoiding the infringement of other parties’ patents and proprietary rights as well as avoiding the breach of any licenses relating to our technologies and products. Given that there may be patents of which we are unaware, particularly in the United States where patent applications are confidential, avoidance of patent infringement may be difficult. Various third parties hold patents which may relate to our technology, and we may be found in the future to infringe these or other patents or proprietary rights of third parties, either with products we are currently marketing or developing or with new products which we may develop in the future. If a third-party holding rights under a patent successfully asserts an infringement claim with respect to any of our current or future products, we may be prevented from manufacturing or marketing our infringing product in the country or countries covered by the patent we infringe, unless we can obtain a license from the patent holder. We may not be able to obtain such a license on commercially reasonable terms, if at all, especially if the patent holder is a competitor. In addition, even if we can obtain a license, it may be non-exclusive, which will permit others to practice the same technology licensed to us. We also may be required to pay substantial damages to the patent holder in the event of infringement. Under some circumstances in the United States these damages could include damages equal to triple the actual damages the patent holder incurs. If we have supplied infringing products to third parties for marketing by them or licensed third parties to manufacture, use or market infringing products, we may be obligated to indemnify these third parties for any damages they may be required to pay to the patent holder and for any losses the third parties may sustain themselves as the result of lost sales or license payments they are required to make to the patent holder. Any successful infringement action brought against us may also adversely affect marketing of the infringing product in other markets not covered by the infringement action, as well as our marketing of other products based on similar technology. Furthermore, we will suffer adverse consequences from a successful infringement action against us even if the action is subsequently reversed on appeal, nullified through another action or resolved by settlement with the patent holder. The damages or other remedies awarded, if any, may be significant. As a result, any successful infringement action against us may harm our business.

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If we are unable to effectively protect our intellectual property, third parties may use our technology, which would impair our ability to compete in our markets.

Our continued success will depend in significant part on our ability to obtain and maintain meaningful patent protection for our products throughout the world. We rely on patents to protect a significant part of our intellectual property and to enhance our competitive position. However, our presently pending or future patent applications may not issue as patents, and any patent previously issued to us may be challenged, invalidated, held unenforceable or circumvented. Furthermore, the claims in patents which have been issued, or which may be issued to us in the future, may not be sufficiently broad to prevent third parties from producing competing products similar to our products. In addition, the laws of various foreign countries in which we compete may not protect our intellectual property to the same extent as do the laws of the United States. Failure to obtain adequate patent protection for our proprietary technology could materially impair our ability to be commercially competitive.

In addition to patent protection, we also rely on the protection of trade secrets, know-how and confidential and proprietary information. To maintain the confidentiality of trade secrets and proprietary information, we generally seek to enter into confidentiality agreements with our employees, consultants and strategic partners upon the commencement of a relationship with us. However, we may not obtain these agreements in all circumstances. In the event of unauthorized use or disclosure of this information, these agreements, even if obtained, may not provide meaningful protection for our trade secrets or other confidential information. In addition, adequate remedies may not exist in the event of unauthorized use or disclosure of this information. The loss or exposure of our trade secrets and other proprietary information would impair our competitive advantages and could have a material adverse effect on our operating results, financial condition and future growth prospects. Furthermore, others may have, or may in the future independently develop, substantially similar or superior know-how and technology.

We may be involved in lawsuits to protect or enforce our patents that are brought by us which could be expensive and time consuming and, if determined adversely, could adversely affect our patent position.

In order to protect or enforce our patent rights, we may initiate patent litigation against third parties, and we may be similarly sued by others. We may also become subject to interference proceedings conducted in the patent and trademark offices of various countries to determine the priority of inventions. The defense and prosecution, if necessary, of intellectual property suits, interference proceedings and related legal and administrative proceedings is costly and diverts our technical and management personnel from their normal responsibilities. We may not prevail in any of these suits. An adverse determination of any litigation or defense proceedings could put our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, during the course of this kind of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments in the litigation. If securities analysts or investors perceive these results to be negative, it could have a substantial negative effect on the trading price of our common stock.

On September 25, 2019, in a complaint filed in the Düsseldorf, Germany, District Court, Carl Zeiss Microscopy GmbH, a subsidiary of Carl Zeiss AG (Zeiss), sued Luxendo GmbH (Luxendo), a subsidiary of Bruker Corporation, for infringement of a recently registered German utility model patent licensed to Zeiss pertaining to one specific Luxendo product category. We are vigorously defending against these claims.

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On September 23, 2019, in a complaint filed in the Düsseldorf, Germany, District Court, Micromass UK Limited, a subsidiary of Waters Corporation, sued Bruker Corporation, as well as its affiliate, Bruker Daltonik GmbH, for infringement of a European patent pertaining to our timsTOF product line. On February 17, 2020, Micromass expanded its complaint in Düsseldorf to assert another recently granted European patent in Germany. We are vigorously defending against these claims and we do not expect any material losses associated with this matter in excess of amounts already accrued.

Risks Related to Legal, Regulatory and Compliance

Our manufacture and sale of products could lead to product liability claims for which we could have substantial liability.

The manufacture and sale of our products expose us to product liability claims if any of our products cause injury or are found otherwise unsuitable during manufacturing, marketing, sale or customer use. In particular, if one of our CBRNE detection products malfunctions, this could lead to civilian or military casualties in a time of unrest, exposing us to increased potential for high-profile liability. If our CBRNE detection products malfunction by generating a false-positive to a potential threat, we could be exposed to liabilities associated with actions taken that otherwise would not have been required. Additionally, the nuclear magnetic resonance, research magnetic resonance imaging, Fourier transform mass spectrometry and certain electron paramagnetic resonance magnets of Bruker BioSpin utilize high magnet fields and cryogenics to operate at approximately 4 Kelvin, the temperature of liquid helium. There is an inherent risk of potential product liability due to the existence of these high magnetic fields, associated stray fields outside the magnet, and the handling of the cryogens associated with superconducting magnets. In addition, our MALDI Biotyper product has an IVD-CE mark and U.S. FDA approval and is used for the identification of microorganisms. Misidentification or a false-negative of certain viruses, bacteria, yeasts or fungi could lead to inappropriate treatment for patients and could expose us to product liability claims.

A successful product liability claim brought against us in excess of, or outside the coverage of, our insurance coverage could have a material adverse effect on our business, financial condition and results of operations. We may not be able to maintain product liability insurance on acceptable terms, if at all, and insurance may not provide adequate coverage against potential liabilities.

Responding to claims relating to improper handling, storage or disposal of hazardous chemicals and radioactive and biological materials which we use could be time consuming and costly.

We use controlled hazardous and radioactive materials in our business and generate wastes that are regulated as hazardous wastes under U.S. federal, and Massachusetts, California, New Jersey, Washington and Wisconsin state environmental and atomic energy regulatory laws and under equivalent provisions of law in those and other jurisdictions in which our research and manufacturing facilities are located. Our use of these substances and materials is subject to stringent, and periodically changing, regulation that can impose costly compliance obligations on us and has the potential to adversely affect our manufacturing activities. The risk of accidental contamination or injury from these materials cannot be completely eliminated. If an accident with these substances occurs, we could be held liable for any damages that result, in addition to incurring clean-up costs and liabilities, which can be substantial. Additionally, an accident could damage our research and manufacturing facilities resulting in delays and increased costs.

