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TABLE OF CONTENTS
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
(Amendment No. 1)
ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934 | |
For the fiscal year ended December 31, 2015 |
||
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 000-30833
BRUKER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of Incorporation or organization) |
04-3110160 (I.R.S. Employer Identification No.) |
|
40 Manning Road, Billerica, MA (Address of principal executive offices) |
01821 (Zip Code) |
Registrant's telephone number, including area code: (978) 663-3660
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Name of Each Exchange on Which Registered | |
---|---|---|
Common Stock, $0.01 par value per share | The Nasdaq Global Select Market |
Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer ý |
Accelerated filer o | Non-accelerated filer o (do not check if smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant as of June 30, 2015 (the last business day of the registrant's most recently completed second fiscal quarter) was $2,244,357,403, based on the reported last sale price on the Nasdaq Global Select Market. This amount excludes an aggregate of 58,170,354 shares of common stock held by officers and directors and each person known by the registrant to own 10% or more of the outstanding common stock of the registrant as of June 30, 2015. Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of management or policies of the registrant, or that such person is controlled by or under common control with the registrant. The number of shares of the registrant's common stock outstanding as of February 22, 2016 was 163,424,532.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the information required by Part III of this report (Items 10, 11, 12, 13 and 14) are incorporated by reference from the registrant's definitive Proxy Statement for its 2016 Annual Meeting of Stockholders to be filed within 120 days of the close of the registrant's fiscal year.
ANNUAL REPORT ON FORM 10-K/A (Amendment No. 1)
This Amendment No. 1 on Form 10-K/A (this "Amendment No. 1") amends Bruker Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (the "Original Filing"). The purpose of this Amendment No.1 is to (i) revise the Report of Independent Registered Public Accounting Firm of Ernst & Young LLP (the "Auditor's Report") contained in Part II, Item 9A of the Original Filing regarding the effectiveness of our internal control over financial reporting and amend the Report of Independent Registered Public Accounting Firm of Ernst & Young LLP contained in Part 1, Item 8 of the Original Filing to reflect such revision of the Auditor's Report and (ii) revise the disclosure on the effectiveness of our disclosure controls and procedures and the disclosure on our internal control over financial reporting in Part II, Item 9A of the Original Filing to reflect management's conclusion that our internal control over financial reporting and disclosure controls and procedures were not effective at December 31, 2015 due to a material weakness in our internal control over financial reporting identified subsequent to the issuance of the Original Filing.
Pursuant to Rule 12b-15 promulgated under the Securities Exchange Act of 1934, as amended, we have included the entire text of Part I, Item 8 of the Original Filing in this Amendment No. 1. However, there have been no changes to the text of such item other than the change stated in the immediately preceding paragraph. Furthermore, there have been no changes to the XBRL data filed in Exhibit 101 of the Original Filing. Other than as described above and the inclusion with this Amendment No. 1 of new certifications by management, a new consent of Ernst & Young LLP, our former independent registered public accounting firm, and related amendments to the List of Exhibits contained in Part IV, Item 15 of the Original Filing, this Amendment No. 1 speaks only as of the date of the Original Filing and does not amend, supplement or update any information contained in the Original Filing to give effect to any subsequent events. Accordingly, this Amendment No. 1 should be read in conjunction with the Original Filing and our reports filed with the U.S. Securities and Exchange Commission ("SEC") subsequent to the Original Filing.
1
Part II
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of
Bruker Corporation
We have audited the accompanying consolidated balance sheets of Bruker Corporation as of December 31, 2015 and 2014, and the related consolidated statements of income and comprehensive income (loss), statements of shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bruker Corporation at December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Bruker Corporation's internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 26, 2016, except for the effect of the material weakness described in the sixth paragraph of that report, as to which the date is November 15, 2016, expressed an adverse opinion thereon.
|
|
|
---|---|---|
/s/ Ernst & Young LLP |
Boston, Massachusetts
February 26, 2016
3
BRUKER CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share data)
|
December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2015 | 2014 | |||||
ASSETS |
|||||||
Current assets: |
|||||||
Cash and cash equivalents |
$ | 267.1 | $ | 319.5 | |||
Short-term investments |
201.2 | 178.0 | |||||
Accounts receivable, net |
234.7 | 293.2 | |||||
Inventories |
422.0 | 477.4 | |||||
Deferred tax assets |
| 9.3 | |||||
Other current assets |
106.6 | 88.9 | |||||
| | | | | | | |
Total current assets |
1,231.6 | 1,366.3 | |||||
Property, plant and equipment, net |
231.1 |
249.9 |
|||||
Goodwill |
130.6 | 127.8 | |||||
Intangible assets, net |
74.7 | 83.8 | |||||
Deferred tax assets |
53.0 | 29.7 | |||||
Other long-term assets |
9.9 | 7.3 | |||||
| | | | | | | |
Total assets |
$ | 1,730.9 | $ | 1,864.8 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
LIABILITIES AND SHAREHOLDERS' EQUITY |
|||||||
Current liabilities: |
|||||||
Current portion of long-term debt |
$ | 0.7 | $ | 0.8 | |||
Accounts payable |
72.1 | 76.0 | |||||
Customer advances |
178.3 | 189.5 | |||||
Deferred tax liabilities |
| 15.0 | |||||
Other current liabilities |
303.5 | 301.4 | |||||
| | | | | | | |
Total current liabilities |
554.6 | 582.7 | |||||
Long-term debt |
266.0 |
354.2 |
|||||
Long-term deferred revenue |
44.4 | 37.1 | |||||
Deferred tax liabilities |
9.5 | 17.8 | |||||
Accrued pension |
91.6 | 66.2 | |||||
Other long-term liabilities |
31.9 | 35.1 | |||||
Commitments and contingencies (Note 14) |
|||||||
Shareholders' equity: |
|||||||
Preferred stock, $0.01 par value 5,000,000 shares authorized, none issued or outstanding at December 31, 2015 and 2014 |
| | |||||
Common stock, $0.01 par value 260,000,000 shares authorized, 169,644,644 and 168,582,988 shares issued and 165,354,180 and 168,527,584 outstanding at December 31, 2015 and 2014, respectively |
1.7 | 1.7 | |||||
Treasury stock at cost, 4,290,527 and 55,404 shares at December 31, 2015 and 2014, respectively |
(90.9 | ) | (0.9 | ) | |||
Additional paid-in capital |
102.1 | 81.1 | |||||
Retained earnings |
757.4 | 655.8 | |||||
Accumulated other comprehensive income (loss) |
(44.2 | ) | 28.2 | ||||
| | | | | | | |
Total shareholders' equity attributable to Bruker Corporation |
726.1 | 765.9 | |||||
Noncontrolling interest in consolidated subsidiaries |
6.8 | 5.8 | |||||
| | | | | | | |
Total shareholders' equity |
732.9 | 771.7 | |||||
| | | | | | | |
Total liabilities and shareholders' equity |
$ | 1,730.9 | $ | 1,864.8 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
4
BRUKER CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
(In millions, except per share data)
|
Year Ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2015 | 2014 | 2013 | |||||||
Product revenue |
$ | 1,381.1 | $ | 1,571.9 | $ | 1,611.4 | ||||
Service revenue |
235.5 | 231.8 | 219.3 | |||||||
Other revenue |
7.2 | 5.2 | 8.7 | |||||||
| | | | | | | | | | |
Total revenue |
1,623.8 | 1,808.9 | 1,839.4 | |||||||
Cost of product revenue |
774.2 |
896.0 |
891.7 |
|||||||
Cost of service revenue |
139.7 | 149.6 | 142.5 | |||||||
Cost of other revenue |
1.3 | | | |||||||
| | | | | | | | | | |
Total cost of revenue |
915.2 | 1,045.6 | 1,034.2 | |||||||
| | | | | | | | | | |
Gross profit |
708.6 | 763.3 | 805.2 | |||||||
Operating expenses: |
||||||||||
Selling, general and administrative |
392.2 | 451.0 | 437.9 | |||||||
Research and development |
145.7 | 174.2 | 190.5 | |||||||
Impairment of assets |
4.6 | 11.5 | | |||||||
Other charges, net |
20.4 | 21.2 | 28.6 | |||||||
| | | | | | | | | | |
Total operating expenses |
562.9 | 657.9 | 657.0 | |||||||
| | | | | | | | | | |
Operating income |
145.7 | 105.4 | 148.2 | |||||||
Interest and other income (expense), net |
(17.7 |
) |
(4.1 |
) |
(23.6 |
) |
||||
| | | | | | | | | | |
Income before income taxes and noncontrolling interest in consolidated subsidiaries |
128.0 | 101.3 | 124.6 | |||||||
Income tax provision |
23.1 | 41.7 | 42.8 | |||||||
| | | | | | | | | | |
Consolidated net income |
104.9 | 59.6 | 81.8 | |||||||
Net income attributable to noncontrolling interest in consolidated subsidiaries |
3.3 | 2.9 | 1.7 | |||||||
| | | | | | | | | | |
Net income attributable to Bruker Corporation |
$ | 101.6 | $ | 56.7 | $ | 80.1 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Net income per common share attributable to Bruker Corporation shareholders: |
||||||||||
Basic |
$ | 0.60 | $ | 0.34 | $ | 0.48 | ||||
Diluted |
$ | 0.60 | $ | 0.33 | $ | 0.48 | ||||
Weighted average common shares outstanding: |
||||||||||
Basic |
168.2 | 167.8 | 166.5 | |||||||
Diluted |
169.1 | 169.5 | 168.5 | |||||||
Consolidated net income |
$ |
104.9 |
$ |
59.6 |
$ |
81.8 |
||||
Foreign currency translation adjustments |
(63.8 | ) | (131.7 | ) | 27.3 | |||||
Pension liability adjustments (net of tax of $2.1 million, $6.5 million and $4.6 million, respectively) |
(9.6 | ) | (22.6 | ) | 17.3 | |||||
| | | | | | | | | | |
Net comprehensive income (loss) |
31.5 | (94.7 | ) | 126.4 | ||||||
Less: Comprehensive income attributable to noncontrolling interests |
2.3 | 2.8 | 1.6 | |||||||
| | | | | | | | | | |
Comprehensive income (loss) attributable to Bruker Corporation |
$ | 29.2 | $ | (97.5 | ) | $ | 124.8 | |||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
5
BRUKER CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In millions, except share data)
|
Common Shares |
Common Stock Amount |
Treasury Shares |
Treasury Stock Amount |
Additional Paid-In Capital |
Retained Earnings |
Accumulated Other Comprehensive Income |
Total Shareholders' Equity Attributable to Bruker Corporation |
Noncontrolling Interests in Consolidated Subsidiaries |
Total Shareholders' Equity |
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at December 31, 2012 |
166,604,427 | $ | 1.7 | 21,549 | $ | (0.2 | ) | $ | 48.3 | $ | 519.0 | $ | 137.8 | $ | 706.6 | $ | 3.1 | $ | 709.7 | ||||||||||||
Restricted shares issued |
121,072 |
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Stock options exercised |
871,991 | | | | 8.4 | | | 8.4 | | 8.4 | |||||||||||||||||||||
Stock based compensation |
| | | | 6.6 | | | 6.6 | | 6.6 | |||||||||||||||||||||
Treasury stock acquired |
