Table of Contents
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT of 1934
|
For
the quarterly period ended June 30, 2009
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT of 1934
|
For the transition period from
to
Commission File Number 000-30833
BRUKER CORPORATION
(Exact name of
registrant as specified in its charter)
Delaware
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|
04-3110160
|
(State or other jurisdiction of
incorporation or organization)
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|
(I.R.S. Employer
Identification No.)
|
40 Manning Road, Billerica, MA 01821
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area
code:
(978) 663-3660
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
x
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
o
No
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 accelerated filer, large accelerated filer, smaller
reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer
o
|
|
Accelerated
filer
x
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|
|
|
Non-accelerated
filer
o
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|
Smaller
reporting company
o
|
(Do not check if
a smaller reporting company)
|
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). Yes
o
No
x
Indicate
the number of shares outstanding of each of the issuers classes of common
stock, as of the latest practicable date.
Class
|
|
Outstanding at August 3, 2009
|
Common Stock,
$0.01 par value per share
|
|
164,087,910
shares
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Table of Contents
BRUKER CORPORATION
Quarterly Report on Form 10-Q
For
the Quarter Ended June 30, 2009
Index
Table of Contents
PART I FINANCIAL
INFORMATION
ITEM 1. UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BRUKER CORPORATION
UNAUDITED CONDENSED CONSOLIDATED
BALANCE SHEETS
(in
millions, except share data)
|
|
June 30,
2009
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December 31,
2008
|
|
ASSETS
|
|
|
|
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Current assets:
|
|
|
|
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Cash and cash
equivalents
|
|
$
|
152.6
|
|
$
|
166.2
|
|
Restricted cash
|
|
1.7
|
|
1.5
|
|
Accounts
receivable, net
|
|
132.9
|
|
171.9
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|
Inventories
|
|
436.4
|
|
425.1
|
|
Other current
assets
|
|
65.6
|
|
56.0
|
|
Total current
assets
|
|
789.2
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820.7
|
|
|
|
|
|
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Property, plant
and equipment, net
|
|
221.3
|
|
221.3
|
|
Intangibles and
other long-term assets
|
|
77.0
|
|
74.3
|
|
Total assets
|
|
$
|
1,087.5
|
|
$
|
1,116.3
|
|
|
|
|
|
|
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LIABILITIES AND SHAREHOLDERS'
EQUITY
|
|
|
|
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Current
liabilities:
|
|
|
|
|
|
Short-term
borrowings
|
|
$
|
0.6
|
|
$
|
22.7
|
|
Current portion
of long-term debt
|
|
42.5
|
|
18.3
|
|
Accounts payable
|
|
40.8
|
|
43.3
|
|
Customer
advances
|
|
202.1
|
|
199.6
|
|
Other current
liabilities
|
|
233.2
|
|
235.8
|
|
Total current
liabilities
|
|
519.2
|
|
519.7
|
|
|
|
|
|
|
|
Long-term debt
|
|
127.6
|
|
182.8
|
|
Other long-term
liabilities
|
|
104.2
|
|
101.1
|
|
Commitments and
contingencies (Note 18)
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
Preferred stock,
$0.01 par value 5,000,000 shares authorized, none issued or outstanding at
June 30, 2009 and December 31, 2008
|
|
|
|
|
|
Common stock,
$0.01 par value 260,000,000 shares authorized, 164,100,858 and 164,078,721
shares issued and 164,087,903 and 164,068,252 outstanding at June 30, 2009
and December 31, 2008, respectively
|
|
1.6
|
|
1.6
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|
Treasury stock
at cost, 12,955 and 10,469 at June 30, 2009 and December 31, 2008,
respectively
|
|
(0.1
|
)
|
(0.1
|
)
|
Other
shareholders' equity
|
|
333.8
|
|
310.4
|
|
Total
shareholders' equity
|
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335.3
|
|
311.9
|
|
Noncontrolling
interest in subsidiaries
|
|
1.2
|
|
0.8
|
|
Total
shareholders' equity of Bruker Corporation
|
|
336.5
|
|
312.7
|
|
Total
liabilities and shareholders' equity
|
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$
|
1,087.5
|
|
$
|
1,116.3
|
|
The accompanying notes are an integral part of
these statements.
1
Table of Contents
BRUKER CORPORATION
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
millions, except per share data)
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Product revenue
|
|
$
|
222.9
|
|
$
|
280.3
|
|
$
|
425.1
|
|
$
|
488.6
|
|
Service revenue
|
|
28.3
|
|
30.2
|
|
55.2
|
|
58.9
|
|
Other revenue
|
|
1.3
|
|
1.0
|
|
2.7
|
|
2.3
|
|
Total revenue
|
|
252.5
|
|
311.5
|
|
483.0
|
|
549.8
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product
revenue
|
|
125.2
|
|
162.5
|
|
236.9
|
|
267.7
|
|
Cost of service
revenue
|
|
16.1
|
|
19.4
|
|
32.2
|
|
38.5
|
|
Total cost of
revenue
|
|
141.3
|
|
181.9
|
|
269.1
|
|
306.2
|
|
Gross profit
|
|
111.2
|
|
129.6
|
|
213.9
|
|
243.6
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
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Sales and
marketing
|
|
43.9
|
|
47.1
|
|
86.5
|
|
91.5
|
|
General and
administrative
|
|
17.0
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|
17.2
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|
33.3
|
|
34.0
|
|
Research and
development
|
|
31.1
|
|
36.5
|
|
60.2
|
|
67.7
|
|
Acquisition-related
charges (credits), net
|
|
(1.0
|
)
|
0.4
|
|
(0.6
|
)
|
6.2
|
|
Total operating
expenses
|
|
91.0
|
|
101.2
|
|
179.4
|
|
199.4
|
|
Operating income
|
|
20.2
|
|
28.4
|
|
34.5
|
|
44.2
|
|
|
|
|
|
|
|
|
|
|
|
Interest and
other income (expense), net
|
|
(2.9
|
)
|
3.6
|
|
(2.8
|
)
|
(8.6
|
)
|
Income before
income tax provision and noncontrolling interest in consolidated subsidiaries
|
|
17.3
|
|
32.0
|
|
31.7
|
|
35.6
|
|
Income tax
provision
|
|
4.6
|
|
10.3
|
|
10.4
|
|
14.5
|
|
Consolidated net
income
|
|
12.7
|
|
21.7
|
|
21.3
|
|
21.1
|
|
Less: net income
(loss) attributable to noncontrolling interests
|
|
(0.2
|
)
|
|
|
|
|
0.2
|
|
Net income
attributable to Bruker Corporation
|
|
$
|
12.9
|
|
$
|
21.7
|
|
$
|
21.3
|
|
$
|
20.9
|
|
|
|
|
|
|
|
|
|
|
|
Net income per
common share attributable to
|
|
|
|
|
|
|
|
|
|
Bruker
Corporation shareholders - basic and diluted
|
|
$
|
0.08
|
|
$
|
0.13
|
|
$
|
0.13
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
163.3
|
|
162.4
|
|
163.3
|
|
162.4
|
|
Diluted
|
|
164.7
|
|
165.5
|
|
164.5
|
|
165.3
|
|
The accompanying notes are an integral part of
these statements.
2
Table of Contents
BRUKER CORPORATION
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
millions)
|
|
Six Months Ended
June 30,
|
|
|
|
2009
|
|
2008
|
|
Cash flows from
operating activities:
|
|
|
|
|
|
Consolidated net
income
|
|
$
|
21.3
|
|
$
|
21.1
|
|
Adjustments to
reconcile net income to cash flows from operating activities:
|
|
|
|
|
|
Depreciation and
amortization
|
|
13.8
|
|
14.5
|
|
Stock-based
compensation
|
|
3.3
|
|
1.8
|
|
Gain on
acquisition
|
|
(2.1
|
)
|
|
|
Other non-cash
income
|
|
(2.8
|
)
|
(4.6
|
)
|
Changes in
operating assets and liabilities:
|
|
|
|
|
|
Accounts
receivable
|
|
40.3
|
|
41.2
|
|
Inventories
|
|
(4.5
|
)
|
(6.9
|
)
|
Accounts payable
|
|
(2.3
|
)
|
(13.0
|
)
|
Customer
advances
|
|
(4.7
|
)
|
(25.6
|
)
|
Other changes in
operating assets and liabilities, net
|
|
(11.0
|
)
|
(10.4
|
)
|
Net cash
provided by operating activities
|
|
51.3
|
|
18.1
|
|
|
|
|
|
|
|
Cash flows from
investing activities:
|
|
|
|
|
|
Purchases of
property, plant and equipment
|
|
(7.1
|
)
|
(27.1
|
)
|
Redemption of
short-term investments
|
|
|
|
9.8
|
|
Acquisitions,
net of cash acquired
|
|
(1.1
|
)
|
(2.1
|
)
|
Payments in
connection with the acquisition of Bruker BioSpin
|
|
|
|
(5.2
|
)
|
Changes in
restricted cash
|
|
(0.5
|
)
|
(3.4
|
)
|
Net cash used in
investing activities
|
|
(8.7
|
)
|
(28.0
|
)
|
|
|
|
|
|
|
Cash flows from
financing activities:
|
|
|
|
|
|
Proceeds from
(repayments of) short-term borrowings, net
|
|
(35.8
|
)
|
33.4
|
|
Proceeds from
(repayments of) long-term debt, net
|
|
(15.9
|
)
|
160.0
|
|
Payment of
deferred financing costs
|
|
|
|
(2.9
|
)
|
Proceeds from
issuance of common stock, net of repurchases
|
|
0.1
|
|
1.4
|
|
Deemed dividend
in connection with the acquisition of Bruker BioSpin
|
|
|
|
(386.0
|
)
|
Cash payments to
shareholders
|
|
|
|
(23.4
|
)
|
Net cash used in
financing activities
|
|
(51.6
|
)
|
(217.5
|
)
|
|
|
|
|
|
|
Effect of
exchange rate changes on cash and cash equivalents
|
|
(4.6
|
)
|
20.4
|
|
Net change in
cash and cash equivalents
|
|
(13.6
|
)
|
(207.0
|
)
|
Cash and cash
equivalents at beginning of period
|
|
166.2
|
|
332.4
|
|
Cash and cash
equivalents at end of period
|
|
$
|
152.6
|
|
$
|
125.4
|
|
The accompanying notes are an integral part of
these statements.
3
Table of Contents
BRUKER CORPORATION
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1.
Description of Business
Bruker Corporation and
its wholly-owned subsidiaries (the Company) design, manufacture, service and
market proprietary life science and materials research systems based on its
core technology platforms, including X-ray technologies, magnetic resonance
technologies, mass spectrometry technologies, optical emission spectroscopy and
infrared and Raman molecular spectroscopy technologies. The Company also sells
a broad range of field analytical systems for chemical, biological,
radiological and nuclear detection, as well as superconducting wire products
and devices. The Company maintains major technical and manufacturing centers in
Europe, North America and Japan and sales offices throughout the world. The
Companys diverse customer base includes pharmaceutical, biotechnology and
proteomics companies, academic institutions, advanced materials and
semiconductor industries and government agencies.
The financial statements
represent the consolidated accounts of the Company. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The condensed consolidated financial statements as of and for the three and six
months ended June 30, 2009 and 2008 have been prepared in accordance with
accounting principles generally accepted in the United States (GAAP) for
interim financial information and pursuant to the rules and regulations of
the Securities and Exchange Commission for Quarterly Reports on Form 10-Q
and Article 10 of Regulation S-X. Accordingly, the financial information
presented herein does not include all of the information and footnotes required
by GAAP for complete financial statements. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, considered
necessary for a fair presentation have been included. The results for interim
periods are not necessarily indicative of the results expected for the full
year. Certain prior year amounts have been reclassified to conform to the
current year presentation. These reclassifications had no effect on previously
reported net income or shareholders equity.
In February 2008,
the Company completed the acquisition of the Bruker BioSpin Group (Bruker
BioSpin). Both the Company and Bruker BioSpin were majority owned by six
affiliated shareholders prior to the acquisition. As a result, the acquisition
of Bruker BioSpin was considered a business combination of companies under
common control and was accounted for at historical carrying values at the date
of the acquisition. The unaudited condensed consolidated balance sheets,
statements of operations, statements of cash flows and notes to the
consolidated financial statements for all periods presented herein have been
restated by combining the historical consolidated financial statements of the
Company with those of Bruker BioSpin. Additionally, because this transaction
was accounted for as a business combination of entities under common control,
all one-time transaction costs were expensed as incurred.
In the second quarter of
2009, the Company reevaluated its reporting segments following the acquisition
of a business engaged in developing and manufacturing superconducting devices
and other advanced technologies for alternative energy research. As a result of
the acquisition and the corresponding changes in the Companys organizational
structure, management will report results on the basis of the following two
segments:
·
Scientific Instruments.
The operations of
this segment include the design, manufacture and distribution of advanced
instrumentation and automated solutions based on X-ray technology, spark-OES
technology, magnetic resonance technology, mass spectrometry technology and
infrared and Raman molecular spectroscopy technology. Typical customers of the
Scientific Instruments segment include pharmaceutical, biotechnology,
proteomics and molecular diagnostic companies, academic institutions,
government agencies, semiconductor companies, chemical, cement, metals and
petroleum companies, raw material manufacturers and food, beverage and
agricultural companies.
·
Energy and Supercon Technologies
.
The operations of this segment include
development and production of low temperature superconductor and high
temperature superconductor wires for use in advanced magnet technology and
energy applications as well as electron and ion linear accelerators,
superconducting and
4
Table of Contents
normal conducting
accelerator cavities, insertion devices, superconducting fault current
limiters, crystal growth magnets and other accelerator components for physics
and energy research and a variety of other scientific applications.
Management has evaluated
subsequent events through August 10, 2009, the date the financial
statements were filed with the Securities and Exchange Commission (SEC) and determined
that there were none requiring disclosure.
2.
Acquisition of Bruker BioSpin
On February 26,
2008, the Company completed the acquisition of all of the outstanding capital
stock of Bruker BioSpin in accordance with the terms of various stock purchase
agreements dated as of December 2, 2007. The acquisition of Bruker BioSpin
represented a combination of companies under common control due to the majority
ownership of both companies by six related individuals as an affiliated
shareholder group. As a result, the acquisition of Bruker BioSpin was accounted
for at historical carrying values. The technologies of Bruker BioSpin are
complementary to the Companys accurate-mass electrospray time-of-flight mass
spectrometers and single-crystal diffraction X-ray spectrometers and have
created revenue synergies and provided opportunities to supply customers with
equipment packages that have a broader range of applications and value. The
addition of Bruker BioSpin has also enhanced the Companys worldwide
distribution and sales and service infrastructure.
At the completion of this
acquisition, the Company paid an aggregate of $914.0 million of
consideration to the shareholders of Bruker BioSpin, which was financed with
57,544,872 shares of unregistered common stock valued at $526.0 million,
$351.0 million of cash obtained under a new credit facility and the
balance with cash on hand. The value of the shares of common stock issued in
connection with the merger was determined using a trailing average of the
closing market prices of the Companys stock for a period of ten consecutive
trading days ending two days prior to the signing of the various stock purchase
agreements.
Under the stock purchase
agreements, $98.8 million of the purchase price was paid into escrow
accounts pending the resolution of indemnification obligations and working
capital obligations of the sellers. In May 2008, $6.8 million of the
escrow was released following the receipt of combined audited financial
statements of Bruker BioSpin for the year ended December 31, 2007. In April 2009,
the remaining $92.0 million of the escrow was released following the
receipt of audited financial statements of the Company, including Bruker
BioSpin, for the year ended December 31, 2008.
3.