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We are subject to environmental laws and regulations, which may impose significant compliance or other costs on us.

Our manufacturing, product development and research and development operations and processes involve the controlled use of certain hazardous materials. In addition, we own and/or lease a number of facilities, some of which have been in operation for many decades, where we or others may have used substances or generated and disposed of wastes which are considered hazardous or may be considered hazardous in the future. We also have acquired various companies which historically may have used certain hazardous materials and which may have owned and/or leased facilities at which hazardous materials have been used. For all of these reasons, we are subject to federal, state, foreign, and local laws and regulations governing the use, manufacture, storage, transportation, handling, treatment, remediation, and disposal of hazardous materials and certain waste products. We have potential liability under these laws and regulations with respect to the remediation of past contamination in certain of the facilities we now own or lease. Additionally, in the future our facilities and the disposal sites owned by others to which we send or sent waste, may be identified as contaminated and require remediation. Accordingly, we may become subject to additional compliance costs or environmental liabilities which may be significant and could materially harm our results of operations or financial condition.

We are subject to existing and potential additional regulation and government inquiry, which can impose burdens on our operations and narrow the markets for our products.

We are subject, both directly and indirectly, to the adverse impact of existing and potential future government regulation of our operations and markets. For example, the exportation of our products is subject to U.S. and non-U.S. export control, sanctions, customs, import and anti-boycott laws and regulations, including, as applicable, the International Traffic in Arms Regulations, the Export Administration Regulations and the sanctions laws, regulations and executive orders administered and enforced by the U.S. Department of the Treasury’s Office of Foreign Assets Control, and other laws and regulations adopted by the governments or agencies of other countries relating to the same subject matter as the U.S. laws and regulations described above.

The failure to satisfy export control criteria or obtain necessary clearances could delay or prevent shipment of products, which could adversely affect our revenues and profitability. Failure by us, our employees or others working on our behalf to comply with these laws and regulations could result in administrative, civil or criminal liabilities, including suspension, debarment from bidding for or performing government contracts, or suspension of our export privileges, which could have a material adverse effect on us. We frequently team with international subcontractors and suppliers who are also exposed to similar risks. In some cases, compliance with the laws and regulations of one country could violate the laws and regulations of another country. Violations of these laws and regulations could materially adversely affect our brand, international growth efforts and business.

In addition, as a result of our international operations, we are subject to compliance with various laws and regulations, including the FCPA and local anti-bribery laws in the jurisdictions in which we do business (including some higher risk countries according to the Transparency International Corruption Index), which generally prohibit companies and their intermediaries or agents from engaging in bribery or making improper payments to foreign officials or their agents. The FCPA also requires proper record keeping and characterization of such payments in our reports filed with the SEC. Despite maintaining policies and procedures that require our employees to comply with these laws and our standards of ethical conduct, we cannot ensure that these policies and procedures will always protect us from intentional, reckless or negligent acts committed by our employees or third-party agents.

Moreover, the life sciences industry, which is the market for our principal products, has historically been heavily regulated. Given the evolving nature of this industry, legislative bodies or regulatory authorities may adopt additional regulation that adversely affects our market opportunities. Our business is also directly affected by a wide variety of government regulations applicable to business enterprises generally and to companies operating in the life sciences industry in particular.

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Our products are subject to the FDA’s requirements for electronic radiation emitting products, which include requirements related to record-keeping and reporting; labeling; notification; product repairs, replacements, and refunds; importation; and performance standards. In addition, our clinical products are subject to regulation as medical devices by the FDA in the United States and by similar regulatory bodies in other countries where such products are sold. These regulations govern a wide variety of product related activities, from quality management, design, development, and testing to labeling, manufacturing, complaint handling, reporting, promotion, sales and distribution. Compliance with applicable regulatory requirements is subject to continual review and is monitored rigorously through periodic inspections by the FDA and other regulatory authorities, which may result in written inspectional observations. The FDA and comparable foreign regulatory authorities also monitor product promotion and marketing materials and activities. If we or any of our suppliers or distributors fail to comply with FDA or other applicable regulatory requirements, or are perceived to potentially have failed to comply, we may face, among other things, warning letters; adverse publicity affecting both us and our customers; investigations or notices of non-compliance, fines, injunctions, and civil penalties; import or export restrictions; partial suspensions or total shutdown of production facilities or the imposition of operating restrictions; increased difficulty in obtaining required FDA clearances or approvals or foreign equivalents; seizures or recalls of our products or those of our customers; or the inability to sell such products. Any such FDA or comparable foreign regulatory actions could disrupt our business and operations, lead to significant remedial costs and have a material adverse impact on our financial position and results of operations. In addition, negative publicity and product liability claims resulting from any adverse regulatory action could have a material, adverse effect on our financial condition and results of operations. There are similar foreign regulations. For instance, the coming into force of the European Union Directive in May 2022 by the IVD Regulation (EU) 2017/746 imposes a stricter regime on manufacturers of IVDs and our products currently approved under the Directive must be recertified under the Regulation by May 2024.

We have been, are, and expect to be in the future, subject to inquiries from the government agencies that enforce these regulations, including the U.S. Department of State, the U.S. Department of Commerce, the U.S. FDA, the U.S. Internal Revenue Service, the U.S. Department of Homeland Security, the U.S. Department of Justice, the Securities and Exchange Commission, the Federal Trade Commission, U.S. Customs and Border Protection and the U.S. Department of Defense, among others, as well as from state or foreign governments and their departments and agencies. As a result, from time to time, the attention of our management and other resources may be diverted to attend to these inquiries. In addition, failure to comply with these regulations or obtain or maintain necessary permits and licenses could result in a variety of fines or other censures or an interruption in our business operations which may have a negative impact on our ability to generate revenues and could adversely affect our financial condition and results of operations.

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We operate as an entrepreneurial, decentralized company, which presents both benefits and certain risks. In particular, significant growth in a decentralized operating model may put strain on certain business group resources and our corporate functions, which could materially and adversely affect our business, financial condition and results of operations

Decentralization necessarily places significant control and decision-making powers in the hands of local management, which presents certain risks, including the risk that we may be slower to detect or react to compliance-related matters and that “company-wide” business initiatives may be more challenging or costly to implement, and the risk of noncompliance or failures higher than they may be in a more centralized operating environment. In addition, key business group resources and our corporate functions, which are leanly staffed but responsible for supporting our decentralized operations, may also not be able to detect or resolve financial, operational, and compliance matters on a timely basis. Our failure to adapt our financial, operational and compliance controls and systems to effectively manage our decentralized business and comply with our obligations as a public company could materially and adversely affect our business, financial condition or results of operations.

General Risks Factors

If we are not able to successfully integrate the businesses we acquire through mergers, acquisitions or strategic alliances, we may not be able to realize all of the cost savings and other benefits that we expect to result from the transactions and our financial results may be different than expected.

Our strategy includes expanding our technology base and product offerings through selected mergers, acquisitions and strategic alliances. For example, from January 1, 2018 to December 31, 2020, we have acquired 13 businesses to expand our technologies and product offerings.

