ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, describes the principal
factors affecting the results of our operations, financial condition and changes in financial condition, as well as our critical accounting policies and estimates. Our MD&A is organized as
follows:
-
-
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, and 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 condition and results of operations and require us to exercise subjective or complex judgments in their application. All of our
significant accounting policies, including our critical accounting policies and estimates, are summarized in Note 2 to our consolidated financial statements in Item 8 of this Annual
Report on Form 10-K.
-
-
Results of Operations.
This section provides our analysis
of the significant line items on our consolidated statement of income for the year ended December 31, 2012 compared to the year ended December 31, 2011 and for the year ended
December 31, 2011 compared to the year ended December 31, 2010.
-
-
Liquidity and Capital Resources.
This section provides an
analysis of our liquidity and cash flow and a discussion of our outstanding debt and commitments.
-
-
Transactions with Related Parties.
This section summarizes
transactions with principal shareholders and directors.
-
-
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 our technology platforms, including magnetic resonance technologies, mass spectrometry technologies, gas chromatography technologies, infrared and Raman molecular
spectroscopy technologies, X-ray technologies, spark-optical emission spectroscopy, atomic force microscopy, and stylus and optical metrology technology. We sell a broad range of field
analytical systems for chemical, biological, radiological, nuclear and explosive, or CBRNE, detection. We also develop and manufacture low temperature and high temperature superconducting wire
products and superconducting wire and superconducting devices for use in advanced magnet technology, physics research and energy applications. Our diverse customer base includes life science,
pharmaceutical, biotechnology and molecular diagnostic research companies, academic institutions, advanced materials and semiconductor industries and government agencies. Our corporate headquarters
are located in Billerica, Massachusetts. We maintain major technical and manufacturing centers in Europe, North America and Japan and we have sales offices located throughout the world.
Our
business strategy is to capitalize on our ability to innovate and generate rapid revenue growth, both organically and through acquisitions. Our revenue 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 profitability in the future.
40
Table of Contents
We
are organized into four operating segments: the Bruker BioSpin group, the Bruker CALID group, the Bruker MAT group, and Bruker Energy & Supercon Technologies division. The
Bruker BioSpin group is in the business of designing, manufacturing and distributing enabling life science tools based on magnetic resonance technology. The Bruker CALID group combines the Bruker
Daltonics, Bruker Chemical and Applied Markets (CAM), Bruker Detection and Bruker Optics divisions and is in the business of designing, manufacturing, and distributing mass spectrometry and
chromatography instruments and solutions for life sciences, including proteomics, metabolomics, and clinical research applications. Our mass spectrometry and chromatography instruments also provide
solutions for applied markets that include food safety, environmental analysis and petrochemical analysis. Bruker CALID also designs, manufactures, and distributes various analytical instruments for
CBRNE detection and research, as well as analytical, research and process analysis instruments and solutions based on infrared and Raman molecular spectroscopy technologies. The Bruker MAT group
combines the Bruker AXS, Bruker Nano Surfaces, Bruker Nano Analysitics and Bruker Elemental divisions and is in the business of manufacturing and distributing advanced X-ray, spark-optical
emission spectroscopy, atomic force microscopy and stylus and optical metrology instrumentation used in non-destructive molecular, materials and elemental analysis. The Bruker
Energy &
Supercon Technologies division is in the business of developing and producing low temperature superconductor and high temperature superconductor materials for use in advanced magnet technology and
energy applications as well as linear accelerators, accelerator cavities, insertion devices, other accelerator components and specialty superconducting magnets for physics and energy research and a
variety of other scientific applications.
For
financial reporting purposes, we combine the Bruker BioSpin, Bruker CALID and Bruker MAT 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 financial 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 magnetic resonance technology, mass spectrometry technology, gas chromatography
technology, infrared and Raman molecular spectroscopy technology, X-ray technology, spark-optical emission spectroscopy technology, atomic force microscopy technology, and stylus and
optical metrology technology. Typical customers of the Scientific Instruments segment include: pharmaceutical, biotechnology and molecular diagnostic companies; academic institutions, medical schools
and 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 & Supercon Technologies.
The operations of
this segment include the design, manufacture and marketing of superconducting materials, primarily metallic low temperature superconductors, for use in magnetic resonance imaging, nuclear magnetic
resonance, fusion energy research and other applications, and ceramic high temperature superconductors primarily for energy grid and magnet applications. Typical customers of the Energy &
Supercon Technologies segment include companies in the medical industry, private and public research and development laboratories in the fields of fundamental and applied sciences and energy research,
academic institutions and government agencies. The Energy & Supercon Technologies segment is also developing superconductors and superconducting-enabled devices for applications in power and
energy, as well as industrial processing industries.
Financial Overview
For the year ended December 31, 2012, our revenue increased by $139.7 million, or 8.5%, to $1,791.4 million,
compared to $1,651.7 million for the year ended December 31, 2011. Included in this
41
Table of Contents
change
in revenue are a decrease of approximately $76.8 million from the impact of foreign exchange due to the strengthening of the U.S. Dollar versus the Euro and other foreign currencies and
an increase of approximately $19.8 million attributable to recent acquisitions. Excluding the effects of foreign exchange and our recent acquisitions, revenue increased by
$196.7 million, or 11.9%. The increase in revenue on an adjusted basis is attributable to both the Scientific Instruments segment, which increased by $158.5 million, or 10.2%, and the
Energy & Supercon Technologies segment, which increased by $33.9 million, or 29.9%.
Revenue
in the Scientific Instruments segment reflects an increase in sales from many of our core technologies, particularly nuclear magnetic resonance, mass spectrometry and
X-ray products. The mix of products sold in the Scientific Instruments segment during 2012 reflects increased demand from academic, government and industrial customers. We attribute the
increase in sales to academic and government customers to increased spending from these customers and to new product introductions. The improvement in revenues from our industrial customers reflects
continued growth in these end markets and our new product introductions. Revenues in the Energy & Supercon Technologies segment increased primarily due to recognition of license revenue on the
sale of technology. In addition, revenue benefitted from higher demand for low temperature superconducting wire.
Though
we recognized increased revenue in 2012 on a year-over-year basis, we began to see a softening in demand, particularly in Europe. We also noted a weakening
in global industrial and applied markets, as well as in the semiconductor and data storage metrology markets. We are uncertain whether the recent market conditions will continue or how our revenue
derived from those market segments may be affected.
Gross
profit for the year ended December 31, 2012 was $831.4 million compared to $752.5 million for the year ended December 31, 2011. Our gross profit margin
for the year ended December 31, 2012 was 46.4%, compared with 45.6% for the year ended December 31, 2011. Excluding the effects of inventory and fixed asset charges, amortization of
acquisition-related intangible assets and restructuring charges
totaling, in the aggregate, $21.9 million and $24.4 million for the year ended December 31, 2012 and 2011, respectively, gross profit margins increased to 47.6% for the year ended
December 31, 2012 compared with 47.0% for the year ended December 31, 2011. The increase in gross profit margins for the year ended December 31, 2012 was driven by license revenue
from the sale of technology in the Energy & Supercon Technologies segment, which had minimal associated cost, and sales of our newly introduced products, which carry higher gross margins than
our previous generations of products. Offsetting these items were increasing pricing pressures in certain markets, changes in the mix of products and lower gross profit margins in our CAM division due
to increased production costs.
