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 September 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
|
|
04-3110160
|
(State or other jurisdiction of
incorporation or organization)
|
|
(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
|
|
|
|
Non-accelerated
filer
o
|
|
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 November 2, 2009
|
Common Stock,
$0.01 par value per share
|
|
164,176,495
shares
|
Table of Contents
BRUKER
CORPORATION
Quarterly
Report on Form 10-Q
For
the Quarter Ended September 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)
|
|
September 30,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
148.5
|
|
$
|
166.2
|
|
Restricted
cash
|
|
2.0
|
|
1.5
|
|
Accounts
receivable, net
|
|
151.7
|
|
171.9
|
|
Inventories
|
|
443.6
|
|
425.1
|
|
Other
current assets
|
|
72.7
|
|
56.0
|
|
Total
current assets
|
|
818.5
|
|
820.7
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
226.4
|
|
221.3
|
|
Intangibles
and other long-term assets
|
|
79.3
|
|
74.3
|
|
Total
assets
|
|
$
|
1,124.2
|
|
$
|
1,116.3
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS
EQUITY
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Short-term
borrowings
|
|
$
|
0.4
|
|
$
|
22.7
|
|
Current
portion of long-term debt
|
|
30.5
|
|
18.3
|
|
Accounts
payable
|
|
45.5
|
|
43.3
|
|
Customer
advances
|
|
197.1
|
|
199.6
|
|
Other
current liabilities
|
|
247.5
|
|
235.8
|
|
Total
current liabilities
|
|
521.0
|
|
519.7
|
|
|
|
|
|
|
|
Long-term
debt
|
|
120.4
|
|
182.8
|
|
Other
long-term liabilities
|
|
109.3
|
|
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 September 30, 2009 and December 31, 2008
|
|
|
|
|
|
Common
stock, $0.01 par value 260,000,000 shares authorized, 164,189,513 and
164,078,721 shares issued and 164,176,558 and 164,068,252 outstanding at September 30,
2009 and December 31, 2008, respectively
|
|
1.6
|
|
1.6
|
|
Treasury
stock at cost, 12,955 and 10,469 at September 30, 2009 and
December 31, 2008, respectively
|
|
(0.1
|
)
|
(0.1
|
)
|
Other
shareholders equity
|
|
371.2
|
|
310.4
|
|
Total
shareholders equity
|
|
372.7
|
|
311.9
|
|
Noncontrolling
interest in subsidiaries
|
|
0.8
|
|
0.8
|
|
Total
shareholders equity of Bruker Corporation
|
|
373.5
|
|
312.7
|
|
Total
liabilities and shareholders equity
|
|
$
|
1,124.2
|
|
$
|
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
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Product
revenue
|
|
$
|
230.7
|
|
$
|
211.8
|
|
$
|
655.8
|
|
$
|
700.4
|
|
Service
revenue
|
|
32.4
|
|
28.8
|
|
87.6
|
|
87.7
|
|
Other
revenue
|
|
2.0
|
|
1.5
|
|
4.7
|
|
3.8
|
|
Total
revenue
|
|
265.1
|
|
242.1
|
|
748.1
|
|
791.9
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of product revenue
|
|
127.9
|
|
114.6
|
|
364.8
|
|
382.3
|
|
Cost
of service revenue
|
|
18.0
|
|
16.4
|
|
50.2
|
|
54.9
|
|
Total
cost of revenue
|
|
145.9
|
|
131.0
|
|
415.0
|
|
437.2
|
|
Gross
profit
|
|
119.2
|
|
111.1
|
|
333.1
|
|
354.7
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
44.1
|
|
45.2
|
|
130.6
|
|
136.7
|
|
General
and administrative
|
|
17.5
|
|
17.7
|
|
50.8
|
|
51.7
|
|
Research
and development
|
|
31.6
|
|
33.1
|
|
91.8
|
|
100.8
|
|
Acquisition-related
charges (credits), net
|
|
|
|
|
|
(0.6
|
)
|
6.2
|
|
Total
operating expenses
|
|
93.2
|
|
96.0
|
|
272.6
|
|
295.4
|
|
Operating
income
|
|
26.0
|
|
15.1
|
|
60.5
|
|
59.3
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other income (expense), net
|
|
(1.8
|
)
|
0.8
|
|
(4.6
|
)
|
(7.8
|
)
|
Income
before income taxes and noncontrolling interest in consolidated subsidiaries
|
|
24.2
|
|
15.9
|
|
55.9
|
|
51.5
|
|
Income
tax provision (benefit)
|
|
8.1
|
|
(2.0
|
)
|
18.5
|
|
12.5
|
|
Consolidated
net income
|
|
16.1
|
|
17.9
|
|
37.4
|
|
39.0
|
|
Less:
net income (loss) attributable to noncontrolling interests
|
|
(0.3
|
)
|
0.1
|
|
(0.3
|
)
|
0.3
|
|
Net
income attributable to Bruker Corporation
|
|
$
|
16.4
|
|
$
|
17.8
|
|
$
|
37.7
|
|
$
|
38.7
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share attributable to Bruker Corporation shareholders:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.10
|
|
$
|
0.11
|
|
$
|
0.23
|
|
$
|
0.24
|
|
Diluted
|
|
$
|
0.10
|
|
$
|
0.11
|
|
$
|
0.23
|
|
$
|
0.23
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
163.5
|
|
162.8
|
|
163.4
|
|
162.5
|
|
Diluted
|
|
165.0
|
|
165.9
|
|
164.7
|
|
165.6
|
|
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)
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
income attributable to Bruker Corporation
|
|
$
|
37.7
|
|
$
|
38.7
|
|
Adjustments
to reconcile net income to cash flows from operating activities:
|
|
|
|
|
|
Depreciation
and amortization
|
|
20.9
|
|
22.3
|
|
Stock-based
compensation
|
|
4.8
|
|
3.1
|
|
Gain
on acquisition
|
|
(2.1
|
)
|
|
|
Other
non-cash income
|
|
(6.0
|
)
|
(7.2
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
Accounts
receivable
|
|
26.9
|
|
41.8
|
|
Inventories
|
|
7.7
|
|
(35.6
|
)
|
Accounts
payable
|
|
0.6
|
|
(14.7
|
)
|
Customer
advances
|
|
(16.6
|
)
|
(26.1
|
)
|
Other
changes in operating assets and liabilities, net
|
|
(6.6
|
)
|
(3.4
|
)
|
Net
cash provided by operating activities
|
|
67.3
|
|
18.9
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
(8.9
|
)
|
(39.8
|
)
|
Redemption
of short-term investments
|
|
|
|
9.6
|
|
Acquisitions,
net of cash acquired
|
|
(1.6
|
)
|
(4.1
|
)
|
Payments
in connection with the acquisition of Bruker BioSpin
|
|
|
|
(6.5
|
)
|
Changes
in restricted cash
|
|
(0.7
|
)
|
(0.2
|
)
|
Net
cash used in investing activities
|
|
(11.2
|
)
|
(41.0
|
)
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
Proceeds
from (repayments of) short-term borrowings, net
|
|
(51.5
|
)
|
3.8
|
|
Proceeds
from (repayments of) long-term debt, net
|
|
(20.1
|
)
|
168.9
|
|
Payment
of deferred financing costs
|
|
|
|
(2.9
|
)
|
Proceeds
from issuance of common stock, net of repurchases
|
|
0.6
|
|
3.7
|
|
Deemed
dividend in connection with the acquisition of Bruker BioSpin
|
|
|
|
(386.0
|
)
|
Cash
payments to shareholders
|
|
|
|
(23.4
|
)
|
Net
cash used in financing activities
|
|
(71.0
|
)
|
(235.9
|
)
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
(2.8
|
)
|
9.9
|
|
Net
change in cash and cash equivalents
|
|
(17.7
|
)
|
(248.1
|
)
|
Cash
and cash equivalents at beginning of period
|
|
166.2
|
|
332.4
|
|
Cash
and cash equivalents at end of period
|
|
$
|
148.5
|
|
$
|
84.3
|
|
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 sells a
broad range of field analytical systems for chemical, biological, radiological,
nuclear and explosive (CBRNE) detection. The Company also develops and manufactures
low temperature and high temperature superconducting wire products and
superconducting 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 life
science, pharmaceutical, biotechnology and molecular diagnostic research
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
nine months ended September 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 reports 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-optical emission spectroscopy technology, atomic force microscopy,
magnetic resonance technology, mass spectrometry technology and infrared and
Raman molecular spectroscopy technology. Typical customers of the Scientific
Instruments segment include pharmaceutical, biotechnology, molecular diagnostic
companies, academic institutions, medical schools, other non-profit organizations,
clinical microbiology laboratories, government departments and agencies,
nanotechnology, semiconductor, chemical, cement, metals and petroleum companies
and food, beverage and agricultural analysis companies and laboratories.
·
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,
prototype superconducting fault current limiters,
4
Table
of Contents
prototype crystal
growth magnets, other accelerator components and highly specialized
manufacturing services for physics and energy research and a variety of other
scientific applications. Typical customers of the Energy and Supercon
Technologies segment include the medical, power and energy, and processing
industries, private and public research and development laboratories in the
fields of fundamental and applied sciences, energy research, biotechnology and
proteomics, as well as academic institutions and government agencies.
Management has evaluated
subsequent events through November 9, 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) Accounting Standards Codification (Codification) Topic No. 805,
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 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 charges (credits), net in the unaudited
condensed consolidated statements of operations. The results of the RI business
have been included in the Energy and Supercon Technologies segment from the
date of acquisition. 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.
5
Table
of Contents
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. 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 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. 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 February 2008,
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 2,000,000 shares, to a total of 10,000,000
shares.