Successful integration of the businesses we acquire involves a number of risks, including, among others, risks related to:

● integrating financial information and management systems;

● disruption of our ongoing business;

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We may have difficulty developing, manufacturing and marketing the products of a newly acquired company or business in a way that enhances the performance of our combined businesses or product lines. As a result, we may not realize the value from expected synergies. Acquisitions have resulted, and may in the future result, in unexpected significant costs and expenses, including disputes over contingent consideration and complicated accounting for complex transaction structures. In the future, we may be required to record charges to earnings during the period if we determine there is an impairment of goodwill or intangible assets, up to the full amount of the value of the assets.

We generally assume the liabilities of businesses we acquire, which could include liability for an acquired business’ violation of law that occurred before we acquired it. In addition, we have historically acquired smaller, privately held companies that may not have strong cultures of legal compliance or the robust financial controls of a larger, publicly traded company, and if we fail to implement adequate training, controls, and monitoring of the acquired companies, we could also be liable for post-acquisition legal or accounting violations.

Other companies may have difficulty acquiring us, even if doing so would benefit our stockholders, due to provisions under our corporate charter and bylaws, as well as Delaware law.

Provisions in our certificate of incorporation, as amended, and our bylaws, as well as Delaware law could make it more difficult for other companies to acquire us, even if doing so would benefit our stockholders. Our certificate of incorporation, as amended, and bylaws contain the following provisions, among others, which may inhibit an acquisition of our company by a third party:

● a limitation on who may call stockholder meetings; and

ITEM 1B UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2 PROPERTIES

We believe that our existing principal facilities are well maintained and in good operating condition and that they are adequate for our foreseeable business needs.

In addition to the principal facilities noted below, we lease additional facilities for sales, applications and service support in various countries throughout the world including Australia, Austria, Belgium, Brazil, China, Czech Republic, France, Germany, Hong Kong, India, Israel, Italy, Japan, Kenya, Malaysia, Mexico, Netherlands, Norway, Poland, Portugal, Russia, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, the United Kingdom and the United States. If we should require additional or alternative facilities, we believe that such facilities can be obtained on short notice at competitive rates.

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The location and general character of our principal properties are as follows:

Approximate

Square

Location Principal Use Feet Relationship

Principal Facilities Used in Current Operations for Bruker Biospin:

Principal Facilities Used in Current Operations for Bruker CALID:

Principal Facilities Used in Current Operations for BSI NANO:

Principal Facilities Used in Current Operations for BEST:

ITEM 3 LEGAL PROCEEDINGS

We are involved in lawsuits, claims, and proceedings, including, but not limited to, patent and commercial matters, which arise in the ordinary course of business. There are no such matters pending that we currently believe are reasonably likely to have a material impact on our business or to our consolidated financial statements.

Details on recent legal matters can be found in Note 17 to our consolidated financial statements included in this Annual Report on Form 10-K under Item 8.

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In addition, we are subject to regulation by national, state and local government agencies in the United States and other countries in which we operate. From time to time, we are the subject of governmental investigations often involving regulatory, marketing and other business practices. These governmental investigations may result in the commencement of civil and criminal proceedings, fines, penalties and administrative remedies which could have a material adverse effect on our financial position, results of operations and/or liquidity.

ITEM 4 MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5 MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Prices

Our common stock is traded on the Nasdaq Global Select Market under the symbol “BRKR.”

As of February 17, 2021, there were approximately 99 holders of record of our common stock. This number does not include individual beneficial owners of shares held in nominee name or within clearinghouse positions of brokerage firms and banks.

Dividends

In February 2016, we announced the establishment of a dividend policy and the declaration by our Board of Directors of an initial quarterly cash dividend in the amount of $0.04 per share of our issued and outstanding common stock. Future dividend payments, if any, are subject to approval of our Board of Directors. We are targeting a cash dividend to our shareholders in the amount of $0.16 per share per annum, payable in equal quarterly installments.

Stock Price Performance Graph

The graph below shows the cumulative stockholder return, assuming the investment of $100 (and the reinvestment of any dividends thereafter) for the period beginning on December 31, 2015 through December 31, 2020, for our common stock, stocks traded on Nasdaq, and a peer group consisting of U.S. public companies with a Standard Industry Classification, or SIC, code 3826 Laboratory Analytical Instruments. Such returns are based on historical results and are not intended to suggest future performance.

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The data for this performance graph was compiled by Zack’s Investment Research, Inc. and is used with its permission.

Issuer Purchases of Securities

The following table provides information about purchases made by or on behalf of the Company or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) under the Exchange Act, during the quarter ended December 31, 2020 of shares of our common stock.

Total Number of Maximum Number (or

Shares Purchased as Approximate Dollar Value) of

Total Number of Part of Publicly Shares that May Yet Be

Period (1) Paid per Share Programs or Programs (2)

In 2020, we repurchased 2,711,952 shares of common stock with an aggregate cost of approximately $123.2 million under the 2019 Repurchase Program. Any future repurchases will be funded from cash on hand, future cash flows from operations and available borrowings under our revolving credit facility.

ITEM 6 RESERVED

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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:

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

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acquired intangible assets, costs associated with our global information technology transition initiative, and other non-operational costs and we believe these are useful measures to evaluate our continuing business.

We define free cash flow as 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.

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, we have sales offices located throughout the world. Bruker is organized into three reportable segments: the BSI Life Science Segment (comprised of the Bruker BioSpin Group and the Bruker CALID Group), the BSI NANO Segment and the Bruker Energy & Supercon Technologies (BEST) Segment.

Revenue for the year ended December 31, 2020 decreased by $85.1 million, or 4.1%, to $1,987.5 million, compared to $2,072.6 million for the comparable period in 2019. The decline in revenue was primarily related to the impact of the COVID-19 pandemic and the related economic slowdown. Included in revenue were increases of approximately $29.4 million in favorable impact of foreign currency translation and $10.5 million attributable to our recent acquisitions in the year ended December 31, 2020 compared to the year ended December 31, 2019. Excluding the effects of foreign currency translation and recent acquisitions, our organic revenue, a non-GAAP measure, decreased by $125.0 million, or 6.0%.

Our gross profit margin decreased to 47.3% for the year ended December 31, 2020 as compared to 48.0% during the year ended December 31, 2019. The decrease in gross margin was a result of lower volume and reduced productivity due to disruptions from the COVID-19 pandemic and the related economic slowdown, partially offset by certain cost reduction measures.

Our operating margin decreased to 12.5% for the year ended December 31, 2020 from 14.5% during the year ended December 31, 2019. The decrease in operating margin was due to lower revenue and gross profit during the COVID-19 pandemic and related economic slowdown, partially offset by cost control and cost reduction measures.

The income tax provision in the years ended December 31, 2020 and December 31, 2019 was $64.4 million and $82.4 million, respectively, representing effective tax rates of 28.5% and 29.4%, respectively. The decrease in our effective tax rate for the year ended December 31, 2020, compared to 2019, was primarily attributable to the change in jurisdictional income mix and decrease in foreign income inclusions due to electing the high tax exemption relating to Global Intangible Low-Taxed Income (“GILTI”), partially offset by an increase in the effective tax rate due to change in valuation allowance. Our tax rate may change over time as the amount and mix of jurisdictional income mix changes.