(18,286 | ) | | 18,286 | (0.4 | ) | 0.2 | | | (0.2 | ) | | (0.2 | ) | |||||||||||||||||
Distributions to noncontrolling interests |
| | | | | | | | (0.6 | ) | (0.6 | ) | |||||||||||||||||||
Consolidated net income |
| | | | | 80.1 | | 80.1 | 1.7 | 81.8 | |||||||||||||||||||||
Other comprehensive income (loss) |
| | | | | | 44.6 | 44.6 | (0.1 | ) | 44.5 | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2013 |
167,579,204 | $ | 1.7 | 39,835 | $ | (0.6 | ) | $ | 63.5 | $ | 599.1 | $ | 182.4 | $ | 846.1 | $ | 4.1 | $ | 850.2 | ||||||||||||
Restricted shares issued |
112,129 |
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Stock options exercised |
851,820 | | | | 8.2 | | | 8.2 | | 8.2 | |||||||||||||||||||||
Stock based compensation |
| | | | 9.4 | | | 9.4 | | 9.4 | |||||||||||||||||||||
Treasury stock acquired |
(15,569 | ) | | 15,569 | (0.3 | ) | | | | (0.3 | ) | | (0.3 | ) | |||||||||||||||||
Distributions to noncontrolling interests |
| | | | | | | | (1.1 | ) | (1.1 | ) | |||||||||||||||||||
Consolidated net income |
| | | | | 56.7 | | 56.7 | 2.9 | 59.6 | |||||||||||||||||||||
Other comprehensive income (loss) |
| | | | | | (154.2 | ) | (154.2 | ) | (0.1 | ) | (154.3 | ) | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2014 |
168,527,584 | $ | 1.7 | 55,404 | $ | (0.9 | ) | $ | 81.1 | $ | 655.8 | $ | 28.2 | $ | 765.9 | $ | 5.8 | $ | 771.7 | ||||||||||||
Restricted shares issued |
135,677 |
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Restricted shares terminated |
(145,857 | ) | | 145,857 | | | | | | | | ||||||||||||||||||||
Stock options exercised |
926,042 | | | | 10.8 | | | 10.8 | | 10.8 | |||||||||||||||||||||
Stock based compensation |
| | | 8.0 | | | 8.0 | | 8.0 | ||||||||||||||||||||||
Excess tax benefit related to exercise of stock awards |
| | | | 2.2 | | | 2.2 | | 2.2 | |||||||||||||||||||||
Share repurchase |
(4,082,042 | ) | | 4,082,042 | (89.9 | ) | | | | (89.9 | ) | | (89.9 | ) | |||||||||||||||||
Treasury stock acquired |
(7,224 | ) | | 7,224 | (0.1 | ) | | | | (0.1 | ) | | (0.1 | ) | |||||||||||||||||
Distributions to noncontrolling interests |
| | | | | | | | (1.3 | ) | (1.3 | ) | |||||||||||||||||||
Consolidated net income |
| | | | | 101.6 | | 101.6 | 3.3 | 104.9 | |||||||||||||||||||||
Other comprehensive income (loss) |
| | | | | | (72.4 | ) | (72.4 | ) | (1.0 | ) | (73.4 | ) | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2015 |
165,354,180 | $ | 1.7 | 4,290,527 | $ | (90.9 | ) | $ | 102.1 | $ | 757.4 | $ | (44.2 | ) | $ | 726.1 | $ | 6.8 | $ | 732.9 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
6
BRUKER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
|
Year Ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2015 | 2014 | 2013 | |||||||
Cash flows from operating activities: |
||||||||||
Consolidated net income |
$ | 104.9 | $ | 59.6 | $ | 81.8 | ||||
Adjustments to reconcile consolidated net income to cash flows |
||||||||||
from operating activities: |
||||||||||
Depreciation and amortization |
53.3 | 59.7 | 61.3 | |||||||
Write-down of demonstration inventories to net realizable value |
19.4 | 28.2 | 32.7 | |||||||
Stock-based compensation expense |
8.0 | 9.4 | 6.6 | |||||||
Deferred income taxes |
(29.4 | ) | (9.2 | ) | 7.4 | |||||
Gain (loss) on disposal of product lines |
0.2 | (8.3 | ) | (0.9 | ) | |||||
Impairment and other non-cash expenses, net |
26.5 | 14.2 | 2.1 | |||||||
Changes in operating assets and liabilities, net of acquisitions: |
||||||||||
Accounts receivable |
45.0 | (14.5 | ) | (19.3 | ) | |||||
Inventories |
(5.4 | ) | 4.6 | 5.7 | ||||||
Accounts payable and accrued expenses |
12.6 | 9.0 | 7.0 | |||||||
Income taxes payable, net |
22.7 | 5.6 | (28.7 | ) | ||||||
Deferred revenue |
3.8 | 12.9 | 4.6 | |||||||
Customer advances |
1.4 | (48.2 | ) | (12.1 | ) | |||||
Other changes in operating assets and liabilities, net |
(33.8 | ) | (8.7 | ) | (3.2 | ) | ||||
| | | | | | | | | | |
Net cash provided by operating activities |
229.2 | 114.3 | 145.0 | |||||||
| | | | | | | | | | |
Cash flows from investing activities: |
||||||||||
Purchase of short-term investments |
(159.4 | ) | (211.6 | ) | | |||||
Maturity of short-term investments |
118.7 | 19.0 | | |||||||
Cash paid for acquisitions, net of cash acquired |
(28.6 | ) | (3.9 | ) | (11.6 | ) | ||||
Proceeds from disposal of product lines |
0.2 | 25.3 | 0.5 | |||||||
Purchases of property, plant and equipment |
(34.2 | ) | (33.8 | ) | (50.3 | ) | ||||
Proceeds from sales of property, plant and equipment |
0.9 | 3.1 | 1.4 | |||||||
| | | | | | | | | | |
Net cash used in investing activities |
(102.4 | ) | (201.9 | ) | (60.0 | ) | ||||
| | | | | | | | | | |
Cash flows from financing activities: |
||||||||||
Repayments of revolving lines of credit |
(129.5 | ) | | | ||||||
Proceeds from revolving lines of credit |
42.0 | | 19.5 | |||||||
Repayment of other debt, net |
(0.6 | ) | (0.8 | ) | (1.6 | ) | ||||
Proceeds from issuance of common stock, net |
10.8 | 7.9 | 8.2 | |||||||
Payment of contingent consideration |
(3.0 | ) | | | ||||||
Repurchase of common stock |
(90.0 | ) | | | ||||||
Changes in restricted cash |
1.4 | 0.7 | 1.0 | |||||||
Cash payments to noncontrolling interests |
(1.3 | ) | (1.1 | ) | (0.6 | ) | ||||
Excess tax benefits related to stock option awards |
2.2 | | | |||||||
| | | | | | | | | | |
Net cash (used in) provided by financing activities |
(168.0 | ) | 6.7 | 26.5 | ||||||
| | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents |
(11.2 | ) | (38.3 | ) | 16.6 | |||||
| | | | | | | | | | |
Net change in cash and cash equivalents |
(52.4 | ) | (119.2 | ) | 128.1 | |||||
Cash and cash equivalents at beginning of year |
319.5 | 438.7 | 310.6 | |||||||
| | | | | | | | | | |
Cash and cash equivalents at end of year |
$ | 267.1 | $ | 319.5 | $ | 438.7 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Supplemental disclosure of cash flow information: |
||||||||||
Cash paid for interest |
$ | 12.2 | $ | 12.7 | $ | 12.7 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Cash paid for taxes |
$ | 56.6 | $ | 55.9 | $ | 84.3 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1Description of Business
Bruker Corporation, together with its consolidated subsidiaries ("Bruker" or the "Company"), is a designer and manufacturer 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. Many of our products are used to detect, measure and visualize structural characteristics of chemical, biological and industrial material samples. Our products address the rapidly evolving needs of a diverse array of customers in life science research, pharmaceuticals, biotechnology, applied markets, cell biology, clinical research, microbiology, in-vitro diagnostics, nanotechnology and materials science research.
The Company has two reportable segments, Bruker Scientific Instruments (BSI), which represents approximately 92% of the Company's revenues during the year ended December 31, 2015, and Bruker Energy & Supercon Technologies (BEST), which represents the remainder of the business. Within BSI, the Company is organized into three operating segments: the Bruker BioSpin Group, the Bruker CALID Group and the Bruker Nano Group. For financial reporting purposes, the Bruker BioSpin, Bruker CALID and Bruker Nano operating segments are aggregated into the BSI reportable segment because each has similar economic characteristics, production processes, service offerings, types and classes of customers, methods of distribution and regulatory environments.
Bruker BioSpin Bruker BioSpin designs, manufactures and distributes enabling life science tools based on magnetic resonance and preclinical imaging technologies. Bruker BioSpin sells various systems utilizing magnetic resonance technology, including magnetic resonance imaging (MRI) systems, nuclear magnetic resonance systems (NMR) and electron paramagnetic resonance systems (EPR), as well as OEM MRI magnets sold to medical device manufacturers. Bruker BioSpin also sells single and multiple modality systems using MRI, position emission tomography (PET), single photon emission tomography (SPECT), computed tomography (CT), magnetic particle imaging (MPI) and optical imaging (fluorescence and bioluminescence) technologies to preclinical markets.
Bruker CALID (Chemicals, Applied Markets, Life Science, In-Vitro Diagnostics, Detection) Bruker CALID designs, manufactures and distributes life science mass spectrometry instruments that can be integrated and used along with other sample preparation or chromatography instruments, as well as Chemical, Biological, Radiological, Nuclear and Explosive (CBRNE) detection products. Bruker CALID also designs, manufactures and distributes instruments based on Raman molecular spectroscopy technologies. Bruker CALID's mass spectrometry units are typically used in applications of expression proteomics, clinical proteomics, metabolic and peptide biomarker profiling, drug discovery and development, molecular diagnostics research, molecular and systems biology, basic molecular medicine research and clinical microbiology.
Bruker Nano Bruker Nano designs, manufactures and distributes spectroscopy and microscopy instruments for the understanding of composition and structure in material science and life science samples. The instruments are based on advanced technologies in X-ray fluorescence spectroscopy (XRF), X-ray diffraction (XRD), X-ray micro computed tomography (mCT), atomic force microscopy (AFM), stylus and optical metrology (SOM) and fluorescence microscopy (FM), and also include analytical tools for electron microscopes, handheld, portable and mobile X-ray fluorescence and spark optical emission spectroscopy systems.
The Company's BEST reportable segment develops and manufactures superconducting and non-superconducting materials and devices for use in renewable energy, energy infrastructure, healthcare and "big science" research. The segment focuses on metallic low temperature superconductors for use in magnetic resonance imaging, nuclear magnetic resonance, fusion energy
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research and other applications, as well as ceramic high temperature superconductors primarily for energy grid and magnet applications.
Note 2Summary of Significant Accounting Policies
The accompanying consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in the notes to the consolidated financial statements.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and all majority and wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.
Noncontrolling Interests
Noncontrolling interests represents the minority shareholders' proportionate share of the Company's majority-owned subsidiaries. The portion of net income or net loss attributable to non-controlling interests is presented as net income attributable to noncontrolling interests in consolidated subsidiaries in the consolidated statements of income and comprehensive income (loss), and the portion of other comprehensive income (loss) of these subsidiaries is presented in the consolidated statements of shareholders' equity.
Subsequent Events
The Company has evaluated all subsequent events and determined that there are no material recognized or unrecognized subsequent events, or any subsequent events required to be mentioned in the footnotes to the consolidated financial statements, other than the item disclosed in Note 23Subsequent Event.