As of September 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 nine months ended September 30,
2009 and 2008 as follows (in millions):
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Stock
options
|
|
$
|
1.2
|
|
$
|
1.2
|
|
$
|
3.7
|
|
$
|
2.7
|
|
Restricted
stock
|
|
0.3
|
|
0.1
|
|
1.1
|
|
0.4
|
|
Total
stock-based compensation, pre-tax
|
|
1.5
|
|
1.3
|
|
4.8
|
|
3.1
|
|
Tax
benefit
|
|
0.3
|
|
0.2
|
|
0.9
|
|
0.6
|
|
Total
stock-based compensation, net of tax
|
|
$
|
1.2
|
|
$
|
1.1
|
|
$
|
3.9
|
|
$
|
2.5
|
|
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 and risk-free interest rate are
required for the Black-Scholes model and are presented in the table below:
6
Table
of Contents
|
|
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 can be based on a number of factors but 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 nine months ended September 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
|
|
51,000
|
|
4.33
|
|
|
|
|
|
Exercised
|
|
(110,990
|
)
|
5.02
|
|
|
|
|
|
Forfeited
|
|
(64,541
|
)
|
9.08
|
|
|
|
|
|
Outstanding
at September 30, 2009
|
|
5,143,992
|
|
$
|
8.59
|
|
3.8
|
|
$
|
14.4
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at September 30, 2009
|
|
2,839,587
|
|
$
|
7.60
|
|
3.8
|
|
$
|
10.6
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
and expected to vest at September 30, 2009 (a)
|
|
5,010,337
|
|
$
|
8.56
|
|
3.8
|
|
$
|
14.2
|
|
(a) In addition to the options that are
exercisable as of September 30, 2009, the Company expects a portion of the
unvested options to become exercisable in the future. Options expected to vest
are determined by applying an estimated forfeiture rate to the unvested
options.
Unrecognized pre-tax
stock-based compensation expense of $13.7 million related to stock option
awards is expected to be recognized over the weighted average remaining service
period of 2.6 years for stock options outstanding at September 30,
2009. The intrinsic values above are based on the Companys closing stock price
of $10.67 on September 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 nine months ended September 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
|
|
(151,911
|
)
|
6.08
|
|
Forfeited
|
|
(940
|
)
|
5.00
|
|
Outstanding
at September 30, 2009
|
|
438,824
|
|
$
|
7.67
|
|
Unrecognized pre-tax
stock-based compensation expense of $2.8 million related to restricted
stock awards is expected to be recognized over the weighted average remaining
service period of 1.7 years for restricted stock awards outstanding at September 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 nine months ended September 30, 2009 and 2008 (in millions,
except per share amounts):
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Net
income attributable to Bruker
Corporation,
as reported
|
|
$
|
16.4
|
|
$
|
17.8
|
|
$
|
37.7
|
|
$
|
38.7
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding-basic
|
|
163.5
|
|
162.8
|
|
163.4
|
|
162.5
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
Stock
options and restricted stock
|
|
1.5
|
|
3.1
|
|
1.3
|
|
3.1
|
|
Weighted
average shares outstanding - diluted
|
|
165.0
|
|
165.9
|
|
164.7
|
|
165.6
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share attributable to Bruker Corporation shareholders:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.10
|
|
$
|
0.11
|
|
$
|
0.23
|
|
$
|
0.24
|
|
Diluted
|
|
$
|
0.10
|
|
$
|
0.11
|
|
$
|
0.23
|
|
$
|
0.23
|
|
Stock options to purchase
approximately 2.1 million shares and 0.1 million shares were excluded from the
computation of diluted earnings per share in the three months ended September 30,
2009 and 2008, respectively, and approximately 3.3 million shares and 0.4
million shares were excluded from the computation of diluted earnings per share
in the nine months ended September 30, 2009 and 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
Codification Topic No. 820,
Fair Value
Measurements and Disclosures
, 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:
8
Table
of Contents
Level 1:
Inputs to the
valuation methodology are quoted prices (unadjusted) for identical assets or
liabilities in 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 September 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
|
|
$
|
46.2
|
|
$
|
46.2
|
|
$
|
|
|
$
|
|
|
Restricted
cash
|
|
2.0
|
|
2.0
|
|
|
|
|
|
Long-term
restricted cash
|
|
2.1
|
|
2.1
|
|
|
|
|
|
Foreign
exchange contracts
|
|
0.1
|
|
|
|
0.1
|
|
|
|
Total
assets recorded at fair value
|
|
$
|
50.4
|
|
$
|
50.3
|
|
$
|
0.1
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Interest
rate swap
|
|
$
|
4.0
|
|
$
|
|
|
$
|
4.0
|
|
$
|
|
|
Embedded
derivatives in purchase and delivery contracts
|
|
2.3
|
|
|
|
2.3
|
|
|
|
Foreign
exchange contracts
|
|
1.1
|
|
|
|
1.1
|
|
|
|
Total
liabilities recorded at fair value
|
|
$
|
7.4
|
|
$
|
|
|
$
|
7.4
|
|
$
|
|
|
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 September 30, 2009 and December 31, 2008 (in
millions):
|
|
September 30,
2009
|
|
December 31,
2008
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
121.1
|
|
$
|
115.8
|
|
Work-in-process
|
|
143.6
|
|
129.6
|
|
Demonstration
units
|
|
41.7
|
|
36.7
|
|
Finished
goods
|
|
137.2
|
|
143.0
|
|
Inventories
|
|
$
|
443.6
|
|
$
|
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 $7.0 million and $5.8 million
for the three months ended September 30, 2009 and 2008, respectively, and
$18.9 million and $18.5 million for the nine months ended September 30,
2009 and 2008, respectively.
9
Table of Contents
Finished goods include
in-transit systems that have been shipped to the Companys customers but have
not yet been installed and accepted by the customer. As of September 30,
2009 and December 31, 2008, inventory-in-transit was $81.4 million and
$91.6 million, respectively.
8.
Goodwill and Other Intangible
Assets
The following table sets
forth the changes in the carrying amount of goodwill for the nine months ended September 30,
2009 (in millions):
Balance
at December 31, 2008
|
|
$
|
46.4
|
|
Goodwill
acquired during the period
|
|
0.3
|
|
Foreign
currency impact
|
|
1.2
|
|
Balance
at September 30, 2009
|
|
$
|
47.9
|
|
The Company accounts for
goodwill and other intangible assets in accordance with Codification Topic No. 350,
IntangiblesGoodwill and Other
.
Codification Topic No. 350 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 nine month periods
ended September 30, 2009.
The following is a
summary of other intangible assets subject to amortization at September 30,
2009 and December 31, 2008 (in millions):
|
|
September 30, 2009
|
|
December 31, 2008
|
|
|
|
Gross
|
|
|
|
Net
|
|
Gross
|
|
|
|
Net
|
|
|
|
Carrying
|
|
Accumulated
|
|
Carrying
|
|
Carrying
|
|
Accumulated
|
|
Carrying
|
|
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Existing
technology and related patents
|
|
$
|
14.6
|
|
$
|
(10.6
|
)
|
$
|
4.0
|
|
$
|
14.1
|
|
$
|
(9.2
|
)
|
$
|
4.9
|
|
Customer
relationships
|
|
2.0
|
|
(0.8
|
)
|
1.2
|
|
1.6
|
|
(0.6
|
)
|
1.0
|
|
Trade
names
|
|
0.4
|
|
(0.3
|
)
|
0.1
|
|
0.4
|
|
(0.3
|
)
|
0.1
|
|
Total
amortizable intangible assets
|
|
$
|
17.0
|
|
$
|
(11.7
|
)
|
$
|
5.3
|
|
$
|
16.1
|
|
$
|
(10.1
|
)
|
$
|
6.0
|
|
For the three months
ended September 30, 2009 and 2008, the Company recorded amortization
expense of $0.4 million and $0.4 million, respectively, related to intangible
assets subject to amortization. For the nine months ended September 30,
2009 and 2008, the Company recorded amortization expense of $1.3 million and
$1.2 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)
|
|
$
|
0.5
|
|
2010
|
|
1.8
|
|
2011
|
|
1.1
|
|
2012
|
|
0.6
|
|
2013
|
|
0.5
|
|
Thereafter
|
|
0.8
|
|
Total
|
|
$
|
5.3
|
|
(a) Amount represents estimated amortization
expense for the remaining three months ending December 31, 2009.
9.
Debt
At September 30,
2009 and December 31, 2008, the Companys debt obligations consisted of
the following (in millions):
10
Table
of Contents
|
|
September 30,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
US
Dollar term loan under the Credit Agreement
|
|
$
|
135.0
|
|
$
|
144.4
|
|
|
|
|
|
|
|
US
Dollar revolving loan under the Credit Agreement
|
|
8.5
|
|
35.6
|
|
|
|
|
|
|
|
Euro
mortgage loan at six month European Interbank Offered Rate plus 1.00%, 2.69%
at September 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
|
|
|
|
|
|
|
|
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
|
|
0.5
|
|
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
|
|
|
|
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
|
|
150.9
|
|
201.1
|
|
Current
portion of long-term debt
|
|
(30.5
|
)
|
(18.3
|
)
|
Total
long-term debt, less current portion
|
|
$
|
120.4
|
|
$
|
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 September 30, 2009,
the weighted average interest rate of borrowings under the term facility of the
Credit Agreement was approximately 2.7%.
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.
11
Table
of Contents
In addition, at September 30,
2009 and December 31, 2008, the Company had the following amounts outstanding
under revolving loan arrangements (in millions):
|
|
September 30,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
Euro
revolving loans under the Credit Agreement
|
|
$
|
|
|
$
|
16.5
|
|
Other
revolving loans
|
|
0.4
|
|
6.2
|
|
Total
short-term borrowings
|
|
$
|
0.4
|
|
$
|
22.7
|
|
The following is a
summary of the maximum commitments and net amounts available to the Company
under revolving loans as of September 30, 2009 (in millions):
|
|
Weighted
Average
Interest Rate
|
|
Total Amount
Committed by
Lenders
|
|
Outstanding
Borrowings
|
|
Outstanding
Letters of
Credit
|
|
Total Amount
Available
|
|
Credit
Agreement
|
|
1.0
|
%
|
$
|
230.0
|
|
$
|
8.5
|
|
$
|
1.4
|
|
$
|
220.1
|
|
Other
revolving loans
|
|
4.9
|
%
|
81.0
|
|
0.4
|
|
59.9
|
|
20.7
|
|
Total
revolving loans
|
|
1.1
|
%
|
$
|
311.0
|
|
$
|
8.9
|
|
$
|
61.3
|
|
$
|
240.8
|
|
Other revolving loans are
with various financial institutions located primarily in Germany, Switzerland
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 Codification Topic No. 815,
Derivatives and Hedging
. 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 September 30, 2009, the notional amount of
this interest rate swap was $81.0 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 Codification Topic No. 815. 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
$2.5 million of the accumulated loss to be reclassified into earnings over the
next twelve months.