Selling,
general and administrative expenses and research and development expenses increased to $637.7 million, or 35.6% of revenue, in 2012 from $583.8 million, or 35.3%
of revenue, in 2011. The increase in selling, general and administrative expenses and research and development expenses in 2012 is attributable to increases in headcount to support planned revenue
growth in our existing businesses and from our recent acquisitions. Changes in foreign currency exchange rates, primarily the strengthening of the U.S. Dollar against the Euro and other foreign
currencies, partially offset the increase because the majority of our employees are located in Europe. We are focused on controlling costs and are implementing selective cost saving programs with the
goal of reducing operating expenses and improving operating margins in 2013.
We
recorded an impairment charge in the amount of $23.8 million for the year ended December 31, 2012, comprising goodwill and definite-lived intangible assets of
$1.4 million and $16.4 million, respectively, related to our CAM division, and an impairment charge of $6.0 million for other long-lived assets to reduce the carrying value
to their estimated fair value.
Income
from operations for the year ended December 31, 2012 was $156.0 million, resulting in an operating margin of 8.7%, compared to income from operations of
$155.6 million, resulting in an
42
Table of Contents
operating
margin of 9.4%, for the year ended December 31, 2011. The decrease in operating margin was largely due to the impairment of assets noted above, partially offset by the recognition of
license revenue on the sale of technology in the Energy & Supercon Technologies segment.
Included
in income from operations are various charges for inventory write-downs, amortization of acquisition-related intangible assets and other acquisition-related costs, impairment of
goodwill, intangible assets and other long-term assets, deferred offering costs that have been expensed, legal and other professional services fees related to our internal investigation
and review of our operations in China, and restructuring and relocation costs totaling, in the aggregate, $63.0 million and $41.2 million in 2012 and 2011, respectively. Excluding these
charges, operating margins were 12.2% in 2012 and 11.9% in 2011. The increase in adjusted operating margins for the year ended
December 31, 2012 compared to the prior year is due to the revenue growth noted above, in particular the recognition of the license revenue in the Energy & Supercon Technologies segment,
offset by pricing pressures experienced in certain markets, changes in the mix of products sold and higher operating expenses.
Our
effective tax rate for 2012 was 43.5%, compared to 35.4% for 2011. The increase in the effective tax rate is primarily due to the impairment charges noted above, which are
unbenefitted in certain jurisdictions.
Our
net income attributable to the shareholders of Bruker Corporation for the year ended December 31, 2012 was $77.5 million, or $0.46 per diluted share, compared to
$92.3 million, or $0.55 per diluted share, for the year ended December 31, 2011. The decrease for the year ended December 31, 2012 was due to increases in operating expenses,
including impairment of goodwill, intangibles, and other long-lived assets, higher spending on non-recurring items and higher net interest expense. These were partially offset
by revenue growth and higher gross margins.
CRITICAL ACCOUNTING POLICIES
This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States of America. 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, the expensing and capitalization of
software development costs, stock-based compensation expense, restructuring and other related charges, income taxes, including the recoverability of deferred tax assets, allowances for doubtful
accounts, reserves for excess and obsolete inventories, estimated fair values of long-lived assets used to evaluate the recoverability of long-lived assets, intangible assets
and goodwill, expected future cash flows used to evaluate the recoverability of intangible assets and long-lived assets, warranty costs, derivative financial instruments and contingent
liabilities. 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 collectability of the resulting receivable is reasonably assured. Title and risk of loss is generally transferred upon customer
acceptance for a system that has been delivered to the customer.
43
Table of Contents
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 collectability is not reasonably assured or when the price is not fixed or determinable. For arrangements
with multiple elements, we allocate revenue to each element based on their relative selling prices. The relative selling price of each element is based on our vendor specific objective evidence, if
available. If vendor specific objective evidence is not available, we use evidence from third-parties or, when third-party evidence is not available, we use management's best estimate of the selling
price. Typically, we cannot ascertain third-party evidence of selling price. When products and services offered do not qualify as separate units of accounting, we recognize revenue upon customer
acceptance 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 reported revenues to
differ materially from expectations. 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 model and completed contract model of revenue recognition. Application of these methods 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.
Income taxes.
The determination of income tax expense requires us to make certain estimates and judgments concerning the calculation of
deferred tax
assets and liabilities, as well as the deductions, carryforwards and credits that are available to reduce taxable income. Deferred tax assets and liabilities arise from differences in the timing of
the recognition of revenue and expenses for financial statement and tax purposes. Deferred tax assets and liabilities are measured using the tax rates in effect for the year in which these temporary
differences are expected to be settled. We estimate the degree to which tax assets and loss carryforwards will result in a benefit based on expected profitability by tax jurisdiction, and we provide a
valuation allowance for tax assets and loss 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. In addition, we only recognize benefits for tax positions that we believe are more likely than not of being sustained upon review by a taxing authority with knowledge of all
relevant information. We reevaluate our uncertain tax positions on a quarterly
basis and any changes to these positions as a result of tax audits, tax laws or other facts and circumstances could result in additional charges 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 other subsidiaries. We record provisions to account for excess and obsolete inventory to reflect the expected non-saleable or
non-refundable inventory based on an evaluation of slow moving products. Inventories also include demonstration units located in our demonstration laboratories or installed at the sites of
potential customers. We consider our demonstration units to be available for sale. We reduce the carrying value of demonstration inventories for differences between cost and estimated net realizable
value, taking into consideration usage in the preceding twelve months, expected demand, technological obsolescence and other information including the physical condition of the unit. If ultimate usage
or demand varies significantly from expected usage or demand, additional write-downs may be required, resulting in additional charges to operations.
Goodwill, other intangible assets and other long-lived assets.
We evaluate whether goodwill is impaired annually and when events occur
or
circumstances change. We test goodwill for impairment at
44
Table of Contents
the
reporting unit level, which is the operating segment or one level below an operating segment. The first step of the goodwill impairment test involves comparing the fair values of the applicable
reporting units with their aggregate carrying values, including goodwill. We generally determine the fair value of our reporting units using a weighting of both the market approach and the income
approach methodologies. The income approach valuation methodology includes discounted cash flow estimates. Estimating the fair value of the reporting units requires significant judgment by management
about the future cash flows. If the carrying amount of a reporting unit exceeds the fair value of the reporting unit, we perform the second step of the goodwill impairment test to measure the amount
of the impairment. In the second step of the goodwill impairment test, we compare the implied fair value of the reporting unit's goodwill with the carrying value of that goodwill.
At
December 31, 2012, the Company performed its annual goodwill impairment evaluation and concluded all reporting units' fair values exceeded their carrying values, with the
exception of the CAM division, which experienced increased deterioration in its financial performance. The Company, therefore, performed step two of the impairment test to measure potential impairment
and concluded an impairment charge of $1.4 million was required. This amount represents all the goodwill allocated to the CAM division and is recorded within "Impairment of assets" in the
accompanying statements of
income and comprehensive income for the year ended December 31, 2012. There were no indefinite-lived intangible assets associated with the CAM division and no impairment of indefinite-lived
intangible assets during the year ended December 31, 2012.
We
also review definite-lived intangible assets and other long-lived assets when indications of potential impairment exist. Should the fair value of our
long-lived assets decline because of reduced operating performance, market declines, or other indicators of an impairment, a charge to operations for impairment may be necessary.