Cash and Cash Equivalents
Cash and cash equivalents primarily include cash on hand, money market funds and time deposits with original maturities of three months or less at the date of acquisition. Time deposits represent amounts on deposit in banks and temporarily invested in instruments with maturities of three months or less at the time of purchase. Certain of these investments represent deposits which are not insured by the FDIC or any other government agency. Cash equivalents are carried at cost, which approximates fair value.
Short-term Investments
Short-term investments represent time and call deposits with original maturities of greater than three months at the date of acquisition. Short-term investments are classified as available-for-sale and are reported at fair value, with unrealized gains (losses) excluded from earnings and reported, net of tax, in accumulated other comprehensive income (loss) within the accompanying consolidated balance sheets. There were no unrealized gains (losses) recorded as of December 31, 2015 and 2014, as cost approximates fair value.
Restricted Cash
The Company has certain subsidiaries which are required by local governance to maintain restricted cash balances to cover future employee benefit payments. Restricted cash balances are classified as non-current unless, under the terms of the applicable agreements, the funds will be released from restrictions within one year from the balance sheet date. The current and non-current portion of restricted cash is recorded within other current assets and other long-term assets, respectively, in the accompanying consolidated balance sheets.
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Derivative Financial Instruments and Hedging Activities
All derivatives, whether designated in a hedging relationship or not, are recorded on the consolidated balance sheets at fair value. The accounting for changes in fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, the Company must designate the hedging instrument, based on the exposure being hedged, as a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation.
A fair value hedge is a derivative instrument designated for the purpose of hedging the exposure of changes in fair value of an asset or a liability resulting from a particular risk. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are both recognized in the same caption in the consolidated statements of income and comprehensive income (loss).
Fair Value of Financial Instruments
The Company applies the following hierarchy to determine the fair value of financial instruments, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. The levels in the hierarchy are defined as follows:
The valuation techniques that may be used by the Company to determine the fair value of Level 2 and Level 3 financial instruments are the market approach, the income approach and the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value based on current market expectations about those future amounts, including present value techniques, option-pricing models and the excess earnings method. The cost approach is based on the amount that would be required to replace the service capacity of an asset (replacement cost).
The Company's financial instruments consist primarily of cash equivalents, short-term investments, restricted cash, derivative instruments consisting of forward foreign exchange contracts, commodity contracts, derivatives embedded in certain purchase and sale contracts, accounts receivable, short-term borrowings, accounts payable, contingent consideration and long-term debt. The carrying amounts of the Company's cash equivalents, short-term investments and restricted cash, accounts receivable, short-term borrowings and accounts payable approximate fair value caused by their short-term nature. Derivative assets and liabilities are measured at fair value on a recurring basis. The Company's long-term debt consists principally of a private placement arrangement entered into in 2012 with various fixed interest rates based on the maturity date.
The Company has evaluated the estimated fair value of financial instruments using available market information and management's estimates. The use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts.
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Concentration of Credit Risk
Financial instruments which subject the Company to credit risk consist of cash, cash equivalents, short-term investments, derivative instruments, accounts receivables and restricted cash. The risk with respect to cash, cash equivalents and short-term investments is minimized by the Company's policy of investing in short-term financial instruments issued by highly-rated financial institutions. The risk with respect to derivative instruments is minimized by the Company's policy of entering into arrangements with highly-rated financial institutions. The risk with respect to accounts receivables is minimized by the creditworthiness and diversity of the Company's customers. The Company performs periodic credit evaluations of its customers' financial condition and generally requires an advanced deposit for a portion of the purchase price. Credit losses have been within management's expectations and the allowance for doubtful accounts totaled $9.1 million and $10.1 million as of December 31, 2015 and 2014, respectively. As of December 31, 2015 and 2014, no single customer represented 10% or more of the Company's accounts receivable. For the years ended December 31, 2015, 2014 and 2013, no single customer represented 10% or more of the Company's total revenue.
Inventories
Components of inventory include raw materials, work-in-process, demonstration units and finished goods. Demonstration units include systems which are located in the Company's demonstration laboratories or installed at the sites of potential customers and are considered available for sale. Finished goods include in-transit systems that have been shipped to the Company's customers, but not yet installed and accepted by the customer. All inventories are stated at the lower of cost or market. Cost is determined principally by the first-in, first-out method for a majority of subsidiaries and by average-cost for certain other subsidiaries. The Company reduces the carrying value of its inventories for differences between cost and estimated net realizable value, taking into consideration usage in the preceding twelve months, expected demand, technological obsolescence and other information including the physical condition of demonstration inventories. The Company records a charge to cost of revenue for the amount required to reduce the carrying value of inventory to net realizable value. Costs associated with the procurement of inventories, such as inbound freight charges and purchasing and receiving costs, are capitalized as part of inventory and are also included in the cost of revenue line item within the consolidated statements of income and comprehensive income (loss).
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Major improvements are capitalized while expenditures for maintenance, repairs and minor improvements are charged to expense as incurred. When assets are retired or otherwise disposed of, the assets and related accumulated depreciation and amortization are eliminated from the accounts and any resulting gain or loss is reflected in the consolidated statements of income and comprehensive income (loss). Depreciation and amortization are calculated on a straight-line basis over the estimated useful lives of the assets as follows:
Buildings | 25-40 years | ||
Machinery and equipment | 3-10 years | ||
Computer equipment and software | 3-5 years | ||
Furniture and fixtures | 3-10 years | ||
Leasehold improvements | Lesser of 15 years or the remaining lease term |
Goodwill and Intangible Assets
Goodwill and indefinite-lived intangible assets are not amortized, but are evaluated for impairment on an annual basis, or on an interim basis when events or changes in circumstances indicate that the
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carrying value may not be recoverable. In assessing the recoverability of goodwill and indefinite-lived intangible assets, the Company must make assumptions regarding the estimated future cash flows, and other factors, to determine the fair value of these assets. If these estimates or their related assumptions change in the future, the Company may be required to record impairment charges against these assets in the reporting period in which the impairment is determined.
The Company tests goodwill for impairment at the reporting unit level, which is the operating segment or one level below an operating segment. The Company has the option of performing a qualitative assessment to determine whether further impairment testing is necessary before performing the two-step quantitative assessment. If as a result of the qualitative assessment, it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, a quantitative impairment test will be required. Otherwise, no further testing will be required. If a quantitative impairment test is performed, the first step involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. The Company generally determines fair value of reporting units using a weighting of both the market and the income methodologies. Estimating the fair value of the reporting units requires significant judgment by management. If the carrying amount of a reporting unit exceeds the fair value of the reporting unit, the Company performs the second step of the goodwill impairment test to measure the amount of the impairment. In the second step of the goodwill impairment test the Company compares the implied fair value of the reporting unit's goodwill with the carrying value of that goodwill.
In process research and development, or IPR&D, acquired as part of business combinations under the acquisition method represents ongoing development work associated with enhancements to existing products, as well as the development of next generation products. IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment on an annual basis, or when indicators of impairment are identified. When the IPR&D project is complete, it is reclassified as a finite-lived intangible asset and is amortized over its estimated useful life, typically seven to ten years. If an IPR&D project is abandoned before completion or is otherwise determined to be impaired, the value of the asset or the amount of the impairment is charged to the consolidated statements of income and comprehensive income (loss) in the period the project is abandoned or impaired.
Intangible assets with a finite useful life are amortized on a straight-line basis over their estimated useful lives as follows:
Existing technology and related patents | 3-10 years | ||
Customer and distributor relationships | 5-12 years | ||
Trade names | 5-10 years |
Impairment of Long-Lived Assets
Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the quoted market price, if available, or the estimated fair value of those assets are less than the assets' carrying value. Impairment losses are charged to the consolidated statements of income and comprehensive income (loss) for the difference between the fair value and carrying value of the asset.
Warranty Costs and Deferred Revenue
The Company typically provides a one year parts and labor warranty with the purchase of equipment. The anticipated cost for this warranty is accrued upon recognition of the sale and is included as a current liability on the accompanying consolidated balance sheets. The Company's warranty reserve reflects estimated material and labor costs for potential product issues for which the Company expects to incur an obligation. The Company's estimates of anticipated rates of warranty
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claims and costs are primarily based on historical information. The Company assesses the adequacy of the warranty reserve on a quarterly basis and adjusts the amount as necessary. If the historical data used to calculate the adequacy of the warranty reserve is not indicative of future requirements, additional or reduced warranty reserves may be required.
The Company also offers to its customers extended warranty and service agreements extending beyond the initial warranty for a fee. These fees are recorded as deferred revenue and recognized ratably into income over the life of the extended warranty contract or service agreement.
Income Taxes
Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the income tax basis of assets and liabilities. A valuation allowance is applied against any net deferred tax asset if, based on the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company records liabilities related to uncertain tax positions in accordance with the guidance that clarifies the accounting for uncertainty in income taxes recognized in a Company's financial statements. This guidance prescribes a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
Customer Advances
The Company typically requires an advance deposit under the terms and conditions of contracts with customers. These deposits are recorded as a liability until revenue is recognized on the specific contract in accordance with the Company's revenue recognition policy.
Revenue Recognition
The Company recognizes revenue from system sales when persuasive evidence of an arrangement exists, the price is fixed or determinable, title and risk of loss has been transferred to the customer and collectability of the resulting receivable is reasonably assured. Title and risk of loss transfers based upon customer acceptance for a system that has been delivered and installed at a customer facility or, for certain systems, upon shipping terms. For systems that include customer-specific acceptance criteria, the Company is required to assess when it can demonstrate the acceptance criteria has been met, which generally is upon customer acceptance and evidence of installation.
When products are sold through an independent distributor or a strategic distribution partner who assumes responsibility for installation, the Company recognizes the system sale when the product has been shipped and title and risk of loss have been transferred to the distributor. The Company's distributors do not have price protection rights or rights of return; however, the Company's products are typically warranted to be free from defect for a period of one year. Revenue is deferred until cash is received when collectability is not reasonably assured or when the price is not fixed or determinable.
For transactions that include multiple elements, arrangement consideration is allocated to each element using the fair value hierarchy as required by ASU No. 2009-13. The Company limits the amount of revenue recognized for delivered elements to the amount that is not contingent on the future delivery of products or services, future performance obligations, or subject to customer-specific return or refund privileges.
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The Company determines the fair value of its products and services based upon vendor specific objective evidence ("VSOE"). The Company determines VSOE based on its normal selling pricing and discounting practices for the specific product or service when sold on a stand-alone basis. In determining VSOE, the Company's policy requires a substantial majority of selling prices for a product or service to be within a reasonably narrow range. The Company also considers the class of customer, method of distribution and the geographies into which products and services are being sold when determining VSOE.
If VSOE cannot be established, the Company attempts to establish the selling price based on third-party evidence ("TPE"). VSOE cannot be established in instances where a product or service has not been sold separately, stand-alone sales are too infrequent or product pricing is not within a sufficiently narrow range. TPE is determined based on competitor prices for similar deliverables when sold separately.
When the Company cannot determine VSOE or TPE, it uses estimated selling price ("ESP") in its allocation of arrangement consideration. The objective of ESP is to determine the price at which the Company would typically transact a stand-alone sale of the product or service. ESP is determined by considering a number of factors including the Company's pricing policies, internal costs and gross profit objectives, method of distribution, market research and information, recent technological trends, competitive landscape and geographies. The Company analyzes the selling prices used in its allocation of arrangement consideration, at a minimum, on an annual basis. Selling prices will be analyzed more frequently if a significant change in the Company's business or other factors necessitate more frequent analysis or if the Company experiences significant variances in its selling prices.