Other Acquisitions
In April 2009, the
Company acquired substantially all of the assets of the research instruments
portion of ACCEL Instruments GmbH (the RI business) from Varian Medical
Systems, Inc. The acquisition of the RI business was accounted for under
the acquisition method in accordance with Financial Accounting Standards Board
(FASB) Statement of Financial Accounting Standard (SFAS) No. 141(R),
Business Combinations
. The RI business, located in Bergisch
Gladbach, Germany, consists of the development and manufacture of electron and
ion linear accelerators, superconducting and normal conducting accelerator
cavities, insertion devices, superconducting fault current limiters, other
accelerator components and specialty superconducting magnets for physics and
energy research and a variety of other scientific applications. The results of
the RI business have been included in the Energy and Supercon Technologies
segment from the date of acquisition. The consideration transferred in
acquiring the RI business was approximately $0.4 million and consisted entirely
of cash. The Company acquired approximately $1.6 million of receivables, $4.4
million of inventory, $2.9 million of other current assets and $4.9 million of
property, plant and equipment in this acquisition and assumed approximately
$11.3 million of current liabilities. In connection with the acquisition of the
RI business, the Company recorded a gain of approximately $2.1 million that has
been recorded as a component of acquisition-related costs in the unaudited
condensed consolidated statements of operations. Pro forma financial
information reflecting the acquisition of the RI business has not been
presented because the impact on revenues, net income and net income per common
share attributable to Bruker Corporation shareholders is not material.
In August 2008, the
Company acquired S.I.S. Surface Imaging Systems GmbH (S.I.S.), a
privately-held company located in Herzogenrath, Germany. The acquisition of
S.I.S. was accounted for under the purchase method in accordance with SFAS No. 141,
Business Combinations
. S.I.S. develops,
manufactures and distributes advanced atomic force/scanning probe microscopy
for applications in materials research, including semiconductors, data storage,
electronic materials, solar cells, polymers and catalysts. The results of
S.I.S. have been included in the
5
Table of Contents
Scientific Instruments
segment from the date of acquisition. The aggregate purchase price of S.I.S.
was $2.1 million. In addition, the Company issued an aggregate of 59,342
restricted unregistered shares of the Companys common stock, par value $0.01
per share, to certain S.I.S. shareholders. These shares were not included in
the purchase price because of contingencies related to the continuing
employment of the shareholders and, accordingly, are being recorded as
compensation expense. The Company recorded $2.1 million of goodwill in
connection with the acquisition of S.I.S. and assigned the goodwill to the
Scientific Instruments segment. Pro forma financial information reflecting the
acquisition of S.I.S. has not been presented because the impact on revenues,
net income and net income per common share attributable to Bruker Corporation
shareholders was not material.
In January 2008, the
Company acquired JUWE Laborgeraete GmbH (JUWE), a privately-held company
located in Viersen, Germany. The acquisition of JUWE was accounted for under
the purchase method in accordance with SFAS No. 141. JUWE develops,
manufactures and distributes advanced combustion analysis systems for various
carbon, hydrogen, nitrogen, oxygen and sulfur elemental applications. JUWEs
products are complementary to the Companys optical emission spectroscopy
products. The results of JUWE have been included in the Scientific Instruments
segment from the date of acquisition. The aggregate purchase price of JUWE was
$1.6 million, of which $1.2 million was paid in cash and
$0.4 million consisted of net liabilities assumed by the Company. In
addition, the Company issued an aggregate of 111,000 restricted unregistered
shares of the Companys common stock, par value $0.01 per share, to JUWEs
shareholders. These shares were not included in the purchase price because of
contingencies related to the continuing employment of the shareholders and,
accordingly, are being recorded as compensation expense. The Company recorded
$1.1 million of goodwill in connection with the acquisition of JUWE and
assigned the goodwill to the Scientific Instruments segment. Pro forma
financial information reflecting the acquisition of JUWE has not been presented
because the impact on revenues, net income and net income per common share
attributable to Bruker Corporation shareholders was not material.
4.
Stock-Based Compensation
In 2000, the Board of
Directors adopted and the shareholders approved the 2000 Stock Option Plan. The
2000 Stock Option Plan provides for the issuance of up to 2,188,000 shares of
common stock in connection with awards under the Plan. The 2000 Stock Option
Plan allows a committee of the Board of Directors (the Committee) to grant
incentive stock options, non-qualified stock options, stock appreciation rights
and stock awards (including the use of restricted stock and phantom shares).
The Committee has the authority to determine which employees will receive the awards,
the amount of the awards and other terms and conditions of the awards. In 2003,
the Companys shareholders approved an amendment and restatement of the 2000
Stock Option Plan to change the plan name to the Bruker BioSciences Corporation
Amended and Restated 2000 Stock Option Plan and to increase the number of
shares by 4,132,000 shares. In 2006, the Companys shareholders approved an
amendment and restatement of the Bruker BioSciences Corporation Amended and
Restated 2000 Stock Option Plan to increase the number of shares available by
1,680,000 shares. In February 2008, the Companys shareholders approved
another amendment and restatement of the Bruker BioSciences Corporation Amended
and Restated 2000 Stock Option Plan to increase the number of shares available
by 2,000,000 shares, to a total of 10,000,000 shares.
As of June 30, 2009,
the Companys primary types of share-based compensation were in the form of
stock options and restricted stock. The Company recorded stock-based
compensation expense for the three and six months ended June 30, 2009 and June 30,
2008 as follows (in millions):
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Stock options
|
|
$
|
1.2
|
|
$
|
1.0
|
|
$
|
2.5
|
|
$
|
1.5
|
|
Restricted stock
|
|
0.3
|
|
0.1
|
|
0.8
|
|
0.3
|
|
Total
stock-based compensation, pre-tax
|
|
1.5
|
|
1.1
|
|
3.3
|
|
1.8
|
|
Tax benefit
|
|
0.2
|
|
0.2
|
|
0.6
|
|
0.4
|
|
Total
stock-based compensation, net of tax
|
|
$
|
1.3
|
|
$
|
0.9
|
|
$
|
2.7
|
|
$
|
1.4
|
|
Compensation expense is
amortized on a straight-line basis over the underlying vesting terms. Stock
options of the Companys common stock are periodically awarded to executive
officers and other employees of the Company 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 life, dividend yield
6
Table of Contents
and risk-free interest
rate are required for the Black-Scholes model and are presented in the table
below:
|
|
2009
|
|
2008
|
|
Risk-free
interest rate
|
|
1.71%-3.60
|
%
|
2.71%-3.95
|
%
|
Expected life
|
|
6.5 years
|
|
6.5 years
|
|
Volatility
|
|
64.0
|
%
|
72.0
|
%
|
Expected
dividend yield
|
|
0.0
|
%
|
0.0
|
%
|
Risk-free interest rate
is 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 life of a new option. Expected
volatility is based on a number of factors. The Company currently believes that
the exclusive use of historical volatility results in the best estimate of the
grant-date fair value of employee stock options because it reflects the markets
current expectations of future volatility. Expected dividend yield was not
considered in the option pricing formula since the Company does not pay
dividends and has no current plans to do so in the future. The terms of some of
the Companys indebtedness also currently restricts its ability to pay
dividends to its shareholders.
Stock option activity for
the six months ended June 30, 2009 was as follows:
|
|
Shares Subject
to Options
|
|
Weighted
Average
Option Price
|
|
Weighted
Average
Remaining
Contractual
Term (Yrs)
|
|
Aggregate
Intrinsic Value
($'s in millions)
|
|
Outstanding at
December 31, 2008
|
|
5,268,523
|
|
$
|
8.56
|
|
|
|
|
|
Granted
|
|
48,000
|
|
4.13
|
|
|
|
|
|
Exercised
|
|
(22,335
|
)
|
4.77
|
|
|
|
|
|
Forfeited
|
|
(55,641
|
)
|
9.31
|
|
|
|
|
|
Outstanding at
June 30, 2009
|
|
5,238,547
|
|
$
|
8.53
|
|
3.9
|
|
$
|
10.4
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at
June 30, 2009
|
|
2,670,614
|
|
$
|
7.54
|
|
3.9
|
|
$
|
7.6
|
|
|
|
|
|
|
|
|
|
|
|
Vested and
expected to vest at June 30, 2009
|
|
5,089,607
|
|
$
|
8.50
|
|
3.9
|
|
$
|
10.3
|
|
Unrecognized pre-tax stock-based
compensation expense of $14.9 million related to stock option awards is
expected to be recognized over the weighted average remaining service period of
2.8 years for stock options outstanding at June 30, 2009. The
intrinsic values above are based on the Companys closing stock price of $9.26
on June 30, 2009.
Restricted shares of the
Companys common stock are periodically awarded to executive officers,
directors and certain key employees of the Company, subject to service
restrictions, which expire ratably over periods of three to five years. The
restricted shares of common stock may not be sold or transferred during the
restriction period. Stock compensation for restricted stock is recorded based
on the stock price on the grant date and charged to expense ratably through the
restriction period. The following table summarizes information about restricted
stock activity during the six months ended June 30, 2009:
7
Table of Contents
|
|
Shares Subject
to Restriction
|
|
Weighted
Average Grant
Date Fair
Value
|
|
Outstanding at
December 31, 2008
|
|
591,675
|
|
$
|
7.26
|
|
Granted
|
|
|
|
|
|
Vested
|
|
(51,175
|
)
|
7.60
|
|
Forfeited
|
|
(940
|
)
|
5.00
|
|
Outstanding at
June 30, 2009
|
|
539,560
|
|
$
|
7.23
|
|
Unrecognized pre-tax stock-based
compensation expense of $3.1 million related to restricted stock awards is
expected to be recognized over the weighted average remaining service period of
1.9 years for restricted stock awards outstanding at June 30, 2009.
5.
Earnings Per Share
Net income per share is
calculated by dividing net income 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 from the resulting
proceeds at the average market price during the period.
The following table sets
forth the computation of basic and diluted average shares outstanding for the
three and six months ended June 30, 2009 and 2008 (in millions):
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Net income
attributable to Bruker
Corporation,
as reported
|
|
$
|
12.9
|
|
$
|
21.7
|
|
$
|
21.3
|
|
$
|
20.9
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding:
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding-basic
|
|
163.3
|
|
162.4
|
|
163.3
|
|
162.4
|
|
Effect of
dilutive securities:
|
|
|
|
|
|
|
|
|
|
Stock options
and restricted stock
|
|
1.4
|
|
3.1
|
|
1.2
|
|
2.9
|
|
Weighted average
shares outstanding - diluted
|
|
164.7
|
|
165.5
|
|
164.5
|
|
165.3
|
|
|
|
|
|
|
|
|
|
|
|
Net income per
common share attributable to Bruker Corporation shareholders - basic and
diluted
|
|
$
|
0.08
|
|
$
|
0.13
|
|
$
|
0.13
|
|
$
|
0.13
|
|
Stock options to purchase
approximately 3.3 million shares and 0.4 million shares were excluded from the
computation of diluted earnings per share in the three months ended June 30,
2009 and June 30, 2008, respectively, and approximately 3.5 million shares
and 0.3 million shares were excluded from the computation of diluted earnings
per share in the six months ended June 30, 2009 and June 30, 2008,
respectively, because the exercise price of the stock options exceeded the
average market price of the Companys common stock and, as a result, would have
had an anti-dilutive effect.
6.
Fair Value of Financial
Instruments
The Company follows SFAS No. 157,
Fair Value Measurements
, which
establishes a three-level valuation hierarchy for measuring fair value and
expands financial statement disclosures about fair value measurements. The
valuation hierarchy is based upon the transparency of inputs to the valuation
of an asset or liability as of the measurement date. A financial instruments
characterization within the valuation hierarchy is based upon the lowest level
of input that is significant to the fair value measurement. The three levels
are defined as follows:
Level 1:
Inputs to the
valuation methodology are quoted prices (unadjusted) for identical assets or
liabilities in
8
Table of Contents
active markets.
Level 2:
Inputs to the
valuation methodology include quoted prices for similar assets and liabilities
in active markets, and inputs that are observable for the asset or liability,
either directly or indirectly, for substantially the full term of the financial
instrument.
Level 3:
Inputs to the
valuation methodology are unobservable and significant to the fair value
measurement.
The Company measures the
following financial assets and liabilities at fair value on a recurring basis.
The fair value of these financial assets and liabilities was determined using
the following inputs at June 30, 2009 (in millions):
|
|
Total
|
|
Quoted Prices in
Active Markets
Available (Level 1)
|
|
Significant Other
Observable
Inputs (Level 2)
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
59.3
|
|
$
|
59.3
|
|
$
|
|
|
$
|
|
|
Restricted cash
|
|
1.7
|
|
1.7
|
|
|
|
|
|
Long-term
restricted cash
|
|
2.1
|
|
2.1
|
|
|
|
|
|
Total assets
recorded at fair value
|
|
$
|
63.1
|
|
$
|
63.1
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Interest rate
swap
|
|
$
|
3.7
|
|
$
|
|
|
$
|
3.7
|
|
$
|
|
|
Embedded
derivatives in purchase and delivery contracts
|
|
1.6
|
|
|
|
1.6
|
|
|
|
Total
liabilities recorded at fair value
|
|
$
|
5.3
|
|
$
|
|
|
$
|
5.3
|
|
$
|
|
|
The Companys financial
instruments consist primarily of cash equivalents, restricted cash, accounts
receivable, short-term borrowings, accounts payable and long-term debt. The
carrying amounts of the Companys cash equivalents, restricted cash, accounts
receivable, short-term borrowings and accounts payable approximate fair value
due to their short-term nature. The Companys long-term debt consists primarily
of variable rate arrangements with interest rates that reset every three months
and, as a result, reflect current interest rates. Consequently, the carrying
value of the Companys long-term debt approximates fair value.
7.
Inventories
Inventories consisted of
the following as of June 30, 2009 and December 31, 2008 (in
millions):
|
|
June 30, 2009
|
|
December 31,
2008
|
|
Raw materials
|
|
$
|
121.4
|
|
$
|
115.8
|
|
Work-in-process
|
|
136.2
|
|
129.6
|
|
Demonstration
units
|
|
40.1
|
|
36.7
|
|
Finished goods
|
|
138.7
|
|
143.0
|
|
Inventories
|
|
$
|
436.4
|
|
$
|
425.1
|
|
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 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 product revenue related to the write-down of
demonstration units to net realizable value were $6.1 million and
$6.4 million for the three months ended June 30, 2009 and 2008,
respectively, and $11.9 million and $12.7 million for the six months
ended June 30, 2009 and 2008, respectively.
Finished goods include
in-transit systems that have been shipped to the Companys customers but not
yet installed and accepted by the customer. As of June 30, 2009 and December 31,
2008, inventory-in-transit was $85.2 million and $91.6 million, respectively.
9
Table of Contents
8.
Goodwill and Other Intangible
Assets
The following table sets
forth the changes in the carrying amount of goodwill as of June 30, 2009
(in millions):
Balance at
December 31, 2008
|
|
$
|
46.4
|
|
Goodwill
acquired during the period
|
|
0.3
|
|
Foreign currency
impact
|
|
0.2
|
|
Balance at June
30, 2009
|
|
$
|
46.9
|
|
The Company accounts for
goodwill and other intangible assets in accordance with SFAS No. 142,
Goodwill and Other Intangible Assets
(SFAS
No. 142). SFAS No. 142 requires that goodwill and intangible assets
with indefinite useful lives not be amortized. Instead, these assets are tested
for impairment on a reporting unit basis annually, or on an interim basis when
events or changes in circumstances warrant. The Company performed its annual
test for impairment as of December 31, 2008 and determined that goodwill
and other intangible assets were not impaired at that time. The Company did not
identify any indicators of impairment during the three and six month periods
ended June 30, 2009.