The Company periodically
enters into foreign currency contracts in order to minimize the volatility that
fluctuations in currency exchange rates have on the Companys cash flows
related to purchases and sales denominated in foreign currencies. Under these
arrangements, the Company typically agrees to purchase a fixed amount of a
foreign currency in exchange for a fixed amount of U.S. Dollars or other
currencies on specified dates with maturities of less than twelve months. At September 30,
2009, the Company had outstanding forward contracts with a notional amount of
$29.5 million for sales and purchases of Swiss Francs and Euros, respectively.
These transactions do not qualify for hedge accounting under Codification Topic
No. 815 and, accordingly, the instrument is recorded at fair value with
the corresponding gains and losses recorded in the unaudited condensed
consolidated statements of operations.
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 Codification Topic No. 815, the
Company accounts for these transactions separately, valuing the embedded
derivative component of these contracts. At September 30, 2009, contracts
denominated in currencies other than the functional currency of the transacting
parties amounted to $47.7 million for the delivery of products and
$3.3 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 in our unaudited condensed consolidated financial
statements as of September 30, 2009 and December 31, 2008 are as
follows (in millions):
|
|
|
|
Fair Value
|
|
|
|
Balance Sheet Location
|
|
September 30,
2009
|
|
December 31,
2008
|
|
Derivative
assets:
|
|
|
|
|
|
|
|
Foreign
exchange contracts
|
|
Other current
assets
|
|
$
|
0.1
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities:
|
|
|
|
|
|
|
|
Interest
rate swap contract
|
|
Other current
liabilities
|
|
$
|
4.0
|
|
$
|
4.8
|
|
Embedded
derivatives
|
|
Other current
liabilities
|
|
2.3
|
|
2.2
|
|
Foreign
exchange contracts
|
|
Other current
liabilities
|
|
1.1
|
|
|
|
The losses recognized in
other comprehensive income related to the effective portion of derivative
instruments designated as hedging instruments for the three and nine months
ended September 30, 2009 and 2008 are as follows (in millions):
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Interest
rate swap contract
|
|
$
|
(1.0
|
)
|
$
|
(0.6
|
)
|
$
|
(0.9
|
)
|
$
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
Table
of Contents
The losses recognized in
net income related to derivative instruments designated as hedging instruments
that were reclassified from accumulated other comprehensive income for the
three and nine months ended September 30, 2009 and 2008 are as follows (in
millions):
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Interest
rate swap contract
|
|
$
|
(0.7
|
)
|
$
|
(0.3
|
)
|
$
|
(1.8
|
)
|
$
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company did not
recognize any amounts related to ineffectiveness in the unaudited condensed consolidated
statements of operations during the three or nine months ended September 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 September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Foreign
exchange contracts
|
|
$
|
(1.0
|
)
|
$
|
|
|
$
|
(1.0
|
)
|
$
|
(0.6
|
)
|
Embedded
derivatives
|
|
(0.7
|
)
|
1.0
|
|
(0.1
|
)
|
1.0
|
|
Income
(expense), net
|
|
$
|
(1.7
|
)
|
$
|
1.0
|
|
$
|
(1.1
|
)
|
$
|
0.4
|
|
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 related to an involuntary severance program under which
approximately 30 employees have left the Company and the balance related to
exit costs associated with terminating certain leases. In the nine months ended
September 30, 2009, the Company recorded an additional $0.2 million of net 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 consolidated 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
|
|
|
|
Reversal
of accrued restructuring charges
|
|
(0.1
|
)
|
(0.1
|
)
|
|
|
Cash
payments
|
|
(2.3
|
)
|
(2.2
|
)
|
(0.1
|
)
|
Foreign
currency impact
|
|
0.1
|
|
0.1
|
|
|
|
Balance
at September 30, 2009
|
|
$
|
0.3
|
|
$
|
0.3
|
|
$
|
|
|
12.
Impairment Charges
In the second quarter of
2009, the Company recorded an impairment charge of $0.7 million, which
consisted of equipment 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.
14
Table
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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 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 nine months ended September 30,
2009 and 2008 (in millions):
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Components
of net periodic pension costs:
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
1.3
|
|
$
|
1.3
|
|
$
|
3.4
|
|
$
|
3.4
|
|
Interest
cost
|
|
1.3
|
|
1.3
|
|
3.4
|
|
3.4
|
|
Expected
return on plan assets
|
|
(1.0
|
)
|
(1.0
|
)
|
(3.0
|
)
|
(3.0
|
)
|
Net
periodic pension costs
|
|
$
|
1.6
|
|
$
|
1.6
|
|
$
|
3.8
|
|
$
|
3.8
|
|
The Company made
contributions of $1.8
million
to its defined benefit plans during the nine months ended September 30,
2009 and estimates contributions of $0.6 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
nine months ended September 30, 2009 and 2008 (in millions):
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Interest
income
|
|
$
|
0.4
|
|
$
|
0.7
|
|
$
|
1.2
|
|
$
|
4.3
|
|
Interest
expense
|
|
(1.8
|
)
|
(3.4
|
)
|
(6.2
|
)
|
(9.1
|
)
|
Exchange
gains (losses) on foreign currency transactions
|
|
(0.8
|
)
|
3.2
|
|
(0.2
|
)
|
(5.8
|
)
|
Other
|
|
0.4
|
|
0.3
|
|
0.6
|
|
2.8
|
|
Interest
and other income (expense), net
|
|
$
|
(1.8
|
)
|
$
|
0.8
|
|
$
|
(4.6
|
)
|
$
|
(7.8
|
)
|
15.
Provision (Benefit) for Income Taxes
The Company accounts for
income taxes in accordance with Codification Topic No. 740,
Income Taxes
. Codification Topic No. 740
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
also accounts for uncertain tax positions in accordance with the provisions of
Codification Topic No. 740. Among other things, Codification Topic No. 740
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
(benefit) for the three months ended September 30, 2009 was $8.1 million
compared to $(2.0) million for the three months ended September 30, 2008,
representing effective tax rates of 33.5% and (12.6)%, respectively. The income
tax provision for the nine months ended September 30, 2009 was $18.5
million compared to $12.5 million for the nine months ended September 30,
2008, representing effective tax rates of 33.1% and 24.3%, respectively.
15
Table
of Contents
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 against all U.S. deferred
tax assets, including 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 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 Companys effective
tax rate for the three and nine months ended September 30, 2008 was
favorably impacted by 68.3% and 21.1%, respectively, related to reversing
certain valuation allowances and reaching the more-likely-than-not threshold
for recognizing certain tax receivables.
During the third quarter
of 2008, two German subsidiaries in the Scientific Instruments segment were
merged into a third German subsidiary. As a result of the merger, the Company
will be able to use certain net operating loss carryforwards that existed in
the merged entities but had previously been fully reserved. The valuation
allowance related to these net operating loss carryforwards was reversed in the
third quarter of 2008 and resulted in a tax benefit of approximately $6.5
million. Additionally, the Company established a profit and loss sharing
agreement between two other German subsidiaries in the Scientific Instruments segment
during the third quarter of 2008. This agreement allows the losses of one
entity to reduce the taxable income of the other entity. Prior to this
agreement being put in place, certain deferred tax assets related to these
entities had full valuation allowances. These valuation allowances were
reversed during the third quarter of 2008, resulting in a tax benefit of
approximately $1.2 million.
Additionally, the Company
received a $0.5 million refund of French taxes on inter-corporate dividends
during the third quarter of 2008 which was recorded as a tax benefit. This
refund related to withholding taxes paid in connection with dividends paid by a
French subsidiary to its Swiss parent company in 2005 and 2006. At the end of
2007, as a result of a tax law change in France, the Company determined that a
refund of these withholding taxes was uncertain and did not meet the
more-likely-than-not threshold for recording a tax receivable. As such, the
2005, 2006 and 2007 taxes paid on dividends from the French subsidiary to its
Swiss parent were expensed through the income tax provision with no
corresponding tax receivable recorded. Because the facts and circumstances
around the dividends and the withholding taxes were the same for all three
years and the 2005 and 2006 withholding taxes were refunded by the French
government, the Company concluded that it was more likely than not that the
2007 French withholding taxes would also be refunded. As such, the Company also
recorded a tax benefit of approximately $2.7 million during the third quarter
of 2008 for the 2007 withholding tax receivable. The Company received the
refund of these withholding taxes in the third quarter of 2009.
The Company has
unrecognized tax benefits of approximately $21.8 million as of September 30,
2009, of which $12.7 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 September 30, 2009 and December 31, 2008, approximately
$3.6 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 were recorded during the three months ended September 30, 2009 and
2008, respectively, and $0.6 million and $0.8 million was recorded during the
nine months ended September 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
Table of Contents
16.
Comprehensive Income (Loss)
Comprehensive income (loss)
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 nine
months ended September 30, 2009 and 2008 (in millions):
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Consolidated
net income
|
|
$
|
16.1
|
|
$
|
17.9
|
|
$
|
37.4
|
|
$
|
39.0
|
|
Foreign
currency translation adjustments
|
|
19.5
|
|
(35.8
|
)
|
15.8
|
|
(0.6
|
)
|
Unrealized
gains (losses) on interest rate swap:
|
|
|
|
|
|
|
|
|
|
Unrealized
holding gains (losses) arising during the period
|
|
(1.0
|
)
|
(0.6
|
)
|
(0.9
|
)
|
(0.5
|
)
|
Reclassification
adjustments for settlements included in the determination of net income
|
|
0.7
|
|
0.3
|
|
1.8
|
|
0.4
|
|
Unrealized
losses on available for sale securities:
|
|
|
|
|
|
|
|
|
|
Unrealized
holding losses arising during the period
|
|
|
|
|
|
|
|
(0.1
|
)
|
Reclassification
adjustments for settlements included in the determination of net income
|
|
|
|
|
|
|
|
(1.3
|
)
|
Pension
liability adjustments
|
|
|
|
(0.6
|
)
|
1.0
|
|
(0.9
|
)
|
Total
comprehensive income (loss)
|
|
35.3
|
|
(18.8
|
)
|
55.1
|
|
36.0
|
|
Less:
Comprehensive income (loss) attributable to noncontrolling interests
|
|
(0.3
|
)
|
0.1
|
|
(0.3
|
)
|
0.3
|
|
Comprehensive
income (loss) attributable to Bruker Corporation
|
|
$
|
35.6
|
|
$
|
(18.9
|
)
|
$
|
55.4
|
|
$
|
35.7
|
|
17.