Revenue from accessories and parts is recognized upon shipment. Service revenue is recognized as the services are performed or ratably over the contractual obligation and includes maintenance contracts, extended warranty, training, application support and on-demand services.
The Company also has contracts for which it applies the percentage-of-completion model and completed contract model of revenue recognition. Application of the percentage-of-completion method requires the Company to make reasonable estimates of the extent of progress toward completion of the contract and the total costs the Company will incur under the contract and losses are recorded immediately when we estimate that contracts will ultimately result in a loss. Changes in the estimates could affect the timing of revenue recognition.
Other revenues are primarily comprised of licensing arrangements, which is recognized ratably over the term of the related contracts.
Shipping and Handling Costs
The Company includes costs incurred in connection with shipping and handling of products within selling, general and administrative expenses in the accompanying consolidated statements of income and comprehensive income (loss). Shipping and handling costs were $20.6 million, $26.2 million and $26.7 million in the years ended December 31, 2015, 2014 and 2013, respectively. Amounts billed to customers in connection with these costs are included in total revenues.
Research and Development
Research and development costs are expensed as incurred and include salaries, wages and other personnel related costs, material costs and depreciation, consulting costs and facility costs.
Software Costs
Purchased software is capitalized at cost and is amortized over the estimated useful life, generally three years. Software developed for use in the Company's products is expensed as incurred until
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technological feasibility is reasonably assured and is classified as research and development expense. Subsequent to the achievement of technological feasibility, amounts are capitalizable, however, to date such amounts have not been material.
Advertising
The Company expenses advertising costs as incurred. Advertising expenses were $12.9 million, $10.7 million and $9.6 million during the years ended December 31, 2015, 2014 and 2013, respectively.
Stock-Based Compensation
The Company recognizes stock-based compensation expense in the consolidated statements of income and comprehensive income (loss) based on the fair value of the share-based award at the grant date. The Company's primary types of share-based compensation are stock options and restricted stock units. The Company recorded stock-based compensation expense for the years ended December 31, 2015, 2014 and 2013, as follows (in millions):
|
2015 | 2014 | 2013 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Stock options |
$ | 7.1 | $ | 6.7 | $ | 5.3 | ||||
Restricted stock |
0.9 | 2.7 | 1.3 | |||||||
| | | | | | | | | | |
Total stock-based compensation |
$ | 8.0 | $ | 9.4 | $ | 6.6 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Compensation expense is amortized on a straight-line basis over the underlying vesting terms of the share-based award. Stock options to purchase the Company's common stock are periodically awarded to executive officers and other employees of the Company, and members of the Company's Board of Directors, subject to a vesting period of three to five years. The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. Assumptions regarding volatility, expected term, dividend yield and risk-free interest rates are required for the Black-Scholes model and are presented in the table below:
|
2015 | 2014 | 2013 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Risk-free interest rates |
1.58%-1.91% | 1.78%-2.10% | 1.07%-2.45% | |||||||
Expected life |
6.0-6.25 years | 6.0-6.25 years | 6.5 years | |||||||
Volatility |
35.10%-52.23% | 53.07%-56.24% | 54.9% | |||||||
Expected dividend yield |
| | |
The risk-free interest rate is based on the yield on zero-coupon U.S. Treasury securities for a period that is commensurate with the expected life assumption. Expected life is determined through the simplified method as defined in the Securities and Exchange Commission Staff Accounting Bulletin No. 110. The Company believes that this is the best estimate of the expected term of a new option. Expected volatility is based on a number of factors, but the Company currently believes that the exclusive use of its historical volatility results in the best estimate of the grant-date fair value of employee stock options because it reflects the market's current expectations of future volatility. The expected dividend yield was not considered in the option pricing formula since the Company had not historically paid dividends and had no plan to do so as of December 31, 2015. In addition, the Company utilizes an estimated forfeiture rate when calculating the stock-based compensation expense for the period. The Company has applied estimated forfeiture rates derived from an analysis of historical data of 5.8%, 5.1% and 7.0% for the years ended December 31, 2015, 2014 and 2013, respectively, in determining the expense recorded in the accompanying consolidated statements of income and comprehensive income (loss).
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Earnings Per Share
Net income per common share attributable to Bruker Corporation shareholders is calculated by dividing net income attributable to Bruker Corporation by the weighted-average shares outstanding during the period. The diluted net income per share computation includes the effect of shares which would be issuable upon the exercise of outstanding stock options and the vesting of restricted stock, reduced by the number of shares which are assumed to be purchased by the Company under the treasury stock method.
The following table sets forth the computation of basic and diluted weighted average shares outstanding for the years ended December 31, (in millions, except per share data):
|
2015 | 2014 | 2013 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Net income attributable to Bruker Corporation, as reported |
$ | 101.6 | $ | 56.7 | $ | 80.1 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Weighted average shares outstanding: |
||||||||||
Weighted average shares outstanding-basic |
168.2 | 167.8 | 166.5 | |||||||
Effect of dilutive securities: |
||||||||||
Stock options and restricted stock units |
0.9 | 1.7 | 2.0 | |||||||
| | | | | | | | | | |
|
169.1 | 169.5 | 168.5 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Net income per common share attributable to Bruker Corporation shareholders: |
||||||||||
Basic |
$ | 0.60 | $ | 0.34 | $ | 0.48 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Diluted |
$ | 0.60 | $ | 0.33 | $ | 0.48 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Stock options to purchase approximately 1.3 million shares, 0.1 million shares and 0.4 million shares were excluded from the computation of diluted earnings per share for the years ended December 31, 2015, 2014 and 2013, respectively, because their effect would have been anti-dilutive.
In May 2015, the Company's Board of Directors approved a share repurchase program (the "Anti-Dilutive Repurchase Program") under which the Company may repurchase the Company's common stock in amounts intended to approximately offset, on an annual basis, the dilutive effect of shares that have been, or may be, issued pursuant to option or restricted stock awards under the Company's 2010 Incentive Compensation Plan. A total of 1,245,000 shares were repurchased at an aggregate cost of $24.9 million under the Anti-Dilutive Repurchase Program.
In November 2015, the Company's Board of Directors suspended the Anti-Dilutive Repurchase Program until January 1, 2017 and approved an additional share repurchase program (the "Repurchase Program") under which repurchases of common stock up to $225 million may occur from time to time, in amounts, at prices, and at such times as the Company deems appropriate, subject to market conditions, legal requirements and other considerations. A total of 2,837,042 shares were repurchased at an aggregate cost of $65.0 million as of December 31, 2015 under the Repurchase Program. The Repurchase Program will continue in 2016 and the Company intends to fund any additional repurchases from cash on hand, future cash flows from operations and available borrowings under the revolving credit facility.
The repurchased shares are reflected within Treasury stock in the accompanying consolidated balance sheet at December 31, 2015.
Employee Benefit Plans
The Company recognizes the over-funded or under-funded status of defined benefit pension and other postretirement defined benefit plans as an asset or liability, respectively, in its consolidated
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balance sheets and recognizes changes in the funded status in the year in which the changes occur through other comprehensive income (loss).
Other Comprehensive Income (Loss)
Other comprehensive income (loss) refers to revenues, expenses, gains and losses that are excluded from net income as these amounts are recorded directly as an adjustment to shareholders' equity, net of tax. The Company's other comprehensive income (loss) was composed of foreign currency translation adjustments and pension liability adjustments.
Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiaries, where the functional currency is the local currency, are translated into U.S. dollars using year-end exchange rates, or historical rates, as appropriate. Revenues and expenses of foreign subsidiaries are translated at the average exchange rates in effect during the year. Adjustments resulting from financial statement translations are included as a separate component of shareholders' equity. Gains and losses resulting from translation of foreign currency monetary transactions are reported in interest and other income (expense), net in the consolidated statements of income and comprehensive income (loss) for all periods presented. The Company has certain intercompany foreign currency transactions that are deemed to be of a long-term investment nature. Exchange adjustments related to those transactions are made directly to a separate component of shareholders' equity.
Risk and Uncertainties
The Company is subject to risks common to its industry including, but not limited to, global economic conditions, rapid technological change, government and academic funding levels, changes in commodity prices, spending patterns from its customers, protection of its intellectual property, availability of key raw materials and components, compliance with existing and future regulation by government agencies and fluctuations in foreign currency exchange rates.
Contingencies
The Company is subject to proceedings, lawsuits and other claims related to patents, product and other matters. The Company assesses the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after analysis of each individual issue. The required reserves may change in the future because of new developments in each situation or changes in settlement strategy in assessing these matters.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period.
Significant estimates and judgments made by management in preparing these financial statements include revenue recognition, allowances for doubtful accounts, write-downs for excess and obsolete inventory, estimated fair values used to record impairment charges related to intangible assets, goodwill, and other long-lived assets, amortization periods, expected future cash flows used to evaluate the recoverability of long-lived assets, stock-based compensation expense, warranty allowances,
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restructuring and other related charges, contingent liabilities and the recoverability of the Company's net deferred tax assets.
Although the Company regularly reassesses the assumptions underlying these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results may differ from management's estimates if these results differ from historical experience or other assumptions prove not to be substantially accurate, even if such assumptions are reasonable when made.
Note 3Acquisitions
In October 2015, the Company completed the acquisition of Jordan Valley Semiconductors, Ltd. ("Jordan Valley"), a company headquartered in Israel that provides X-ray metrology and defect-detection equipment for semiconductor process control. The acquisition of Jordan Valley was accounted for under the acquisition method. The components and fair value allocation of the consideration transferred in connection with the acquisition of Jordan Valley were as follows (in millions):
Consideration Transferred: |
||||
Cash paid |
$ | 35.4 | ||
Cash acquired |
(6.8 | ) | ||
Contingent consideration |
4.1 | |||
| | | | |
Total consideration transferred |
$ | 32.7 | ||
| | | | |
| | | | |
| | | | |
Allocation of Consideration Transferred: |
||||
Accounts receivable |
$ | 3.8 | ||
Inventories |
10.5 | |||
Other current assets |
2.2 | |||
Property, plant and equipment |
1.6 | |||
Intangible assets: |
||||
Customer relationships |
6.8 | |||
Existing technology |
6.0 | |||
Trade name |
1.5 | |||
Goodwill |
6.3 | |||
Liabilities assumed |
(6.0 | ) | ||
| | | | |
Total consideration transferred |
$ | 32.7 | ||
| | | | |
| | | | |
| | | | |
The fair value allocation included contingent consideration in the amount of $4.1 million, which represented the estimated fair value of future payments to the former shareholders of Jordan Valley based on achieving annual revenue and gross margin targets for the years 2016-2017. The maximum potential future payments related to the contingent consideration is $15 million. The Company completed the fair value allocation in the fourth quarter of 2015. The amortization period for intangible assets acquired in connection with Jordan Valley is 7 years for customer relationships, existing technology and trade name.
The results of Jordan Valley, including the amount allocated to goodwill which is attributable to expected synergies and not expected to be deductible for tax purposes, have been included in the BSI Segment from the date of acquisition. Pro forma financial information reflecting the acquisition of Jordan Valley has not been presented because the impact on revenues, net income and total assets is not material.