The following is a
summary of other intangible assets subject to amortization at June 30,
2009 and December 31, 2008 (in millions):
|
|
June 30, 2009
|
|
December 31, 2008
|
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Existing
technology and related patents
|
|
$
|
14.1
|
|
$
|
(9.9
|
)
|
$
|
4.2
|
|
$
|
14.1
|
|
$
|
(9.2
|
)
|
$
|
4.9
|
|
Customer
relationships
|
|
1.6
|
|
(0.8
|
)
|
0.8
|
|
1.6
|
|
(0.6
|
)
|
1.0
|
|
Trade names
|
|
0.4
|
|
(0.3
|
)
|
0.1
|
|
0.4
|
|
(0.3
|
)
|
0.1
|
|
Total
amortizable intangible assets
|
|
$
|
16.1
|
|
$
|
(11.0
|
)
|
$
|
5.1
|
|
$
|
16.1
|
|
$
|
(10.1
|
)
|
$
|
6.0
|
|
For the three
months ended June 30, 2009 and 2008, the Company recorded amortization
expense of $0.5 million and $0.3 million, respectively, related to intangible
assets subject to amortization. For the six months ended June 30, 2009 and
2008, the Company recorded amortization expense of $0.9 million and $1.3
million, respectively, related to intangible assets subject to amortization.
The estimated future
amortization expense related to other intangible assets is as follows (in
millions):
2009 (a)
|
|
$
|
0.9
|
|
2010
|
|
1.7
|
|
2011
|
|
1.0
|
|
2012
|
|
0.4
|
|
2013
|
|
0.4
|
|
Thereafter
|
|
0.7
|
|
Total
|
|
$
|
5.1
|
|
(a) Amount
represents estimated amortization expense for the remaining six months ending
December 31, 2009.
9.
Debt
At June 30, 2009 and
December 31, 2008, the Companys debt obligations consisted of the following
(in millions):
10
Table
of Contents
|
|
June 30,
2009
|
|
December 31,
2008
|
|
US
Dollar term loan under the Credit Agreement
|
|
$
|
138.8
|
|
$
|
144.4
|
|
|
|
|
|
|
|
US
Dollar revolving loan under the Credit Agreement
|
|
22.3
|
|
35.6
|
|
|
|
|
|
|
|
Euro
mortgage loan at six month European Interbank Offered Rate plus 1.00%, 2.7%
at June 30, 2009 collateralized by a building of Bruker AXS GmbH, biannual
principal and interest payments due and payable through 2012
|
|
2.0
|
|
2.2
|
|
|
|
|
|
|
|
Euro
bank loans at fixed rates of 4.65% and 8.01%, respectively, collateralized by
accounts receivable of certain subsidiaries of Bruker AXS, biannual principal
payments and quarterly interest payments due and payable through 2013
|
|
0.3
|
|
0.3
|
|
|
|
|
|
|
|
Euro
bank loans at fixed rate of 2.95%, collateralized by land and buildings of
Bruker Daltonik GmbH, quarterly principal payments and monthly interest payments
due and payable through 2010
|
|
0.6
|
|
1.0
|
|
|
|
|
|
|
|
Euro
bank loans at fixed rate of 5.01%, collateralized by land and buildings of
Bruker Optik GmbH, biannual principal payments and monthly interest payments
due and payable through 2013
|
|
1.2
|
|
10.7
|
|
|
|
|
|
|
|
Japanese
Yen bank loan at fixed rate of 2.03%, uncollateralized, quarterly principal
and interest payments due and payable through 2011
|
|
|
|
1.6
|
|
|
|
|
|
|
|
Capital
lease obligations
|
|
4.9
|
|
5.3
|
|
Total
long-term debt
|
|
170.1
|
|
201.1
|
|
Current
portion of long-term debt
|
|
(42.5
|
)
|
(18.3
|
)
|
Total
long-term debt, less current portion
|
|
$
|
127.6
|
|
$
|
182.8
|
|
In connection with the
acquisition of Bruker BioSpin, the Company entered into a credit agreement with
a syndication of lenders (the Credit Agreement), which provides for a
revolving credit line with a maximum commitment of $230.0 million and a
term facility of $150.0 million. The outstanding principal and interest
under the term loan is payable in quarterly installments through December 2012.
Borrowings under the Credit Agreement bear interest, at the Companys option,
at either (i) the higher of the prime rate or the federal funds rate plus
0.50%, or (ii) adjusted LIBOR, plus margins ranging from 0.40% to 1.25%
and a facility fee ranging from 0.10% to 0.20%. As of June 30, 2009, the
weighted average interest rate of borrowings under the term facility of the
Credit Agreement was approximately 2.8%.
Borrowings under the
Credit Agreement are secured by the pledge to the banks of 100% of the capital
stock of each of the Companys wholly-owned domestic subsidiaries and 65% of
the capital stock of certain of the Companys direct or indirect wholly-owned
foreign subsidiaries. The Credit Agreement also requires the Company to
maintain certain financial ratios related to maximum leverage and minimum
interest coverage, as defined in the Credit Agreement. In addition to the financial
ratios, the Credit Agreement restricts, among other things, the Companys
ability to do the following: make certain payments; incur additional debt;
incur certain liens; make certain investments, including derivative agreements;
merge, consolidate, sell or transfer all or substantially all of the Companys
assets; and enter into certain transactions with affiliates.
In addition, at June 30,
2009 and December 31, 2008, the Company had the following amounts
outstanding
11
Table of Contents
under revolving loan
arrangements (in millions):
|
|
June 30,
2009
|
|
December 31,
2008
|
|
Euro
revolving loans under the Credit Agreement
|
|
$
|
|
|
$
|
16.5
|
|
Other
revolving loans
|
|
0.6
|
|
6.2
|
|
Total
short-term borrowings
|
|
$
|
0.6
|
|
$
|
22.7
|
|
The following is a
summary of the maximum commitments and net amounts available to the Company
under revolving loans as of June 30, 2009 (in millions):
|
|
Weighted
Average
Interest Rate
|
|
Total Amount
Committed by
Lenders
|
|
Outstanding
Borrowings
|
|
Outstanding
Letters of
Credit
|
|
Total Amount
Available
|
|
Credit
Agreement
|
|
0.8
|
%
|
$
|
230.0
|
|
$
|
22.3
|
|
$
|
1.4
|
|
$
|
206.3
|
|
Other
revolving loans
|
|
4.9
|
%
|
66.4
|
|
0.6
|
|
52.3
|
|
13.5
|
|
Total
revolving loans
|
|
0.9
|
%
|
$
|
296.4
|
|
$
|
22.9
|
|
$
|
53.7
|
|
$
|
219.8
|
|
Other revolving loans are
with various financial institutions primarily in Germany, Japan and France. The
Companys other revolving lines of credit typically are due upon demand with
interest payable monthly. Certain of these lines of credit are unsecured while
others are secured by the accounts receivable and inventory of the related
subsidiary.
10.
Derivative Instruments and
Hedging Activities
The Company accounts for
derivative financial instruments in accordance with SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities
, (SFAS No. 133) as amended. All derivatives,
whether designated as hedging relations or not, are recorded on the unaudited
condensed 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 unaudited condensed
consolidated statements of operations. A cash flow hedge is a derivative
instrument designated for the purpose of hedging the exposure to variability in
future cash flows resulting from a particular risk. If the derivative is
designated as a cash flow hedge, the effective portions of changes in the fair
value of the derivative are recorded in accumulated other comprehensive income
and are recognized in the results of operations when the hedged item affects
earnings. Ineffective portions of changes in the fair value of cash flow hedges
are recognized in the results of operations. A hedge of a net investment in a
foreign operation is designated for the purpose of hedging the exposure of
changes in value of investments in foreign subsidiaries. If the derivative is
designated as a hedge of a net investment in a foreign operation, the effective
portions of changes in the fair value of the derivative are recorded in other
comprehensive income as a part of the currency translation adjustment.
Ineffective portions of net investment hedges are recognized in the results of
operations. For derivative instruments not designated as hedging instruments,
changes in fair value are recognized in the results of operations in the
current period.
The Company is exposed to
certain market risks associated with its ongoing business operations. The
primary risks that are managed by using derivative instruments are associated
with changes in interest rates and foreign exchange rates.
The Companys 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 Companys interest rate
12
Table of Contents
risk relates to the
amounts outstanding under the Credit Agreement. In April 2008, the Company
entered into an interest rate swap arrangement to manage its exposure to
interest rate movements and the related effect on its variable rate debt. Under
this interest rate swap arrangement, the Company pays a fixed rate of
approximately 3.8% and receives a variable rate based on three month LIBOR. The
interest rate swap agreement utilized by the Company effectively modifies the
Companys exposure to interest rate risk by converting a portion of the Companys
variable rate debt to a fixed rate for the term of the Credit Agreement. The
initial notional amount of this interest rate swap was $90.0 million and
it amortizes in proportion to the term debt component of the Credit Agreement
through December 2012. At June 30, 2009, the notional amount of this
interest rate swap was $83.3 million. The Company concluded that this swap
met the criteria to qualify as an effective hedge of the variability of cash
flows of the interest payments and accounts for the hedge as a cash flow hedge
under SFAS No. 133. Accordingly, the Company reflects changes in the fair
value of this interest rate swap in accumulated other comprehensive income, a
component of shareholders equity. The Company expects $2.4 million of the
accumulated loss to be reclassified into earnings over the next twelve months.
The Company enters into
contracts for the purchase of goods and the sale of the Companys products that
are denominated in currencies other than the functional currency of the parties
to the transaction. In accordance with SFAS No. 133, the Company accounts
for these transactions separately, valuing the embedded derivative component
of these contracts. At June 30, 2009, contracts denominated in currencies
other than the functional currency of the transacting parties amounted to
$43.2 million for the delivery of products and $3.9 million for the
purchase of products. At December 31, 2008, contracts denominated in
currencies other than the functional currency of the transacting parties
amounted to $44.2 million for the delivery of products and
$5.4 million for the purchase of products.
The fair values of
derivative instruments as of June 30, 2009 and December 31, 2008 are
as follows (in millions):
|
|
June 30,
2009
|
|
December 31,
2008
|
|
Derivative
liabilities:
|
|
|
|
|
|
Derivative
liabilities designated as hedging instruments under SFAS No. 133:
|
|
|
|
|
|
Interest
rate swap contract
|
|
$
|
3.7
|
|
$
|
4.8
|
|
|
|
|
|
|
|
Derivative
liabilities not designated as hedging instruments under SFAS No. 133:
|
|
|
|
|
|
Embedded
derivatives
|
|
1.6
|
|
2.2
|
|
Total
derivative liabilities
|
|
$
|
5.3
|
|
$
|
7.0
|
|
Derivative liabilities
are recorded in other current liabilities in the unaudited condensed
consolidated balance sheets.
The gain recognized in
other comprehensive income related to the effective portion of derivative
instruments designated as hedging instruments for the three and six months
ended June 30, 2009 and 2008 are as follows (in millions):
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Interest
rate swap contract
|
|
$
|
0.5
|
|
$
|
0.1
|
|
$
|
0.1
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The losses reclassified
from accumulated other comprehensive income to net income related to derivative
instruments designated as hedging instruments for the three and six months
ended June 30, 2009 and 2008 are as follows (in millions):
13
Table of Contents
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Interest
rate swap contract
|
|
$
|
(0.6
|
)
|
$
|
(0.1
|
)
|
$
|
(1.1
|
)
|
$
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company did not
recognize any amounts related to ineffectiveness in the consolidated statements
of operations during the three or six months ended June 30, 2009 and 2008.
The impact of changes in
the fair value of derivative instruments not designated as hedging instruments
on net income are as follows (in millions):
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Foreign
exchange contracts
|
|
$
|
(0.3
|
)
|
$
|
(0.3
|
)
|
$
|
|
|
$
|
(0.6
|
)
|
Embedded
derivatives
|
|
(1.0
|
)
|
1.3
|
|
0.6
|
|
|
|
Income
(expense), net
|
|
$
|
(1.3
|
)
|
$
|
1.0
|
|
$
|
0.6
|
|
$
|
(0.6
|
)
|
The amounts recorded in
the unaudited condensed consolidated statements of operations related to
derivative instruments not designated as hedging instruments are recorded in
interest and other income (expense), net.
11.
Restructuring Activities
In the fourth quarter of
2008, the Company recorded restructuring charges of $2.3 million, which
consisted primarily of severance costs associated with a restructuring of
certain operations in the Netherlands (the Netherlands Program). The
restructuring charges associated with the Netherlands Program were allocated to
the Scientific Instruments segment. Approximately $2.2 million of the
restructuring charges relate to an involuntary severance program under which
approximately 30 employees are expected to leave the Company and the balance
relates to exit costs associated with terminating certain leases. In the second
quarter of 2009, the Company recorded an additional $0.3 million of
restructuring charges related to the involuntary severance component of the
Netherlands Program. The impact of the Netherlands Program reduced the number
of employees in sales and marketing and research and development and
consolidates the selling and developments efforts of the Companys single
crystal diffraction products. The Company does not expect to incur any
additional costs related to the Netherlands Program and expects to have made
all of the severance payments by the end of 2009. The liability for
restructuring charges is recorded in other current liabilities in the unaudited
condensed consolidated balance sheets. The reserves related to this program are
as follows (in millions):
|
|
Total
|
|
Severance
|
|
Exit Costs
|
|
Balance
at December 31, 2008
|
|
$
|
2.3
|
|
$
|
2.2
|
|
$
|
0.1
|
|
Restructuring
charges
|
|
0.3
|
|
0.3
|
|
|
|
Cash
payments
|
|
(1.9
|
)
|
(1.8
|
)
|
(0.1
|
)
|
Balance
at June 30, 2009
|
|
$
|
0.7
|
|
$
|
0.7
|
|
$
|
|
|
12.
Impairment Charges
In the second quarter of
2009, the Company recorded an impairment charge of $0.7 million, which
consisted of certain fixed assets used in the production of certain superconducting
wire. The impairment loss was recorded because the Company determined that the
carrying value of the assets exceeded their fair value based on the estimated
undiscounted operating cash flows generated by those assets. The impairment
charge was allocated to the Energy and Supercon Technologies segment and has
been recorded as a component of acquisition-related charges in the unaudited
condensed consolidated statements of operations.
13.
Employee Benefit Plans
Substantially all of the
Companys 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
14
Table of Contents
earned based on years of
service and compensation during active employment. Eligibility is generally
determined in accordance with local statutory requirements; however, the level
of benefits and terms of vesting varies among plans.
The net periodic pension
cost consists of the following components for the three and six months ended June 30,
2009 and 2008 (in millions):
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Components
of net periodic pension costs:
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
1.1
|
|
$
|
1.1
|
|
$
|
2.0
|
|
$
|
2.1
|
|
Interest
cost
|
|
1.0
|
|
1.2
|
|
2.0
|
|
2.1
|
|
Expected
return on plan assets
|
|
(1.0
|
)
|
(1.0
|
)
|
(1.9
|
)
|
(2.0
|
)
|
Net
periodic benefit costs
|
|
$
|
1.1
|
|
$
|
1.3
|
|
$
|
2.1
|
|
$
|
2.2
|
|
The Company made
contributions of $1.2 million to its defined benefit plans during the six
months ended June 30, 2009 and estimates contributions of $1.2 million
will be made during the remainder of 2009.
14.
Interest and Other Income
(Expense), Net
The components of
interest and other income (expense), net, were as follows for the three and six
months ended June 30, 2009 and 2008 (in millions):
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Interest
income
|
|
$
|
0.4
|
|
$
|
1.9
|
|
$
|
0.8
|
|
$
|
3.6
|
|
Interest
expense
|
|
(2.1
|
)
|
(3.8
|
)
|
(4.4
|
)
|
(5.7
|
)
|
Exchange
gains (losses) on foreign currency transactions
|
|
(0.7
|
)
|
3.3
|
|
0.6
|
|
(9.0
|
)
|
Other
|
|
(0.5
|
)
|
2.2
|
|
0.2
|
|
2.5
|
|
Interest
and other income (expense), net
|
|
$
|
(2.9
|
)
|
$
|
3.6
|
|
$
|
(2.8
|
)
|
$
|
(8.6
|
)
|
15.
Provision for Income Taxes
The Company accounts for
income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes
(SFAS No. 109). SFAS No. 109
requires the asset and liability approach to account for income taxes by
recognizing deferred tax assets and liabilities for the expected future tax
consequences of differences between the financial statement basis and the tax
basis of assets and liabilities, calculated using enacted tax rates in effect
for the year in which the differences are expected to be reflected in the tax
return. The Company records a valuation allowance to reduce deferred tax assets
to the amount that is more likely than not to be realized.