The
Company determined the increased deterioration in financial performance of the CAM division discussed above was an indicator requiring the evaluation of the definite-lived intangible
assets within that reporting unit for recoverability. The Company performed a test based on projected future undiscounted cash flows at December 31, 2012 and determined that the definite-lived
intangible assets within the CAM division were impaired. The Company recorded an impairment charge in the amount of $16.4 million for the year ended December 31, 2012 to reduce the
carrying value of those assets to their estimated fair values. The impairment charge is included within "Impairment of assets" in the accompanying statements of income and comprehensive income. No
impairment losses were recorded related to definite-lived intangible assets during the years ended December 31, 2011 and 2010.
The
increased deterioration in financial performance of the CAM division discussed above was also an indicator requiring the evaluation of other long-lived assets within that
reporting unit for recoverability. In addition, based on the abandonment of a project in the Energy & Supercon Technologies reporting unit there was an indicator requiring the evaluation of
those long-lived assets for recoverability. The Company performed a test of projected future undiscounted cash flows at December 31, 2012, and determined that certain of the other
long-lived assets within the CAM division and the Energy & Supercon Technologies reporting unit were impaired. During the year ended December 31, 2012, an impairment charge
in the amount of $6.0 million related to property, plant and equipment was recorded to reduce the carrying value of those assets to their estimated fair values. This amount is recorded within
"Impairment of assets" in the accompanying statements of income and comprehensive income.
We
will continue to monitor goodwill and long-lived intangible assets, as well as long-lived tangible assets, for possible future impairment.
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
45
Table of Contents
included
as a current liability on the 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 assets or liabilities at fair value, which is calculated
as an estimate
of the future cash flows, and subsequent changes in a derivative's 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.
46
Table of Contents
RESULTS OF OPERATIONS
Year Ended December 31, 2012 Compared to the Year Ended December 31, 2011
Consolidated Results
The following table presents our results for the years ended December 31, 2012 and 2011 (dollars in millions, except per share
data):
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2012
|
|
2011
|
|
Product revenue
|
|
$
|
1,556.5
|
|
$
|
1,445.6
|
|
Service revenue
|
|
|
210.0
|
|
|
194.8
|
|
Other revenue
|
|
|
24.9
|
|
|
11.3
|
|
|
|
|
|
|
|
Total revenue
|
|
|
1,791.4
|
|
|
1,651.7
|
|
Cost of product revenue
|
|
|
839.0
|
|
|
792.5
|
|
Cost of service revenue
|
|
|
121.0
|
|
|
106.7
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
960.0
|
|
|
899.2
|
|
|
|
|
|
|
|
Gross profit
|
|
|
831.4
|
|
|
752.5
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
442.4
|
|
|
406.6
|
|
Research and development
|
|
|
195.3
|
|
|
177.2
|
|
Impairment of assets
|
|
|
23.8
|
|
|
|
|
Write-off of deferred offering costs
|
|
|
|
|
|
3.4
|
|
Other charges
|
|
|
13.9
|
|
|
9.7
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
675.4
|
|
|
596.9
|
|
|
|
|
|
|
|
Operating income
|
|
|
156.0
|
|
|
155.6
|
|
Interest and other income (expense), net
|
|
|
(17.7
|
)
|
|
(10.1
|
)
|
|
|
|
|
|
|
Income before income taxes and noncontrolling interest in consolidated subsidiaries
|
|
|
138.3
|
|
|
145.5
|
|
Income tax provision
|
|
|
60.1
|
|
|
51.5
|
|
|
|
|
|
|
|
Consolidated net income
|
|
|
78.2
|
|
|
94.0
|
|
Net income attributable to noncontrolling interest in consolidated subsidiaries
|
|
|
0.7
|
|
|
1.7
|
|
|
|
|
|
|
|
Net income attributable to Bruker Corporation
|
|
$
|
77.5
|
|
$
|
92.3
|
|
|
|
|
|
|
|
Net income per common share attributable to
|
|
|
|
|
|
|
|
Bruker Corporation shareholders:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.47
|
|
$
|
0.56
|
|
Diluted
|
|
$
|
0.46
|
|
$
|
0.55
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
|
|
166.0
|
|
|
165.4
|
|
Diluted
|
|
|
167.4
|
|
|
166.9
|
|
Revenue
For the year ended December 31, 2012, our revenue increased by $139.7 million, or 8.5%, to $1,791.4 million,
compared to $1,651.7 million for the year ended December 31, 2011. Included in this
47
Table of Contents
change
in revenue are a decrease of approximately $76.8 million from the impact of foreign exchange due to the strengthening of the U.S. Dollar versus the Euro and other foreign currencies and
an increase of approximately $19.8 million attributable to recent acquisitions. Excluding the effects of foreign exchange and our recent acquisitions, revenue increased by
$196.7 million, or 11.9%. The increase in revenue on an adjusted basis is attributable to both the Scientific Instruments segment, which increased by $158.5 million, or 10.2%, and the
Energy & Supercon Technologies segment, which increased by $33.9 million, or 29.9%.
Revenue
in the Scientific Instruments segment reflects an increase in sales from many of our core technologies, particularly nuclear magnetic resonance, mass spectrometry and
X-ray products. The mix of products sold in the Scientific Instruments segment during 2012 reflects increased demand from academic, government and industrial customers. We attribute the
increase in sales to academic and government customers to increased spending from these customers and to new product introductions. The improvement in revenues from our industrial customers reflects
continued growth in these end markets and our new product introductions. Revenues in the Energy & Supercon Technologies segment increased primarily due to recognition of license revenue on the
sale of technology. In addition, revenue benefitted from higher demand for low temperature superconducting wire.
Cost of Revenue
Our cost of revenue for the year ended December 31, 2012, was $960.0 million, resulting in a gross profit margin of
46.4%, compared to cost of revenue of $899.2 million, resulting in a gross profit margin of 45.6%, for the year ended December 31, 2011. The increase in cost of revenue is primarily a
function of the higher revenues described above. Our cost of revenue for the year ended December 31, 2012 includes charges of $21.9 million representing the difference between the fair
value and the historical cost of inventories acquired in business combinations and sold during the period, amortization of acquisition-related intangible assets, and acquisition-related fixed asset
charges. Our cost of revenue for the year ended December 31, 2011 includes charges of $24.4 million representing inventory allowances for the rework of certain specialty magnets that did
not meet customer specifications, the difference between the fair value and the cost of inventories acquired in business combinations and sold during the period, and amortization of
acquisition-related intangible assets. Excluding these charges, our gross profit margin for the year ended December 31, 2012 and 2011 was 47.6% and 47.0%, respectively. The higher gross profit
margin was driven by license revenue from the sale of technology in the Energy & Supercon Technologies segment, which had minimal associated cost, and sales of our newly introduced products
which carry higher gross margins than our previous generations of products. Offsetting these items were increasing pricing pressures in certain markets, changes in the mix of products and lower gross
profit margins in our CAM division due to increased production costs.
Selling, General and Administrative
Our selling, general and administrative expense for the year ended December 31, 2012 increased to $442.4 million, or
24.7% of revenue, from $406.6 million, or 24.6% of revenue, for the year ended December 31, 2011. The increase in selling, general and administrative expenses is driven by increases in
headcount from our recent acquisitions and increases in headcount to support planned revenue growth in our existing businesses.
Research and Development
Our research and development expense for the year ended December 31, 2012 increased to $195.3 million, or 10.9% of
revenue, from $177.2 million, or 10.7% of revenue, for the year ended December 31, 2011. The increase in research and development expenses is attributable to increases in headcount from
recent acquisitions and increases in headcount and material costs to support future product introductions in our existing businesses.