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Earnings per share decreased to $1.02 per diluted share for the year ended December 31, 2020 from $1.26 per diluted share for the year ended December 31, 2019. The decrease compared to the prior year was driven primarily by lower revenues during the COVID-19 pandemic and related economic slowdown, partially offset by our cost control and cost reduction measures.

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 Ended December 31,

Net cash provided by operating activities $ 332.2 $ 213.4 $ 239.7

Less: purchases of property, plant and equipment 97.2 73.0 49.2

For the year ended December 31, 2020, our free cash flow was 67% higher than the same period in 2019, primarily from an increase in customer advances and cash from receivables despite a decline in net income.

The following table presents a reconciliation from gross profit, which is the most directly comparable GAAP operating performance measure, to non-GAAP gross profit margin as used by management (in millions):

Year Ended December 31,

Restructuring costs 3.8 5.2 2.6

Acquisition-related costs 0.8 12.2 3.9

Purchased intangible amortization 19.9 23.5 21.6

Our non-GAAP gross profit margin was 48.7%, 50.0% and 49.0% in the years ended December 31, 2020, 2019 and 2018, respectively. Our non-GAAP gross profit margin decreased in 2020, as compared to 2019 due to lower volume and reduced productivity, due to COVID-19 and the economic slowdown. Our non-GAAP gross profit margin increased in the year ended December 31, 2019, as compared to the same period in 2018, primarily due to operational improvements within our BSI Life Science Segment, accretive acquisitions and favorable foreign currency translation effects.

The following table presents a reconciliation from operating income, which is the most directly comparable GAAP operating performance measure, to non-GAAP operating income as used by management (in millions):

Year Ended December 31,

Restructuring costs 15.8 1.4 9.4

Acquisition-related costs 3.2 16.8 7.3

Purchased intangible amortization 35.7 38.3 28.9

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Our non-GAAP operating margin was 16.0%, 17.6% and 16.8% in the years ended December 31, 2020, 2019 and 2018, respectively. Our non-GAAP operating margin decreased in 2020, as compared to 2019 on lower revenues, partially offset by cost control and cost reduction measures.

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:

● the timing of governmental stimulus programs and academic research budgets;

● foreign currency exchange rates;

● the time required to obtain governmental licenses.

Several of these factors have in the past affected the amount and timing of revenue recognized on sales of our products and receipt of related payments and will 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. The COVID-19 pandemic continues to present a challenging operating environment and we remain focused on four key priorities: the health and safety of our employees, customers and partners; maintaining business continuity and service levels for our customers; executing prudent temporary cost reductions; and delivering enabling research and diagnostic products to help fight the pandemic, and to support other essential priorities of our society.

Health and safety of our valued employees, customers and partners

While Bruker's businesses are essential, we have implemented strict social distancing, enhanced cleaning protocols and other preventative measures, such as temperature scanners and company-issued face coverings, in our major facilities. While many of our office colleagues are working remotely, we are placing enhanced focus on our service organization and factory employees for whom work from home is not feasible. Where customer sites are accessible and open, our field service organizations operate under social distancing protocols to ensure the safety of customer sites, when our employees need to be on site.

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Maintaining business continuity and service levels for our customers

Ensuring our ability to supply our enabling technologies and solutions and maintaining high service levels for our customers is another top priority for Bruker. In late March and during parts of April 2020, several of our manufacturing sites underwent temporary controlled shutdowns or were operating at reduced capacity to implement new safety protocols, comply with local rules, and manage cost and inventory levels. These sites thereafter ramped back up with expanding capacity and productivity levels. However, with any resurgence of the virus or the emergency of additional strains of the virus, we may need to consider further temporary controlled shutdowns or reduced capacity measures. In addition, we are continuing capital investments in production facilities for efficiencies and expansion and our supply chain remains resilient. We carry higher inventory levels to address supply chain risks related to the pandemic and do not currently anticipate being supply or capacity limited in the first quarter of 2021.

Executing prudent temporary cost reductions

In an effort to mitigate the negative impacts on our business of COVID-19, and the slowdown in the global economy, we implemented temporary cost control and cost reduction measures. These temporary measures included short-time work for many of our European operations, temporary tiered salary reductions for our board of directors, global leadership team and workforce, one-to two-week closures of select manufacturing locations, selective product manufacturing reductions, a hiring freeze, and curtailment of non-strategic discretionary spending. At the same time, we looked to minimize the disruption for our employees and preserve our ability to ramp up again with our highly trained and loyal work force. While pursuing cost savings throughout the business, we have maintained our important investments in key strategic initiatives. Many of the cost reduction measures have now been relaxed and our revenue is experiencing a recovery.

Delivering enabling research and diagnostic products to help fight the pandemic and to support other essential priorities of our society

Bruker is providing critical technologies and solutions to help combat the COVID-19 crisis, most notably our Microbiology and infectious disease diagnostics portfolio, to which we have added SARS-COV-2 PCR tests, and our nuclear magnetic resonance and mass spectrometry systems which are used in critical disease, therapeutic and vaccine research.

The COVID-19 global pandemic has driven volatility and uncertainty in global markets and has affected our operations significantly. We continue to work to manage the impact of COVID-19 on our operations; however, the full extent to which any resurgence of the virus or the emergence of any new strains of the virus will impact our business, directly or indirectly, cannot accurately be predicted at this time. In 2020, the COVID-19 pandemic affected productivity at our manufacturing facilities and caused disruptions and delays in certain of our shipments to customers who closed facilities during the pandemic. We continue to monitor the impact of COVID-19 on our business and respond accordingly. For additional information on the various risks posed by the COVID-19 pandemic, refer to Item 1A. Risk Factors included in this report.

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RESULTS OF OPERATIONS

Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019

Consolidated Results

The following table presents our results for the years ended December 31, 2020 and 2019 (in millions, except per share data):

Year Ended

December 31, Percentage

Operating expenses:

Selling, general and administrative 468.6 500.2 (31.6) (6.3)

Interest and other income (expense), net (22.5) (20.5) (2.0) 9.8

Net income per common share attributable to

Bruker Corporation shareholders:

Weighted average common shares outstanding:

Revenue

The decline in revenue was primarily related to the impact of the COVID-19 pandemic on our customers as well as certain of our operations and lower global instrumentation and superconductor demand due to the pandemic and related economic slowdown.

Gross Profit

The decline in gross profit was a result of lower revenue volume and reduced productivity, given the impact of the pandemic and economic slowdown, partially offset by cost control and cost reduction measures.

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Selling, General and Administrative

Our selling, general and administrative expenses in year ended December 31, 2020 decreased to 23.6% of total revenue from 24.1% of total revenue for the comparable period in 2019. The decrease as a percentage of total revenue, and in dollars, was a result of the cost control and cost reduction measures implemented during the COVID-19 pandemic in 2020.