In addition, the Company
accounts for uncertain tax positions in accordance with the provisions of FASB
Interpretation No. 48,
Accounting for Uncertainty in Income Taxesan
interpretation of FASB Statement No. 109
(FIN No. 48).
Among other things, FIN No. 48 provides guidance to address uncertainty in
tax positions and clarifies the accounting for income taxes by prescribing a
minimum recognition threshold, which an income tax position must achieve before
being recognized in the financial statements.
The income tax provision
for the three months ended June 30, 2009 was $4.6 million compared to an
income tax provision of $10.3 million for the three months ended June 30,
2008, representing effective tax rates of 26.6% and 32.2%, respectively. The
income tax provision for the six months ended June 30, 2009 was $10.4
million compared to an income tax provision of $14.5 million for the six months
ended June 30, 2008, representing effective tax rates of 32.8% and 40.7%,
respectively.
The Companys effective
tax rate generally reflects the tax provision (benefit) for non-U.S. entities
only, since no benefit was recognized for cumulative losses incurred in the
U.S. A full valuation allowance will be maintained for U.S. net operating
losses and tax credits until evidence exists that it is more likely than not
that the loss carryforward and credit amounts will be utilized to offset U.S.
taxable income. The Companys tax rate may change
15
Table of Contents
over time as the amount
or mix of income and taxes outside the U.S. changes. The effective tax rate is
calculated using projected annual pre-tax income or loss and is affected by
research and development tax credits, the expected level of other tax benefits,
the impact of changes to the valuation allowance, and changes in the mix of the
Companys pre-tax income and losses among jurisdictions with varying statutory
tax rates and credits.
The Company has
unrecognized tax benefits of approximately $21.8 million as of June 30,
2009, of which $12.1 million, if recognized, would result in a reduction of the
Companys effective tax rate. The Company recognizes penalties and
interest related to unrecognized tax benefits in the provision for income
taxes. As of June 30, 2009 and December 31, 2008, approximately $3.4
million and $3.0 million, respectively, of accrued interest and penalties related
to uncertain tax positions was included in other current liabilities on the
unaudited condensed consolidated balance sheets. Penalties and interest related
to unrecognized tax benefits in the provision for income taxes of $0.2 million
and $0.2 million were recorded during the three months ended June 30, 2009
and 2008, respectively, and $0.4 million and $0.6 million was recorded during
the six months ended June 30, 2009 and 2008, respectively.
The Company files returns
in many foreign and state jurisdictions with varying statutes of limitations,
but considers its significant tax jurisdictions to include the United States,
Germany and Switzerland. The tax years 2003 to 2008 are open tax years in these
major taxing jurisdictions. One of the Companys Swiss entities is currently
being audited for the tax years 2003 through 2006 and the audit is expected to
be completed during 2009. In addition, all of the Companys German subsidiaries
are under tax audit for the years 2003 through 2008. The Company cannot
reasonably predict the timing or outcome of these audits.
16.
Comprehensive Income (Loss)
Comprehensive income
refers to revenues, expenses, gains and losses that under GAAP are included in
other comprehensive income, but excluded from net income as these amounts are
recorded directly as an adjustment to shareholders equity, net of tax. The
following is a summary of comprehensive income (loss) for the three and six
months ended June 30, 2009 and 2008 (in millions):
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Consolidated
net income
|
|
$
|
12.7
|
|
$
|
21.7
|
|
$
|
21.3
|
|
$
|
21.1
|
|
Foreign
currency translation adjustments
|
|
22.7
|
|
(3.9
|
)
|
(3.7
|
)
|
35.2
|
|
Unrealized
gains on interest rate swap:
|
|
|
|
|
|
|
|
|
|
Unrealized
holding gains arising during the period
|
|
0.5
|
|
0.1
|
|
0.1
|
|
0.1
|
|
Reclassification
adjustments for settlements included in the determination of net income
|
|
0.6
|
|
0.1
|
|
1.1
|
|
0.1
|
|
Unrealized
losses on available for sale securities
|
|
|
|
|
|
|
|
|
|
Unrealized
holding losses arising during the period
|
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
Reclassification
adjustments for settlements included in the determination of net income
|
|
|
|
(1.3
|
)
|
|
|
(1.3
|
)
|
Pension
liability adjustments
|
|
|
|
0.1
|
|
1.0
|
|
(0.3
|
)
|
Total
comprehensive income
|
|
36.5
|
|
|
16.7
|
|
19.8
|
|
54.8
|
|
Less:
Comprehensive income (loss) attributable to noncontrolling interests
|
|
(0.2
|
)
|
|
|
|
|
0.2
|
|
Comprehensive
income attributable to Bruker Corporation
|
|
$
|
36.7
|
|
$
|
16.7
|
|
$
|
19.8
|
|
$
|
54.6
|
|
17. Noncontrolling Interests
Noncontrolling interests
represents the minority shareholders proportionate share of the net income
recorded by the Companys four majority-owned indirect subsidiaries, Bruker
Baltic Ltd., InCoaTec GmbH and Perch Solutions OY, which are included in the
Scientific Instruments segment, and RI Research Instruments GmbH which is
included in the Energy and Supercon Technologies segment. Net income (loss)
attributable to noncontrolling interests for the three months ended June 30,
2009 and June 30, 2008 was $(0.2) million and $0.0 million, respectively.
Net income attributable to noncontrolling interests for the six months ended June 30,
2009 and June 30,
16
Table of Contents
2008 was $0.0 million and
$0.2 million, respectively. There were no transfers to or from the
noncontrolling interests during the six months ended June 30, 2009 or June 30,
2008.
18.
Commitments and Contingencies
Legal
Lawsuits, claims and
proceedings of a nature considered normal to its businesses may be pending from
time to time against the Company. The Company believes the outcome of these
proceedings, if any, will not have a material impact on the Companys financial
position or results of operations. As of June 30, 2009 and December 31,
2008, no accruals have been recorded for such potential contingencies.
Letters
of Credit and Guarantees
At June 30, 2009 and
December 31, 2008, the Company had bank guarantees of $53.7 million
and $62.1 million, respectively, for its customer advances. These
arrangements guarantee the refund of advance payments received from customers
in the event that the merchandise is not delivered in compliance with the terms
of the contract. Certain of these guarantees affect the availability of the
Companys lines of credit.
19.
Business Segment Information
SFAS No. 131,
Disclosures about Segments of an Enterprise and
Related Information
, establishes standards for reporting information
about operating segments in annual financial statements of public business
enterprises. It also establishes standards for related disclosures about
products and service, geographic areas and major customers. Operating segments
are identified as components of an enterprise for which separate discrete financial
information is available for evaluation by the chief operating decision maker
for the purpose of allocating resources and assessing performance.
The Company has
determined that it has five operating segments, representing each of its five
divisions: Bruker AXS, Bruker BioSpin, Bruker Daltonics, Bruker Optics and
Bruker Energy and Supercon Technologies. Bruker AXS is in the business of
manufacturing and distributing advanced X-ray and spark-OES instrumentation
used in non-destructive molecular and elemental analysis. Bruker BioSpin is in
the business of manufacturing and distributing enabling life science tools
based on magnetic resonance technology. Bruker Daltonics is in the business of
manufacturing and distributing mass spectrometry instruments that can be
integrated and used along with other analytical instruments and our CBRN detection
products. Bruker Optics is in the business of manufacturing and distributing
research, analytical and process analysis instruments and solutions based on
infrared and Raman molecular spectroscopy technologies. Bruker Energy and
Supercon Technologies is in the business of developing and producing low
temperature superconductor and high temperature superconductor wires for use in
advanced magnet technology and energy applications as well as linear
accelerators, accelerator cavities, insertion devices, superconducting fault current
limiters, other accelerator components and specialty superconducting magnets
for physics and energy research and a variety of other scientific applications.
The Company has combined
the Bruker AXS, Bruker BioSpin, Bruker Daltonics and Bruker Optics operating
segments into the Scientific Instruments reporting segment because each has
similar economic characteristics, product processes and services, types and
classes of customers, methods of distribution and regulatory environments.
Selected business segment
information for the three and six months ended June 30, 2009 and 2008 is
presented below (in millions):
17
Table of Contents
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
Scientific
Instruments
|
|
$
|
241.3
|
|
$
|
303.0
|
|
$
|
464.9
|
|
$
|
533.5
|
|
Energy
and Superconducting Technologies
|
|
13.7
|
|
12.5
|
|
21.8
|
|
22.4
|
|
Eliminations
(a)
|
|
(2.5
|
)
|
(4.0
|
)
|
(3.7
|
)
|
(6.1
|
)
|
Total
revenue
|
|
$
|
252.5
|
|
$
|
311.5
|
|
$
|
483.0
|
|
$
|
549.8
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income:
|
|
|
|
|
|
|
|
|
|
Scientific
Instruments
|
|
$
|
20.4
|
|
$
|
29.5
|
|
$
|
36.5
|
|
$
|
47.7
|
|
Energy
and Superconducting Technologies
|
|
(0.7
|
)
|
(1.3
|
)
|
(3.1
|
)
|
(3.7
|
)
|
Corporate,
eliminations and other (b)
|
|
0.5
|
|
0.2
|
|
1.1
|
|
0.2
|
|
Total
operating income
|
|
$
|
20.2
|
|
$
|
28.4
|
|
$
|
34.5
|
|
$
|
44.2
|
|
(a) Represents
product and service revenue between reportable segments.
(b) Represents
corporate costs and eliminations not allocated to the reportable segments.
Total assets by segment
as of June 30, 2009 and December 31, 2008 are as follows (in
millions):
|
|
June 30,
2009
|
|
December 31,
2008
|
|
Scientific
Instruments
|
|
$
|
1,041.0
|
|
$
|
1,081.5
|
|
Energy
and Superconducting Technologies
|
|
56.3
|
|
39.4
|
|
Corporate,
eliminations and other (a)
|
|
(9.8
|
)
|
(4.6
|
)
|
Total
|
|
$
|
1,087.5
|
|
$
|
1,116.3
|
|
(a) Represents
corporate assets not allocated to the reportable segments and eliminations of
intercompany transactions.
20.
Recent Accounting Pronouncements
In June 2009, the
FASB issued SFAS No. 168,
The FASB Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles a
replacement of FASB Statement 162
(SFAS No. 168). SFAS No. 168
is effective for fiscal years and interim periods, ending after September 15,
2009. SFAS No. 168 is intended to improve financial reporting by
identifying the
FASB Accounting Standards
Codification
and rules and interpretive releases of the SEC
under authority of federal securities laws as the sole sources of authoritative
accounting principles to be used in preparing financial statements that are
presented in conformity with GAAP for SEC registrants. The adoption of SFAS No. 168
is not expected to have a material impact on the Companys results of
operations, financial position or cash flows.
In December 2008,
the FASB issued Staff Position No. 132(R)-1,
Employers Disclosures about Postretirement Benefit Plan Assets
(FSP 132(R)-1). FSP 132(R)-1 requires detailed disclosures regarding the
investment strategies, fair value measurements, and concentrations of risk of
plan assets of a defined benefit pension or other postretirement plan. FSP
132(R)-1 is effective for fiscal years ending after December 15, 2009 and
will be applied prospectively. The Company is currently assessing the impact
that FSP 132(R)-1 will have on its results of operations and financial
position.
18
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ITEM
2.
|
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The following discussion
of our financial condition and results of operations should be read in
conjunction with our interim unaudited condensed consolidated financial
statements and the notes to those statements included in Part 1, Item 1 of
this Quarterly Report on Form 10-Q, and in conjunction with the
consolidated financial statements contained in our Annual Report on Form 10-K
for the year ended December 31, 2008.
Statements contained in
Managements Discussion and Analysis of Financial Condition and Results of
Operations, which express that we believe, anticipate, plan, expect, seek,
estimate, or should, as well as other statements, which are not historical
fact, are forward-looking statements within the meaning of the Private
Securities Litigation Act of 1995. Actual events or results may differ materially
from those set forth in forward-looking statements. Certain factors that might
cause such a difference are discussed in Factors Affecting Our Business,
Operating Results and Financial Condition set forth in our Annual Report on Form 10-K
for the year ended December 31, 2008.
OVERVIEW
The following Managements
Discussion and Analysis of Financial Condition and Results of Operations, or
MD&A, describes the principal factors affecting the results of our
operations, financial condition and changes in financial condition, as well as
our critical accounting policies and estimates. Our MD&A is organized as
follows:
·
Executive overview
. This section provides a general
description and history of our business, a brief discussion of our reportable
segments, significant recent developments in our business and other
opportunities, challenges and risks that may impact our business in the future.
·
Critical accounting
policies
. This
section discusses the accounting estimates that are considered important to our
financial position and results of operations and that require us to exercise
subjective or complex judgments in their application.
·
Results of operations
. This section provides our analysis of
the significant line items on our consolidated statement of operations for the
three and six months ended June 30, 2009 compared to the three and six
months ended June 30, 2008.
·
Liquidity and capital
resources
. This
section provides an analysis of our liquidity and cash flow and a discussion of
our outstanding debt and commitments.
·
Recent accounting
pronouncements
.
This section provides information about new accounting standards that have been
issued but for which adoption is not yet required.
EXECUTIVE
OVERVIEW
Business
Overview
Bruker Corporation and its
wholly-owned subsidiaries design, manufacture, market and service proprietary
life science and materials research systems based on our core technology
platforms, including X-ray technologies, magnetic resonance technologies, mass
spectrometry technologies, optical emission spectroscopy and infrared and Raman
molecular spectroscopy technologies. We also manufacture and distribute a broad
range of field analytical systems for chemical, biological, radiological and
nuclear, or CBRN, detection. We also develop and manufacture low temperature
and high temperature wires for use in advanced magnet technology and energy
applications. We maintain major technical and manufacturing centers in Europe,
North America and Japan and we have sales offices located throughout the world.
Our corporate headquarters are located in Billerica, Massachusetts.
Our business strategy is
to capitalize on our ability to innovate and generate above industry-average
revenue performance, both organically and through acquisitions. Our growth
strategy combined with anticipated
19
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improvements to our gross
profit margins and increased leverage on our research and development, sales
and marketing and distribution investments and general and administrative
expenses is expected to enhance our operating margins and improve our earnings
in the future.
On February 26,
2008, we completed our acquisition of Bruker BioSpin. Both the Company and
Bruker BioSpin were majority owned by six affiliated shareholders prior to the
acquisition. As a result, the acquisition of Bruker BioSpin is considered a
combination of companies under common control, and has been accounted for at
historical carrying values. Historical unaudited condensed consolidated balance
sheets, statements of operations, statements of cash flows and notes to the
consolidated financial statements have been restated by combining the
historical consolidated financial statements of Bruker Corporation with those
of Bruker BioSpin. Because the transaction was accounted for as an acquisition
of businesses under common control, all one-time transaction costs were
expensed as incurred.
With the addition of
Bruker BioSpin, we enhanced our scientific instruments business and thus
furthered our position as a leading supplier of life science and materials
research systems. The technologies of Bruker BioSpin are particularly
complementary to our accurate-mass electrospray time-of-flight mass
spectrometers and our single-crystal diffraction X-ray spectrometers and have
created revenue synergies and provided opportunities to supply customers with
equipment packages that have a broader range of applications and value. The
addition of Bruker BioSpin has also enhanced our distribution of scientific
instruments in the Americas, Europe and Asia and our sales and service
infrastructure.