48
Table of Contents
Impairment of Assets
The Company recorded an impairment of assets of $23.8 million for the year ended December 31, 2012, comprising goodwill
and definite-lived intangible asset impairment charges of $1.4 million and $16.4 million, respectively, relating to our CAM division, and an impairment charge of $6.0 million of
other long-lived assets to reduce the carrying value to their estimated fair value.
Write-off of Deferred Offering Costs
In September 2010, we announced plans to sell a minority ownership position in our BEST subsidiary through an initial public offering
of the capital stock of BEST. As a result of economic and market factors, the timing of the BEST initial public offering was uncertain and deferred offering costs totaling $3.4 million were
expensed in the third quarter of 2011. In March 2012, we determined not to proceed with the initial public offering of the capital stock of BEST.
Other Charges
Other charges, net of $13.9 million recorded in 2012 consist of $11.1 million of legal and other professional service
fees associated with our internal investigation and review of our operations in China, $2.0 million related to two factory relocations that are occurring within the Energy & Supercon
Technologies segment, and $0.8 million of other charges.
Other
charges, net of $9.7 million recorded in 2011 consist of charges recorded entirely in the Scientific Instruments segment. The charges recorded in 2011 consist of
$4.2 million of acquisition-related costs associated with the nano surfaces business, chemical analysis business and other acquisitions completed during the year. Acquisition-related costs
consist of costs incurred under transition service arrangements we entered into with the sellers of the nano surfaces and chemical analysis businesses and transaction costs, including legal,
accounting and other fees. Other charges, net for the year ended December 31, 2011 also includes $4.3 million of legal and other professional service fees associated with our internal
investigation and review of our operations in China and $1.2 million of other charges.
Interest and Other Income (Expense), Net
Interest and other income (expense), net during the year ended December 31, 2012 was $(17.7) million, compared to $(10.1)
million for the year ended December 31, 2011.
During
the year ended December 31, 2012, the major components within interest and other income (expense), net were net interest expense of $13.4 million and foreign
currency exchange losses of $6.8 million, partially offset by a $2.2 million gain on the sale of a product line during 2012. During the
year ended December 31, 2011, the major components within interest and other income (expense), net, consisted of net interest expense of $6.3 million and foreign currency exchange losses
of $4.4 million.
The
increase in interest expense is primarily a function of higher average outstanding debt balances throughout 2012 and an increase in the average interest rates we pay on outstanding
borrowings due to entering into a longer-term debt arrangement in 2012 with higher interest rates. The losses on foreign currency exchange rates during 2012 were primarily a function of
changes in exchange rates between the Euro and the Swiss Franc against the U.S. Dollar.
Provision for Income Taxes
Our income tax provision generally reflects amounts for non-U.S. entities only. We 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
49
Table of Contents
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
income tax provision for the year ended December 31, 2012 was $60.1 million compared to an income tax provision of $51.5 million for the year ended
December 31, 2011, representing effective tax rates of 43.5% and 35.4%, respectively. The increase in the effective tax rate is primarily due to the impairment charges, which are unbenefited in
certain jurisdictions.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests for the year ended December 31, 2012 was $0.7 million compared to
$1.7 million for the year ended December 31, 2011. The net income attributable to noncontrolling interests represents the minority shareholders' proportionate share of the net income
recorded by our majority-owned indirect subsidiaries.
Net Income Attributable to Bruker Corporation
Our net income attributable to Bruker Corporation for the year ended December 31, 2012 was $77.5 million, or $0.46 per
diluted share, compared to net income of $92.3 million, or $0.55 per diluted share, for 2011. The decrease for the year ended December 31, 2012 was due to increases in operating
expenses, including impairment of goodwill, intangibles, and other long-lived assets, higher spending on non-recurring items and higher net interest expense. These were
partially offset by revenue growth and higher gross margins.
Segment Results
Revenue
The following table presents revenue, change in revenue and revenue growth by reportable segment for the years ended
December 31, 2012 and 2011 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Dollar Change
|
|
Percentage
Change
|
|
Scientific Instruments
|
|
$
|
1,666.1
|
|
$
|
1,554.1
|
|
$
|
112.0
|
|
|
7.2
|
%
|
Energy & Supercon Technologies
|
|
|
136.2
|
|
|
113.4
|
|
|
22.8
|
|
|
20.1
|
%
|
Eliminations (a)
|
|
|
(10.9
|
)
|
|
(15.8
|
)
|
|
4.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,791.4
|
|
$
|
1,651.7
|
|
$
|
139.7
|
|
|
8.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
Represents
product and service revenue between reportable segments.
Scientific Instruments Segment Revenues
Scientific Instruments segment revenue increased by $112.0 million, or 7.2%, to $1,666.1 million for the year ended
December 31, 2012, compared to $1,554.1 million for the year ended December 31, 2011. Included in this change in revenue is a decrease of approximately $66.3 million from
the impact of foreign exchange due to the strengthening of the U.S. Dollar versus the Euro and other foreign currencies and an increase of approximately $19.8 million attributable to our recent
acquisitions. Excluding the effect of foreign exchange and acquisitions, revenue increased by $158.5 million, or 10.2%. The increase in revenue, excluding the effect of foreign exchange and
acquisitions, reflects an increase in sales from many of our core technologies, particularly nuclear magnetic resonance, mass spectrometry and X-ray products.
50
Table of Contents
System revenue and aftermarket revenue as a percentage of total Scientific Instruments segment revenue were as follows during the years ended December 31,
2012 and 2011 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
|
|
Revenue
|
|
Percentage of
Segment Revenue
|
|
Revenue
|
|
Percentage of
Segment Revenue
|
|
System revenue
|
|
$
|
1,354.2
|
|
|
81.3
|
%
|
$
|
1,238.9
|
|
|
79.7
|
%
|
Aftermarket revenue
|
|
|
311.9
|
|
|
18.7
|
%
|
|
315.2
|
|
|
20.3
|
%
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
1,666.1
|
|
|
100.0
|
%
|
$
|
1,554.1
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
System
revenue in the Scientific Instruments segment includes nuclear magnetic resonance systems, magnetic resonance imaging systems, electron paramagnetic imaging systems, mass
spectrometry systems, gas chromatography systems, CBRNE detection systems, X-ray systems, spark-optical emission spectroscopy systems, atomic force microscopy systems, stylus and optical
metrology systems and molecular spectroscopy systems. Aftermarket revenues in the Scientific Instruments segment include accessory sales, consumables, training and services.
Energy & Supercon Technologies Segment Revenues
Energy & Supercon Technologies segment revenues increased by $22.8 million, or 20.1%, to $136.2 million for the year
ended December 31, 2011, compared to $113.4 million for the year ended December 31, 2011. Included in this change in revenue is a reduction of approximately $11.1 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
$33.9 million, or 29.9%. The increase in revenue, excluding the effect of foreign exchange, is primarily attributable to license revenue from the sale of technology, as well as higher demand
for low temperature superconducting wire.