Research and Development

Our research and development expenses for the year ended December 31, 2020 increased to 10.0% of total revenue from 9.1% of total revenue for the comparable period in 2019. The increase as a percentage of revenue, and in dollars, was a result of higher research and development spending, as we continued to fund certain growth investments, in comparison to lower revenue in 2020.

Other Charges, Net

Other charges, net was $24.9 million for the year ended December 31, 2020. The charges consisted primarily of $12.0 million of restructuring costs related to closing facilities and implementing outsourcing and other restructuring initiatives, $5.9 million related to professional fees, $2.5 million of costs associated with our global IT transformation initiative, $2.4 million of acquisition-related charges related to acquisitions completed in 2020 and 2019 and $2.1 million related to long-lived asset impairments.

Other charges, net was $6.5 million for the year ended December 31, 2019. The charges consisted primarily of $(3.9) million of restructuring costs related to closing facilities and implementing outsourcing and other restructuring initiatives, $4.6 million of acquisition-related charges related to acquisitions completed in 2019 and 2018, $3.7 million of costs associated with our global IT transformation initiative, and $2.1 million related to professional fees. The restructuring charges included a gain on the sale of a building of $7.7 million.

Operating Income

The decrease in operating income was due to lower revenue and gross profit during the COVID-19 pandemic and related economic slowdown, partially offset by cost control and cost reduction measures.

Interest and Other Income (Expense), Net

The primary components within interest and other income (expense), net for the year ended December 31, 2020 were net interest expense of $11.2 million, realized and unrealized losses on foreign currency denominated transactions of $8.0 million and $3.3 million related to pension plan. During the year ended December 31, 2019, the primary components were net interest expense of $14.7 million, realized and unrealized losses on foreign currency denominated transactions of $3.4 million, $2.5 million related to pension plan expenses and $0.1 million related to other income.

Income Tax Provision

The effective tax rates for years ended 2020 and 2019 were 28.5% and 29.4%, respectively. The decrease in our effective tax rate for the year ended December 31, 2020, compared to 2019, was primarily attributable to the change in jurisdictional income mix and decrease in foreign income inclusions due to electing the high tax exemption relating to GILTI, partially offset by an increase in the effective tax rate due to change in valuation allowance. Our tax rate may change over time as the amount and mix of jurisdictional income changes.

Net Income Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interest

The net income attributable to noncontrolling interests represented the minority shareholders' proportionate share of the net income recorded by our majority-owned subsidiaries. In January 2020, we acquired the remaining interest in our redeemable noncontrolling interest.

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Net Income Attributable to Bruker Corporation

The decrease in net income and earnings per diluted share was primarily driven by the decline in revenue, gross profit and operating profit as a result of reduced demand during the COVID-19 pandemic and the related economic slowdown.

Segment Results

Revenue

The following table presents revenue, change in revenue, and revenue growth by reportable segment for the years ended December 31, 2020 and 2019 (dollars in millions):

Percentage

2020 2019 Dollar Change Change

Eliminations (a) (12.0) (14.9) 2.9

(a) Represents product and service revenue between reportable segments.

For financial reporting purposes, we aggregate Bruker BioSpin Group and Bruker CALID Group as the BSI Life Science Segment. This aggregation reflects the similar economic characteristics, production processes, customer services provided, types and classes of customers, methods of distribution and regulatory environments.

BSI Life Science Segment revenue was approximately flat year over year from a decline in BioSpin systems and FTIR/NIR molecular spectroscopy revenues, due to the COVID-19 pandemic, which was offset by strong demand for our CALID microbiology and infectious disease diagnostics offering and for certain of CALID’s mass spectrometry systems. The decline in revenues for the BSI NANO Segment was due primarily to the impact of the COVID-19 pandemic and the related economic slowdown with reduced academic, industrial and industrial research demand. The decline in revenue for the BEST Segment was due to lower superconductor demand during 2020.

Operating Income

The following table presents operating income and operating margins on revenue by reportable segment for the years ended December 31, 2020 and 2019 (dollars in millions):

Percentage of Percentage of

Operating Segment Operating Segment

Income Revenue Income Revenue

Corporate, eliminations and other (a) (55.3) (46.2)

The operating margin decline in the BSI Life Science segment was due to higher operating expenses in 2020 as compared to 2019. The decline in operating margin for the BSI NANO segment was due to lower revenue and gross profit, partially offset by cost reduction measures. The decline in the operating margin for the BEST

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segment was due to lower revenue, unfavorable mix and charges related to planned restructuring actions, partially offset by reduced operating expenses.

Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018

Consolidated Results

The following table presents our results for the years ended December 31, 2019 and 2018 (in millions, except per share data):

Year Ended

December 31, Percentage

Cost of other revenue 0.5 1.1 (0.6) (54.5)

Operating expenses:

Interest and other income (expense), net (20.5) (17.7) (2.8) (15.8)

Net income per common share attributable to

Bruker Corporation shareholders:

Weighted average common shares outstanding:

Revenue

The increase in revenue in the year ended December 31, 2019 compared to the year ended December 31, 2018 included $118.4 million attributable to our recent acquisitions and a decrease of approximately $50.3 million from the impact of foreign currency translation. Excluding the effects of foreign currency translation and our recent acquisitions, our organic revenue, a non-GAAP measure, increased by $108.9 million, or 5.7%.

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Gross Profit

Our gross profit margin was 48.0% for the year ended December 31, 2019, compared to 47.5% for the year ended December 31, 2018. Included in gross profit were various charges for amortization of acquisition-related intangible assets and other acquisition-related costs and restructuring costs totaling $41.7 million and $28.7 million for the years ended December 31, 2019 and 2018, respectively. Our gross profit margin increased in the year ended December 31, 2019 primarily due to operational improvements within our BSI Life Science Segment, accretive acquisitions and favorable foreign currency translation effects.

Selling, General and Administrative

Our selling, general and administrative expense was 24.1% and 23.5% of revenue in 2019 and 2018, respectively. The increase was primarily caused by the addition of recent acquisitions and select investments in strategic growth areas, partially offset by favorable foreign currency translation effects.

Research and Development

Our research and development expense was 9.1% of revenue in 2019 and 2018. The dollar increase in research and development was driven primarily by the addition of recent acquisitions, partially offset by favorable foreign currency translation effects.

Other Charges, Net

Other charges, net for 2019 consisted primarily of a net gain of $3.9 million of restructuring costs related to closing facilities and implementing outsourcing and other restructuring initiatives, $4.6 million of acquisition-related charges related to acquisitions completed in 2019 and 2018, $3.7 million of costs associated with our global IT transformation initiative, and $2.1 million related to professional fees. The restructuring charges included a gain on the sale of a building of $7.7 million.

Other charges, net in 2018 consisted primarily of $6.8 million of restructuring costs related to closing facilities and implementing outsourcing and other restructuring initiatives, $3.4 million of acquisition-related charges related to acquisitions completed in 2018 and 2017, $4.8 million of costs associated with our global information technology (IT) transformation initiative and $4.5 million related to professional fees.

At December 31, 2019 and 2018, we performed our annual goodwill and indefinite-lived intangible impairment evaluation and concluded the fair values of each of our reporting units were significantly greater than their carrying amounts, and therefore, no additional impairment is required.