We are organized into
five operating segments, representing each of our five divisions: Bruker AXS,
Bruker BioSpin, Bruker Daltonics, Bruker Optics and Bruker Energy and Supercon
Technologies. Bruker AXS is in the business of manufacturing and distributing
advanced X-ray and spark-OES instrumentation used in non-destructive molecular
and elemental analysis. Bruker BioSpin is in the business of manufacturing and
distributing enabling life science tools based on magnetic resonance
technology. Bruker Daltonics is in the business of manufacturing and
distributing mass spectrometry instruments that can be integrated and used
along with other analytical instruments and our CBRN detection products. Bruker
Optics is in the business of manufacturing and distributing research,
analytical and process analysis instruments and solutions based on infrared and
Raman molecular spectroscopy technologies. Bruker Energy and Supercon
Technologies is in the business of developing and producing low temperature
superconductor and high temperature superconductor wires for use in advanced
magnet technology and energy applications as well as linear accelerators,
accelerator cavities, insertion devices, superconducting fault current limiters,
other accelerator components and specialty superconducting magnets for physics
and energy research and a variety of other scientific applications.
We have combined the
Bruker AXS, Bruker BioSpin, Bruker Daltonics and Bruker Optics operating
segments into the Scientific Instruments reporting segment because each has
similar economic characteristics, product processes and services, types and
classes of customers, methods of distribution and regulatory environments. As
such, management reports its results based on the following segments:
·
Scientific Instruments.
The operations of
this segment include the design, manufacture and distribution of advanced
instrumentation and automated solutions based on X-ray technology, spark-OES
technology, magnetic resonance technology, mass spectrometry technology and
infrared and Raman molecular spectroscopy technology. Typical customers of the
Scientific Instruments segment include pharmaceutical, biotechnology,
proteomics and molecular diagnostic companies, academic institutions,
government agencies, semiconductor companies, chemical, cement, metals and
petroleum companies, raw material manufacturers and food, beverage and
agricultural companies.
·
Energy and Supercon Technologies
.
The operations of this segment include
development and production of low temperature superconductor and high
temperature superconductor wires for use in advanced magnet technology and
energy applications as well as electron and ion linear accelerators,
superconducting and normal conducting accelerator cavities, insertion devices, superconducting
fault current limiters, crystal growth magnets and other accelerator components
for physics and energy research and a variety of other scientific applications.
20
Table
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Financial
Overview
For the three months
ended June 30, 2009, our revenue decreased by $59.0 million, or 18.9%, to
$252.5 million, compared to $311.5 million for the comparable period in 2008.
Included in this change in revenue is a reduction of approximately $24.4
million from the impact of foreign exchange due to the strengthening of the
U.S. Dollar versus the Euro and other foreign currencies. Excluding the effect
of foreign exchange, revenue decreased by $34.6 million, or 11.1%. The decrease
in revenue, excluding the effect of foreign exchange, is attributable to the
Scientific Instruments segment and is related primarily to decreased sales
volume of magnetic resonance systems and X-ray and spark-OES products. The
decrease in revenue was offset, in part, by higher volumes of mass spectrometry
systems. The mix of products sold in the Scientific Instruments segment as
described above is consistent with the trend in revenue over the previous four
quarters and continues to reflect lower demand from industrial customers
partially offset by increased demand from academic and government customers.
The Company attributes this trend in reduced sales to industrial customers as a
function of the worldwide recession, while spending from academic and
government customers has increased as a result of stimulus packages implemented
by governments in various countries, including the United States, Germany and
Japan.
For the six months ended June 30,
2009, our revenue decreased by $66.8 million, or 12.2%, to $483.0 million,
compared to $549.8 million for the comparable period in 2008. Included in this
change in revenue is a reduction of approximately $43.0 million from the impact
of foreign exchange due to the strengthening of the U.S. Dollar versus the Euro
and other foreign currencies. Excluding the effect of foreign exchange, revenue
decreased by $23.8 million, or 4.4%. The decrease in revenue, excluding the
effect of foreign exchange, is attributable to the Scientific Instruments
segment and is related primarily to decreased sales volume of magnetic
resonance systems and X-ray and spark-OES products. The decrease in revenue was
offset, in part, by higher volumes of mass spectrometry systems.
Income from operations
for the three months ended June 30, 2009 was $20.2 million, resulting in
an operating margin of 8.0%, compared to income from operations of $28.4
million, resulting in an operating margin of 9.1%, for the comparable period in
2008. Income from operations for the three months ended June 30, 2009
decreased by $8.2 million as a result of lower gross profits partially offset
by a decrease in operating expenses. Our gross profit margin as a percentage of
revenue for the second quarter of 2009 was 44.0%, compared to 41.6% for the
comparable period in 2008. Lower gross profits were driven by lower revenues,
while the improvement in gross profit margins as a percentage of revenue is a
function of product mix and reflects higher margins on newly introduced mass
spectrometry products. Productivity improvements, the benefits of cost cutting
initiatives and changes in foreign currency exchange rates also contributed to
the improvement in gross profit margins as a percentage of revenue. The
decrease in operating expenses is attributable to changes in foreign currency
exchange rates and cost savings programs implemented in the second half of
2008.
Income from operations
for the six months ended June 30, 2009 was $34.5 million, resulting in an
operating margin of 7.1%, compared to income from operations of $44.2 million,
resulting in an operating margin of 8.0%, for the comparable period in 2008.
Operating margins in the first half of 2008 included $6.2 million of
acquisition-related charges incurred in connection with the acquisition of
Bruker BioSpin. Excluding the effect of these acquisition-related charges,
income from operations decreased by $15.9 million as a result of lower gross
profits partially offset by a decrease in operating expenses. Our gross profit
margin as a percentage of revenue was 44.3% for the first half of 2009 and the
comparable period in 2008. Lower gross profits were driven by lower revenues.
The decrease in operating expenses is attributable to changes in foreign
currency exchange rates and cost savings programs implemented in the second
half of 2008.
During the six months
ended June 30, 2009, we recorded net gains on foreign currency
transactions of $0.6 million compared to net losses of $9.0 million for the
comparable period in 2008. We incurred $12.2 million of foreign exchange losses
in the first three months of 2008 that were driven by the re-measurement of
certain foreign currency denominated assets, principally cash, inter-company
receivables and a short-term inter-company loan into the functional currency of
the affected entities. In the last twelve months, we have implemented programs
designed to reduce our exposure to changes in foreign currency exchange rates
and are considering additional actions, including a transactional hedging
program.
We incurred approximately
$4.4 million of interest expense during the six months ended June 30, 2009
compared to $5.7 million for the comparable period in 2008. Of the total
interest expense incurred during the six months ended June 30, 2009,
approximately $3.5 million related to a credit facility that we entered into
during the
21
Table
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first quarter of 2008. We
initially borrowed $351.0 million under this credit facility in order to
finance the acquisition of Bruker BioSpin. In the first half of 2009, we repaid
approximately $34.6 million of the amounts outstanding under this credit
agreement and from the inception of this credit agreement, we have reduced the
net amount outstanding by approximately $190.0 million.
Our effective tax rate
for the three months ended June 30, 2009 was 26.6%, compared to 32.2% for
the comparable period in 2008. Our effective tax rate for the six months ended June 30,
2009 was 32.8%, compared to 40.7% for the comparable period in 2008. The change
in our effective tax rate relates primarily to the amount and mix of income and
taxes outside the U.S because we are not able to record a tax benefit on losses
incurred in the U.S. However, in addition to the amount and mix of income and
taxes outside the U.S., our income tax provision in the first quarter of 2008
was negatively impacted by acquisition-related charges and foreign exchange
losses that did not result in significant tax benefits because they were
incurred primarily either in the U.S. or in foreign locations with relatively
low tax rates.
Our net income
attributable to the shareholders of Bruker Corporation for the three months
ended June 30, 2009 was $12.9 million, or $0.08 per diluted share,
compared to $21.7 million, or $0.13 per diluted share, for the comparable
period in 2008. Our net income attributable to the shareholders of Bruker
Corporation for the six months ended June 30, 2009 was $21.3 million, or
$0.13 per diluted share, compared to $20.9 million, or $0.13 per diluted share,
for the comparable period in 2008.
CRITICAL
ACCOUNTING POLICIES
This discussion and
analysis of our financial condition and results of operations is based upon our
unaudited condensed consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States of America. The preparation of these financial statements requires that
we make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of revenues and expenses
during the reporting period. On an ongoing basis, management evaluates its
estimates and judgments, including those related to revenue recognition, income
taxes, allowance for doubtful accounts, inventories, goodwill, other intangible
assets and long-lived assets, warranty costs and derivative financial
instruments. We base our estimates and judgments on historical experience,
current market and economic conditions, industry trends and other assumptions
that we believe are reasonable and form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results could differ from these estimates.
We believe the following
critical accounting policies to be both those most important to the portrayal
of our financial position and results of operations and those that require the
most subjective judgment.
Revenue
recognition.
We
recognize 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 collectibility of the resulting receivable is
reasonably assured. Title and risk of loss generally are transferred to the
customer upon receipt of a signed customer acceptance form for a system that
has been shipped, installed, and for which the customer has been trained. As a
result, the timing of customer acceptance or readiness could cause our reported
revenues to differ materially from expectations. When products are sold through
an independent distributor or a strategic distribution partner, who assumes
responsibility for installation, we recognize the system sale when the product
has been shipped and title and risk of loss have been transferred to the
distributor. Our distributors do not have price protection rights or rights of
return; however, our products are typically warranted to be free from defect
for a period of one year. Revenue is deferred until cash is received when a
significant portion of the fee is due over one year after delivery,
installation and acceptance of a system. For arrangements with multiple
elements, we recognize revenue for each element based on the fair value of the
element, provided all other criteria for revenue recognition have been met. The
fair value for each element provided in multiple element arrangements is
typically determined by referencing historical sales prices when the element is
sold separately. Changes in our ability to establish the fair value for each
element in multiple element arrangements could affect the timing of revenue
recognition. Revenue from accessories and parts is recognized upon shipment and
service revenue is recognized as the services are performed. We also have
contracts for which we apply the percentage-of-completion method for revenue
recognition. Application of the percentage-of-completion method requires us to
make reasonable estimates
22
Table of Contents
of the extent of progress
toward completion of the contract and the total costs we will incur under the
contract. Changes in our estimates could affect the timing of revenue
recognition. Grant revenue is recognized when we complete the services required
under the grant.
Income
taxes.
We
estimate the degree to which tax assets and loss carryforwards will result in a
benefit based on expected profitability by tax jurisdiction, and we provide a
valuation allowance for tax assets and loss carryforwards that we believe will
more likely than not go unused. If it becomes more likely than not that a tax
asset or loss carryforward will be used for which a reserve has been provided,
we reverse the related valuation allowance. If our actual future taxable income
by tax jurisdiction differs from estimates, additional allowances or reversals
of reserves may be necessary.
Allowance
for doubtful accounts.
We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to pay amounts due. If the
financial condition of our customers were to deteriorate, reducing their ability
to make payments, additional allowances would be required, resulting in a
charge to operations.
Inventories.
Inventories are stated at the lower of
cost or market, with costs determined by the first-in, first-out method for a
majority of subsidiaries and by average cost for certain international
subsidiaries. We record provisions to account for excess and obsolete inventory
to reflect the expected non-saleable or non-refundable inventory based on an
evaluation of slow moving products. If ultimate usage or demand varies
significantly from expected usage or demand, additional write-downs may be
required, resulting in additional charges to operations.
Goodwill,
other intangible assets and other long-lived assets.
We evaluate whether goodwill and
indefinite lived intangible assets are impaired annually and when events occur
or circumstances change. Goodwill is impaired when the fair value of a
reporting unit is less than its carrying amount. Fair value is determined using
discounted future cash flows. We also review long-lived intangible assets and
other assets when indication of potential impairment exists, such as a
significant reduction in undiscounted cash flows associated with the assets.
Should the fair value of our long-lived assets decline because of reduced
operating performance, market declines, or other indicators of impairment, a
charge to operations for impairment may be necessary.
Warranty
costs.
We
normally provide 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 based on historical warranty rates and our assumptions of future
warranty claims. The warranty accrual is included as a current liability on the
unaudited condensed consolidated balance sheets. Although our products undergo
quality assurance and testing procedures throughout the production process, our
warranty obligation is affected by product failure rates, material usage and
service delivery costs incurred in correcting a product failure. Although our
actual warranty costs have historically been consistent with expectations, to
the extent warranty claim activity or costs associated with servicing those
claims differ from our estimates, revisions to the warranty accrual may be
required.
Derivative
financial instruments.
All derivative instruments are recorded as other assets or other
liabilities at fair value, which is calculated as an estimate of the future
cash flows, and subsequent changes in a derivatives fair value are recognized
in income, unless specific hedge accounting criteria are met. Changes in the
fair value of a derivative that is highly effective and designated as a cash
flow hedge are recognized in accumulated other comprehensive income until the
forecasted transaction occurs or it becomes probable that the forecasted
transaction will not occur. We perform an assessment at the inception of the
hedge and on a quarterly basis thereafter, to determine whether our derivatives
are highly effective in offsetting changes in the value of the hedged items.
Any changes in the fair value resulting from hedge ineffectiveness are
immediately recognized as income or expense.
RESULTS
OF OPERATIONS
Three Months Ended June 30, 2009 Compared to the Three
Months Ended June 30, 2008
Consolidated Results
The following table
presents our results for the three months ended June 30, 2009 and 2008
(dollars in millions):
23
Table of Contents
|
|
Three Months Ended
June 30,
|
|
|
|
2009
|
|
2008
|
|
Product revenue
|
|
$
|
222.9
|
|
$
|
280.3
|
|
Service revenue
|
|
28.3
|
|
30.2
|
|
Other revenue
|
|
1.3
|
|
1.0
|
|
Total revenue
|
|
252.5
|
|
311.5
|
|
|
|
|
|
|
|
Cost of product
revenue
|
|
125.2
|
|
162.5
|
|
Cost of service
revenue
|
|
16.1
|
|
19.4
|
|
Total cost of
revenue
|
|
141.3
|
|
181.9
|
|
Gross profit
|
|
111.2
|
|
129.6
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
Sales and
marketing
|
|
43.9
|
|
47.1
|
|
General and
administrative
|
|
17.0
|
|
17.2
|
|
Research and
development
|
|
31.1
|
|
36.5
|
|
Acquisition-related
charges (credits), net
|
|
(1.0
|
)
|
0.4
|
|
Total operating
expenses
|
|
91.0
|
|
101.2
|
|
Operating income
|
|
20.2
|
|
28.4
|
|
|
|
|
|
|
|
Interest and
other income (expense), net
|
|
(2.9
|
)
|
3.6
|
|
Income before
income tax provision and noncontrolling interest in consolidated subsidiaries
|
|
17.3
|
|
32.0
|
|
Income tax
provision
|
|
4.6
|
|
10.3
|
|
Consolidated net
income
|
|
12.7
|
|
21.7
|
|
Less: net income
(loss) attributable to noncontrolling interests
|
|
(0.2
|
)
|
|
|
Net income
attributable to Bruker Corporation
|
|
$
|
12.9
|
|
$
|
21.7
|
|
|
|
|
|
|
|
Net income per common
share attributable to Bruker Corporation shareholders - basic and diluted
|
|
$
|
0.08
|
|
$
|
0.13
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
Basic
|
|
163.3
|
|
162.4
|
|
Diluted
|
|
164.7
|
|
165.5
|
|
Revenue
Our revenue decreased by
$59.0 million, or 18.9%, to $252.5 million for the three months ended June 30,
2009, compared to $311.5 million for the comparable period in 2008. Included in
this change in revenue is approximately $24.4 million from the impact of
foreign exchange. Excluding the effect of foreign exchange, revenue decreased
by 11.1%. The decrease in revenue, excluding the effect of foreign exchange, is
attributable to the Scientific Instruments segment and is related primarily to
decreased sales volume of magnetic resonance systems and X-ray and spark-OES
products. The decrease in revenue was offset, in part, by higher volumes of
mass spectrometry systems. The mix of products sold in the Scientific
Instruments segment is consistent with the trend in revenue over the previous
four quarters and continues to reflect lower demand from industrial customers
offset by increased demand from academic and government customers.
Cost of Revenue
Our cost of product and
service revenue for the three months ended June 30, 2009, was $141.3
million, resulting
24
Table
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in a gross profit margin
of 44.0%, compared to cost of product and service revenue of $181.9 million,
resulting in a gross profit margin of 41.6%, for the comparable period in 2008.