System
and wire revenue and aftermarket revenue as a percentage of total Energy & Supercon Technologies segment revenue were as follows during the years ended December 31,
2012 and 2011 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
|
|
Revenue
|
|
Percentage of
Segment Revenue
|
|
Revenue
|
|
Percentage of
Segment Revenue
|
|
System and wire revenue
|
|
$
|
111.7
|
|
|
82.0
|
%
|
$
|
105.3
|
|
|
92.9
|
%
|
Aftermarket and other revenue
|
|
|
24.5
|
|
|
18.0
|
%
|
|
8.1
|
|
|
7.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
136.2
|
|
|
100.0
|
%
|
$
|
113.4
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
System
and wire revenue in the Energy & Supercon Technologies segment includes low and high temperature superconducting wire and superconducting devices, including magnets, linear
accelerators and radio frequency cavities. Aftermarket revenues in the Energy & Supercon Technologies segment consist primarily of license revenue, sales of Cuponal, a bimetallic,
non-superconducting material we sell to the power and transport industries, and grant revenue.
51
Table of Contents
Income (Loss) from Operations
The following table presents income (loss) from operations and operating margins on revenue by reportable segment for the years ended
December 31, 2012 and 2011 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
|
|
Operating
Income
|
|
Percentage of
Segment Revenue
|
|
Operating
Income (Loss)
|
|
Percentage of
Segment Revenue
|
|
Scientific Instruments
|
|
$
|
140.8
|
|
|
8.5
|
%
|
$
|
162.8
|
|
|
10.5
|
%
|
Energy & Supercon Technologies
|
|
|
12.8
|
|
|
9.4
|
%
|
|
(4.1
|
)
|
|
(3.6
|
)%
|
Corporate, eliminations and other (a)
|
|
|
2.4
|
|
|
|
|
|
(3.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
156.0
|
|
|
8.7
|
%
|
$
|
155.6
|
|
|
9.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
Represents
corporate costs and eliminations not allocated to the reportable segments.
Scientific
Instruments income from operations for the year ended December 31, 2012 was $140.8 million, resulting in an operating margin of 8.5%, compared to income from operations
of $162.8 million, resulting in an operating margin of 10.5%, for the year ended December 31, 2011. Income from operations includes $59.2 million and $37.5 million in the years
ended December 31, 2012 and 2011, respectively, of various charges to inventory, amortization of acquisition-related intangible assets, impairment of goodwill, definite-lived intangible assets
and other long-lived assets, acquisition-related fixed asset charges, and other charges. Excluding these costs, income from operations in the Scientific Instruments segment would have been
$200.0 million and $200.3 million, resulting in operating margins of 12.0% and 12.9%, respectively, for the years ended December 31, 2012 and 2011. Operating margins declined as a
result of the increased pricing pressure in certain markets, product mix and higher operating expenses offset, in part, by higher revenues.
Gross
profit margin in the Scientific Instruments segment for the year ended December 31, 2012 was 47.5%, compared with 47.2% for the year ended December 31, 2011.
Excluding the effects of inventory and fixed asset charges, amortization of acquisition-related intangible assets and restructuring charges totaling, in the aggregate, $21.7 million and
$24.1 million for the years ended December 31, 2012 and 2011, respectively, gross profit margins were 48.8% and 48.7%, respectively, for the years ended December 31, 2012 and
2011. The increase in gross profit margins was driven by sales of our newly introduced products which carry higher gross margins than our previous generations of products. Offsetting this increase
were increasing pricing pressures in certain markets, changes in the mix of products and our CAM division contributing lower gross profit margins due to increased production costs.
Selling,
general and administrative expenses and research and development expenses for the year ended December 31, 2012 in the Scientific Instruments segment increased to
$616.0 million, or 37.0% of segment revenue, from $560.8 million, or 36.1% of segment revenue, for the year ended December 31, 2011. This increase is a function of incremental
investments in sales and marketing activities and research and development activities, as well as increases in operating expenses related to the acquisitions completed in 2011 and 2012. These cost
increases primarily relate to additional headcount, higher sales commission expenses as a result of higher revenues and higher material costs.
The
Company recorded an impairment of assets within the Scientific Instruments segment of $22.6 million for the year ended December 31, 2012, comprised of goodwill and
definite-lived intangible asset impairment charges of $1.4 million and $16.4 million, respectively, in our CAM division, and an impairment charge of $4.8 million of other
long-lived assets to reduce the carrying value to their estimated fair value.
52
Table of Contents
Energy &
Supercon Technologies income from operations for the year ended December 31, 2012 was $12.8 million, resulting in an operating margin of 9.4%, compared to a
loss from operations of $4.1 million, resulting in an operating margin of (3.6)%, for the year ended December 31, 2011. The increase in operating margin is the result of higher revenues, in
particular the recognition of license revenue from the sale of technology, partially offset by higher operating expenses. The increase in operating expenses is a function of incremental investments in
sales and marketing activities and research and development activities, as well as an impairment of assets of $1.2 million recorded for the year ended December 31, 2012 to reduce the
carrying value of certain tangible long-lived assets to their estimated fair value.
Year Ended December 31, 2011 Compared to the Year Ended December 31, 2010
Consolidated Results
The following table presents our results for the years ended December 31, 2011 and 2010 (dollars in millions, except per share
data):
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2011
|
|
2010
|
|
Product revenue
|
|
$
|
1,445.6
|
|
$
|
1,145.4
|
|
Service revenue
|
|
|
194.8
|
|
|
151.1
|
|
Other revenue
|
|
|
11.3
|
|
|
8.4
|
|
|
|
|
|
|
|
Total revenue
|
|
|
1,651.7
|
|
|
1,304.9
|
|
Cost of product revenue
|
|
|
792.5
|
|
|
621.5
|
|
Cost of service revenue
|
|
|
106.7
|
|
|
79.4
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
899.2
|
|
|
700.9
|
|
|
|
|
|
|
|
Gross profit
|
|
|
752.5
|
|
|
604.0
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
406.6
|
|
|
301.1
|
|
Research and development
|
|
|
177.2
|
|
|
141.4
|
|
Write-off of deferred offering costs
|
|
|
3.4
|
|
|
|
|
Other charges
|
|
|
9.7
|
|
|
5.8
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
596.9
|
|
|
448.3
|
|
|
|
|
|
|
|
Operating income
|
|
|
155.6
|
|
|
155.7
|
|
Interest and other income (expense), net
|
|
|
(10.1
|
)
|
|
(5.6
|
)
|
|
|
|
|
|
|
Income before income taxes and noncontrolling interest in consolidated subsidiaries
|
|
|
145.5
|
|
|
150.1
|
|
Income tax provision
|
|
|
51.5
|
|
|
53.3
|
|
|
|
|
|
|
|
Consolidated net income
|
|
|
94.0
|
|
|
96.8
|
|
Net income attributable to noncontrolling interest in consolidated subsidiaries
|
|
|
1.7
|
|
|
1.4
|
|
|
|
|
|
|
|
Net income attributable to Bruker Corporation
|
|
$
|
92.3
|
|
$
|
95.4
|
|
|
|
|
|
|
|
Net income per common share attributable to Bruker Corporation shareholders:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.56
|
|
$
|
0.58
|
|
Diluted
|
|
$
|
0.55
|
|
$
|
0.58
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
|
|
165.4
|
|
|
164.4
|
|
Diluted
|
|
|
166.9
|
|
|
165.7
|
|
53
Table of Contents
Revenue
Our revenue increased by $346.8 million, or 26.6%, to $1,651.7 million for the year ended December 31, 2011,
compared to $1,304.9 million for the year ended December 31, 2010. Included in this change in revenue is an increase of approximately $78.9 million from the impact of foreign
exchange due to the weakening of the U.S. Dollar versus the Euro and other foreign currencies and an increase of approximately $148.5 million attributable to our recent acquisitions. Excluding
the effect of foreign exchange and our recent acquisitions, revenue increased by $119.4 million, or 9.2%. The increase in revenue, on an adjusted basis, is attributable to both the Scientific
Instruments segment, which increased by $105.8 million, or 8.6%, and the Energy & Supercon Technologies segment, which increased by $17.9 million, or 19.8%. Revenue in the
Scientific Instruments segment reflects an increase in sales many of our core technologies. Revenue in the Energy & Supercon Technologies segment increased due to higher demand for low
temperature superconducting wire.