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Note 4Fair Value of Financial Instruments
The Company measures the following financial assets and liabilities at fair value on a recurring basis. The following tables set forth the Company's financial instruments and presents them within the fair value hierarchy using the lowest level of input that is significant to the fair value measurement at December 31, 2015 and 2014 (in millions):
December 31, 2015
|
Total | Quoted Prices in Active Markets Available (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
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---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets: |
|||||||||||||
Short-term investments |
$ | 201.2 | $ | 201.2 | $ | | $ | | |||||
Restricted cash |
1.5 | 1.5 | | | |||||||||
Embedded derivatives in purchase and delivery contracts |
0.5 | | 0.5 | | |||||||||
Long-term restricted cash |
2.6 | 2.6 | | | |||||||||
| | | | | | | | | | | | | |
Total assets recorded at fair value |
$ | 205.8 | $ | 205.3 | $ | 0.5 | $ | | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Liabilities: |
|||||||||||||
Contingent consideration |
$ | 4.6 | $ | | $ | | $ | 4.6 | |||||
Foreign exchange contracts |
1.3 | | 1.3 | | |||||||||
Embedded derivatives in purchase and delivery contracts |
0.5 | | 0.5 | | |||||||||
Fixed price commodity contracts |
0.4 | | 0.4 | | |||||||||
| | | | | | | | | | | | | |
Total liabilities recorded at fair value |
$ | 6.8 | $ | | $ | 2.2 | $ | 4.6 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
December 31, 2014
|
Total | Quoted Prices in Active Markets Available (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets: |
|||||||||||||
Cash equivalents |
$ | 67.9 | $ | 67.9 | $ | | $ | | |||||
Short-term investments |
178.0 | 178.0 | | | |||||||||
Restricted cash |
1.8 | 1.8 | | | |||||||||
Embedded derivatives in purchase and delivery contracts |
0.6 | | 0.6 | | |||||||||
Long-term restricted cash |
3.4 | 3.4 | | ||||||||||
| | | | | | | | | | | | | |
Total assets recorded at fair value |
$ | 251.7 | $ | 251.1 | $ | 0.6 | $ | | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Liabilities: |
|||||||||||||
Contingent consideration |
$ | 11.9 | $ | | $ | | $ | 11.9 | |||||
Foreign exchange contracts |
5.1 | | 5.1 | | |||||||||
Embedded derivatives in purchase and delivery contracts |
0.4 | | 0.4 | | |||||||||
Fixed price commodity contracts |
0.2 | | 0.2 | ||||||||||
| | | | | | | | | | | | | |
Total liabilities recorded at fair value |
$ | 17.6 | $ | | $ | 5.7 | $ | 11.9 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Derivative financial instruments are classified within level 2 because there is not an active market for each derivative contract. However, the inputs used to calculate the value of the instruments are obtained from active markets.
19
The fair value of the long-term fixed interest rate debt, which has been classified as Level 2, was $252.1 million and $257.2 million at December 31, 2015 and 2014, respectively, based on market and observable sources with similar maturity dates.
The Company measures certain assets and liabilities at fair value with changes in fair value recognized in earnings. Fair value treatment may be elected either upon initial recognition of an eligible asset or liability or, for an existing asset or liability, if an event triggers a new basis of accounting. The Company did not elect to remeasure any of its existing financial assets or liabilities during the year ended December 31, 2015.
As part of certain acquisitions in 2015, 2014 and 2013, the Company recorded contingent consideration liabilities that have been classified as Level 3 in the fair value hierarchy. The contingent consideration represents the estimated fair value of future payments to the former shareholders of applicable acquired companies based on achieving annual revenue and gross margin targets in certain years as specified in the purchase and sale agreements. The Company initially valued the contingent consideration by using a Monte Carlo simulation which models future revenue and costs of goods sold projections and discounts the average results to present value. Changes to the fair value of the contingent consideration recognized in earnings for the years ended December 31, 2015 and December 31, 2014 were ($7.7) million and $0.8 million, respectively, and were recorded to other charges, net in the consolidated statements of income and comprehensive income (loss). The adjustment for the year ended December 31, 2015 included a reversal of certain contingent consideration, as it was determined that certain financial targets related to the applicable products would not meet the required thresholds for payment. The following table sets forth the changes in contingent consideration liabilities for the years ended December 31, 2015 and 2014 (in millions):
Balance at December 31, 2013 |
$ | 7.0 | ||
Current period additions |
4.7 | |||
Current period adjustments |
0.8 | |||
Current period settlements |
(0.5 | ) | ||
Foreign currency effect |
(0.1 | ) | ||
| | | | |
Balance at December 31, 2014 |
11.9 | |||
Current period additions |
4.1 | |||
Current period adjustments |
(7.7 | ) | ||
Current period settlements |
(3.6 | ) | ||
Foreign currency effect |
(0.1 | ) | ||
| | | | |
Balance at December 31, 2015 |
$ | 4.6 | ||
| | | | |
| | | | |
| | | | |
During the second quarter of 2014, the Company commenced a program to enter into time deposits with varying maturity dates ranging from one to twelve months, as well as call deposits for which the Company has the ability to redeem the invested amounts over a period of 31 to 95 days. The Company has classified these investments within cash and cash equivalents or short-term investments within the consolidated balance sheets based on the call and maturity dates. There are no cash equivalents and $201.2 million of short-term investments outstanding as of December 31, 2015.
Short-term investments are classified as available-for-sale and are reported at fair value, with unrealized gains (losses) excluded from earnings and reported, net of tax, in accumulated other comprehensive income (loss) within the accompanying consolidated balance sheets. There were no unrealized gains (losses) recorded as of December 31, 2015 and 2014. On a quarterly basis, the Company reviews its short-term investments to determine if there have been any events that could create an impairment. None were noted for the years ended December 31, 2015 and 2014.
20
Note 5Accounts Receivable
The following is a summary of trade accounts receivable at December 31, (in millions):
|
2015 | 2014 | |||||
---|---|---|---|---|---|---|---|
Gross accounts receivable |
$ | 243.8 | $ | 303.3 | |||
Allowance for doubtful accounts |
(9.1 | ) | (10.1 | ) | |||
| | | | | | | |
Accounts receivable, net |
$ | 234.7 | $ | 293.2 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The allowance for doubtful accounts is management's estimate of credit losses in the accounts receivable. The allowance for doubtful accounts is based on a number of factors, including an evaluation of customer credit worthiness, the age of the outstanding receivable, economic trends and historical experience. The allowance for doubtful accounts is reviewed on a quarterly basis and changes in estimates are reflected in the period in which they become known. The Company records account balances against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Provisions for doubtful accounts are recorded in selling, general and administrative expenses in the accompanying consolidated statements of income and comprehensive income (loss).
The following is a summary of the activity in the Company's allowance for doubtful accounts at December 31, (in millions):
|
Balance at Beginning of Period |
Additions Charged to Expense |
Deductions Amounts Written Off |
Foreign Currency Impact |
Balance at End of Period |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2015 |
$ | 10.1 | $ | 2.1 | $ | (2.5 | ) | $ | (0.6 | ) | $ | 9.1 | ||||
2014 |
7.9 | 5.5 | (2.5 | ) | (0.8 | ) | 10.1 | |||||||||
2013 |
7.9 | 1.3 | (1.3 | ) | | 7.9 |
Note 6Inventories
Inventories consisted of the following at December 31, (in millions):
|
2015 | 2014 | |||||
---|---|---|---|---|---|---|---|
Raw materials |
$ | 158.8 | $ | 159.5 | |||
Work-in-process |
131.1 | 169.5 | |||||
Finished goods |
93.3 | 109.9 | |||||
Demonstration units |
38.8 | 38.5 | |||||
| | | | | | | |
Inventories |
$ | 422.0 | $ | 477.4 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Finished goods include in-transit systems that have been shipped to the Company's customers but not yet installed and accepted by the customer. As of December 31, 2015 and 2014, inventory-in-transit was $44.7 million and $58.6 million, respectively.
The Company reduces the carrying value of its demonstration inventories for differences between its cost and estimated net realizable value through a charge to cost of product revenue that is based on a number of factors including the age of the unit, the physical condition of the unit and an assessment of technological obsolescence. Amounts recorded in cost of revenue related to the write-down of demonstration units to net realizable value were $19.4 million, $28.2 million and $32.7 million for the years ended December 31, 2015, 2014 and 2013, respectively.
21
Note 7Property, Plant and Equipment, Net
The following is a summary of property, plant and equipment, net by major asset class at December 31, (in millions):
|
2015 | 2014 | |||||
---|---|---|---|---|---|---|---|
Land |
$ | 27.6 | $ | 29.7 | |||
Building and leasehold improvements |
261.9 | 272.1 | |||||
Machinery, equipment, software and furniture and fixtures |
314.0 | 320.9 | |||||
| | | | | | | |
|
603.5 | 622.7 | |||||
Less accumulated depreciation and amortization |
(372.4 | ) | (372.8 | ) | |||
| | | | | | | |
Property, plant and equipment, net |
$ | 231.1 | $ | 249.9 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Depreciation expense, which includes the amortization of leasehold improvements, for the years ended December 31, 2015, 2014 and 2013 was $32.6 million, $39.5 million and $40.5 million, respectively.
During the year ended December 31, 2015, the Company recorded an impairment charge of $2.1 million representing the write down to fair value of certain property, plant and equipment, net in the Bruker BioSpin Group related to restructuring and outsourcing activities during the year. These impairment charges are recorded within "Impairment of assets" in the accompanying consolidated statements of income and comprehensive income (loss). Please see Note 17Other Charges, net, for additional details on the Bruker BioSpin Group restructuring activities.
In July 2014, the Company's Board of Directors approved a plan (the "Plan") to divest certain assets and implement a restructuring program in the former Chemical and Applied Markets (CAM) Division within the Bruker CALID Group. The Plan was developed as a result of management's conclusion that the former CAM business would be unable to achieve acceptable financial performance in the next two years. Please see Note 17Other Charges, net, for additional details on the Plan. The Company determined the Plan was an indicator requiring the evaluation of property, plant and equipment within that reporting unit for recoverability. The Company performed a valuation during 2014 and determined that the property, plant and equipment within the former CAM Division were impaired. The Company recorded an impairment charge of $5.5 million in the year ended December 31, 2014 to reduce the remaining value of those assets to fair value. In addition, the Company determined, based upon projected cash flows generated by certain assets in the BEST Segment, that an impairment charge of $5.1 million was necessary during the year ended December 31, 2014 to reduce the carrying value of those assets to their estimated fair values. These impairment charges are recorded within "Impairment of assets" in the accompanying consolidated statements of income and comprehensive income (loss).
22
Note 8Goodwill and Intangible Assets
The following table sets forth the changes in the carrying amount of goodwill for the years ended December 31, 2015 and 2014 (in millions):
Balance at December 31, 2013 |
$ | 127.4 | ||
Current period additions |
5.1 | |||
Current period adjustments |
(0.1 | ) | ||
Foreign currency impact |
(4.6 | ) | ||
| | | | |
Balance at December 31, 2014 |
127.8 | |||
Current period additions |
6.3 | |||
Current period adjustments |
0.5 | |||
Impairment |
(0.7 | ) | ||
Foreign currency impact |
(3.3 | ) | ||
| | | | |
Balance at December 31, 2015 |
$ | 130.6 | ||
| | | | |
| | | | |
| | | | |
At December 31, 2015 and 2014, all goodwill was allocated within the BSI Segment. The goodwill acquired in 2015 relates to the acquisition of Jordan Valley. The goodwill acquired in 2014 relates to the acquisition of Vutara, Inc., a provider of high-speed, three-dimensional (3D), super-resolution fluorescence microscopy for life science applications.