Noncontrolling Interests
Noncontrolling interests
represents the minority shareholders proportionate share of the net income
recorded by the Companys five majority-owned indirect subsidiaries, Bruker
Baltic Ltd., Bruker Labmate Pvt. 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 September 30, 2009 and 2008 was $(0.3) million and $0.1
million, respectively. Net income (loss) attributable to noncontrolling
interests for the nine months ended September 30, 2009 and 2008 was $(0.3)
million and $0.3 million, respectively. There were no transfers to or from the
noncontrolling interests during the three and nine months ended September 30,
2009 or September 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 September 30, 2009 and December 31,
2008, no accruals have been recorded for such potential contingencies.
Letters
of Credit and Guarantees
At September 30,
2009 and December 31, 2008, the Company had bank guarantees of
$61.3 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.
17
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19.
Business Segment Information
Codification Topic No. 280,
Segment Reporting
, 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, spark-optical emission
spectroscopy and atomic force microscopy 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 CBRNE
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 nine months ended September 30, 2009 and
2008 is presented below (in millions):
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
Scientific
Instruments
|
|
$
|
251.6
|
|
$
|
233.8
|
|
$
|
716.5
|
|
$
|
767.3
|
|
Energy
and Supercon Technologies
|
|
14.2
|
|
10.2
|
|
36.0
|
|
32.5
|
|
Eliminations
(a)
|
|
(0.7
|
)
|
(1.9
|
)
|
(4.4
|
)
|
(7.9
|
)
|
Total
revenue
|
|
$
|
265.1
|
|
$
|
242.1
|
|
$
|
748.1
|
|
$
|
791.9
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income:
|
|
|
|
|
|
|
|
|
|
Scientific
Instruments
|
|
$
|
26.9
|
|
$
|
18.0
|
|
$
|
63.4
|
|
$
|
65.7
|
|
Energy
and Supercon Technologies
|
|
(1.2
|
)
|
(2.9
|
)
|
(4.3
|
)
|
(6.6
|
)
|
Corporate,
eliminations and other (b)
|
|
0.3
|
|
|
|
1.4
|
|
0.2
|
|
Total
operating income
|
|
$
|
26.0
|
|
$
|
15.1
|
|
$
|
60.5
|
|
$
|
59.3
|
|
(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 September 30, 2009 and December 31, 2008 are as follows (in
millions):
18
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|
|
September 30,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
Scientific
Instruments
|
|
$
|
1,076.5
|
|
$
|
1,081.5
|
|
Energy
and Supercon Technologies
|
|
58.9
|
|
39.4
|
|
Corporate,
eliminations and other (a)
|
|
(11.2
|
)
|
(4.6
|
)
|
Total
|
|
$
|
1,124.2
|
|
$
|
1,116.3
|
|
(a) Represents
corporate assets not allocated to the reportable segments and eliminations of
intercompany transactions.
20.
Recent Accounting Pronouncements
The FASB issued
Codification Topic No. 105,
Generally Accepted
Accounting Principles
. Codification Topic No. 105 is effective
for fiscal years and interim periods, ending after September 15, 2009.
Codification Topic No. 105 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
Codification Topic No. 105 did not have a material impact on the Companys
results of operations, financial position or cash flows.
In September 2009,
the Emerging Issues Task Force reached consensus on FASB Accounting Standards
Update 2009-14,
Software (Topic 985)Certain Revenue
Arrangements That Include Software Elements
. FASB Accounting
Standards Updates 2009-14 changes the accounting model for revenue arrangements
that include both tangible products and software elements. Under this guidance,
tangible products containing software components and non-software components
that function together to deliver the tangible products essential functionality
are excluded from the software revenue guidance in Subtopic 985-605,
Software-Revenue Recognition.
In addition,
hardware components of a tangible product containing software components are
always excluded from the software revenue guidance. FASB Accounting Standards
Updates 2009-14 is effective prospectively for revenue arrangements entered
into or materially modified in fiscal years beginning on or after June 15,
2010, however, early adoption is permitted. The Company is currently assessing
the impact that the additional disclosure requirements will have on its results
of operations and financial position and when the Company will adopt these
requirements.
In September 2009,
the Emerging Issues Task Force reached consensus on FASB Accounting Standards
Update 2009-13,
Revenue Recognition (Topic
605)Multiple-Deliverable Revenue Arrangements
. FASB Accounting
Standards Update 2009-13 addresses the accounting for multiple-deliverable
arrangements to enable vendors to account for products or services separately
rather than as a combined unit. Specifically, this guidance amends the criteria
in Subtopic 605-25,
Revenue
Recognition-Multiple-Element Arrangements,
for separating
consideration in multiple-deliverable arrangements. This guidance establishes a
selling price hierarchy for determining the selling price of a deliverable,
which is based on: (a) vendor-specific objective evidence; (b) third-party
evidence; or (c) estimates. This guidance also eliminates the residual
method of allocation and requires that arrangement consideration be allocated
at the inception of the arrangement to all deliverables using the relative
selling price method. In addition, this guidance significantly expands required
disclosures related to a vendors multiple-deliverable revenue arrangements.
FASB Accounting Standards Update 2009-13 is effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on
or after June 15, 2010, however, early adoption is permitted. The Company
is currently assessing the impact that the additional disclosure requirements
will have on its results of operations and financial position and when the
Company will adopt these requirements.
The FASB amended
Codification Topic No. 715,
CompensationRetirement Plans
,
to require 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. The additional disclosures are effective
for fiscal years ending after December 15, 2009 and will be applied
prospectively. The Company is currently assessing the impact that the
additional disclosure requirements will have on its results of operations and
financial position.
19
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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 nine months ended September 30, 2009 compared to the three and
nine months ended September 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, 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. We sell a broad range
of field analytical systems for chemical, biological, radiological, nuclear and
explosive detection, or CBRNE. We also develop and manufacture low temperature
and high temperature superconducting wire products and superconducting devices.
Our diverse customer base includes life science, pharmaceutical, biotechnology
and molecular diagnostic research companies, academic institutions, advanced
materials and semiconductor industries and government agencies. 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.
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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 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, spark-optical emission spectroscopy and atomic force microscopy
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
CBRNE 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-optical emission spectroscopy technology, atomic force microscopy,
magnetic resonance technology, mass spectrometry technology and infrared and
Raman molecular spectroscopy technology. Typical customers of the Scientific
Instruments segment include pharmaceutical, biotechnology, molecular diagnostic
companies, academic institutions, medical schools, other non-profit
organizations, clinical microbiology laboratories, government departments and
agencies, nanotechnology, semiconductor, chemical, cement, metals and petroleum
companies and food, beverage and agricultural analysis companies and
laboratories.
·
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,
prototype superconducting fault current limiters, prototype crystal growth
magnets, other accelerator components and highly specialized manufacturing
21
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services for
physics and energy research and a variety of other scientific applications.
Typical customers of the Energy and Supercon Technologies segment include the
medical, power and energy, and processing industries, private and public
research and development laboratories in the fields of fundamental and applied
sciences, energy research, biotechnology and proteomics, as well as academic
institutions and government agencies.
Financial Overview
For the three months
ended September 30, 2009, our revenue increased by $23.0 million, or 9.5%,
to $265.1 million, compared to $242.1 million for the comparable period in
2008. Included in this change in revenue is a reduction of approximately $4.6
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 increased by $27.6 million, or 11.4%. The increase
in revenue, excluding the effect of foreign exchange, is attributable mainly to
the Scientific Instruments segment and related primarily to sales of our
magnetic resonance systems, but sales of our optical emission spectroscopy,
X-ray and mass spectrometry systems also increased. The results of the third
quarter of 2009, particularly higher sales of optical emission spectroscopy and
X-ray systems, reflect a change in the trend of lower demand from industrial
customers that has negatively impacted our results over the last several
quarters. Although revenues from industrial customers improved
quarter-over-quarter and sequentially, we will continue to closely monitor
demand in these markets. Spending from academic and government customers has
continued to increase as a result of stimulus packages implemented by
governments in various countries, including the United States, Germany and
Japan, and we anticipate this trend will continue into 2010.
For the nine months ended
September 30, 2009, our revenue decreased by $43.8 million, or 5.5%, to
$748.1 million, compared to $791.9 million for the comparable period in 2008.
Included in this change in revenue is a reduction of approximately $47.6
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 increased by $3.8 million, or 0.5%. The increase
in revenue, excluding the effect of foreign exchange, is attributable mainly to
higher sales of mass spectrometry systems offset by lower sales of magnetic
resonance systems and X-ray and spark-OES systems. The mix of products sold
reflects the overall trend in revenue from prior quarters, specifically, lower
demand from industrial customers offset by increased demand from academic and
government customers. We attribute the trend in lower sales to industrial customers
as a function of the worldwide recession. Spending from academic and government
customers has increased, however, as a result of stimulus packages implemented
by governments of various countries, including the U.S., Germany and Japan.
Income from operations
for the three months ended September 30, 2009 was $26.0 million, resulting
in an operating margin of 9.8%, compared to income from operations of $15.1
million, resulting in an operating margin of 6.2%, for the comparable period in
2008. Income from operations for the three months ended September 30, 2009
increased by $10.9 million as a result of the higher revenues described above.
Higher revenues also resulted in higher gross profits, although our gross
profit margin as a percentage of revenue for the third quarter of 2009
decreased to 45.0% compared to 45.9% for the comparable period in 2008. Lower
gross profit margins were primarily a function of product mix and, to a lesser
degree, pricing pressure, particularly in the industrial markets. A decrease in
operating expenses also contributed to an improvement in operating margins and
is attributable to changes in foreign currency exchange rates and various cost
reduction programs.
Income from operations
for the nine months ended September 30, 2009 was $60.5 million, resulting
in an operating margin of 8.1%, compared to income from operations of $59.3
million, resulting in an operating margin of 7.5%, for the comparable period in
2008. Operating margins in the first nine months of 2009 include $0.6 million
of acquisition-related credits and operating margins in the first nine months
of 2008 include $6.2 million of acquisition-related charges. Excluding the
effect of these acquisition-related credits and charges, income from operations
decreased by $5.6 million as a result of the lower revenues described above,
offset by a decrease in operating expenses. Lower revenues also resulted in
lower gross profits; however, our gross profit margin as a percentage of
revenue was relatively flat at 44.5% for the first nine months of 2009 compared
to 44.8% for the comparable period in 2008. Higher gross profit margins on our
newly introduced mass spectrometry products, in addition to productivity
initiatives, the benefits of cost cutting and changes in foreign exchange
rates, allowed us to maintain our overall gross profit margins despite lower
revenues. The decrease in operating expenses is attributable to changes in
foreign currency exchange rates and cost reduction programs implemented
throughout the second half of 2008.