Operating Income

Operating margin increased to 14.5% in 2019, as compared to 13.8% for the year ended December 31, 2018. Included in operating income were various charges for amortization of acquisition-related intangible assets and other acquisition-related costs and restructuring costs totaling $63.1 million and $55.5 million for the years ended December 31, 2019 and 2018, respectively. The increase in GAAP operating margin was due primarily to volume and operational improvements within our BSI Life Science Segment, accretive acquisitions and the positive impact of foreign currency translation.

Interest and Other Income (Expense), Net

The increase in net interest expense in 2019, as compared to 2018, was primarily attributable to higher outstanding debt balances in 2019 compared to 2018 being marginally offset by interest income from the new 2019 U.S. Dollar-to-Euro and U.S. Dollar to Swiss Franc interest rate cross-currency swap agreements.

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During the year ended December 31, 2019, the major components within interest and other income (expense), net were net interest expense of $14.7 million, realized and unrealized losses on foreign currency denominated transactions of $3.3 million, and $2.5 million related to pension plan expenses.

During the year ended December 31, 2018, the major components within interest and other income (expense), net were net interest expense of $11.4 million, realized and unrealized losses on foreign currency denominated transactions of $3.0 million, and $3.9 million related to pension plan expenses.

Income Tax Provision

The effective tax rate was 29.4% and 26.0% for the years ended December 31, 2019 and 2018, respectively. The increase in our effective tax rate for the year ended December 31, 2019, compared to 2018, was primarily attributable to a benefit recorded in 2018 associated with the reversal of state and foreign withholding taxes on unremitted earnings that did not recur in 2019 and additional tax reserves for uncertain tax positions in Europe in 2019.

Net Income Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interest

Net income attributable to noncontrolling interests and redeemable noncontrolling interest decreased in 2019 as a result of the minority shareholders’ proportionate share of the net income recorded by our majority-owned indirect subsidiaries, as compared to 2018.

Net Income Attributable to Bruker Corporation

For the year ended December 31, 2019 our diluted earnings per share was $1.26, compared to $1.14 per diluted share for 2018. The increase in net income attributable to Bruker Corporation in 2019, as compared to the prior year, was driven primarily by revenue growth, higher gross and operating profit offset by an increase in the effective tax rate for the year ended December 31, 2019.

Segment Results

Revenue

The following table presents revenue, change in revenue, and revenue growth by reportable segment for the years ended December 31, 2019 and 2018 (dollars in millions):

Percentage

Eliminations (a) (14.9) (6.2) (8.7)

(a) Represents product and service revenue between reportable segments.

BSI Life Science Segment revenue increased by $106.0 million to $1,244.9 million for the year ended December 31, 2019, compared to $1,138.9 million for the year ended December 31, 2018. The Bruker BioSpin Group revenue increase was primarily due to growth in the system revenue, which included the revenue recognition of three GHz class systems, as well as aftermarket revenue and a small contribution from recent software acquisitions. The increase in Bruker CALID Group revenue was a result of continued strong demand for life science mass spectrometry and microbiology products, growth in molecular spectroscopy FT-IR and NIR products and contributions from an acquisition.

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BSI NANO Segment revenue increase was primarily the result of acquisitions as well as continued demand for advanced X-Ray and nano analysis products, partially offset by a sharp decline in demand for semiconductor metrology products and unfavorable foreign currency translation.

BEST Segment revenue increase was primarily from shipments of superconductors for healthcare applications offset in part by the impact of unfavorable foreign currency translation.

Operating Income

The following table presents operating income and operating margins on revenue by reportable segment for the years ended December 31, 2019 and 2018 (dollars in millions):

Percentage of Percentage of

Operating Segment Operating Segment

Income Revenue Income Revenue

Corporate, eliminations and other (a) (46.2) (44.5)

The operating margin expansion for BSI Life Science and BEST was primarily due to positive operating leverage on higher sales mix and operational improvements as well as favorable foreign currency translation for the BSI Life Science Segment. The decline in operating margin for the BSI NANO Segment was due to a decline in semiconductor metrology demand, softness in industrial research markets in the second half of 2019 and the impact of costs related to a recent acquisition.

LIQUIDITY AND CAPITAL RESOURCES

We anticipate that our existing cash and cash equivalents and credit facilities 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, repurchases of our common stock, or the payment of dividends in the future. In addition, our ability to access capital and maintain liquidity may be impacted by the volatile market conditions caused by the COVID-19 pandemic. Historically, we have financed our growth and liquidity needs through cash flow generation and a combination of debt financings and issuances of common stock. 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, 2020 and 2019 totaled $731.8 million and $684.9 million, respectively, of which $514.9 million and $301.1 million, respectively, related to cash, cash equivalents and short-term investments held outside of the U.S. in our foreign subsidiaries, most significantly in the Netherlands, Switzerland and Hong Kong.

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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 $ 332.2 $ 213.4 $ 239.7

Net cash used in investing activities (192.7) (158.4) (123.4)

Net cash (used in) provided by financing activities (161.6) 300.0 (112.4)

Effect of exchange rates on cash and cash equivalents 25.7 0.6 (6.5)

Operating Activities

During the year ended December 31, 2020, net cash provided by operating activities resulted primarily from consolidated net income adjusted for non-cash items of $262.6 million, in addition to a net increase in operating assets and liabilities, net of acquisitions and divestitures, of $69.6 million. The increase in operating assets and liabilities, net of acquisitions and divestitures, for the year ended December 31, 2020 was primarily caused by a decrease in accounts receivable due to increased cash collections, increased customer advances related to COVID-19 order increases late in 2020 offset by a strategic inventory build for 2021 orders and supply chain management.

During the year ended December 31, 2019, net cash provided by operating activities resulted primarily from consolidated net income adjusted for non-cash items of $287.9 million, offset by a net decrease in operating assets and liabilities, net of acquisitions and divestitures, of $74.5 million. The decrease in operating assets and liabilities, net of acquisitions and divestitures, for the year ended December 31, 2019 was primarily caused by an increase in inventory build for 2020 orders.

During the year ended December 31, 2018, net cash provided by operating activities resulted primarily from consolidated net income adjusted for non-cash items of $281.9 million, offset by a net decrease in operating assets and liabilities, net of acquisitions and divestitures, of $42.2 million. The decrease in operating assets and liabilities, net of acquisitions and divestitures, for the year ended December 31, 2018 was primarily caused by an increase in accounts receivable caused by proportionately higher sales late in the fourth quarter of 2018 and inventory build for 2019 orders, which were offset in part by cash received from customer advances.

Investing Activities

During the year ended December 31, 2020, the increase in net cash used in investing activities during the year ended December 31, 2020 was primarily attributable to net capital expenditures of $97.2 million, net cash paid for acquisitions of $59.2 million and purchases of short-term investments, net of maturities of $43.9 million.

During the year ended December 31, 2019, the increase in net cash used in investing activities was primarily attributable to net cash paid for acquisitions of $90.0 million, net capital expenditures of $62.0 million and the purchase of short-term investments of $6.4 million.

During the year ended December 31, 2018, the increase in net cash used in investing activities was primarily attributable to net cash paid for acquisitions of $191.6 million and net capital expenditures of $48.8 million. These activities were offset, in part, by net cash proceeds of short-term investments of $117.0 million.