During the year ended December 31, 2015, the Company recorded an impairment charge of $0.7 million representing the impairment of goodwill in the Bruker BioSpin Group related to certain restructuring and outsourcing activities during the year. The Company performed its annual impairment evaluation using a quantitative and qualitative approach at December 31, 2015 and 2014, respectively, and concluded the fair values of each of our reporting units was significantly greater than their carrying amounts, and therefore, no additional impairment was required.
The following is a summary of intangible assets at December 31, (in millions):
|
2015 | 2014 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
|||||||||||||
Existing technology and related patents |
$ | 154.5 | $ | (95.5 | ) | $ | 59.0 | $ | 149.8 | $ | (81.7 | ) | $ | 68.1 | |||||
Customer relationships |
18.4 | (5.9 | ) | 12.5 | 13.4 | (5.6 | ) | 7.8 | |||||||||||
Non compete conracts |
1.8 | (0.6 | ) | 1.2 | 1.8 | (0.2 | ) | 1.6 | |||||||||||
Trade names |
1.6 | (0.2 | ) | 1.4 | 0.2 | (0.2 | ) | | |||||||||||
| | | | | | | | | | | | | | | | | | | |
Intangible assets subject to amortization |
176.3 | (102.2 | ) | 74.1 | 165.2 | (87.7 | ) | 77.5 | |||||||||||
In-process research and development |
0.6 | | 0.6 | 6.3 | | 6.3 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Intangible assets |
$ | 176.9 | $ | (102.2 | ) | $ | 74.7 | $ | 171.5 | $ | (87.7 | ) | $ | 83.8 | |||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
For the years ended December 31, 2015, 2014 and 2013, the Company recorded amortization expense of approximately $20.7 million, $20.2 million and $20.8 million, respectively, in the consolidated statements of income and comprehensive income (loss). During the year ended December 31, 2015, the Company recorded an impairment charge of $1.8 million representing the impairment of intangible assets in the Bruker BioSpin Group related to certain restructuring and outsourcing activities during the year. During the year ended December 31, 2014, the Company recorded an impairment charge of $0.9 million representing the impairment of intangible assets in the former CAM Division related to the Plan described above.
23
The estimated future amortization expense related to amortizable intangible assets at December 31, 2015 is as follows (in millions):
2016 |
$ | 21.3 | ||
2017 |
21.1 | |||
2018 |
16.8 | |||
2019 |
4.9 | |||
2020 |
4.0 | |||
Thereafter |
6.0 | |||
| | | | |
Total |
$ | 74.1 | ||
| | | | |
| | | | |
| | | | |
Note 9Other Current Liabilities
The following is a summary of other current liabilities at December 31, (in millions):
|
2015 | 2014 | |||||
---|---|---|---|---|---|---|---|
Deferred revenue |
$ | 77.0 | $ | 89.0 | |||
Accrued compensation |
88.5 | 87.7 | |||||
Accrued warranty |
19.6 | 21.6 | |||||
Income taxes payable |
25.1 | 19.2 | |||||
Other taxes payable |
25.4 | 17.6 | |||||
Derivative liabilities |
2.2 | 5.7 | |||||
Other accrued expenses |
65.7 | 60.6 | |||||
| | | | | | | |
Other current liabilities |
$ | 303.5 | $ | 301.4 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The following table sets forth the changes in accrued warranty for the years ended December 31, 2015 and 2014 (in millions):
Balance at December 31, 2013 |
$ | 26.7 | ||
Accruals for warranties issued during the year |
19.5 | |||
Settlements of warranty claims |
(22.5 | ) | ||
Foreign currency impact |
(2.1 | ) | ||
| | | | |
Balance at December 31, 2014 |
21.6 | |||
Accruals for warranties issued during the year |
21.1 | |||
Settlements of warranty claims |
(21.7 | ) | ||
Foreign currency impact |
(1.4 | ) | ||
| | | | |
Balance at December 31, 2015 |
$ | 19.6 | ||
| | | | |
| | | | |
| | | | |
24
Note 10Debt
The Company's debt obligations consist of the following as of December 31, (in millions):
|
2015 | 2014 | |||||
---|---|---|---|---|---|---|---|
US Dollar revolving loan under the 2015 Agreement |
$ | 25.0 | $ | | |||
US Dollar revolving loan under the Amended Credit Agreement |
| 112.5 | |||||
US Dollar notes under the Note Purchase Agreement |
240.0 | 240.0 | |||||
Capital lease obligations and other loans |
1.7 | 2.5 | |||||
| | | | | | | |
Total debt |
266.7 | 355.0 | |||||
Current portion of long-term debt |
(0.7 | ) | (0.8 | ) | |||
| | | | | | | |
Total long-term debt, less current portion |
$ | 266.0 | $ | 354.2 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
In May 2011, the Company entered into an amendment to, and restatement of, its credit agreement, referred to as the Amended Credit Agreement. The Amended Credit Agreement provided a maximum commitment on the Company's revolving credit line of $250.0 million and a maturity date of May 2016. Borrowings under the revolving credit line of the Amended Credit Agreement accrued interest, at the Company's option, at either (a) the greater of (i) the prime rate, (ii) the federal funds rate plus 0.50% and (iii) adjusted LIBOR plus 1.00% or (b) LIBOR, plus margins ranging from 0.80% to 1.65%. There was also a facility fee ranging from 0.20% to 0.35%. The Amended Credit Agreement was repaid in full in October 2015.
On October 27, 2015, the Company entered into a new revolving credit agreement, referred to as the 2015 Credit Agreement, and terminated the Amended Credit Agreement. The 2015 Credit Agreement provides a maximum commitment on the Company's revolving credit line of $500 million and a maturity date of October 2020. Borrowings under the revolving credit line of the 2015 Credit Agreement accrue interest, at the Company's option, at either (a) the greater of (i) the prime rate, (ii) the federal funds rate plus 0.50% and (iii) adjusted LIBOR plus 1.00%, plus margins ranging from 0.00% to 0.30% or (b) LIBOR, plus margins ranging from 0.90% to 1.30%. There is also a facility fee ranging from 0.10% to 0.20%.
Borrowings under the 2015 Credit Agreement are secured by guarantees from certain material subsidiaries, as defined in the 2015 Credit Agreement. The 2015 Credit Agreement also requires the Company to maintain certain financial ratios related to maximum leverage and minimum interest coverage (as defined in the 2015 Credit Agreement). Specifically, the Company's leverage ratio cannot exceed 3.5 and the Company's interest coverage ratio cannot be less than 2.5. In addition to the financial ratios, the 2015 Credit Agreement contains negative covenants, including among others, restrictions on liens, indebtedness of the Company and its subsidiaries, asset sales, dividends and transactions with affiliates. Failure to comply with any of these restrictions or covenants may result in an event of default on the 2015 Credit Agreement, which could permit acceleration of the debt and require the Company to prepay the debt before its scheduled due date.
As of December 31, 2015, the Company was in compliance with the covenants of the 2015 Credit Agreement. The Company's leverage ratio (as defined in the 2015 Credit Agreement) was 1.0 and interest coverage ratio (as defined in the 2015 Credit Agreement) was 14.9.
25
The following is a summary of the maximum commitments and the net amounts available to the Company at December 31, 2015 (in millions):
|
Weighted Average Interest Rate |
Total Amount Committed by Lenders |
Outstanding Borrowings |
Outstanding Letters of Credit |
Total Amount Available |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2015 Credit Agreement |
1.5 | % | $ | 500.0 | $ | 25.0 | $ | 1.0 | $ | 474.0 | ||||||
Other lines of credit |
| 234.4 | | 136.7 | 97.7 | |||||||||||
| | | | | | | | | | | | | | | | |
Total revolving loans |
$ | 734.4 | $ | 25.0 | $ | 137.7 | $ | 571.7 | ||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Other lines of credit are with various financial institutions located primarily in Germany and Switzerland. The Company's other revolving lines of credit are unsecured and typically due upon demand with interest payable monthly.
In January 2012, the Company entered into a note purchase agreement, referred to as the Note Purchase Agreement, with a group of accredited institutional investors. Pursuant to the Note Purchase Agreement, the Company issued and sold $240.0 million of senior notes, referred to as the Senior Notes, which consist of the following:
Under the terms of the Note Purchase Agreement, the Company may issue and sell additional senior notes up to an aggregate principal amount of $600 million, subject to certain conditions. Interest on the Senior Notes is payable semi-annually on January 18 and July 18 of each year. The Senior Notes are unsecured obligations of the Company and are fully and unconditionally guaranteed by certain of the Company's direct and indirect subsidiaries. The Senior Notes rank pari passu in right of repayment with the Company's other senior unsecured indebtedness. The Company may prepay some or all of the Senior Notes at any time in an amount not less than 10% of the original aggregate principal amount of the Senior Notes to be prepaid, at a price equal to the sum of (a) 100% of the principal amount thereof, plus accrued and unpaid interest, and (b) the applicable make-whole amount, upon not less than 30 and no more than 60 days written notice to the holders of the Senior Notes. In the event of a change in control of the Company, as defined in the Note Purchase Agreement, the Company may be required to prepay the Notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest.
The Note Purchase Agreement contains affirmative covenants, including, without limitation, maintenance of corporate existence, compliance with laws, maintenance of insurance and properties, payment of taxes, addition of subsidiary guarantors and furnishing notices and other information. The Note Purchase Agreement also contains certain restrictive covenants that restrict the Company's ability to, among other things, incur liens, transfer or sell assets, engage in certain mergers and consolidations and enter into transactions with affiliates. The Note Purchase Agreement also includes customary representations and warranties and events of default. In the case of an event of default arising from specified events of bankruptcy or insolvency, all outstanding Senior Notes will become due and payable immediately without further action or notice. In the case of payment events of defaults, any holder of Senior Notes affected thereby may declare all Senior Notes held by it due and payable immediately. In the case of any other event of default, a majority of the holders of the Senior Notes may declare all the Senior Notes to be due and payable immediately. Pursuant to the Note Purchase Agreement, so long as any Senior Notes are outstanding the Company will not permit (i) its leverage ratio, as determined
26
pursuant to the Note Purchase Agreement, as of the end of any fiscal quarter to exceed 3.50 to 1.00, (ii) its interest coverage ratio as determined pursuant to the Note Purchase Agreement as of the end of any fiscal quarter for any period of four consecutive fiscal quarters to be less than 2.50 to 1 or (iii) priority debt at any time to exceed 25% of consolidated net worth, as determined pursuant to the Note Purchase Agreement.
As of December 31, 2015, the Company was in compliance with the covenants of the Note Purchase Agreement. The Company's leverage ratio (as defined in the Note Purchase Agreement) was 1.0 and interest coverage ratio (as defined in the Note Purchase Agreement) was 14.9.
Annual maturities of debt outstanding at December 31, 2015 are as follows (in millions):
2016 |
$ | 0.7 | ||
2017 |
20.1 | |||
2018 |
0.2 | |||
2019 |
15.2 | |||
2020 |
25.1 | |||
Thereafter |
205.4 | |||
| | | | |
Total |
$ | 266.7 | ||
| | | | |
| | | | |
| | | | |
Interest expense for the years ended December 31, 2015, 2014 and 2013, was $13.0 million, $13.3 million and $13.4 million, respectively.