Lower gross profits were driven by lower revenues, while the improvement in
gross profit margins as a percentage of revenue is a function of product mix
and reflects higher margins on newly introduced mass spectrometry products.
Productivity improvements, the benefits of cost cutting initiatives and changes
in foreign currency exchange rates also contributed to the improvement in gross
profit margins as a percentage of revenue.
Sales and Marketing
Our sales and marketing
expense for the three months ended June 30, 2009 decreased to $43.9
million, or 17.5% of product and service revenue, from $47.1 million, or 15.2%
of product and service revenue, for the comparable period in 2008. The decrease
in sales and marketing expense is attributable mainly to changes in foreign
currency exchange rates, primarily the Euro. Additionally, we have started to
realize the benefits from certain cost cutting initiatives, but the savings
were partially offset by selling and marketing efforts associated with a number
of recently introduced products.
General and Administrative
Our general and
administrative expense for the three months ended June 30, 2009 was $17.0
million, or 6.8% of product and service revenue, and was essentially flat
compared with general and administrative expense of $17.2 million, or 5.5% of
product and service revenue, for the comparable period in 2008.
Research and Development
Our research and
development expense for the three months ended June 30, 2009 decreased to
$31.1 million, or 12.4% of product and service revenue, from $36.5 million, or
11.8% of product and service revenue, for the comparable period in 2008. The
decrease in research and development expense is attributable mainly to changes
in foreign currency exchange rates, primarily the Euro, as a majority of our
research and development is performed in Europe. Additionally, we have started
to realize the benefits from certain cost cutting initiatives, but the savings
were partially offset by investments in a number of new products and applications
scheduled to be released in the next six to twelve months.
Acquisition-Related Charges (Credits), Net
Acquisition-related
credits of $(1.0) million in the second quarter of 2009 relate entirely to the
Energy and Supercon Technologies segment and include a bargain purchase gain of
$2.1 million recorded in connection with the acquisition of the RI business
from Varian Medical Systems, Inc. offset, in part, by $0.4 million of
transaction costs incurred in connection with the acquisition of the RI
business and $0.7 million of impairment charges associated with certain fixed
assets used in the production of certain superconducting wire.
Acquisition-related
charges in the second quarter of 2008 relate entirely to the Scientific
Instruments segment and consist of $0.4 million of transaction costs incurred
in connection with the acquisition of Bruker BioSpin. The acquisition of Bruker
BioSpin represented a combination of companies under common control due to a
majority of ownership of both Bruker Corporation and Bruker BioSpin by the same
individuals and, as a result, transaction costs were expensed as incurred.
Interest and Other Income (Expense), Net
Interest and other income
(expense), net during the three months ended June 30, 2009 was $(2.9)
million, compared to $3.6 million for the comparable period of 2008.
During the three months
ended June 30, 2009, the major components within interest and other income
(expense), net were net interest expense of $1.7 million and realized and
unrealized losses on foreign currency transactions of $0.7 million. During
the three months ended June 30, 2008, the major component within interest
and other income (expense), net, was realized and unrealized losses on foreign
currency transactions of $3.3 million.
25
Table of Contents
Income Tax Provision
Our effective tax rate
generally reflects our tax provision for non-U.S. entities only since no
benefit was recognized for losses incurred in the U.S. We will maintain a full
valuation allowance for our U.S. net operating losses and tax credits until
evidence exists that it is more likely than not that the loss carryforward and
credit amounts will be utilized to offset U.S. taxable income. Our tax rate may
change over time as the amount and mix of income and taxes outside the U.S.
changes. The effective tax rate is calculated using our projected annual
pre-tax income or loss and is affected by tax credits, the expected level of
other tax benefits, and the impact of changes to the valuation allowance, as
well as changes in the mix of our pre-tax income and losses among jurisdictions
with varying statutory tax rates and credits.
The income tax provision
for the three months ended June 30, 2009, was $4.6 million compared to an
income tax provision of $10.3 million for the three months ended June 30,
2008, representing effective tax rates of 26.6% and 32.2%, respectively. The
change in our effective tax rate relates primarily to the amount and mix of
income and taxes outside the U.S.
Net Income Attributable to Noncontrolling
Interests
Net income (loss)
attributable to noncontrolling interests for the three months ended June 30,
2009 was $(0.2) million compared to $0.0 million for the comparable period of
2008. Net income attributable to noncontrolling interests represents the
minority shareholders proportionate share of the net income recorded by four
majority-owned indirect subsidiaries, Bruker Baltic Ltd., InCoaTec GmbH and
Perch Solutions OY which are included in the Scientific Instruments segment,
and RI Research Instruments GmbH which is included in the Energy and Supercon Technologies
segment.
Net Income Attributable to Bruker
Corporation
Our net income for the
three months ended June 30, 2009, was $12.9 million, or $0.08 per diluted
share, compared to $21.7 million, or $0.13 per diluted share for the comparable
period in 2008.
Segment Results
Revenue
The following table
presents revenue, change in revenue and revenue growth by reportable segment
for the three months ended June 30, 2009 and 2008 (dollars in millions):
|
|
2009
|
|
2008
|
|
Dollar Change
|
|
Percentage
Change
|
|
Scientific
Instruments
|
|
$
|
241.3
|
|
$
|
303.0
|
|
$
|
(61.7
|
)
|
(20.4
|
)%
|
Energy and
Superconducting Technologies
|
|
13.7
|
|
12.5
|
|
1.2
|
|
9.6
|
%
|
Eliminations (a)
|
|
(2.5
|
)
|
(4.0
|
)
|
1.5
|
|
|
|
|
|
$
|
252.5
|
|
$
|
311.5
|
|
$
|
(59.0
|
)
|
(18.9
|
)%
|
(a) Represents
product and service revenue between reportable segments.
Scientific Instruments Segment Revenues
Scientific Instruments
segment revenue decreased by $61.7 million, or 20.4%, to
$241.3 million for the three months ended June 30, 2009, compared to
$303.0 million for the comparable period in 2008. Included in this change
in revenue is approximately $22.4 million from the impact of foreign
exchange. Excluding the effect of foreign exchange, revenue decreased by 13.0%.
The decrease in revenue, excluding the effect of foreign exchange, is related
primarily to decreased sales volume of magnetic resonance systems and X-ray and
spark-OES products. The decrease in revenue was offset, in part, by higher
volumes of mass spectrometry systems. The mix of products sold in the
Scientific Instruments segment is consistent with the trend in revenue over the
previous four quarters and continues to reflect lower demand from industrial
customers offset by increased demand from
26
Table of Contents
academic and government
customers.
System revenue and
aftermarket revenue as a percentage of total Scientific Instruments segment
revenue were as follows during the three months ended June 30, 2009 and
2008 (dollars in millions):
|
|
2009
|
|
2008
|
|
|
|
Revenue
|
|
Percentage of
Segment
Revenue
|
|
Revenue
|
|
Percentage of
Segment
Revenue
|
|
System revenue
|
|
$
|
191.3
|
|
79.3
|
%
|
$
|
249.6
|
|
82.4
|
%
|
Aftermarket
revenue
|
|
50.0
|
|
20.7
|
%
|
53.4
|
|
17.6
|
%
|
Total revenue
|
|
$
|
241.3
|
|
100.0
|
%
|
$
|
303.0
|
|
100.0
|
%
|
System revenues in the
Scientific Instruments segment include X-ray systems, nuclear magnetic
resonance systems, magnetic resonance imaging systems, electron paramagnetic
resonance systems, mass spectrometry systems, CBRN detection systems and
molecular spectroscopy systems. Aftermarket revenues in the Scientific
Instruments segment include accessory sales, consumables, training and
services.
Energy and Supercon Technologies
Segment Revenues
Energy and Supercon
Technologies segment revenue increased by $1.2 million, or 9.6%, to
$13.7 million for the three months ended June 30, 2009, compared to
$12.5 million for the comparable period in 2008. Included in this change
in revenue is a reduction of approximately $2.0 million from the impact of
foreign exchange. Excluding the effect of foreign exchange, revenue increased
by 25.6%. The increase in revenue, excluding the effect of foreign exchange, is
attributable to the acquisition of the research instruments business of ACCEL
Instruments GmbH from Varian Medical Systems, Inc., which contributed
approximately $5.0 million of revenue in the second quarter of 2009.
System and wire revenue
and aftermarket revenue as a percentage of total Energy and Supercon
Technologies segment revenue were as follows during the three months ended June 30,
2009 and 2008 (dollars in millions):
|
|
2009
|
|
2008
|
|
|
|
Revenue
|
|
Percentage of
Segment
Revenue
|
|
Revenue
|
|
Percentage of
Segment
Revenue
|
|
System and wire
revenue
|
|
$
|
13.3
|
|
97.1
|
%
|
$
|
11.5
|
|
92.0
|
%
|
Aftermarket
revenue
|
|
0.4
|
|
2.9
|
%
|
1.0
|
|
8.0
|
%
|
Total revenue
|
|
$
|
13.7
|
|
100.0
|
%
|
$
|
12.5
|
|
100.0
|
%
|
System and wire revenues
in the Energy and Supercon Technologies segment include low and high
temperature superconducting wire and electron and ion linear accelerators,
superconducting and normal conducting accelerator cavities, insertion devices,
superconducting fault current limiters, other accelerator components and
specialty superconducting magnets for physics and energy research and a variety
of other scientific applications. Aftermarket revenues in the Energy and
Supercon Technologies segment include services and accessory sales.
Income (Loss) from Operations
The following table
presents income (loss) from operations and operating margins on revenue by reportable
segment for the three months ended June 30, 2009 and 2008 (dollars in
millions):
|
|
2009
|
|
2008
|
|
|
|
Operating
Income
|
|
Percentage of
Segment
Revenue
|
|
Operating
Income
|
|
Percentage of
Segment
Revenue
|
|
Scientific
Instruments
|
|
$
|
20.4
|
|
8.5
|
%
|
$
|
29.5
|
|
9.7
|
%
|
Energy and
Superconducting Technologies
|
|
(0.7
|
)
|
(5.1
|
)%
|
(1.3
|
)
|
(10.4
|
)%
|
Corporate,
eliminations and other (a)
|
|
0.5
|
|
|
|
0.2
|
|
|
|
Total operating
income
|
|
$
|
20.2
|
|
8.0
|
%
|
$
|
28.4
|
|
9.1
|
%
|
(a) Represents
corporate costs and eliminations not allocated to the reportable segments
27
Table of Contents
Scientific Instruments
segment income from operations for the three months ended June 30, 2009
was $20.4 million, resulting in an operating margin of 8.5%, compared to
income from operations of $29.5 million, resulting in an operating margin
of 9.7%, for the comparable period in 2008.
Income from operations in
the Scientific Instruments segment decreased as a result of the lower revenues
described above. The decrease in gross profit was offset, in part, by lower
operating expenses. In the second quarter of 2009 our gross profit margin as a
percentage of revenue increased to 45.4% compared to 42.1% for the comparable
period in 2008. The improvement in gross profit margins as a percentage of
revenue is a function of product mix and reflects higher margins on newly
introduced mass spectrometry products. In addition, productivity improvements,
the benefits of cost cutting initiatives and changes in foreign currency
exchange rates also contributed to the improvement in gross profit margins as a
percentage of revenue. The decrease in operating expenses is attributable to
changes in foreign currency exchange rates and cost savings programs
implemented in the second half of 2008.
Energy and Supercon
Technologies segment loss from operations for the three months ended June 30,
2009 was $0.7 million, resulting in an operating margin of (5.1)%,
compared to a loss from operations of $1.3 million, resulting in an
operating margin of (10.4)%, for the comparable period in 2008.
Loss from operations in
the Energy and Supercon Technologies segment in the second quarter of 2009
included a bargain purchase gain of $2.1 million recorded in connection with
the acquisition of the RI business offset, in part, by $0.4 million of
transaction costs incurred in connection with the acquisition of the RI
business and $0.7 million of impairment charges associated with certain fixed
assets used in the production of certain superconducting wire. Excluding the
effect of these acquisition-related charges, loss from operations increased by
$0.4 million for the three months ended June 30, 2009 compared to the
comparable period in 2008. The increase in the loss from operations resulted
from higher research and development costs.
Six Months Ended June 30, 2009 Compared to the Six
Months Ended June 30, 2008
Consolidated Results
The following table
presents our results for the six months ended June 30, 2009 and 2008
(dollars in millions):
28
Table
of Contents
|
|
Six Months Ended
June 30,
|
|
|
|
2009
|
|
2008
|
|
Product
revenue
|
|
$
|
425.1
|
|
$
|
488.6
|
|
Service
revenue
|
|
55.2
|
|
58.9
|
|
Other
revenue
|
|
2.7
|
|
2.3
|
|
Total
revenue
|
|
483.0
|
|
549.8
|
|
|
|
|
|
|
|
Cost
of product revenue
|
|
236.9
|
|
267.7
|
|
Cost
of service revenue
|
|
32.2
|
|
38.5
|
|
Total
cost of revenue
|
|
269.1
|
|
306.2
|
|
Gross
profit
|
|
213.9
|
|
243.6
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
Sales
and marketing
|
|
86.5
|
|
91.5
|
|
General
and administrative
|
|
33.3
|
|
34.0
|
|
Research
and development
|
|
60.2
|
|
67.7
|
|
Acquisition-related
charges (credits), net
|
|
(0.6
|
)
|
6.2
|
|
Total
operating expenses
|
|
179.4
|
|
199.4
|
|
Operating
income
|
|
34.5
|
|
44.2
|
|
|
|
|
|
|
|
Interest
and other income (expense), net
|
|
(2.8
|
)
|
(8.6
|
)
|
Income
before income tax provision and noncontrolling interest in consolidated
subsidiaries
|
|
31.7
|
|
35.6
|
|
Income
tax provision
|
|
10.4
|
|
14.5
|
|
Consolidated
net income
|
|
21.3
|
|
21.1
|
|
Less:
net income attributable to noncontrolling interests
|
|
|
|
0.2
|
|
Net
income attributable to Bruker Corporation
|
|
$
|
21.3
|
|
$
|
20.9
|
|
|
|
|
|
|
|
Net
income per common share attributable to Bruker Corporation shareholders -
basic and diluted
|
|
$
|
0.13
|
|
$
|
0.13
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
Basic
|
|
163.3
|
|
162.4
|
|
Diluted
|
|
164.5
|
|
165.3
|
|
Revenue
Our revenue decreased by
$66.8 million, or 12.2%, to $483.0 million for the six months ended June 30,
2009, compared to $549.8 million for the comparable period in 2008. Included in
this change in revenue is approximately $43.0 million from the impact of
foreign exchange. Excluding the effect of foreign exchange, revenue decreased
by 4.4%. The decrease in revenue, excluding the effect of foreign exchange, is
attributable to the Scientific Instruments segment and is related primarily to
decreased sales volume of magnetic resonance systems and X-ray and spark-OES
products. The decrease in revenue was offset, in part, by higher volumes of
mass spectrometry systems. The mix of products sold in the Scientific
Instruments segment is consistent with the trend in revenue over the previous
four quarters and continues to reflect lower demand from industrial customers
partially offset by increased demand from academic and government customers.
Cost of Revenue
Our cost of product and
service revenue for the six months ended June 30, 2009, was $269.1
million, resulting in a gross profit margin of 44.3%, compared to cost of
product and service revenue of $306.2 million, resulting in a
29
Table
of Contents
gross profit margin of
44.3%, for the comparable period in 2008. Lower gross profits were driven by
lower revenues. Gross profit margin as a percentage of revenue is a function of
product mix and reflects higher margins on newly introduced mass spectrometry
products offset by pricing pressure that continues to be a factor with certain
product lines. Productivity improvements, the benefits of cost cutting initiatives
and changes in foreign currency exchange rates also contributed to maintaining
the gross profit margins despite a decrease in revenue.