Revenue
in the Scientific Instruments segment reflects an increase in sales from many of our core technologies, particularly X-ray and elemental analysis, magnetic resonance,
mass spectrometry and molecular spectroscopy products. The mix of products sold in the Scientific Instruments segment during 2011 reflects increased demand from academic, government and industrial
customers. We attribute the increase in sales of mass spectrometry and magnetic resonance products to spending by academic and government customers, to new product introductions and to stimulus
packages implemented by governments of various countries, particularly the U.S. The improvement in revenues from our industrial customers reflects an ongoing economic improvement in these end markets.
Cost of Revenue
Our cost of revenue for the year ended December 31, 2011, was $899.2 million, resulting in a gross profit margin of
45.6%, compared to cost of product and service revenue of $700.9 million, resulting in a gross profit margin of 46.3%, for the year ended December 31, 2010. The increase in cost of
revenue is primarily a function of the higher material costs that result from the higher revenues described above. However, the increase in costs is also attributable to increases in headcount from
our recent acquisitions and increases in headcount to support our current production requirements. The chemical analysis business also contributed to the increase in cost of revenue because of the
costs associated with relocating factories from former Varian Inc. sites to our own facilities. Changes in foreign currency exchange rates, primarily the strengthening of the Euro and Swiss
Franc, also contributed to the increase in cost of revenue because the majority of our production facilities are located in Europe.
We
recorded $15.1 million of amortization expense in cost of revenue associated with technology-related intangible assets and an additional $4.5 million representing the
difference between the fair value and
historical cost of inventories acquired in business combinations and sold in 2011. Our cost of revenue in 2011 also includes $4.6 million of inventory reserves for the rework of certain
specialty magnets that did not meet customer specifications. In 2010, we recorded $4.3 million of amortization expense in cost of revenue, $7.2 million related to the fair value of
inventories acquired in recent acquisitions and $3.4 million related to the specialty magnets that did not meet customer specifications.
Selling, General and Administrative
Our selling, general and administrative expense for the year ended December 31, 2011 increased to $406.6 million, or
24.6% of revenue, from $301.1 million, or 23.1% of revenue, for the year ended December 31, 2010. The increase in selling, general and administrative expenses is attributable to
increases in headcount from recent acquisitions, primarily the nano surfaces and chemical analysis businesses, and increases in headcount to support planned revenue growth in our existing businesses.
In addition, an increase in new order bookings and revenue in 2011 resulted in higher commission expense. Changes in foreign currency exchange rates, primarily the strengthening of the Euro, also
negatively impacted our selling, general and administrative expenses because a majority of our selling and marketing employees are located in Europe.
54
Table of Contents
Research and Development
Our research and development expense for the year ended December 31, 2011 increased to $177.2 million, or 10.7% of revenue, from
$141.4 million, or 10.8% of revenue, for the year ended December 31, 2010. The increase in research and development expenses is attributable to increases in headcount from recent
acquisitions and increases in headcount and material costs to support future product introductions in our existing businesses. The increase in research and development expenses is also attributable to
changes in foreign currency exchange rates, primarily the strengthening of the Euro, which negatively impact our research and development expenses because a majority of our research and development is
performed in Europe.
Write-off of Deferred Offering Costs
In September 2010, we announced plans to sell a minority ownership position in our BEST subsidiary through an initial public offering
of the capital stock of BEST. As a
result of economic and market factors, the timing of the BEST initial public offering was uncertain and deferred offering costs totaling $3.4 million were expensed in the third quarter of 2011.
In March 2012, we determined not to proceed with the initial public offering of the capital stock of BEST.
Other Charges
Other charges, net of $9.7 million recorded in 2011 consist of charges recorded entirely in the Scientific Instruments segment.
The charges recorded in 2011 consist of $4.2 million of acquisition-related costs associated with the nano surfaces business, chemical analysis business and other acquisitions completed during
the year. Acquisition-related costs consist of costs incurred under transition service arrangements we entered into with the sellers of the nano surfaces and chemical analysis businesses and
transaction costs, including legal, accounting and other fees. The transition services agreements expired in 2011 and we do not expect these costs to recur. Other charges, net for the year ended
December 31, 2011 also includes $4.3 million of legal and other professional service fees associated with our internal investigation and $1.2 million of other charges.
Other
charges, net of $5.8 million recorded in 2010 consist of charges recorded entirely in the Scientific Instruments segment. The charges recorded in 2010 consist of
$4.6 million of acquisition-related costs, $0.2 million of restructuring charges and a loss of $1.0 million recorded in connection with the divestiture of a business.
Acquisition-related costs recorded in 2010 relate to our acquisitions of the nano surfaces and chemical analysis businesses and consist of costs incurred under transition service arrangements we
entered into with the sellers and transaction costs, including legal, accounting and other fees. Restructuring charges related primarily to severance incurred in connection with closing a production
facility in Herzogenrath, Germany and the loss on the sale of investment is associated with our investment in Bruker Baltic, Ltd., a manufacturing site located in Riga, Latvia that was engaged
in the production of certain components used in our X-ray product lines. The restructuring charges and loss on investment were incurred as part of a broader corporate strategy of reducing
costs and consolidating critical production know-how in certain key production sites.
Interest and Other Income (Expense), Net
Interest and other income (expense), net during the year ended December 31, 2011 was $(10.1) million, compared to $(5.6) million
for the year ended December 31, 2010.
During
the year ended December 31, 2011, the major components within interest and other income (expense), net, consisted of net interest expense of $6.3 million and
realized and unrealized losses on foreign currency transactions of $4.4 million. During the year ended December 31, 2010, the major
components within interest and other income (expense), net, consisted of net interest expense of $4.7 million and realized and unrealized losses on foreign currency transactions of
$1.5 million.
55
Table of Contents
The
increase in interest expense is primarily a function of higher average outstanding debt balances throughout 2011 and, to a lesser degree, an increase in the average interest rates we
pay on outstanding borrowings. Losses on foreign currency exchange rates were primarily a function of changes in exchange rates between the Euro and the Swiss Franc against the U.S. Dollar.