22
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During the nine months
ended September 30, 2009, we recorded net losses on foreign currency
transactions of $0.2 million compared to net losses of $5.8 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.
We incurred approximately
$6.2 million of interest expense during the nine months ended September 30,
2009 compared to $9.1 million for the comparable period in 2008. Of the total
interest expense incurred during the nine months ended September 30, 2009,
approximately $4.9 million related to a credit facility that we entered into
during the 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 nine months of 2009, we repaid approximately $52.2 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
$207.5 million.
Our effective tax rate
for the three months ended September 30, 2009 was 33.5%, compared to
(12.6)% for the comparable period in 2008. Our effective tax rate for the nine
months ended September 30, 2009 was 33.1%, compared to 24.3% 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. The tax
benefit in the third quarter of 2008 was primarily the result of $10.9 million
related to reversing certain valuation allowances and reaching the
more-likely-than-not threshold for recognizing certain tax receivables.
Our net income
attributable to the shareholders of Bruker Corporation for the three months
ended September 30, 2009 was $16.4 million, or $0.10 per diluted share,
compared to $17.8 million, or $0.11 per diluted share, for the comparable
period in 2008. Our net income attributable to the shareholders of Bruker
Corporation for the nine months ended September 30, 2009 was $37.7
million, or $0.23 per diluted share, compared to $38.7 million, or $0.23 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
23
Table
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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 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.
24
Table
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RESULTS
OF OPERATIONS
Three Months Ended September 30, 2009 Compared to the
Three Months Ended September 30, 2008
Consolidated Results
The following table presents
our results for the three months ended September 30, 2009 and 2008
(dollars in millions, except per share data):
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
2008
|
|
Product
revenue
|
|
$
|
230.7
|
|
$
|
211.8
|
|
Service
revenue
|
|
32.4
|
|
28.8
|
|
Other
revenue
|
|
2.0
|
|
1.5
|
|
Total
revenue
|
|
265.1
|
|
242.1
|
|
|
|
|
|
|
|
Cost
of product revenue
|
|
127.9
|
|
114.6
|
|
Cost
of service revenue
|
|
18.0
|
|
16.4
|
|
Total
cost of revenue
|
|
145.9
|
|
131.0
|
|
Gross
profit
|
|
119.2
|
|
111.1
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
Sales
and marketing
|
|
44.1
|
|
45.2
|
|
General
and administrative
|
|
17.5
|
|
17.7
|
|
Research
and development
|
|
31.6
|
|
33.1
|
|
Total
operating expenses
|
|
93.2
|
|
96.0
|
|
Operating
income
|
|
26.0
|
|
15.1
|
|
|
|
|
|
|
|
Interest
and other income (expense), net
|
|
(1.8
|
)
|
0.8
|
|
Income
before income taxes and noncontrolling interest in consolidated subsidiaries
|
|
24.2
|
|
15.9
|
|
Income
tax provision (benefit)
|
|
8.1
|
|
(2.0
|
)
|
Consolidated
net income
|
|
16.1
|
|
17.9
|
|
Less:
net income (loss) attributable to noncontrolling interests
|
|
(0.3
|
)
|
0.1
|
|
Net
income attributable to Bruker Corporation
|
|
$
|
16.4
|
|
$
|
17.8
|
|
|
|
|
|
|
|
Net
income per common share attributable to Bruker Corporation shareholders -
basic and diluted
|
|
$
|
0.10
|
|
$
|
0.11
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
Basic
|
|
163.5
|
|
162.8
|
|
Diluted
|
|
165.0
|
|
165.9
|
|
Revenue
Our revenue increased by
$23.0 million, or 9.5%, to $265.1 million for the three months ended September 30,
2009, compared to $242.1 million for the comparable period in 2008. Included in
this change in revenue is a reduction of approximately $4.6 million from the
impact of foreign exchange. Excluding the effect of foreign exchange, revenue
increased by 11.4%. The increase in revenue, excluding the effect of foreign
exchange, is attributable mainly to the Scientific Instruments segment and
related primarily to our magnetic resonance systems,
25
Table
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but we also increased
sales of our optical emission spectroscopy, X-ray and mass spectrometry
systems. The results of the third quarter of 2009, particularly higher sales of
optical emission spectroscopy and X-ray systems, reflect a change in the trend
of lower demand from industrial customers that has negatively impacted our
results over the last several quarters. Although revenues from industrial
customers improved quarter-over-quarter and sequentially, we will continue to
closely monitor demand in these markets. Spending from academic and government
customers has continued to increase as a result of stimulus packages
implemented by governments in various countries, including the United States,
Germany and Japan.
Cost of Revenue
Our cost of product and
service revenue for the three months ended September 30, 2009, was $145.9
million, resulting in a gross profit margin of 45.0%, compared to cost of
product and service revenue of $131.0 million, resulting in a gross profit
margin of 45.9%, for the comparable period in 2008. Our gross profits increased
by $8.1 million for the three months ended September 30, 2009 compared to
the three months ended September 30, 2008. Gross profits increased because
of the increase in revenues described above. The decrease in gross profit
margin is primarily a function of product mix and, to a lesser degree, pricing
pressure, particularly in the industrial markets.
Sales and Marketing
Our sales and marketing
expense for the three months ended September 30, 2009 decreased to $44.1
million, or 16.8% of product and service revenue, from $45.2 million, or 18.8%
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 realized the
benefits from certain cost cutting initiatives, but those savings were offset,
in part, 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 September 30, 2009 was
$17.5 million, or 6.7% of product and service revenue, essentially flat
compared with general and administrative expense of $17.7 million, or 7.4% of
product and service revenue, for the comparable period in 2008.
Research and Development
Our research and
development expense for the three months ended September 30, 2009
decreased to $31.6 million, or 12.0% of product and service revenue, from $33.1
million, or 13.8% 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 realized the benefits from certain cost cutting initiatives, but those
savings were offset, in part, by investments in a number of new products and
features scheduled to be released in the next six to twelve months.
Interest and Other Income (Expense), Net
Interest and other income
(expense), net during the three months ended September 30, 2009 was $(1.8)
million, compared to $0.8 million for the comparable period of 2008.
During the three months
ended September 30, 2009, the major components within interest and other
income (expense), net were net interest expense of $1.4 million and
realized and unrealized losses on foreign currency transactions of
$0.8 million. During the three months ended September 30, 2008, the
major component within interest and other income (expense), net, were realized
and unrealized gains on foreign currency transactions of $3.2 million
offset, in part, by net interest expense of $2.7 million.
26
Table
of Contents
Income Tax Provision (Benefit)
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 against all U.S. deferred tax assets, including 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
(benefit) for the three months ended September 30, 2009, was $8.1 million
compared to $(2.0) million for the three months ended September 30, 2008,
representing effective tax rates of 33.5% and (12.6)%, respectively. The tax
benefit in the third quarter of 2008 was primarily the result of reversing
certain valuation allowances and reaching the more-likely-than-not threshold
for recognizing certain tax receivables.
During the third quarter
of 2008, two German subsidiaries in the Scientific Instruments segment were
merged into a third German subsidiary. As a result of the merger, we were able
to use certain net operating loss carryforwards that existed in the merged
entities but had previously been fully reserved. The valuation allowance
related to these net operating loss carryforwards was reversed in the third
quarter of 2008 and resulted in a tax benefit of approximately $6.5 million.
Additionally, we established a profit and loss sharing agreement between two
other German subsidiaries during the third quarter of 2008. This agreement
allows the losses of one entity to reduce the taxable income of the other
entity. Prior to this agreement being put in place, certain deferred tax assets
related to these entities had full valuation allowances. These valuation
allowances were reversed during the third quarter of 2008, resulting in a tax
benefit of approximately $1.2 million.
We received a $0.5
million refund of French taxes on inter-corporate dividends during the third
quarter of 2008, which was recorded as a tax benefit. This refund related to
withholding taxes paid in connection with dividends paid by a French subsidiary
to its Swiss parent company in 2005 and 2006. At the end of 2007, as a result
of a tax law change in France, we determined that a refund of these withholding
taxes was uncertain and did not meet the more likely than not threshold for
recording a tax receivable. As such, the 2005, 2006 and 2007 taxes paid on
dividends from the French subsidiary to its Swiss parent were expensed through
the income tax provision with no corresponding tax receivable recorded. Because
the facts and circumstances around the dividends and the withholding taxes were
the same for all three years and the 2005 and 2006 withholding taxes were
refunded by the French government, we concluded that it was more likely than
not that the 2007 French withholding taxes would also be refunded. As such, we
also recorded a tax benefit of approximately $2.7 million during the third
quarter of 2008 for the 2007 withholding tax receivable. We received the refund
of these withholding taxes in the third quarter of 2009.
Net Income (Loss) Attributable to Noncontrolling Interests
Net income (loss)
attributable to noncontrolling interests for the three months ended September 30,
2009 was $(0.3) million compared to $0.1 million for the comparable period of
2008. Net income (loss) attributable to noncontrolling interests represents the
minority shareholders proportionate share of the net income (loss) recorded by
five majority-owned indirect subsidiaries, Bruker Baltic Ltd., Bruker Labmate
Pvt. 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 September 30, 2009, was $16.4 million, or $0.10 per
diluted share, compared to $17.8 million, or $0.11 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
27
Table
of Contents
three months ended September 30,
2009 and 2008 (dollars in millions):
|
|
2009
|
|
2008
|
|
Dollar Change
|
|
Percentage
Change
|
|
Scientific
Instruments
|
|
$
|
251.6
|
|
$
|
233.8
|
|
$
|
17.8
|
|
7.6
|
%
|
Energy
and Supercon Technologies
|
|
14.2
|
|
10.2
|
|
4.0
|
|
39.2
|
%
|
Eliminations
(a)
|
|
(0.7
|
)
|
(1.9
|
)
|
1.2
|
|
|
|
|
|
$
|
265.1
|
|
$
|
242.1
|
|
$
|
23.0
|
|
9.5
|
%
|
(a) Represents
product and service revenue between reportable segments.