Sales and Marketing
Our sales and marketing
expense for the six months ended June 30, 2009 decreased to $86.5 million,
or 18.0% of product and service revenue, from $91.5 million, or 16.7% of
product and service revenue, for the comparable period in 2008. The decrease in
sales and marketing expense is attributable mainly to changes in foreign
currency exchange rates, primarily the Euro. Additionally, we have started to
realize the benefits from certain cost cutting initiatives, but the savings
were partially offset by selling and marketing efforts associated with a number
of recently introduced products.
General and Administrative
Our general and
administrative expense for the six months ended June 30, 2009 was $33.3
million, or 6.9% of product and service revenue, and was essentially flat
compared with general and administrative expense of $34.0 million, or 6.2% of product
and service revenue, for the comparable period in 2008.
Research and Development
Our research and
development expense for the six months ended June 30, 2009 decreased to
$60.2 million, or 12.5% of product and service revenue, from $67.7 million, or
12.4% of product and service revenue, for the comparable period in 2008. The
decrease in research and development expense is attributable mainly to changes
in foreign currency exchange rates, primarily the Euro, as a majority of our
research and development is performed in Europe. Additionally, we have started
to realize the benefits from certain cost cutting initiatives, but the savings
were partially offset by investments in a number of new products and applications
scheduled to be released in the next six to twelve months.
Acquisition-Related Charges (Credits), Net
Acquisition-related
credits of $(0.6) million in the first half of 2009 relate entirely to the
Energy and Supercon Technologies segment and include a bargain purchase gain of
$2.1 million recorded in connection with the acquisition of the RI business
from Varian Medical Systems, Inc. offset, in part, by $0.8 million of
transaction costs incurred in connection with the acquisition of the RI
business and $0.7 million of impairment charges associated with certain fixed
assets used in the production of certain superconducting wire.
Acquisition-related
charges in the first half of 2008 relate entirely to the Scientific Instruments
segment and consist of $6.2 million of transaction costs incurred in connection
with the acquisition of Bruker BioSpin. The acquisition of Bruker BioSpin
represented a combination of companies under common control due to a majority
of ownership of both Bruker Corporation and Bruker BioSpin by the same
individuals and, as a result, transaction costs were expensed as incurred.
Interest and Other Income (Expense), Net
Interest and other income
(expense), net during the six months ended June 30, 2009 was $(2.8)
million, compared to $(8.6) million for the comparable period of 2008.
During the six months
ended June 30, 2009, the major components within interest and other income
(expense), net were net interest expense of $3.6 million offset, in part,
by realized and unrealized gains on foreign currency transactions of
$0.6 million. During the six months ended June 30, 2008, the major
component within interest and other income (expense), net, was realized and
unrealized losses on foreign currency transactions of $9.0 million and net
interest expense of $2.1 million offset, in part, by other income of
$2.5 million. Losses on foreign currency
30
Table
of Contents
transactions in the first
half of 2008 resulted from the re-measurement of certain foreign currency
denominated assets, principally cash, inter-company receivables and a
short-term inter-company loan into the functional currency of the affected
entities.
Income Tax Provision
Our effective tax rate
generally reflects our tax provision for non-U.S. entities only since no
benefit was recognized for losses incurred in the U.S. We will maintain a full
valuation allowance for our U.S. net operating losses and tax credits until
evidence exists that it is more likely than not that the loss carryforward and
credit amounts will be utilized to offset U.S. taxable income. Our tax rate may
change over time as the amount and mix of income and taxes outside the U.S.
changes. The effective tax rate is calculated using our projected annual
pre-tax income or loss and is affected by tax credits, the expected level of
other tax benefits, and the impact of changes to the valuation allowance, as
well as changes in the mix of our pre-tax income and losses among jurisdictions
with varying statutory tax rates and credits.
The income tax provision
for the six months ended June 30, 2009, was $10.4 million compared to an
income tax provision of $14.5 million for the six months ended June 30,
2008, representing effective tax rates of 32.8% and 40.7%, respectively. The
change in our effective tax rate relates primarily to the amount and mix of
income and taxes outside the U.S. However, in addition to the amount and mix of
income and taxes outside the U.S., our income tax provision in the first
quarter of 2008 was negatively impacted by acquisition-related charges and
foreign exchange losses that did not result in significant tax benefits because
they were incurred primarily either in the U.S. or in foreign locations with
relatively low tax rates.
Net Income Attributable to Noncontrolling
Interests
Net income attributable
to noncontrolling interests for the six months ended June 30, 2009 was
$0.0 million compared to $0.2 million for the comparable period of 2008. Net
income attributable to noncontrolling interests represents the minority
shareholders proportionate share of the net income recorded by four
majority-owned indirect subsidiaries, Bruker Baltic Ltd., InCoaTec GmbH and
Perch Solutions OY which are included in the Scientific Instruments segment,
and RI Research Instruments GmbH which is included in the Energy and Supercon
Technologies segment.
Net Income Attributable to Bruker
Corporation
Our net income for the
six months ended June 30, 2009, was $21.3 million, or $0.13 per diluted
share, compared to $20.9 million, or $0.13 per diluted share for the comparable
period in 2008.
Segment Results
Revenue
The following table
presents revenue, change in revenue and revenue growth by reportable segment
for the six months ended June 30, 2009 and 2008 (dollars in millions):
|
|
2009
|
|
2008
|
|
Dollar Change
|
|
Percentage
Change
|
|
Scientific
Instruments
|
|
$
|
464.9
|
|
$
|
533.5
|
|
$
|
(68.6
|
)
|
(12.9
|
)%
|
Energy
and Superconducting Technologies
|
|
21.8
|
|
22.4
|
|
(0.6
|
)
|
(2.7
|
)%
|
Eliminations
(a)
|
|
(3.7
|
)
|
(6.1
|
)
|
2.4
|
|
|
|
|
|
$
|
483.0
|
|
$
|
549.8
|
|
$
|
(66.8
|
)
|
(12.1
|
)%
|
(a) Represents
product and service revenue between reportable segments.
Scientific Instruments Segment Revenues
Scientific Instruments
segment revenue decreased by $68.6 million, or 12.9%, to $464.9 million
for the six months ended June 30, 2009, compared to $533.5 million
for the comparable period in 2008. Included in this change
31
Table of Contents
in revenue is
approximately $39.7 million from the impact of foreign exchange. Excluding
the effect of foreign exchange, revenue decreased by 5.4%. The decrease in
revenue, excluding the effect of foreign exchange, is related primarily to
decreased sales volume of magnetic resonance systems and X-ray and spark-OES
products. The decrease in revenue was offset, in part, by higher volumes of
mass spectrometry systems. The mix of products sold in the Scientific
Instruments segment is consistent with the trend in revenue over the previous
four quarters and continues to reflect lower demand from industrial customers
offset by increased demand from academic and government customers.
System revenue and
aftermarket revenue as a percentage of total Scientific Instruments segment
revenue were as follows during the six months ended June 30, 2009 and 2008
(dollars in millions):
|
|
2009
|
|
2008
|
|
|
|
Revenue
|
|
Percentage of
Segment
Revenue
|
|
Revenue
|
|
Percentage of
Segment
Revenue
|
|
System
revenue
|
|
$
|
367.8
|
|
79.1
|
%
|
$
|
426.3
|
|
79.9
|
%
|
Aftermarket
revenue
|
|
97.1
|
|
20.9
|
%
|
107.2
|
|
20.1
|
%
|
Total
revenue
|
|
$
|
464.9
|
|
100.0
|
%
|
$
|
533.5
|
|
100.0
|
%
|
System revenues in the
Scientific Instruments segment include X-ray systems, nuclear magnetic
resonance systems, magnetic resonance imaging systems, electron paramagnetic
resonance systems, mass spectrometry systems, CBRN detection systems and
molecular spectroscopy systems. Aftermarket revenues in the Scientific
Instruments segment include accessory sales, consumables, training and
services.
Energy and Supercon Technologies
Segment Revenues
Energy and Supercon
Technologies segment revenue decreased by $0.6 million, or 2.7%, to
$21.8 million for the six months ended June 30, 2009, compared to
$22.4 million for the comparable period in 2008. Included in this change
in revenue is approximately $3.3 million from the impact of foreign
exchange. Excluding the effect of foreign exchange, revenue increased by 12.1%.
The increase in revenue, excluding the effect of foreign exchange, is
attributable to the acquisition of the research instruments business of ACCEL
Instruments GmbH from Varian Medical Systems, Inc., which contributed
approximately $5.0 million of revenue in the second quarter of 2009.
System and wire revenue
and aftermarket revenue as a percentage of total Energy and Supercon
Technologies segment revenue were as follows during the six months ended June 30,
2009 and 2008 (dollars in millions):
|
|
2009
|
|
2008
|
|
|
|
Revenue
|
|
Percentage of
Segment
Revenue
|
|
Revenue
|
|
Percentage of
Segment
Revenue
|
|
System
and wire revenue
|
|
$
|
20.9
|
|
95.9
|
%
|
$
|
20.4
|
|
91.1
|
%
|
Aftermarket
revenue
|
|
0.9
|
|
4.1
|
%
|
2.0
|
|
8.9
|
%
|
Total
revenue
|
|
$
|
21.8
|
|
100.0
|
%
|
$
|
22.4
|
|
100.0
|
%
|
System and wire revenues
in the Energy and Supercon Technologies segment include low and high
temperature superconducting wire and electron and ion linear accelerators,
superconducting and normal conducting accelerator cavities, insertion devices, superconducting
fault current limiters, other accelerator components and specialty superconducting
magnets for physics and energy research and a variety of other scientific
applications. Aftermarket revenues in the Energy and Supercon Technologies
segment include services and accessory sales.
Income (Loss) from Operations
The following table
presents income (loss) from operations and operating margins on revenue by
reportable segment for the six months ended June 30, 2009 and 2008
(dollars in millions):
32
Table of Contents
|
|
2009
|
|
2008
|
|
|
|
Operating
Income
|
|
Percentage of
Segment
Revenue
|
|
Operating
Income
|
|
Percentage of
Segment
Revenue
|
|
Scientific
Instruments
|
|
$
|
36.5
|
|
7.9
|
%
|
$
|
47.7
|
|
8.9
|
%
|
Energy
and Superconducting Technologies
|
|
(3.1
|
)
|
(14.2
|
)%
|
(3.7
|
)
|
(16.5
|
)%
|
Corporate,
eliminations and other (a)
|
|
1.1
|
|
|
|
0.2
|
|
|
|
Total
operating income
|
|
$
|
34.5
|
|
7.1
|
%
|
$
|
44.2
|
|
8.0
|
%
|
(a) Represents corporate costs and eliminations
not allocated to the reportable segments
Scientific Instruments
segment income from operations for the six months ended June 30, 2009 was
$36.5 million, resulting in an operating margin of 7.9%, compared to
income from operations of $47.7 million, resulting in an operating margin
of 8.9%, for the comparable period in 2008.
Income from operations in
the Scientific Instruments segment decreased as a result of the lower revenues
described above. The decrease in gross profit was offset, in part, by lower
operating expenses. In the first half of 2009 our gross profit margin as a
percentage of revenue increased to 45.4% compared to 45.1% for the comparable
period in 2008. The improvement in gross profit margins as a percentage of
revenue is a function of product mix and reflects higher margins on newly
introduced mass spectrometry products. In addition, productivity improvements,
the benefits of cost cutting initiatives and changes in foreign currency
exchange rates also contributed to the improvement in gross profit margins as a
percentage of revenue. The decrease in operating expenses is attributable to
changes in foreign currency exchange rates and cost savings programs
implemented in the second half of 2008.
Energy and Supercon
Technologies segment loss from operations for the six months ended June 30,
2009 was $3.1 million, resulting in an operating margin of (14.2)%,
compared to a loss from operations of $3.7 million, resulting in an
operating margin of (16.5)%, for the comparable period in 2008.
Loss from operations in
the Energy and Supercon Technologies segment in the first half of 2009 included
a bargain purchase gain of $2.1 million recorded in connection with the
acquisition of the RI business offset, in part, by $0.8 million of transaction
costs incurred in connection with the acquisition of the RI business and $0.7
million of impairment charges associated with certain fixed assets used in the
production of certain superconducting wire. Excluding the effect of these
acquisition-related charges, loss from operations was essentially unchanged for
the first half of 2009 compared to the first half of 2008.
LIQUIDITY
AND CAPITAL RESOURCES
We currently anticipate
that our existing cash and credit facilities will be sufficient to support our
operating and investing needs for at least the next twelve months, but this
depends on our profitability and our ability to manage working capital
requirements. Our future cash requirements will also be affected by
acquisitions that we may make in the future. Historically, we have financed our
growth through a combination of debt financings and issuances of common stock.
In the future, there can be no assurances that additional financing
alternatives will be available to us if required, or if available, will be
obtained on terms favorable to us.
During the six months ended
June 30, 2009, net cash provided by operating activities was $51.3
million, resulting primarily from $21.3 million of net income and $17.8 million
of net changes in working capital. During the six months ended June 30,
2008, net cash provided by operating activities was $18.1 million,
resulting primarily from $21.1 million of net income.
During the six months
ended June 30, 2009, net cash used by investing activities was
$8.7 million, compared to net cash used by investing activities of
$28.0 million during the six months ended June 30, 2008. Cash used by
investing activities during the six months ended June 30, 2009 was
attributable primarily to $7.1 million of capital expenditures and
$1.1 million used for acquisitions. Cash used by investing activities
during the six months ended June 30, 2008 was attributable primarily to
$27.1 million of capital expenditures. The decrease in capital
expenditures during the six months ended June 30, 2009 compared
to 2008 related primarily to the expansion of our facility in Ettlingen,
Germany, which was completed in the third quarter of 2008.
33
Table of Contents
During the six months
ended June 30, 2009, net cash used by financing activities was
$51.6 million, compared to net cash used by financing activities of
$217.5 million during the six months ended June 30, 2008. Cash used
by financing activities during the six months ended June 30, 2009 was
attributable to $51.7 million of net debt repayments under various
long-term and short-term arrangements. Cash used by financing activities during
the six months ended June 30, 2008 was attributable to $386.0 million paid
to certain shareholders of Bruker BioSpin in connection with the acquisition
and $23.4 million of withholding taxes paid in connection with a dividend
declared by Bruker BioSpin prior to the acquisition. These uses were offset, in
part, by $193.4 million of net borrowings related primarily to the Credit
Agreement.
At June 30, 2009, we
had outstanding debt totaling $170.7 million consisting of $161.1 million
outstanding under the Credit Agreement, including $138.8 million
outstanding under a term loan and $22.3 million under revolving loans,
$4.1 million outstanding under other long-term debt arrangements,
$0.6 million outstanding under other revolving lines of credit and
$4.9 million under capital lease obligations. At June 30, 2009, we
classified the $22.3 million borrowed under the revolving credit line of
the Credit Agreement as short-term because we expect to repay this amount in
the next twelve months. At December 31, 2008, we had outstanding debt
totaling $223.8 million consisting of $196.5 million outstanding
under the Credit Agreement, including $144.4 million drawn on a term loan
and $52.1 million under revolving loans, $15.8 million outstanding
under other long-term debt arrangements, $6.2 million outstanding under
other revolving lines of credit and $5.3 million under capital lease
obligations. At December 31, 2008, we classified $35.6 million of the
$52.1 million borrowed under the revolving credit line of the Credit
Agreement as long-term because of our expectation that we would not repay this
amount in the next twelve months.
On February 26,
2008, we completed our acquisition of Bruker BioSpin for $914.0 million.