Provision for Income Taxes
The income tax provision for the year ended December 31, 2011 was $51.5 million compared to an income tax provision of
$53.3 million for the year ended December 31, 2010, representing effective tax rates of 35.4% and 35.5%, respectively. Our tax rate may change over time as the amount and mix of income
and taxes outside the U.S. changes. In addition to the amount and mix of income and taxes outside the United States, our income tax provision can be impacted by discrete items of a non-recurring
nature. Discrete items of this nature resulted in tax expense of $6.3 million and $2.8 million for the years ended December 31, 2011 and 2010, respectively. The discrete items recorded
in 2011 and 2010 relate to additional amounts accrued in connection with ongoing tax audits in Germany and Switzerland. The change in our effective tax rate, excluding the increase in reserves for tax
audits, relates primarily to reversing certain valuation allowances in the United States. We were able to release a portion of the valuation allowance on our deferred tax assets in the United States
because of deferred tax liabilities arising from the identified intangible assets acquired in connection with the tribology and HPLC businesses. Because we maintain a full valuation allowance on our
deferred tax assets in the United States, the deferred tax liabilities recorded in connection with these acquisitions represents a source of future taxable income that allows us to utilize a portion
of the deferred tax assets.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests for the year ended December 31, 2011 was $1.7 million compared to
$1.4 million for the year ended December 31, 2010. The net income attributable to noncontrolling interests represents the minority shareholders' proportionate share of the net income
recorded by our majority-owned indirect subsidiaries.
Net Income Attributable to Bruker Corporation
Our net income for the year ended December 31, 2011 was $92.3 million, or $0.55 per diluted share, compared to net income
of $95.4 million, or $0.58 per diluted share, for 2010.
Segment Results
Revenue
The following table presents revenue, change in revenue and revenue growth by reportable segment for the years ended
December 31, 2011 and 2010 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
Dollar Change
|
|
Percentage
Change
|
|
Scientific Instruments
|
|
$
|
1,554.1
|
|
$
|
1,225.1
|
|
$
|
329.0
|
|
|
26.9
|
%
|
Energy & Supercon Technologies
|
|
|
113.4
|
|
|
90.5
|
|
|
22.9
|
|
|
25.3
|
%
|
Eliminations (a)
|
|
|
(15.8
|
)
|
|
(10.7
|
)
|
|
(5.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,651.7
|
|
$
|
1,304.9
|
|
$
|
346.8
|
|
|
26.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
Represents
product and service revenue between reportable segments.
56
Table of Contents
Scientific Instruments Segment Revenues
Scientific Instruments segment revenue increased by $329.0 million, or 26.9%, to $1,554.1 million for the year ended
December 31, 2011, compared to $1,225.1 million for the year ended December 31, 2010. Included in this change in revenue is an increase of approximately $74.7 million from
the impact of foreign exchange due to the weakening of the U.S. Dollar versus the Euro and other foreign currencies and an increase of approximately $148.5 million attributable to our recent
acquisitions. Excluding the effect of foreign exchange and the acquisitions, revenue increased by $105.8 million, or 8.6%. The increase in revenue, on an adjusted basis, is attributable to an
increase in many of our core technologies, particularly in X-ray and elemental analysis, magnetic resonance, mass spectrometry and molecular spectroscopy. The mix of products sold in the
Scientific Instruments segment in 2011 reflects increased demand from academic, government and industrial customers.
System
revenue and aftermarket revenue as a percentage of total Scientific Instruments segment revenue were as follows during the years ended December 31, 2011 and 2010 (dollars
in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
|
|
Revenue
|
|
Percentage of
Segment Revenue
|
|
Revenue
|
|
Percentage of
Segment Revenue
|
|
System revenue
|
|
$
|
1,238.9
|
|
|
79.7
|
%
|
$
|
973.2
|
|
|
79.4
|
%
|
Aftermarket revenue
|
|
|
315.2
|
|
|
20.3
|
%
|
|
251.9
|
|
|
20.6
|
%
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
1,554.1
|
|
|
100.0
|
%
|
$
|
1,225.1
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
System
revenue in the Scientific Instruments segment includes nuclear magnetic resonance systems, magnetic resonance imaging systems, electron paramagnetic imaging systems, mass
spectrometry systems, gas chromatography systems, CBRNE detection systems, X-ray systems, spark-optical emission spectroscopy systems, atomic force microscopy systems, stylus and optical
metrology systems and molecular spectroscopy systems. Aftermarket revenues in the Scientific Instruments segment include accessory sales, consumables, training and services.
Energy & Supercon Technologies Segment Revenues
Energy & Supercon Technologies segment revenues increased by $22.9 million, or 25.3%, to $113.4 million for the
year ended December 31, 2011, compared to $90.5 million for the year ended December 31, 2010. Included in this change in revenue is an increase of approximately
$5.0 million from the impact of foreign exchange due to the weakening of the U.S. Dollar versus the Euro and other foreign currencies. Excluding the effect of foreign exchange, revenue
increased by $17.9 million, or 19.8%. The increase in revenue, on an adjusted basis, is attributable to higher demand for low temperature superconducting wire.
System
and wire revenue and aftermarket revenue as a percentage of total Energy & Supercon Technologies segment revenue were as follows during the years ended December 31,
2011 and 2010 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
|
|
Revenue
|
|
Percentage of
Segment Revenue
|
|
Revenue
|
|
Percentage of
Segment Revenue
|
|
System and wire revenue
|
|
$
|
105.3
|
|
|
92.9
|
%
|
$
|
85.9
|
|
|
94.9
|
%
|
Aftermarket and other revenue
|
|
|
8.1
|
|
|
7.1
|
%
|
|
4.6
|
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
113.4
|
|
|
100.0
|
%
|
$
|
90.5
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
System
and wire revenue in the Energy & Supercon Technologies segment includes low and high temperature superconducting wire and superconducting devices, including magnets, linear
accelerators
57
Table of Contents
and
radio frequency cavities. Aftermarket revenues in the Energy & Supercon Technologies segment consist primarily of sales of Cuponal
TM,
a bimetallic,
non-superconducting material we sell to the power and transport industries, and grant revenue.
Income (Loss) from Operations
The following table presents income (loss) from operations and operating margins on revenue by reportable segment for the years ended
December 31, 2011 and 2010 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
|
|
Operating
Income (Loss)
|
|
Percentage of
Segment Revenue
|
|
Operating
Income (Loss)
|
|
Percentage of
Segment Revenue
|
|
Scientific Instruments
|
|
$
|
162.8
|
|
|
10.5
|
%
|
$
|
160.5
|
|
|
13.1
|
%
|
Energy & Supercon Technologies
|
|
|
(4.1
|
)
|
|
(3.6
|
)%
|
|
(2.6
|
)
|
|
(2.9
|
)%
|
Corporate, eliminations and other (a)
|
|
|
(3.1
|
)
|
|
|
|
|
(2.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
155.6
|
|
|
9.4
|
%
|
$
|
155.7
|
|
|
11.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
Represents
corporate costs and eliminations not allocated to the reportable segments.
Scientific
Instruments income from operations for the year ended December 31, 2011 was $162.8 million, resulting in an operating margin of 10.5%, compared to income from
operations of $160.5 million, resulting in an operating margin of 13.1%, for the year ended December 31, 2010. Income from operations includes $37.5 million and
$24.7 million in the years ended December 31, 2011 and 2010, respectively, of various charges to inventory, amortization of acquisition-related intangible assets and other charges.
Excluding these costs, income from operations in Scientific Instruments segment would have been $200.3 million and $185.2 million, resulting in operating margins of 12.9% and 15.1%,
respectively, for the years ended December 31, 2011 and 2010, respectively. Operating margins decreased, despite the increase in revenue, because of lower gross profit margins and increases in
operating expenses.
Gross
profit margin in the Scientific Instruments segment for the year ended December 31, 2011 was 47.2%, compared with 48.2% for the year ended December 31, 2010.