We expect capital expenditures in 2021 to be approximately $100.0 million.

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Financing Activities

During the year ended December 31, 2020, the net cash used in financing activities was primarily caused by $123.2 million used for the purchase of common stock under our repurchase program, $24.6 million used for the payment of dividends, $7.6 million in net payments of borrowings under the 2019 Revolving Credit Agreement and $7.5 million payment of contingent consideration.

During the year ended December 31, 2019, the increase in net cash provided by financing activities was primarily caused by $597.9 million of new debt borrowings, described below, offset in part by $361.9 million of repayments under revolving lines of credit. Other cash uses were $142.3 million used for the repurchase of common shares, $25.0 million for the payment of dividends and $15.0 million repayment on the 2012 Note Purchase Agreement. Other cash sources borrowings of $250.6 million under the revolving lines of credit and $10.9 million of proceeds from the issuance of common stock in connection with stock option exercises.

During the year ended December 31, 2018, the decrease in net cash used in financing activities was primarily caused by $218.1 million of repayments under revolving lines of credit and $25.1 million used for the payment of dividends. These cash uses were partially offset by borrowings of $129.4 million under the revolving lines of credit and $9.4 million of proceeds from the issuance of common stock in connection with stock option exercises.

Share Repurchase Program

In May 2019, our Board of Directors approved a share repurchase program which authorizes the purchase of our common stock in the amount of up to $300.0 million from time to time, in amounts, at prices, and at such times as management deems appropriate, subject to market conditions, legal requirements and other considerations. We repurchased a total of 2,711,952 shares at an aggregate cost of $123.2 million for the year ended December 31, 2020. We repurchased a total of 3,323,104 shares at an aggregate cost of $142.3 million for the year ended December 31, 2019. The remaining authorization as of February 25, 2021 is $5.3 million and this Repurchase Program expires on May 13, 2021. We intend to fund any future purchases from cash on hand, future cash flows from operations and available borrowings under the revolving credit facility.

Income Taxes

At December 31, 2020 and in accordance with the 2017 Tax Cuts and Jobs Act (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 $436 million 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, 2020. The amount of unrecognized deferred withholding taxes on the undistributed E&P was $63 million at December 31, 2020.

As of December 31, 2020, we had approximately $65.2 million of net operating loss carryforwards available to reduce state taxable income that are expected to expire at various times beginning in 2021; approximately $108.4 million of net operating losses available to reduce German federal income and trade taxes that are carried forward indefinitely and $18.5 million of other foreign net operating losses that are expected to expire at various times beginning in 2021. We also had U.S. state research and development tax credit carryforward of $7.1 million. Utilization of these credits and state net operating losses may be subject to annual limitations due to the ownership percentage change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended (“Code”) 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.

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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.

Credit Facilities

On December 11, 2019, we entered into (1) a new revolving credit agreement to establish a new revolving credit facility in the aggregate principal amount of $600 million; (2) a term loan agreement to establish a new term loan facility in the aggregate principal amount of $300 million; and (3) a note purchase agreement to issue and sell CHF 297 million aggregate principal amount of 1.01% senior notes due December 11, 2029. Floating interest rates under the term loan were simultaneously fixed through cross-currency and interest rate swap agreements into Euro ($150 million) and Swiss Franc ($150 million) rates carrying average effective interest rates of 0.94% and hedge our net investment in our Euro and Swiss Franc denominated net assets. The new revolving credit agreement replaced our $500 million five-year revolving credit agreement established on October 27, 2015, that was terminated on December 11, 2019.

In addition, we designated our CHF 297 million senior notes as a hedge in our net investment in our Swiss Franc denominated net assets. Proceeds from this financing were used to repay the outstanding borrowings under our prior 2015 revolving credit facility and we intend to use the remaining proceeds for general corporate purposes and to support corporate strategic objectives. During December 2019, we entered into U.S. Dollar to Euro cross-currency swaps on our existing 2012 private placement notes of $105 million 4.31% Series 2012A Senior Notes, Tranche C, due January 18, 2022, and the existing $100 million 4.46% Series 2012A Senior Notes, Tranche D, due January 18, 2024, resulting in an average effective interest rate of 2.25% on these instruments. The cross-currency swaps hedge our net investment in our Euro denominated net assets.

As of December 31, 2020, we have entered into several cross-currency and interest rate swap agreements with a notional value of $150 million of U.S. Dollar to Swiss Franc and a notional value of $355 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 entering into these agreements, we lowered our net interest expense by $7.2 million and $0.6 million during the year ended December 31, 2020 and 2019, respectively. We anticipate these swap agreements will lower net interest expense by approximately $8.8 million in 2021 and $4.8 million in 2022.

We had the following debt outstanding (in millions):

US Dollar notes under the 2012 Note Purchase Agreement $ 205.0 $ 205.0

CHF notes (in dollars) under the 2019 Note Purchase Agreement 335.5 306.8

Unamortized debt issuance costs (2.4) (2.6)

Capital lease obligations and other loans 6.4 4.1

Current portion of long-term debt (2.2) (0.5)

Total long-term debt, less current portion $ 842.3 $ 812.8

There was no amount outstanding under the 2019 Credit Agreement as of December 31, 2020 or 2019.

As of December 31, 2020, we had no off-balance sheet arrangements and we were in compliance with the financial covenants of these debt arrangements.

The following is a summary of the maximum commitments and the net amounts available to us under the 2019 Credit Agreement and other banking working capital lines and guarantees of credit with various financial

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institutions located primarily in Germany and Switzerland that are unsecured and typically due upon demand at December 31, 2020 (dollars in millions):

Weighted Total Amount Total Amount Outstanding Total Committed

Average Committed Uncommitted Outstanding Letters and Uncommitted

Interest Rate by Lenders by Lenders Borrowings of Credit Amounts Available

As of December 31, 2020, we were in compliance with the covenants of all debt agreements.

Other Liquidity Matters

The following table summarizes maturities for our significant financial obligations as of December 31, 2020 (in millions):

Unconditional purchase commitments (2) 313.9 281.9 31.2 0.8 —

Acquisition-related contingent consideration (3) 4.3 2.7 1.6 — —

Finance lease obligations 3.5 1.2 1.8 0.5 —

(1) Interest payable on long-term debt is net of the impact of our cross-currency and interest rate swap agreements.

(2) Unconditional purchase commitments include agreements to purchase goods, services, or fixed assets that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase commitments exclude agreements that are cancellable at any time without penalty.

(3) Acquisition-related contingent consideration represents the estimated fair value of future payments to the former shareholders of applicable acquired companies based on achieving annual revenue and gross margin targets in certain years as specified in the purchase and sale agreements.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. The preparation of these financial statements requires that we 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. On an ongoing basis, management evaluates its estimates and judgments, including those related to: revenue recognition; stock-based compensation expense; restructuring and other related charges; income taxes, including the recoverability of deferred tax assets; allowances for doubtful accounts; inventory reductions for excess and obsolete inventories; estimated fair values of long-lived assets used to measure the recoverability of long-lived assets; intangible assets and goodwill; expected future cash flows used to measure the recoverability of intangible assets and long-lived assets; warranty costs; derivative financial instruments; and contingent liabilities. 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 and form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.