Note 11Derivative Instruments and Hedging Activities
Interest Rate Risks
The Company's exposure to interest rate risk relates primarily to outstanding variable rate debt and adverse movements in the related short-term market rates. The most significant component of the Company's interest rate risk relates to amounts outstanding under the 2015 Credit Agreement, which totaled $25.0 million at December 31, 2015. The Company currently has a higher level of fixed rate debt than variable rate debt, which limits the exposure to adverse movements in interest rates.
Foreign Exchange Rate Risk Management
The Company generates a substantial portion of its revenues and expenses in international markets, principally Germany and other countries in the European Union, Switzerland and Japan, which subjects its operations to the exposure of exchange rate fluctuations. The impact of currency exchange rate movement can be positive or negative in any period. The Company periodically enters into foreign currency contracts in order to minimize the volatility that fluctuations in currency translation have on its monetary transactions. Under these arrangements, the Company typically agrees to purchase a fixed amount of a foreign currency in exchange for a fixed amount of U.S. Dollars or other currencies on specified dates with maturities of less than twelve months. 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
27
income (loss). The Company had the following notional amounts outstanding under foreign currency contracts at December 31, (in millions):
Buy
|
Notional Amount in Buy Currency |
Sell | Maturity | Notional Amount in U.S. Dollars |
Fair Value of Assets |
Fair Value of Liabilities |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, 2015: |
|||||||||||||||||
Euro |
21.1 | U.S. Dollars | January 2016 | $ | 24.2 | $ | | $ | 1.2 | ||||||||
Swiss Francs |
5.9 | U.S. Dollars | April 2016 | 6.0 | | 0.1 | |||||||||||
U.S. Dollars |
6.0 | Israel Shekel | April 2016 | 6.0 | | | |||||||||||
| | | | | | | | | | | | | | | | | |
|
$ | 36.2 | $ | | $ | 1.3 | |||||||||||
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
December 31, 2014: |
|||||||||||||||||
Euro |
43.3 | U.S. Dollars | January 2015 to September 2015 | $ | 55.4 | $ | | $ | 2.9 | ||||||||
U.S. Dollars |
0.3 | Euro | February 2015 to December 2015 | 0.3 | | | |||||||||||
Euro |
0.1 | British Pounds | January 2015 to June 2015 | 0.1 | | | |||||||||||
Yen |
5.7 | Euro | March 2015 | 0.1 | | | |||||||||||
Swiss Francs |
41.4 | U.S. Dollars | January 2015 | 43.9 | | 2.2 | |||||||||||
| | | | | | | | | | | | | | | | | |
|
$ | 99.8 | $ | | $ | 5.1 | |||||||||||
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
In addition, the Company periodically enters into purchase and sales contracts denominated in currencies other than the functional currency of the parties to the transaction. The Company accounts for these transactions separately valuing the "embedded derivative" component of these contracts. The contracts, denominated in currencies other than the functional currency of the transacting parties, amounted to $59.0 million for the delivery of products and $4.1 million for the purchase of products at December 31, 2015 and $41.1 million for the delivery of products and $8.7 million for the purchase of products at December 31, 2014. The changes in the fair value of these embedded derivatives are recorded in interest and other income (expense), net in the consolidated statements of income and comprehensive income (loss).
Commodity Price Risk Management
The Company has an arrangement with a customer under which it has a firm commitment to deliver copper based superconductors at a fixed price. In order to minimize the volatility that fluctuations in the price of copper have on the Company's sales of these commodities, the Company enters into commodity hedge contracts. At December 31, 2015 and 2014, the Company has fixed price commodity contracts with notional amounts aggregating $2.0 million and $2.7 million, respectively. The changes in the fair value of these commodity contracts are recorded in interest and other income (expense), net in the consolidated statements of income and comprehensive income (loss).
The fair value of the derivative instruments described above are recorded in the consolidated balance sheets for the years ended December 31, 2015 and 2014 as follows (in millions):
|
Balance Sheet Location | 2015 | 2014 | ||||||
---|---|---|---|---|---|---|---|---|---|
Derivative assets: |
|||||||||
Embedded derivatives in purchase and delivery contracts |
Other current assets | $ | 0.5 | $ | 0.6 | ||||
Derivative liabilities: |
|
||||||||
Foreign exchange contracts |
Other current liabilities | $ | 1.3 | $ | 5.1 | ||||
Embedded derivatives in purchase and delivery contracts |
Other current liabilities | 0.5 | 0.4 | ||||||
Fixed price commodity contracts |
Other current liabilities | 0.4 | 0.2 |
The impact on net income of unrealized gains and losses resulting from changes in the fair value of derivative instruments for the years ending December 31 are as follows (in millions) and are
28
recorded within interest and other income (expense), net in the consolidated statements of income and comprehensive income (loss):
|
2015 | 2014 | 2013 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Foreign exchange contracts |
$ | 3.8 | $ | (7.4 | ) | $ | 0.5 | |||
Embedded derivatives in purchase and delivery contracts |
(0.2 | ) | 0.4 | (0.2 | ) | |||||
Fixed price commodity contracts |
(0.2 | ) | (0.3 | ) | 0.3 | |||||
| | | | | | | | | | |
Income (expense), net |
$ | 3.4 | $ | (7.3 | ) | $ | 0.6 | |||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Note 12Income Taxes
The domestic and foreign components of income before taxes are as follows for the years ended December 31, (in millions):
|
2015 | 2014 | 2013 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Domestic |
$ | 31.6 | $ | (83.2 | ) | $ | (42.4 | ) | ||
Foreign |
96.4 | 184.5 | 167.0 | |||||||
| | | | | | | | | | |
|
$ | 128.0 | $ | 101.3 | $ | 124.6 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
The components of the income tax provision are as follows for the years ended December 31, (in millions):
|
2015 | 2014 | 2013 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Current income tax (benefit) expense: |
||||||||||
Federal |
$ | 5.7 | $ | (1.1 | ) | $ | 0.2 | |||
State |
1.3 | 0.4 | 0.2 | |||||||
Foreign |
50.0 | 50.8 | 35.0 | |||||||
| | | | | | | | | | |
Total current income tax expense |
57.0 | 50.1 | 35.4 | |||||||
Deferred income tax (benefit) expense: |
||||||||||
Federal |
(31.1 | ) | 0.7 | (1.8 | ) | |||||
State |
(2.4 | ) | (0.1 | ) | (0.6 | ) | ||||
Foreign |
(0.4 | ) | (9.0 | ) | 9.8 | |||||
| | | | | | | | | | |
Total deferred income tax (benefit) expense |
(33.9 | ) | (8.4 | ) | 7.4 | |||||
| | | | | | | | | | |
Income tax provision |
$ | 23.1 | $ | 41.7 | $ | 42.8 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
29
The income tax provision differs from the tax provision computed at the U.S federal statutory rate due to the following significant components for the years ended December 31,:
|
2015 | 2014 | 2013 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Statutory tax rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||
Foreign tax rate differential |
(3.6 | ) | (12.1 | ) | (10.2 | ) | ||||
Permanent differences |
(2.0 | ) | 9.6 | 12.0 | ||||||
Tax contingencies |
2.3 | (0.9 | ) | (1.1 | ) | |||||
Change in tax rates |
1.3 | (1.6 | ) | 0.1 | ||||||
Withholding taxes |
8.1 | 0.6 | 0.1 | |||||||
State income taxes, net of federal benefits |
(0.9 | ) | 0.2 | 0.1 | ||||||
Purchase accounting |
0.8 | 0.7 | 0.8 | |||||||
Tax credits |
(1.1 | ) | (4.3 | ) | (8.6 | ) | ||||
Other |
(2.7 | ) | (1.2 | ) | 0.6 | |||||
Change in valuation allowance for unbenefited losses |
(19.2 | ) | 15.2 | 5.5 | ||||||
| | | | | | | | | | |
Effective tax rate |
18.0 | % | 41.2 | % | 34.3 | % | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
The tax effect of temporary items that give rise to significant portions of the deferred tax assets and liabilities are as follows as of December 31, (in millions):
|
2015 | 2014 | |||||
---|---|---|---|---|---|---|---|
Deferred tax assets: |
|||||||
Accounts receivable |
$ | 2.0 | $ | 1.0 | |||
Accrued expenses |
4.7 | 0.8 | |||||
Compensation |
30.1 | 21.0 | |||||
Investments |
1.4 | 0.6 | |||||
Deferred revenue |
0.2 | 3.9 | |||||
Net operating loss carryforwards |
16.0 | 30.3 | |||||
Fixed assets |
0.8 | | |||||
Inventory |
2.9 | | |||||
Foreign tax and other tax credit carryforwards |
32.3 | 21.8 | |||||
Unrealized currency gain/loss |
6.1 | 0.2 | |||||
Warranty reserve |
| 1.1 | |||||
Other |
7.5 | 5.7 | |||||
| | | | | | | |
Gross deferred tax assets |
104.0 | 86.4 | |||||
Less valuation allowance |
(37.2 | ) | (57.4 | ) | |||
| | | | | | | |
Total deferred tax assets |
66.8 | 29.0 | |||||
| | | | | | | |
Deferred tax liabilities: |
|||||||
Accounts receivable |
0.6 | 2.9 | |||||
Fixed assets |
| 1.9 | |||||
Foreign statutory reserves |
5.3 | 4.5 | |||||
Investments |
| 0.1 | |||||
Inventory |
| 0.3 | |||||
Intangibles |
9.4 | 13.1 | |||||
Accrued expenses |
8.0 | | |||||
| | | | | | | |
Total deferred tax liabilities |
23.3 | 22.8 | |||||
| | | | | | | |
Net deferred tax assets |
$ | 43.5 | $ | 6.2 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
30
The Company uses the liability method to account for income taxes. Under this method, deferred income taxes are recognized for the future tax consequences of differences between the tax and financial accounting bases of assets and liabilities at each reporting period. Deferred income taxes are based on enacted tax laws and statutory tax rates applicable to the period in which these differences are expected to affect taxable income. A valuation allowance is established when necessary to reduce deferred tax assets to the expected realized amounts.
The Company can only recognize a deferred tax asset to the extent this it is "more likely than not" that these assets will be realized. Judgments around realizability depend on the availability and weight of both positive and negative evidence. After considering all available evidence at December 31, 2015 the Company established valuation allowances against a portion of its deferred tax assets in the U.S. and certain other jurisdictions as it is more likely than not that these assets will not be realized. In particular, the Company recorded a partial valuation allowance against its U.S. net deferred tax assets, which was comprised of deductible temporary differences and tax credit carryforwards. In determining the realizability of these assets, the Company considered numerous factors including historical profitability, the character and amount of estimated future taxable income and prudent and feasible tax planning strategies.
The Company's valuation allowance at December 31, 2015 decreased $20.1 million as compared to December 31, 2014, including a reduction to the beginning of the year valuation allowance of $20.8 million, to account for a change in judgment with respect to the realizability of the Company's U.S. deferred tax assets. This decrease was primarily attributable to U.S. net operating loss and foreign tax credit usage as a result of the repatriation of $235.3 million of foreign earnings to the United States during 2015 prompted by adverse interest rate conditions in Europe that were unfavorably impacting cash balances. Among the evidence supporting the Company's conclusion around realizability of these deferred tax assets was the elimination of recent cumulative U.S. losses as well as expected future near term U.S. taxable income.