The acquisition of Bruker BioSpin was financed with 57,544,872 shares of
unregistered common stock valued at $526.0 million based on the trailing
10-day trading average closing price of $9.14 per share as of two days prior to
the signing of the transaction agreements, $351.0 million of cash obtained
under a new credit facility, which we refer to as the Credit Agreement, and the
balance with cash on hand. The Credit Agreement, which is with a syndication of
lenders, provides for a revolving credit line with a maximum commitment of
$230.0 million and a term loan facility of $150.0 million. The
outstanding principal under the term loan is payable in quarterly installments
through December 2012. Borrowings under the Credit Agreement bear
interest, at our option, at either (i) the higher of the prime rate or the
federal funds rate plus 0.50%, or (ii) adjusted LIBOR, plus margins
ranging from 0.40% to 1.25% and a facility fee ranging from 0.10% to 0.20%. As
of June 30, 2009, the weighted average interest rate of borrowings under
the term facility of the Credit Agreement was approximately 2.8%.
Borrowings under the
Credit Agreement are secured by the pledge to the banks of 100% of the capital
stock of each of our wholly-owned domestic subsidiaries and 65% of the capital
stock of certain of our wholly-owned direct or indirect foreign subsidiaries.
The Credit Agreement also requires that we maintain certain financial ratios
related to maximum leverage and minimum interest coverage, as defined in the
Credit Agreement. In addition to the financial ratios, the Credit Agreement
restricts, among other things, our ability to do the following: make certain
payments; incur additional debt; incur certain liens; make certain investments,
including derivative agreements; merge, consolidate, sell or transfer all or
substantially all of our assets; and enter into certain transactions with
affiliates. As of June 30, 2009, the latest measurement date, we were in
compliance with the covenants of the Credit Agreement.
Other long-term debt
arrangements at June 30, 2009 include both collateralized and
uncollateralized arrangements with various financial institutions in Germany
and are at fixed and variable interest rates ranging from 2.7% to 8.0% at June 30,
2009. The term of these arrangements are through various dates between 2010 and
2013.
Other revolving loans are
with various financial institutions primarily in Germany, Japan and France. The
following is a summary of the maximum commitments and net amounts available to
the Company under revolving loans as of June 30, 2009 (in millions):
34
Table of Contents
|
|
Weighted
Average
Interest Rate
|
|
Total Amount
Committed by
Lenders
|
|
Outstanding
Borrowings
|
|
Outstanding
Letters of
Credit
|
|
Total Amount
Available
|
|
Credit
Agreement
|
|
0.8
|
%
|
$
|
230.0
|
|
$
|
22.3
|
|
$
|
1.4
|
|
$
|
206.3
|
|
Other
revolving loans
|
|
4.9
|
%
|
66.4
|
|
0.6
|
|
52.3
|
|
13.5
|
|
Total
revolving loans
|
|
0.9
|
%
|
$
|
296.4
|
|
$
|
22.9
|
|
$
|
53.7
|
|
$
|
219.8
|
|
As of June 30, 2009,
we have approximately $6.0 million of net operating loss carryforwards
available to reduce future U.S. taxable income. These losses have various
expiration dates through 2028. The Company also has approximately $45.3 million
of German Trade Tax net operating losses that are carried forward indefinitely
and U.S. tax credits of approximately $19.4 million available to offset future
tax liabilities that expire at various dates. U.S. tax credits include foreign
tax credits of $17.6 million expiring in various years through 2018 and
research and development tax credits of $1.8 million expiring at various
dates through 2025. These operating losses and tax credit carryforwards may be
subject to limitations under provisions of the Internal Revenue Code.
The following table
summarizes maturities for our significant financial obligations as of June 30,
2009 (in millions):
Contractual Obligations
|
|
Total
|
|
Less than 1
Year
|
|
1-3 Years
|
|
4-5 Years
|
|
More than 5
Years
|
|
Revolving
lines of credit
|
|
$
|
22.9
|
|
$
|
22.9
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Long-term
debt, including current portion
|
|
147.8
|
|
20.2
|
|
67.9
|
|
59.7
|
|
|
|
Uncertain
tax contingencies
|
|
21.8
|
|
|
|
21.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uncertain tax
contingencies are positions taken or expected to be taken on an income tax
return that may result in additional payments to tax authorities. The total
amount of uncertain tax contingencies is included in the 1-3 Years column as
we are not able to reasonably estimate the timing of potential future payments.
If a tax authority agrees with the tax position taken or expected to be taken
or the applicable statute of limitations expires, then additional payments will
not be necessary.
RECENT
ACCOUNTING PRONOUNCEMENTS
In June 2009, the
Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 168, The FASB Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles a replacement of
FASB Statement 162 (SFAS No. 168). SFAS No. 168 is effective for
fiscal years, and interim periods, ending after September 15, 2009. SFAS No. 168
is intended to improve financial reporting by identifying the
FASB Accounting Standards Codification
and
rules and interpretive releases of the Securities and Exchange Commission
(SEC) under authority of federal securities laws as the sole sources of
authoritative accounting principles to be used in preparing financial
statements that are presented in conformity with accounting principles
generally accepted in the United States of America for SEC registrants. The
adoption of SFAS No. 168 is not expected to have a material impact on our
results of operations, financial position or cash flows.
In December 2008,
the FASB issued Staff Position No. 132(R)-1,
Employers Disclosures about Postretirement Benefit Plan Assets
(FSP 132(R)-1). FSP 132(R)-1 requires detailed disclosures regarding the
investment strategies, fair value measurements, and concentrations of risk of
plan assets of a defined benefit pension or other postretirement plan. FSP
132(R)-1 is effective for fiscal years ending after December 15, 2009 and
will be applied prospectively. We are currently assessing the impact that FSP
132(R)-1 will have on our results of operations and financial position.
ITEM 3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We are potentially
exposed to market risks associated with changes in foreign exchange rates and
interest rates. We selectively use financial instruments to reduce these risks.
All transactions related to risk management techniques are authorized and
executed pursuant to our policies and procedures. Analytical techniques used to
manage and monitor foreign exchange and interest rate risk include market
valuations and sensitivity analysis.
35
Table
of Contents
Impact of Foreign Currencies
We generate a substantial
portion of our revenues in international markets, principally Europe and Japan,
which subjects our operations to the exposure of exchange rate fluctuations.
The impact of currency exchange rate movement can be positive or negative in
any period. Our costs related to sales in foreign currencies are largely
denominated in the same respective currencies, limiting our transaction risk
exposure. However, for sales not denominated in U.S. Dollars, if there is an
increase in the rate at which a foreign currency is exchanged for U.S. Dollars,
it will require more of the foreign currency to equal a specified amount of
U.S. Dollars than before the rate increase. In such cases, if we price our
products in the foreign currency, we will receive less in U.S. Dollars than we
did before the rate increase went into effect. If we price our products in U.S.
Dollars and competitors price their products in local currency, an increase in
the relative strength of the U.S. Dollar could result in our prices not being competitive
in a market where business is transacted in the local currency.
Our foreign exchange
gains (losses), net were $0.6 million and $(9.0) million for the six
months ended June 30, 2009 and 2008, respectively. From time to time, we
have entered into foreign currency contracts in order to minimize the
volatility that fluctuations in exchange rates have on our cash flows related
to purchases and sales denominated in foreign currencies. We will continue to
evaluate our currency risks and in the future may utilize foreign currency
contracts more frequently as part of a transactional hedging program.
Impact of Interest Rates
We regularly invest
excess cash in short-term investments that are subject to changes in interest
rates. We believe that the market risk arising from holding these financial
instruments is minimal.
Our exposure related to
adverse movements in interest rates is derived primarily from outstanding
floating rate debt instruments that are indexed to short-term market rates. Our
objective in managing our exposure to interest rates is to decrease the
volatility that changes in interest rates might have on our earnings and cash
flows. To achieve this objective we entered into interest rate swaps and cross
currency rate swaps in order to minimize the volatility that changes in
interest rates might have on earnings and cash flows. A 10% increase or
decrease in the average cost of our variable rate debt would not result in a
material change in pre-tax interest expense.
In April 2008, we
entered into an interest rate swap arrangement to pay a fixed rate of
approximately 3.8% and receive a variable rate based on three month LIBOR
through December 31, 2012. The initial notional amount of this interest
swap was $90.0 million and amortizes in proportion to the term debt
component of our Credit Agreement. At June 30, 2009, the outstanding
notional amount of this swap was $83.3 million. We have determined that this
swap is an effective hedge of the variability of cash flows of the interest
payments.
Inflation
We do not believe
inflation had a material impact on our business or operating results during any
of the periods presented.
ITEM 4.
|
CONTROLS
AND PROCEDURES
|
We have established
disclosure controls and procedures that are designed to ensure that material
information relating to us, including our consolidated subsidiaries, is made
known to our Chief Executive Officer (principal executive officer) and Chief
Financial Officer (principal financial officer) by others within our
organization. Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
we conducted an evaluation of the effectiveness of our disclosure controls and
procedures as of June 30, 2009. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective, as of June 30, 2009, to ensure
that the information required to be disclosed by us in the reports that we file
or submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and
forms.
There were no changes in
our internal control over financial reporting that occurred during the quarter ended
June 30, 2009 that materially affected, or are reasonably likely to
affect, our internal control over financial reporting.
36
Table of Contents
PART II
|
OTHER
INFORMATION
|
|
|
ITEM 1.
|
LEGAL
PROCEEDINGS
|
Except as set forth
below, there have been no material changes to the legal proceedings disclosed
in Part I, Item 3. Legal Proceedings in our Annual Report on Form 10-K
for the year ended December 31, 2008 and our Quarterly Report on Form 10-Q
for the quarter ended March 31, 2009.
As previously reported, a former employee of Bruker BioSpin Corporation
contacted the Securities and Exchange Commission during 2008 in connection with
a claim this employee separately brought regarding violation of Section 806
of the Sarbanes-Oxley Act. The SEC first contacted counsel for the Company in
early 2008 regarding this matter and was provided various information regarding
the matter at that time. In March 2009 and May 2009, the SEC
contacted counsel for the Company to request some additional information
regarding this matter. The Company has responded to these requests and
continues to cooperate fully with the SEC regarding this matter. As previously
reported, the Company strongly denies the allegations made by this former
employee. The related civil action
pending in federal court in the District of Massachusetts was settled on June
4, 2009, with neither party admitting liability. The settlement amount paid to the former
employee was not material to the Company.
During the second quarter of 2009, formal mediation proceedings were
held in an attempt to resolve the previously reported contractual dispute
relating to the claimed breach of certain agreements between Agilent
Technologies, Inc., as the successor to Hewlett-Packard Company, and our
indirect subsidiary, Bruker Daltonik GmbH. The parties were unable to resolve their
dispute through the mediation process, and in July 2009 Agilent
purportedly terminated the agreements. The termination of the agreements, if
valid, is not expected to have a material effect on the Companys business or
results of operations.
As previously reported,
Roenalytic GmbH, previously known as Roentgenanalytik Appartebau GmbH, (RAA)
filed a civil proceeding in Germany against a Bruker AXS subsidiary and one
employee and raised criminal allegations against three employees of the same
Bruker AXS subsidiary in connection with alleged improper use of certain trade
secrets and other intellectual property of RAA. On June 30, 2009 RAA filed
a counter action to the action for declaratory judgment brought against RAA by
the Bruker AXS subsidiary in the civil proceeding. The counter action seeks
various remedies for the same alleged improper use of trade secrets and other
intellectual property.
In the related criminal
proceeding, on June 2, 2009 the court issued an order regarding what items
RAA may inspect in an attempt to prove its allegations. The court limited such
access to the items sought by the Bruker AXS subsidiary. The inspection is
currently expected to occur during the third quarter of 2009.
The Bruker AXS subsidiary
continues to deny all allegations made by RAA in both proceedings. The Bruker
AXS subsidiary intends to continue to pursue its action for declaratory
judgment in the civil proceeding and continue to provide legal counsel to the
employees in the criminal inquiry.
In addition to the other
information set forth in this report, you should carefully consider the factors
discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K
for the year ended December 31, 2008, which could materially affect our
business, financial condition or future results. The risks described in this
report and in our Annual Report on Form 10-K are not the only risks facing
our Company. Additional risks and uncertainties not currently known to us or
that we currently deem to be immaterial also may materially adversely affect
our business, financial condition and/or operating results.
There have been no
material changes to the risk factors previously disclosed in our Annual Report
on Form 10-K for the fiscal year ended December 31, 2008.
37
Table
of Contents
ITEM 2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
The following table sets
forth all purchases made by or on behalf of the Company or any affiliated
purchaser, as defined in Rule 10b-18(a)(3) under the Exchange Act,
of shares of our common stock during each month in the second quarter of 2009.
Period
|
|
Total Number of
Shares Purchased
|
|
Average Price
Paid per Share
|
|
Total Number of
Shares Purchased
as Part of
Publicly
Announced Plans
or Programs
|
|
Maximum
Number of Shares
that May Yet Be
Purchased Under
the Plans or
Programs
|
|
April 1 - April
30, 2009
|
|
|
|
$
|
|
|
|
|
|
|
May 1 - May 31,
2009
|
|
100,000
|
|
7.28
|
|
|
|
|
|
June 1 - June
30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
$
|
7.28
|
|
|
|
|
|
All shares repurchased
were purchased by the Companys Chief Executive Officer, Frank H. Laukien, from
Marc M. Laukien, a 5% beneficial owner and Frank H. Laukiens half-brother, in
a privately negotiated transaction. The shares repurchased were previously
disclosed on Forms 4 filed with the U.S. Securities and Exchange Commission.
ITEM 3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
None.
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
(a)
|
|
The Annual Meeting of
Stockholders of the Company was held on May 7, 2009.
|
|
|
|
(c)
|
|
Proxies representing
136,222,522 shares were received. Total shares outstanding as of the record
date were 164,067,654. The matters voted upon and the results of the voting
at the Annual Meeting are set forth below:
|
|
|
|
|
|
(i)
|
To elect the following
four Class III directors, each to hold office until the 2012 Annual
Meeting:
|
|
|
|
|
|
|
(i)
|
Tony W. Keller, Ph.D.
|
|
|
|
|
|
|
Votes
for
|
119,161,981
|
|
|
|
|
|
Votes
withheld
|
17,060,541
|
|
|
|
|
|
|
|
|
|
|
|
(ii)
|
Richard D. Kniss
|
|
|
|
|
|
|
Votes
for
|
135,496,573
|
|
|
|
|
|
Votes
withheld
|
725,949
|
|
|
|
|
|
|
|
|
|
|
|
(iii)
|
Joerg C. Laukien
|
|
|
|
|
|
|
Votes
for
|
119,161,098
|
|
|
|
|
|
Votes
withheld
|
17,061,424
|
|
|
|
|
|
|
|
|
|
|
|
(iv)
|
William A. Linton
|
|
|
|
|
|
|
Votes
for
|
135,506,634
|
|
|
|
|
|
Votes
withheld
|
715,888
|
|
|
|
|
|
|
(ii)
|
To ratify the selection
of Ernst & Young LLP as the Companys independent registered public
accounting firm for fiscal year 2009:
|
|
|
|
|
|
|
|
|
|
|
|
Votes
for
|
135,697,509
|
|
|
|
|
|
Votes
withheld
|
506,505
|
|
|
|
|
|
Votes
abstaining
|
18,508
|
|
38
Table of Contents
Except as set
forth above, there were no shares abstaining and no broker non-voting shares
cast.
ITEM 5.
|
OTHER
INFORMATION
|
None.
Exhibit
No.
|
|
Description
|
31.1
|
|
Certification by Chief
Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002(1)
|
|
|
|
31.2
|
|
Certification by Chief
Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002(1)
|
|
|
|
32.1
|
|
Certification by Chief
Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002(2)
|
(1) Filed herewith.
(2) Furnished
herewith.
39
Table
of Contents
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
BRUKER CORPORATION
|
|
|
|
|
Date: August 10,
2009
|
|
By:
|
/s/
FRANK H.
LAUKIEN, PH.D.
|
|
|
|
Frank H. Laukien, Ph.D.
President, Chief Executive Officer and Chairman
|
|
|
|
(Principal Executive
Officer)
|
|
|
|
|
Date: August 10,
2009
|
|
By:
|
/s/ WILLIAM J. KNIGHT
|
|
|
|
William J. Knight
|
|
|
|
Chief Financial Officer
|
|
|
|
(Principal Financial
Officer)
|
40
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