Scientific
Instruments Segment Revenues
Scientific Instruments
segment revenue increased by $17.8 million, or 7.6%, to
$251.6 million for the three months ended September 30, 2009,
compared to $233.8 million for the comparable period in 2008. Included in
this change in revenue is a reduction of approximately $3.9 million from the
impact of foreign exchange. Excluding the effect of foreign exchange, revenue increased
by 9.3%. The increase in revenue, excluding the effect of foreign exchange, is
related primarily to sales of our magnetic resonance systems, but sales of our
optical emission spectroscopy products, X-ray products and mass spectrometry
systems also increased.
System revenue and
aftermarket revenue as a percentage of total Scientific Instruments segment
revenue were as follows during the three months ended September 30, 2009
and 2008 (dollars in millions):
|
|
2009
|
|
2008
|
|
|
|
Revenue
|
|
Percentage of
Segment
Revenue
|
|
Revenue
|
|
Percentage of
Segment
Revenue
|
|
System
revenue
|
|
$
|
197.6
|
|
78.5
|
%
|
$
|
176.9
|
|
75.7
|
%
|
Aftermarket
revenue
|
|
54.0
|
|
21.5
|
%
|
56.9
|
|
24.3
|
%
|
Total
revenue
|
|
$
|
251.6
|
|
100.0
|
%
|
$
|
233.8
|
|
100.0
|
%
|
System revenues in the
Scientific Instruments segment include X-ray systems, nuclear magnetic
resonance systems, magnetic resonance imaging systems, electron paramagnetic
imaging systems, mass spectrometry systems, CBRNE 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 $4.0 million, or 39.2%, to
$14.2 million for the three months ended September 30, 2009, compared
to $10.2 million for the comparable period in 2008. Included in this
change in revenue is a reduction of approximately $0.7 million from the
impact of foreign exchange. Excluding the effect of foreign exchange, revenue
increased by 46.1%. The increase in revenue, excluding the effect of foreign
exchange, is attributable to the acquisition of the research instruments
business offset in part by lower demand for certain types of superconducting
wire.
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 September 30,
2009 and 2008 (dollars in millions):
|
|
2009
|
|
2008
|
|
|
|
Revenue
|
|
Percentage of
Segment
Revenue
|
|
Revenue
|
|
Percentage of
Segment
Revenue
|
|
System
and wire revenue
|
|
$
|
13.5
|
|
95.1
|
%
|
$
|
9.2
|
|
90.2
|
%
|
Aftermarket
revenue
|
|
0.7
|
|
4.9
|
%
|
1.0
|
|
9.8
|
%
|
Total
revenue
|
|
$
|
14.2
|
|
100.0
|
%
|
$
|
10.2
|
|
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
28
Table
of Contents
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 September 30, 2009 and 2008
(dollars in millions):
|
|
2009
|
|
2008
|
|
|
|
Operating
Income
|
|
Percentage of
Segment
Revenue
|
|
Operating
Income
|
|
Percentage of
Segment
Revenue
|
|
Scientific
Instruments
|
|
$
|
26.9
|
|
10.7
|
%
|
$
|
18.0
|
|
7.7
|
%
|
Energy
and Supercon Technologies
|
|
(1.2
|
)
|
(8.5
|
)%
|
(2.9
|
)
|
(28.4
|
)%
|
Corporate,
eliminations and other (a)
|
|
0.3
|
|
|
|
|
|
|
|
Total
operating income
|
|
$
|
26.0
|
|
9.8
|
%
|
$
|
15.1
|
|
6.2
|
%
|
(a) Represents
corporate costs and eliminations not allocated to the reportable segments.
Scientific Instruments
segment income from operations for the three months ended September 30,
2009 was $26.9 million, resulting in an operating margin of 10.7%,
compared to income from operations of $18.0 million, resulting in an
operating margin of 7.7%, for the comparable period in 2008.
Income from operations in
the Scientific Instruments segment increased as a result of the higher revenues
described above and a decrease in operating expenses. In the third quarter of
2009, gross profit margin as a percentage of revenue in the Scientific
Instruments decreased to 45.6% from 47.4% for the comparable period in 2008.
The change in gross profit margin as a percentage of revenue is a function of
product mix. The decrease in operating expenses is attributable to changes in
foreign currency exchange rates and various cost reduction programs.
Energy and Supercon
Technologies segment loss from operations for the three months ended September 30,
2009 was $1.2 million, resulting in an operating margin of (8.5)%,
compared to a loss from operations of $2.9 million, resulting in an
operating margin of (28.4)%, for the comparable period in 2008.
The decrease in the loss
from operations was a result of the higher revenues described above and an
improvement in gross profit margin as a percentage of revenue.
Nine Months Ended September 30, 2009 Compared to the
Nine Months Ended September 30, 2008
Consolidated Results
The following table
presents our results for the nine months ended September 30, 2009 and 2008
(dollars in millions, except per share data):
29
Table
of Contents
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
2008
|
|
Product
revenue
|
|
$
|
655.8
|
|
$
|
700.4
|
|
Service
revenue
|
|
87.6
|
|
87.7
|
|
Other
revenue
|
|
4.7
|
|
3.8
|
|
Total
revenue
|
|
748.1
|
|
791.9
|
|
|
|
|
|
|
|
Cost
of product revenue
|
|
364.8
|
|
382.3
|
|
Cost
of service revenue
|
|
50.2
|
|
54.9
|
|
Total
cost of revenue
|
|
415.0
|
|
437.2
|
|
Gross
profit
|
|
333.1
|
|
354.7
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
Sales
and marketing
|
|
130.6
|
|
136.7
|
|
General
and administrative
|
|
50.8
|
|
51.7
|
|
Research
and development
|
|
91.8
|
|
100.8
|
|
Acquisition-related
charges (credits), net
|
|
(0.6
|
)
|
6.2
|
|
Total
operating expenses
|
|
272.6
|
|
295.4
|
|
Operating
income
|
|
60.5
|
|
59.3
|
|
|
|
|
|
|
|
Interest
and other income (expense), net
|
|
(4.6
|
)
|
(7.8
|
)
|
Income
before income taxes and noncontrolling interest in consolidated subsidiaries
|
|
55.9
|
|
51.5
|
|
Income
tax provision
|
|
18.5
|
|
12.5
|
|
Consolidated
net income
|
|
37.4
|
|
39.0
|
|
Less:
net income attributable to noncontrolling interests
|
|
(0.3
|
)
|
0.3
|
|
Net
income attributable to Bruker Corporation
|
|
$
|
37.7
|
|
$
|
38.7
|
|
|
|
|
|
|
|
Net
income per common share attributable to Bruker Corporation shareholders:
|
|
|
|
|
|
Basic
|
|
$
|
0.23
|
|
$
|
0.24
|
|
Diluted
|
|
$
|
0.23
|
|
$
|
0.23
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
Basic
|
|
163.4
|
|
162.5
|
|
Diluted
|
|
164.7
|
|
165.6
|
|
Revenue
Our revenue decreased by
$43.8 million, or (5.5)%, to $748.1 million for the nine months ended September 30,
2009, compared to $791.9 million for the comparable period in 2008. Included in
this change in revenue is a reduction of approximately $47.6 million from the
impact of foreign exchange. Excluding the effect of foreign exchange, revenue
increased by 0.5%. The increase in revenue, excluding the effect of foreign
exchange, is attributable mainly to higher sales of mass spectrometry systems
offset by lower sales of magnetic resonance systems and X-ray and spark-OES
systems. The mix of products sold reflects the overall trend in revenue from prior
quarters, specifically, 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 nine months ended September 30, 2009, was $415.0
million,
30
Table
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resulting in a gross
profit margin of 44.5%, compared to cost of product and service revenue of
$437.2 million, resulting in a gross profit margin of 44.8%, for the comparable
period in 2008. Lower revenues also resulted in lower gross profits. Higher
gross profit margins on our newly introduced mass spectrometry products, in
addition to productivity initiatives, the benefits of cost cutting and changes
in foreign exchange rates, allowed us to maintain our overall gross profit
margin despite lower revenues.
Sales and Marketing
Our sales and marketing
expense for the nine months ended September 30, 2009 decreased to $130.6
million, or 17.6% of product and service revenue, from $136.7 million, or 17.3%
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, realized the
benefits from certain cost cutting initiatives, but those savings were offset,
in part, by selling and marketing efforts associated with a number of recently
introduced products.
General and Administrative
Our general and
administrative expense for the nine months ended September 30, 2009 was
$50.8 million, or 6.8% of product and service revenue, essentially flat
compared with general and administrative expense of $51.7 million, or 6.6% of
product and service revenue, for the comparable period in 2008.
Research and Development
Our research and
development expense for the nine months ended September 30, 2009 decreased
to $91.8 million, or 12.3% of product and service revenue, from $100.8 million,
or 12.8% 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 realized the
benefits from certain cost cutting initiatives, but those savings were offset,
in part, by investments in a number of new products and features scheduled to
be released in the next six to twelve months.
Acquisition-Related Charges (Credits), Net
Acquisition-related
credits of $(0.6) million recorded in the first nine months 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
research instruments business from Varian Medical Systems, Inc. offset, in
part, by $0.8 million of transaction costs incurred in connection with the
acquisition of the research instruments business and $0.7 million of impairment
charges associated with fixed assets used in the production of certain
superconducting wire.
Acquisition-related
charges in the first nine months 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 nine months ended September 30, 2009 was $(4.6)
million, compared to $(7.8) million for the comparable period of 2008.
During the nine months
ended September 30, 2009, the major component within interest and other
income (expense), net was net interest expense of $5.0 million. During the
nine months ended September 30, 2008, the major component within interest
and other income (expense), net, was realized and unrealized losses on foreign
currency transactions of $5.8 million. Losses on foreign currency transactions
in the first nine months of 2008
31
Table
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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 against all U.S. deferred tax assets, including 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 nine months ended September 30, 2009, was $18.5 million compared
to $12.5 million for the nine months ended September 30, 2008,
representing effective tax rates of 33.1% and 24.3%, respectively. The tax
provision in the first nine months of 2008 benefited from reversing certain
valuation allowances and reaching the more-likely-than-not threshold for
recognizing certain tax receivables in the third quarter of 2008.