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 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.

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 delivered and installed at a customer facility. For systems that include customer-specific acceptance criteria, we are 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.

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.

For contracts that include multiple performance obligations, the transaction price is allocated to each distinct performance obligation based on the relative standalone selling prices of the goods and services being provided to the customer. Our 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, we may determine standalone selling price using an expected cost plus a margin approach.

We analyze our selling prices used in the allocation of the transaction price, at a minimum, on an annual basis. Selling prices will be analyzed more frequently if a significant change in our business or other factors necessitate more frequent analysis or we experience significant variances in our selling prices.

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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.

For performance obligations recognized over time, revenue is measured by progress toward completion of the performance obligation that reflects the transfer of control. In particular, we have certain contracts recognized over time for which we apply the cost-to-cost method based on costs incurred to date relative to the total estimated costs for the contract upon completion. 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 will 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 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. For contracts where an advance payment is received greater than one year from expected revenue recognition, or a portion of the payment due extends beyond one year, we determined it does not constitute a significant financing component. 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.

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 we expect 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.

Income taxes

The determination of income tax expense requires us to make certain estimates and judgments concerning the annual effective tax rate, the calculation of deferred tax assets and liabilities, the forecasted profitability of our subsidiaries in certain geographic jurisdictions, as well as the deductions, carryforwards and credits that are available to reduce taxable income. Deferred tax assets and liabilities arise from differences in the timing of the recognition of revenue and expenses for financial statement and tax purposes. Deferred tax assets and liabilities are measured using the tax rates in effect for the year in which these temporary differences are expected to be settled. We estimate the degree to which tax assets and loss carryforwards will result in a benefit based on expected profitability by tax jurisdiction, and we provide a valuation allowance for tax assets and loss

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carryforwards that we believe will more likely than not go unused. If it becomes more likely than not that a tax asset or loss carryforward will be used for which a valuation allowance has been provided, we reverse the related valuation allowance. If our actual future taxable income by tax jurisdiction differs from estimates, additional allowances or reversals of a valuation allowance may be necessary. In addition, we only recognize benefits for tax positions that we believe are more likely than not of being sustained upon review by a taxing authority with knowledge of all relevant information. We reevaluate our uncertain tax positions on a quarterly basis and any changes to these positions as a result of tax audits, tax laws or other facts and circumstances could result in additional charges or credits to operations. The expiration of statutes of limitations affecting estimates made for uncertain tax positions can cause higher earnings.

On December 22, 2017 (Enactment Date), former President Trump signed the 2017 Tax Act, which enacted a wide range of changes to the U.S. corporate income tax system, many of which differ significantly from the provisions of the previous U.S. tax law. We have completed the assessment of the tax effects associated with the enactment of the 2017 Tax Act. Changes in the tax rates and laws are accounted for in the period of enactment.

Inventories

Inventories are stated at the lower of cost and net realizable value, with costs determined by the first-in, first-out method for a majority of subsidiaries and by average cost for certain other subsidiaries. We record provisions to account for excess and obsolete inventory to reflect the expected non-saleable or non-refundable inventory based on an evaluation of slow-moving products or products no longer offered for sale. Inventories also include demonstration units located in our demonstration laboratories or installed at the sites of potential customers. We consider our demonstration units to be available for sale and have a history of selling these demonstration units. We reduce the carrying value of demonstration 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 the unit. If ultimate usage or demand varies significantly from expected usage or demand, additional write-downs may be required, resulting in additional charges to operations.

Goodwill, other intangible assets and other long-lived assets

We evaluate goodwill and other indefinite lived intangible assets for impairment annually and when events occur or circumstances change. 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 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 January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The new standard simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test. The adoption of this ASU on January 1, 2020 did not have a material impact on our consolidated financial statements.

We also review definite-lived intangible assets and other long-lived assets when indications of potential impairment exist. Should the fair value of our long-lived assets decline because of reduced operating performance, market declines or other indicators of an impairment, a charge to operations for impairment may be necessary.

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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 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.

RECENT ACCOUNTING PRONOUNCEMENTS

Information regarding recently issued accounting pronouncements may be found in Note 3 to our consolidated financial statements included in 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.

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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):

Percentage of Percentage of Percentage of

Revenue Revenue Revenue Revenue Revenue Revenue

Changes in foreign currency exchange rates increased our revenue by approximately 1.4% in the year ended December 31, 2020 and decreased our revenue by approximately 2.7% in the year ended December 31, 2019.

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, or historical rates, as appropriate. Revenues and expenses of foreign subsidiaries are translated at the average exchange rates in effect during the year. Adjustments resulting from financial statement translations are included as a separate component of shareholders’ equity. In the years ended December 31, 2020 and 2019, we recorded net gains of $22.0 million and net losses of $20.0 million, respectively, from currency translation adjustments. A 10% depreciation in functional currencies, relative to the U.S. dollar, at December 31, 2020, would have resulted in a reduction of shareholders’ equity of approximately $170.1 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 translation gain (loss), net were net losses of $7.9 million and $3.3 million for years ended December 31, 2020 and 2019, respectively.

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.

At December 31, 2020 and 2019, we have entered into several cross-currency and interest rate swap agreements with a notional value of $150 million of U.S. dollar to Swiss Franc and a notional value of $355 million of U.S. dollar to Euro 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 stockholders’ 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.

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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 unaudited condensed consolidated statements of income and comprehensive income. At December 31, 2020 and 2019, we had forward currency contracts with notional amounts aggregating $278.3 million and $74.4 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. We have arrangements with certain customers under which it has a firm committment to deliver copper based on superconductor wire at a fixed price. In order to minimize the volatility that fluctuations in the price of copper have on our sales of these commodities, we enter into commodity hedge contracts. At December 31, 2020 and 2019, we had fixed price commodity contracts with notional amounts aggregating $8.8 million and $5.6 million, respectively. The fair value of the fixed price commodity contracts at December 31, 2020 and 2019 was $3.1 million and $0.3 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 do not believe inflation had a material impact on our business or operating results during any of the periods presented.

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ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index of Consolidated Financial Statements

Page

Report of Independent Registered Public Accounting Firm 66

Consolidated Balance Sheets as of December 31, 2020 and 2019 69

Notes to Consolidated Financial Statements 73

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BRKR · 10-K · period ended 2020-12-31

ITEM 1A RISK FACTORS

ITEM 1B UNRESOLVED STAFF COMMENTS

ITEM 2 PROPERTIES

ITEM 3 LEGAL PROCEEDINGS

ITEM 4 MINE SAFETY DISCLOSURES

ITEM 5 MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

ITEM 6 RESERVED

ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

BRKR US Equity☆

BRKR · 10-K · period ended 2020-12-31

ITEM 1A RISK FACTORS

ITEM 1B UNRESOLVED STAFF COMMENTS

ITEM 2 PROPERTIES

ITEM 3 LEGAL PROCEEDINGS

ITEM 4 MINE SAFETY DISCLOSURES

ITEM 5 MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

ITEM 6 RESERVED

ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

BRKR US Equity