As of December 31, 2015, the Company had approximately $3.0 million of net operating loss carryforwards available to reduce state taxable income; approximately $42.4 million of German Trade Tax net operating losses that are carried forward indefinitely; and $42.9 million of other foreign net operating losses that are expected to expire at various times beginning in 2018. The Company also had U.S. federal tax credits of approximately $27.8 million available to offset future tax liabilities that expire at various dates, which include research and development tax credits of $14.0 million expiring at various times through 2034, foreign tax credits of $13.8 million expiring at various times through 2024, and state research and development tax credits 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 the Internal Revenue Code Section 382 and similar state provisions. In the event of a deemed change in control under Internal Revenue Code Section 382, an annual limitation on the utilization of net operating losses and credits may result in the expiration of all or a portion of the net operating loss and credit carryforwards.
The Company reflects certain foreign statutory reserves in its tabular reconciliation of unrecognized tax benefits. These unrecognized tax benefits are presented as a reduction of the associated net deferred tax assets.
The Company has indefinitely reinvested the earnings of its subsidiaries in the cumulative amount of approximately $1,456.1 million as of December 31, 2015, and therefore, has not provided for U.S. income taxes that could result from the distribution of such earnings to the U.S. parent. If these earnings were ultimately distributed to the U.S. in the form of dividends or otherwise, or if the shares of the subsidiaries were sold or transferred, the Company would likely be subject to additional U.S. income taxes, net of the impact of any available foreign tax credits. The Company estimates the amount of unrecognized deferred U.S. income taxes on these undistributed earnings to be approximately $120 million.
31
The Company has gross unrecognized tax benefits, excluding interest, of approximately $26.9 million as of December 31, 2015, of which $13 million, if recognized, would reduce the Company's effective tax rate. In the next twelve months it is reasonably possible that the Company will reduce its unrecognized tax benefits by $5.2 million due to statutes of limitations expiring and favorably settling with taxing authorities which would reduce the Company's effective tax rate. A tabular reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):
Gross unrecognized tax benefits at December 31, 2012 |
$ | 61.1 | ||
Gross decreasestax positions in prior periods |
(0.5 | ) | ||
Gross increasescurrent period tax positions |
0.7 | |||
Settlements |
(7.1 | ) | ||
Lapse of statutes |
(2.5 | ) | ||
| | | | |
Gross unrecognized tax benefits at December 31, 2013 |
51.7 | |||
Gross decreasestax positions in prior periods |
(6.4 | ) | ||
Gross decreasescurrent period tax positions |
(0.3 | ) | ||
Settlements |
(0.6 | ) | ||
Lapse of statutes |
(4.4 | ) | ||
| | | | |
Gross unrecognized tax benefits at December 31, 2014 |
40.0 | |||
Gross decreasestax positions in prior periods |
(1.5 | ) | ||
Gross increasescurrent period tax positions |
0.4 | |||
Settlements |
(2.7 | ) | ||
Lapse of statutes |
(3.0 | ) | ||
| | | | |
Gross unrecognized tax benefits at December 31, 2015 |
$ | 33.2 | ||
| | | | |
| | | | |
| | | | |
The Company's policy is to include accrued interest and penalties related to unrecognized tax benefits and income tax liabilities, when applicable, in income tax expense. As of December 31, 2015 and 2014, the Company had approximately $4.7 million and $3.6 million, respectively, of accrued interest and penalties related to uncertain tax positions included in other long-term liabilities in the consolidated balance sheets. Penalties and interest related to unrecognized tax benefits of $1.4 million and $0.1 million were recorded in the provision for income taxes during the year ended December 31, 2015 and 2014, respectively.
The Company files tax returns in the U.S., which include federal, state and local jurisdictions and many foreign jurisdictions with varying statutes of limitations. The Company considers Germany, the U.S. and Switzerland to be its significant tax jurisdictions. The tax years 2009 to 2014 are open tax years in these significant foreign jurisdictions. In the first quarter of 2014, the Company settled a tax audit in the U.S. for the tax year 2010. In the third quarter of 2015, the Company settled tax audits in Germany and Italy. The settlement was immaterial to the consolidated financial statements. Tax years 2011 to 2014 remain open for examination in the U.S.
Note 13Employee Benefit Plans
Defined Benefit Plans
Substantially all of the Company's employees in Switzerland, France and Japan, as well as certain employees in Germany, are covered by Company-sponsored defined benefit pension plans. Retirement benefits are generally earned based on years of service and compensation during active employment. Eligibility is generally determined in accordance with local statutory requirements, however, the level of benefits and terms of vesting varies among plans.
32
Net Periodic Pension Cost
The components of net periodic benefit costs for the years ended December 31, 2015, 2014 and 2013 were as follows:
|
2015 | 2014 | 2013 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Components of net periodic benefit costs: |
||||||||||
Service cost |
$ | 7.2 | $ | 4.8 | $ | 5.5 | ||||
Interest cost |
2.5 | 4.6 | 4.1 | |||||||
Expected return on plan assets |
(2.3 | ) | (4.1 | ) | (3.8 | ) | ||||
Settlement loss recognized |
10.2 | | | |||||||
Amortization of net loss |
4.1 | 0.1 | 2.2 | |||||||
| | | | | | | | | | |
Net periodic benefit costs |
$ | 21.7 | $ | 5.4 | $ | 8.0 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
The net periodic benefit costs for the year ended December 31, 2015 includes a one-time, non-cash settlement loss of $10.2 million as the Company outsourced its pension plan in Switzerland to an outside insurance provider, transferred certain plan assets and pension obligations for retirees and other certain members of the population, made certain plan design changes and re-measured the liability.
The Company measures its benefit obligation and the fair value of plan assets as of December 31st each year. The changes in benefit obligations and plan assets under the defined benefit pension plans, projected benefit obligation and funded status of the plans were as follows at December 31, (in millions):
|
2015 | 2014 | |||||
---|---|---|---|---|---|---|---|
Change in benefit obligation: |
|||||||
Benefit obligation at beginning of year |
$ | 207.2 | $ | 183.1 | |||
Service cost |
7.2 | 4.8 | |||||
Interest cost |
2.5 | 4.6 | |||||
Plan participant contributions |
3.9 | 3.8 | |||||
Plan curtailments |
(0.3 | ) | (0.6 | ) | |||
Benefits paid |
1.3 | (7.1 | ) | ||||
Actuarial loss (gain) |
7.5 | 42.1 | |||||
Plan amendments |
14.7 | | |||||
Plan settlements |
(39.7 | ) | | ||||
Premiums paid |
(1.4 | ) | | ||||
Plan combinations |
0.9 | | |||||
Impact of foreign currency exchange rates |
(4.6 | ) | (23.5 | ) | |||
| | | | | | | |
Benefit obligation at end of year |
199.2 | 207.2 | |||||
Change in plan assets: |
|||||||
Fair value of plan assets at beginning of year |
139.6 | 141.0 | |||||
Return on plan assets |
(3.7 | ) | 12.0 | ||||
Plan participant and employer contributions |
9.5 | 9.5 | |||||
Benefits paid |
1.3 | (7.1 | ) | ||||
Plan settlements |
(39.7 | ) | | ||||
Premiums paid |
(1.4 | ) | | ||||
Plan combinations |
0.1 | | |||||
Impact of foreign currency exchange rates |
0.4 | (15.8 | ) | ||||
| | | | | | | |
Fair value of plan assets at end of year |
106.1 | 139.6 | |||||
| | | | | | | |
Net funded status |
$ | (93.1 | ) | $ | (67.6 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
33
The accumulated benefit obligation for the defined benefit pension plans is $189.7 million and $198.4 million at December 31, 2015 and 2014, respectively. All defined benefit pension plans have an accumulated benefit obligation and projected benefit obligation in excess of plan assets at December 31, 2015 and 2014.
The following amounts were recognized in the accompanying consolidated balance sheets for the Company's defined benefit plans at December 31, (in millions):
|
2015 | 2014 | |||||
---|---|---|---|---|---|---|---|
Current liabilities |
$ | (1.5 | ) | $ | (1.4 | ) | |
Non-current liabilities |
(91.6 | ) | (66.2 | ) | |||
| | | | | | | |
Net benefit obligation |
$ | (93.1 | ) | $ | (67.6 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
The following pre-tax amounts were recognized in accumulated other comprehensive income (loss) for the Company's defined benefit plans at December 31, (in millions):
|
2015 | 2014 | |||||
---|---|---|---|---|---|---|---|
Reconciliation of amounts recognized in the consolidated balance sheets: |
|||||||
Prior service cost |
$ | (12.2 | ) | $ | | ||
Net actuarial loss |
(48.5 | ) | (48.8 | ) | |||
| | | | | | | |
Accumulated other comprehensive loss |
(60.7 | ) | (48.8 | ) | |||
Accumulated contributions in excess of net periodic benefit cost |
(32.4 | ) | (18.8 | ) | |||
| | | | | | | |
Net amount recognized |
$ | (93.1 | ) | $ | (67.6 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
The amount in accumulated other comprehensive income (loss) at December 31, 2015 expected to be recognized as amortization of net loss within net periodic benefit cost in 2016 is $4.1 million.
For the defined benefit pension plans, the Company uses a corridor approach to amortize actuarial gains and losses. Under this approach, net actuarial gains or losses in excess of ten percent of the larger of the projected benefit obligation or the fair value of plan assets are amortized over the average remaining service of active participants who are expected to receive benefits under the plans.
The range of assumptions used for defined benefit pension plans reflects the different economic environments within the various countries. The range of assumptions used to determine the projected benefit obligations for the years ended December 31, are as follows:
|
2015 | 2014 | 2013 | |||
---|---|---|---|---|---|---|
Discount rates |
0.3%-2.5% | 0.7%-2.4% | 0.7%-3.8% | |||
Expected return on plan assets |
0.0%-3.0% | 2.9% | 3.0% | |||
Expected rate of compensation increase |
1.0%-3.0% | 1.0%-3.0% | 1.0%-3.0% |
To determine the expected long-term rate of return on pension plan assets, the Company considers current asset allocations, as well as historical and expected returns on various asset categories of plan assets. For the defined benefit pension plans, the Company applies the expected rate of return to a market-related value of assets, which stabilizes variability in assets to which the expected return is applied.
34
Asset Allocations by Asset Category
The fair value of the Company's pension plan assets at December 31, 2015 and 2014, by asset category and by level in the fair value hierarchy, is as follows (in millions):
December 31, 2015
|
Total | Quoted Prices in Active Markets Available (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Plan Assets: |
|||||||||||||
Debt securities: |
|||||||||||||
Foreign corporations (b) |
$ | 0.7 | $ | 0.7 | $ | | $ | | |||||
Foreign governments (b) |
0.5 | 0.5 | | | |||||||||
| | | | | | | | | | | | | |
|
1.2 | 1.2 | | | |||||||||
| | | | | | | | | | | | | |
Equity Securities: |
|||||||||||||
Foreign corporations (c) |
0.1 | 0.1 | | | |||||||||
| | | | | | | | | | | | | |
|
0.1 | 0.1 | | | |||||||||
| | | | | | | | | | | | | |
Real estate (d) |
0.1 | 0.1 | | | |||||||||
Swiss Life Collective BVG Foundation (f) |
104.7 | | 104.7 | | |||||||||
| | | | | | | | | | | | | |
Total plan assets |
$ | 106.1 | $ | 1.4 | $ | 104.7 | $ | | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
December 31, 2014
|
Total | Quoted Prices in Active Markets Available (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Plan Assets: |