During the third quarter
of 2008, two German subsidiaries in the Scientific Instruments segment were
merged into a third German subsidiary. As a result of the merger, we were able
to use certain net operating loss carryforwards that existed in the merged
entities but had previously been fully reserved. The valuation allowance
related to these net operating loss carryforwards was reversed in the third
quarter of 2008 and resulted in a tax benefit of approximately $6.5 million.
Additionally, we established a profit and loss sharing agreement between two
other German subsidiaries during the third quarter of 2008. This agreement
allows the losses of one entity to reduce the taxable income of the other
entity. Prior to this agreement being put in place, certain deferred tax assets
related to these entities had full valuation allowances. These valuation
allowances were reversed during the third quarter of 2008 resulting in a tax
benefit of approximately $1.2 million.
We received a $0.5
million refund of French taxes on inter-corporate dividends during the third
quarter of 2008 which was recorded as a tax benefit. This refund related to
withholding taxes paid in connection with dividends paid by a French subsidiary
to its Swiss parent company in 2005 and 2006. At the end of 2007, as a result
of a tax law change in France, we determined that a refund of these withholding
taxes was uncertain and did not meet the more likely than not threshold for
recording a tax receivable. As such, the 2005, 2006 and 2007 taxes paid on
dividends from the French subsidiary to its Swiss parent were expensed through
the income tax provision with no corresponding tax receivable recorded. Because
the facts and circumstances around the dividends and the withholding taxes were
the same for all three years and the 2005 and 2006 withholding taxes were refunded
by the French government, we concluded that it was more likely than not that
the 2007 French withholding taxes would also be refunded. As such, we also
recorded a tax benefit of approximately $2.7 million during the third quarter
of 2008 for the 2007 withholding tax receivable. We received the refund of
these withholding taxes in the third quarter of 2009.
Net Income (Loss) Attributable to Noncontrolling Interests
Net income (loss)
attributable to noncontrolling interests for the nine months ended September 30,
2009 was $(0.3) million compared to $0.3 million for the comparable period of
2008. Net income (loss) attributable to noncontrolling interests represents the
minority shareholders proportionate share of the net income (loss) recorded by
five majority-owned indirect subsidiaries, Bruker Baltic Ltd., Bruker Labmate
Pvt. 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
nine months ended September 30, 2009, was $37.7 million, or $0.23 per
diluted share, compared to $38.7 million, or $0.23 per diluted share for the
comparable period in 2008.
32
Table of Contents
Segment Results
Revenue
The following table
presents revenue, change in revenue and revenue growth by reportable segment
for the nine months ended September 30, 2009 and 2008 (dollars in
millions):
|
|
2009
|
|
2008
|
|
Dollar Change
|
|
Percentage
Change
|
|
Scientific
Instruments
|
|
$
|
716.5
|
|
$
|
767.3
|
|
$
|
(50.8
|
)
|
(6.6
|
)%
|
Energy
and Supercon Technologies
|
|
36.0
|
|
32.5
|
|
3.5
|
|
10.8
|
%
|
Eliminations
(a)
|
|
(4.4
|
)
|
(7.9
|
)
|
3.5
|
|
|
|
|
|
$
|
748.1
|
|
$
|
791.9
|
|
$
|
(43.8
|
)
|
(5.5
|
)%
|
(a) Represents
product and service revenue between reportable segments.
Scientific
Instruments Segment Revenues
Scientific Instruments
segment revenue decreased by $50.8 million, or 6.6%, to
$716.5 million for the nine months ended September 30, 2009, compared to
$767.3 million for the comparable period in 2008. Included in this change
in revenue is a reduction of approximately $43.5 million from the impact
of foreign exchange. Excluding the effect of foreign exchange, revenue
decreased by 1.0%. 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 reflects the trend in revenue over
several previous quarters, specifically, 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 nine months ended September 30, 2009
and 2008 (dollars in millions):
|
|
2009
|
|
2008
|
|
|
|
Revenue
|
|
Percentage of
Segment
Revenue
|
|
Revenue
|
|
Percentage of
Segment
Revenue
|
|
System
revenue
|
|
$
|
565.4
|
|
78.9
|
%
|
$
|
603.2
|
|
78.6
|
%
|
Aftermarket
revenue
|
|
151.1
|
|
21.1
|
%
|
164.1
|
|
21.4
|
%
|
Total
revenue
|
|
$
|
716.5
|
|
100.0
|
%
|
$
|
767.3
|
|
100.0
|
%
|
System revenues in the
Scientific Instruments segment include X-ray systems, nuclear magnetic
resonance systems, magnetic resonance imaging systems, electron paramagnetic
imaging systems, mass spectrometry systems, CBRNE 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 $3.5 million, or 10.8%, to
$36.0 million for the nine months ended September 30, 2009, compared
to $32.5 million for the comparable period in 2008. Included in this
change in revenue is a reduction of approximately $4.1 million from the
impact of foreign exchange. Excluding the effect of foreign exchange, revenue
increased by 23.4%. The increase in revenue, excluding the effect of foreign
exchange, is attributable to the acquisition of the research instruments
business offset in part by lower demand for certain superconducting wire.
System and wire revenue
and aftermarket revenue as a percentage of total Energy and Supercon
Technologies segment revenue were as follows during the nine months ended September 30,
2009 and 2008 (dollars in millions):
33
Table
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|
|
2009
|
|
2008
|
|
|
|
Revenue
|
|
Percentage of
Segment
Revenue
|
|
Revenue
|
|
Percentage of
Segment
Revenue
|
|
System
and wire revenue
|
|
$
|
34.4
|
|
95.6
|
%
|
$
|
29.6
|
|
91.1
|
%
|
Aftermarket
revenue
|
|
1.6
|
|
4.4
|
%
|
2.9
|
|
8.9
|
%
|
Total
revenue
|
|
$
|
36.0
|
|
100.0
|
%
|
$
|
32.5
|
|
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 nine months ended September 30, 2009 and 2008 (dollars in
millions):
|
|
2009
|
|
2008
|
|
|
|
Operating
Income
|
|
Percentage of
Segment
Revenue
|
|
Operating
Income
|
|
Percentage of
Segment
Revenue
|
|
Scientific
Instruments
|
|
$
|
63.4
|
|
8.8
|
%
|
$
|
65.7
|
|
8.6
|
%
|
Energy
and Supercon Technologies
|
|
(4.3
|
)
|
(11.9
|
)%
|
(6.6
|
)
|
(20.3
|
)%
|
Corporate,
eliminations and other (a)
|
|
1.4
|
|
|
|
0.2
|
|
|
|
Total
operating income
|
|
$
|
60.5
|
|
8.1
|
%
|
$
|
59.3
|
|
7.5
|
%
|
(a) Represents
corporate costs and eliminations not allocated to the reportable segments.
Scientific Instruments
segment income from operations for the nine months ended September 30,
2009 was $63.4 million, resulting in an operating margin of 8.8%, compared
to income from operations of $65.7 million, resulting in an operating
margin of 8.6%, for the comparable period in 2008. Operating margins in the
first nine months of 2008 included $6.2 million of acquisition-related charges.
Excluding the effect of these acquisition-related charges, the operating margin
for the nine months ended September 30, 2008 was 9.4%.
Income from operations in
the Scientific Instruments segment decreased as a result of the lower revenues
described above which resulted in lower gross profits. The decrease in gross
profit was offset, in part, by lower operating expenses. Gross profit margin as
a percentage of revenue in the Scientific Instruments segment was 45.7% in the
first nine months of 2009 compared 45.5% for the comparable period in 2008.
Higher gross profit margins on our newly introduced mass spectrometry products,
in addition to productivity initiatives, the benefits of cost cutting and
changes in foreign exchange rates, allowed us to maintain our overall gross
profit margins despite lower revenues. The decrease in operating expenses is
attributable to changes in foreign currency exchange rates and cost reduction
programs implemented throughout the second half of 2008.
Energy and Supercon
Technologies segment loss from operations for the nine months ended September 30,
2009 was $4.3 million, resulting in an operating margin of (11.9)%,
compared to a loss from operations of $6.6 million, resulting in an
operating margin of (20.3)%, for the comparable period in 2008.
Loss from operations in
the Energy and Supercon Technologies segment in the first nine months of 2009
included a bargain purchase gain of $2.1 million recorded in connection with
the acquisition of the research instruments business offset, in part, by $0.8
million of transaction costs incurred in connection with the acquisition of the
research instruments business and $0.7 million of impairment charges associated
with fixed assets used in the production of certain superconducting wire.
Excluding the effect of these acquisition-related charges, the decrease in the
loss from operations resulted from higher revenues and an improvement in gross
profit margin as a percentage of revenue.
34
Table
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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 nine months
ended September 30, 2009, net cash provided by operating activities was
$67.3 million, resulting primarily from $37.7 million of net income and $12.0
million of net changes in working capital. During the nine months ended September 30,
2008, net cash provided by operating activities was $18.9 million,
resulting primarily from $56.9 million of net income adjusted for non-cash
items offset, in part, by $38.0 million of net changes in working capital.
During the nine months
ended September 30, 2009, net cash used by investing activities was
$11.2 million, compared to net cash used by investing activities of
$41.0 million during the nine months ended September 30, 2008. Cash
used by investing activities during the nine months ended September 30,
2009 was attributable primarily to $8.9 million of capital expenditures
and $1.6 million used for acquisitions. Cash used by investing activities
during the nine months ended September 30, 2008 was attributable primarily
to $39.8 million of capital expenditures. The decrease in capital
expenditures during the nine months ended September 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.
During the nine months
ended September 30, 2009, net cash used by financing activities was
$71.0 million, compared to net cash used by financing activities of
$235.9 million during the nine months ended September 30, 2008. Cash
used by financing activities during the nine months ended September 30,
2009 was attributable to $71.6 million of net debt repayments under
various long-term and short-term arrangements. Cash used by financing
activities during the nine months ended September 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 $172.7 million of net
borrowings related primarily to the Credit Agreement.
At September 30, 2009,
we had outstanding debt totaling $151.3 million consisting of
$143.5 million outstanding under the Credit Agreement, including
$135.0 million outstanding under a term loan and $8.5 million under
revolving loans, $2.5 million outstanding under other long-term debt
arrangements, $0.4 million outstanding under other revolving lines of
credit and $4.9 million under capital lease obligations. At September 30,
2009, we classified the $8.5 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 September 30, 2009, the weighted average interest rate of
35
Table
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borrowings under the term
facility of the Credit Agreement was approximately 2.7%.
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 September 30, 2009, the latest measurement date, we were
in compliance with the covenants of the Credit Agreement.
Other long-term debt
arrangements at September 30, 2009 consist of collateralized arrangements
with various financial institutions in Germany and are at fixed and variable
interest rates ranging from 2.69% to 2.95% at September 30, 2009. The term
of these arrangements are through various dates between 2010 and 2012.
Other revolving loans are
with various financial institutions located primarily in Germany, Switzerland
and France. The following is a summary of the maximum commitments and net
amounts available to the Company under revolving loans as of September 30,
2009 (in millions):
|
|
Weighted
Average
Interest Rate
|
|
Total Amount
Committed by
Lenders
|
|
Outstanding
Borrowings
|
|
Outstanding
Letters of
Credit
|
|
Total Amount
Available
|
|
Credit
Agreement
|
|
1.0
|
%
|
$
|
230.0
|
|
$
|
8.5
|
|
$
|
1.4
|
|
$
|
220.1
|
|
Other
revolving loans
|
|
4.9
|
%
|
81.0
|
|
0.4
|
|
59.9
|
|
20.7
|
|
Total
revolving loans
|
|
1.1
|
%
|
$
|
311.0
|
|
$
|
8.9
|
|
$
|
61.3
|
|
$
|
240.8
|
|
As of September 30,
2009, we have approximately $4.5 million of net operating loss carryforwards
available to reduce future U.S. taxable income; however, these losses are severely
limited in terms of their use. 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 $7.9 million available to offset future
tax liabilities that expire at various dates. U.S. tax credits, after the
filing of the 2008 U.S. Federal tax return in September 2009, include
foreign tax credits of $6.2 million expiring in various years through 2018 and
research and development tax credits of $1.7 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 September 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
|
|
$
|
8.9
|
|
$
|
8.9
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Long-term
debt, including current portion
|
|
142.4
|
|
22.0
|
|
80.6
|
|
39.8
|
|
|
|
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
The Financial Accounting
Standards Board (FASB) issued Accounting Standards Codification (Codification)
Topic No. 105,
Generally Accepted
Accounting Principles
. Codification Topic No. 105 is effective
for fiscal years, and interim periods, ending after September 15, 2009.
Codification Topic No. 105 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
36
Table
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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 Codification
Topic No. 105 did not have a material impact on our results of operations,
financial position or cash flows.
In September 2009,
the Emerging Issues Task Force reached consensus on FASB Accounting Standards
Update 2009-14,
Software (Topic 985)Certain Revenue
Arrangements That Include Software Elements
. FASB Accounting
Standards Updates 2009-14 changes the accounting model for revenue arrangements
that include both tangible products and software elements. Under this guidance,
tangible products containing software components and non-software components
that function together to deliver the tangible products essential
functionality are excluded from the software revenue guidance in Subtopic No. 985-605,
Software-Revenue Recognition.
In
addition, hardware components of a tangible product containing software
components are always excluded from the software revenue guidance. FASB
Accounting Standards Updates 2009-14 is effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on
or after June 15, 2010. However, early adoption is permitted. We are
currently assessing the impact that the additional disclosure requirements will
have on our results of operations and financial position and when we will adopt
these requirements.
In September 2009,
the Emerging Issues Task Force reached consensus on FASB Accounting Standards
Update 2009-13,
Revenue Recognition (Topic
605)Multiple-Deliverable Revenue Arrangements
. FASB Accounting
Standards Update 2009-13 addresses the accounting for multiple-deliverable
arrangements to enable vendors to account for products or services separately
rather than as a combined unit. Specifically, this guidance amends the criteria
in Subtopic No. 605-25,
Revenue
Recognition-Multiple-Element Arrangements,
for separating
consideration in multiple-deliverable arrangements. This guidance establishes a
selling price hierarchy for determining the selling price of a deliverable,
which is based on: (a) vendor-specific objective evidence; (b) third-party
evidence; or (c) estimates. This guidance also eliminates the residual
method of allocation and requires that arrangement consideration be allocated
at the inception of the arrangement to all deliverables using the relative
selling price method. In addition, this guidance significantly expands required
disclosures related to a vendors multiple-deliverable revenue arrangements.
FASB Accounting Standards Update 2009-13 is effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on
or after June 15, 2010, however, early adoption is permitted. We are
currently assessing the impact that the additional disclosure requirements will
have on our results of operations and financial position and when we will adopt
these requirements.
The FASB amended
Codification Topic No. 715,
CompensationRetirement
Plans
, to require 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. The additional
disclosures are 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.
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
37
Table
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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 $(0.2) million and $(5.8) million for the nine
months ended September 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 September 30, 2009, the outstanding
notional amount of this swap was $81.0 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 September 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 September 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 September 30, 2009 that materially affected, or are reasonably
likely to affect, our internal control over financial reporting.
38
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 Reports on Form 10-Q
for the quarters ended March 31, 2009 and June 30, 2009.
As previously reported, we have provided information to the Securities
and Exchange Commission, or SEC, in connection with its investigation of certain
allegations raised by a former Bruker BioSpin employee. In August 2009, we
received notice from the SEC that the SEC staff had completed its investigation
of the matter and did not intend to recommend enforcement action.
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 certain employees of the same Bruker AXS subsidiary in connection
with alleged improper use of certain intellectual property of RAA and libel. A
hearing on the civil matter was held in September 2009 and the decision of
the court in Frankfurt am Main is expected to be delivered in the fourth
quarter of 2009.
In the related criminal proceeding, during the third quarter of 2009
RAA began its inspection of certain items authorized by the court. The
inspection has not been completed.
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.
ITEM 1A.
RISK FACTORS
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.
Except as set forth
below, 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.
The
global recession continues to hinder our growth.
The global recession has
had a continuing impact on our revenues and profitability during 2009 and we
expect it will materially impact our financial performance for the remainder of
this year. We experienced a decrease in revenues in the first half of 2009
compared to the prior year period, and our operating income also declined.
While we previously had anticipated improvement in our operating margin and
earnings per share in 2009, we are not likely to reach that goal, and our
revised goal is to minimize 2009 margin deterioration or to keep margins flat
during the recession. While we anticipate eventual margin improvement with
anticipated benefits from stimulus funding and a gradual recovery in the global
economy, we cannot be sure of the extent to which we will benefit from stimulus
funding or when or how robustly the global economy will improve. Our revenues
and profitability may not improve or may further deteriorate.
We
may not realize anticipated benefits from global stimulus packages.
Many governments around
the world, including the U.S. federal government, have enacted various stimulus
packages that are intended to increase investment and business activity, and in
particular to provide funding for life
39
Table
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science research,
equipment and facilities. Although we believe there is opportunity for Bruker
to benefit from such economic stimulus spending programs, including the
American Recovery and Investment Act of 2009, there is no assurance that any
such programs will have a material positive impact on our revenues and profits.
The magnitude and timing of any benefits that we might realize from stimulus
funding initiatives are uncertain and are subject to a number of factors beyond
our control, including, without limitation, government appropriations processes
in various countries in which we and our customers do business, governmental
determinations regarding the allocation of stimulus funds to the academic
institutions, not-for-profit research organizations and businesses that may
utilize our products and technologies, the success of our customers in
obtaining stimulus grants, and our customers decisions to use any stimulus
funds they receive to purchase products from us. It is not possible to predict
whether or when we will realize the benefits from stimulus packages enacted in
the U.S. or elsewhere, or what impact, if any, stimulus packages will have on
our business, results of operations or financial condition or the trading price
of our common stock.
Our
new technologies and product developments may not succeed.
We are currently
developing a number of new key technologies and products, including various new
LTS and HTS superconductors, prototype crystal growth magnets, and prototype
superconducting fault current limiters at Bruker Energy and Supercon
Technologies, new magnet types at Bruker BioSpin, new mass spectrometry
technologies and applications at Bruker Daltonics, and new CBRNE detection
products that may not succeed technically, or may not be able to be
manufactured reliably and economically. Any technology, product or
manufacturing ramp-up failure could decrease our opportunities for additional
revenues and increased margins.
Health
care reform in the U.S. could adversely affect our revenue.
President Obama has
stated that health care reform in the U.S. is one of his top priorities, and it
has recently been a topic of active discussion and debate. It is too soon to
predict what form this reform may take, or whether and when it will happen.
However, because many of our products are used for life science and health care
applications, it is possible that health care reform in the U.S. could
adversely affect our revenue.
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 third 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
|
|
July 1
- July 31, 2009
|
|
75,000
|
|
$
|
10.11
|
|
|
|
|
|
August 1
- August 31, 2009
|
|
75,000
|
|
10.04
|
|
|
|
|
|
September 1
- September 30, 2009
|
|
100,000
|
|
9.85
|
|
|
|
|
|
|
|
250,000
|
|
$
|
9.98
|
|
|
|
|
|
All purchases were made
by the Companys Chief Executive Officer, Frank H. Laukien. Shares purchased in
July 2009 and August 2009 were open market purchases effected in
accordance with the safe harbor provisions of Rule 10b-18 of the Exchange
Act. All shares purchased in September 2009 were purchased from Marc M.
Laukien, Frank H. Laukiens half-brother and a former 5% beneficial owner, in a
privately negotiated transaction. The purchases were previously disclosed on
Forms 4 filed with the U.S. Securities and Exchange Commission.
40
Table
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ITEM 3.
DEFAULTS UPON SENIOR
SECURITIES
None.
ITEM 4.
SUBMISSION OF MATTERS TO
A VOTE OF SECURITY HOLDERS
None.
ITEM 5.
OTHER INFORMATION
None.
ITEM 6.
EXHIBITS
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.
41
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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: November 9,
2009
|
|
By:
|
/s/
FRANK H. LAUKIEN, PH.D.
|
|
|
|
Frank H. Laukien, Ph.D.
President, Chief Executive Officer and Chairman
(Principal Executive Officer)
|
|
|
|
|
Date: November 9,
2009
|
|
By:
|
/s/ WILLIAM J. KNIGHT
|
|
|
|
William J. Knight
Chief Financial Officer
(Principal Financial Officer)
|
42
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