Excluding the effects of inventory and fixed asset charges, amortization of acquisition-related intangible assets and restructuring charges totaling, in the aggregate, $24.1 million and
$14.6 million for the years ended December 31, 2011 and 2010, respectively, gross profit margins were 48.7% and 49.4%, respectively, for the years ended December 31, 2011 and
2010. The decrease in gross profit margins resulted primarily from changes in product mix, particularly our gas chromatography and inductively coupled plasma products, which negatively impacted our
gross profit margins. The chemical analysis business contributed to lower gross profit margins due to higher than planned production costs which were caused, in part, by costs and lost production time
associated with relocating factories from former Varian Inc. sites to our own facilities. Changes in foreign currency exchange rates, primarily the strengthening of the Euro and Swiss Franc,
also contributed to the decrease because the majority of our production facilities are located in Europe.
For
the year ended December 31, 2011, selling, general and administrative expenses and research and development expenses in the Scientific Instruments segment increased to
$560.8 million, or 36.1% of segment revenue, from $423.7 million, or 34.6% of segment revenue, for the year ended December 31, 2010. This increase is a function of incremental
investments in sales and marketing activities and research and development activities that we believe will generate future growth, as well as increases in operating expenses related to recently
completed acquisitions. Changes in foreign currency exchange rates, primarily the strengthening of the Euro and Swiss Franc, also contributed to the increase because the majority of our employees are
located in Europe.
58
Table of Contents
Energy &
Supercon Technologies segment loss from operations for the year ended December 31, 2011 was $4.1 million, resulting in an operating margin of (3.6)%,
compared to a loss from operations of $2.6 million, resulting in an operating margin of (2.9)%, for the year ended December 31, 2010. Income from operations for the year ended
December 31, 2011 includes $3.4 million of deferred offering costs that were written-off in the third quarter of 2011 because of uncertainty in the timing of a future public
offering of BEST capital stock. Excluding the deferred offering costs, the loss from operations in the Energy & Supercon Technologies segment would have been $0.7 million, or an
operating margin of (0.6)% for the year ended December 31, 2011. The improvement in operating margin, excluding the impact of the written-off deferred offering costs, is primarily
the result of the higher revenue described above and higher gross profit margins offset, in part, by higher operating expenses. The increase in operating expenses is a function of incremental
investments in research and development activities and selling and marketing activities that we believe will generate future growth.
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. Our future cash requirements could be affected by acquisitions that we may make in the future. Historically, we have financed our growth through cash flow
generation and a combination of debt financings and issuances of common stock. In the future, there are 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 year ended December 31, 2012, net cash provided by operating activities was $133.1 million, resulting primarily from $191.4 million of consolidated net
income adjusted for non-cash items, partially offset by a $58.3 million increase in working capital. We recorded an impairment of assets of $23.8 million for the year ended
December 31, 2012, comprising goodwill and definite-lived intangible asset impairment charges of $1.4 million and $16.4 million, respectively, in our CAM division, and an
impairment charge of $6.0 million of other long-lived assets to reduce the carrying value to their estimated fair value. The increase in working capital for the year ended
December 31, 2012 is primarily the result of an increase in inventory build. During the year ended December 31, 2011, net cash provided by operating activities was $87.7 million,
resulting primarily from $181.2 million of consolidated net income adjusted for non-cash items offset, in part, by $93.5 million of increases in working capital.
During
the year ended December 31, 2012, net cash used in investing activities was $93.2 million, compared to net cash used in investing activities of $68.7 million
during the year ended December 31, 2011. Cash used in investing activities during the year ended December 31, 2012 was attributable primarily to $69.5 million of capital
expenditures, net and $27.0 million used for acquisitions, partially offset by $3.3 million received from disposal of a product line. Cash used in investing activities during the year
ended December 31, 2011 was attributable primarily to $54.4 million of capital expenditures, net and $14.3 million used for acquisitions. We currently anticipate that our capital
spending will be approximately $55.0 million in 2013.
During
the year ended December 31, 2012, net cash provided by financing activities was $34.4 million, compared to net cash provided by financing activities of $3.3 million
during the year ended December 31, 2011. Cash provided by financing activities during the year ended December 31, 2012 was primarily attributable to $240.0 million of borrowings
under the Note Purchase Agreement described below, offset, in part, by repayments of revolving lines of credit of $216.5 million, proceeds of revolving lines of credit of $93.0 million
and net debt repayments under various long-term and short-term arrangements of $83.2 million. Cash provided by financing activities during the year ended December 31, 2011
was attributable to $3.3 million of net proceeds from the issuance of common stock.
59
Table of Contents
At
December 31, 2012 and December 31, 2011, we had $288.2 million and $212.4 million, respectively, of foreign cash and cash equivalents, most significantly
in Germany and Switzerland, compared to a total amount of cash and cash equivalents at December 31, 2012 and December 31, 2011 of $310.6 million and $246.0 million,
respectively. If the cash and cash equivalents held by our foreign subsidiaries are needed to fund operations in the U.S., or we otherwise elect to repatriate the unremitted earnings of our foreign
subsidiaries in the form of dividends or otherwise, or if the shares of the subsidiaries were sold or transferred, we would likely be subject to additional U.S. income taxes, net of the impact of any
available tax credits, which could result in a higher effective tax rate in the future. However, since we have significant current investment plans outside the U.S., it is our current intent to
indefinitely reinvest unremitted earnings in our foreign subsidiaries. Further, based on our current plans and anticipated cash needs to fund our U.S. operations, we do not foresee a need to
repatriate earnings of our foreign subsidiaries.
At
December 31, 2012, we had outstanding debt totaling $337.2 million, consisting of $240.0 million outstanding under the Note Purchase Agreement described below,
$93.0 million outstanding under the revolving loan component of the Amended Credit Agreement described below and $4.2 million under capital lease obligations and other loans. At
December 31, 2011, we had outstanding debt totaling $303.1 million consisting of $82.5 million outstanding under the term loan component of our credit facilities,
$216.5 million outstanding under the revolving loan component of our credit facilities, and $4.1 million under capital lease obligations.
In
February 2008, we entered into a credit agreement (the "Credit Agreement") with a syndicate of lenders, which provided 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 was payable in quarterly installments through December 2012. As of
December 31, 2012, there were no amounts outstanding under the term loan. Borrowings under the Credit Agreement accrued 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%.
In
May 2011, we entered into an amendment and restatement of the Credit Agreement, or the Amended Credit Agreement. The Amended Credit Agreement increased the maximum commitment on our
revolving credit line to $250.0 million and extended the maturity date to May 2016. Borrowings under the revolving credit line of the Amended Credit Agreement accrue interest, at our option, at
either (a) the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.50%, (iii) adjusted LIBOR plus 1.00% or (iv) LIBOR, plus margins ranging from 0.80%
to 1.65%. There is also a facility fee ranging from 0.20% to 0.35%. The Amended Credit Agreement had no impact on the maturity or pricing of our term loan that matured on December 31, 2012.
Borrowings
under the Amended Credit Agreement are secured by guarantees from certain material subsidiaries, as defined in the Amended Credit Agreement, and Bruker Energy &
Supercon Technologies, Inc. The Amended Credit Agreement also requires that we maintain certain financial ratios related to maximum leverage and minimum interest coverage, as defined in the
Amended Credit Agreement. Specifically, our leverage ratio cannot exceed 3.0 and our interest coverage ratio cannot be less than 3.0. In addition to the financial ratios, the Amended 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. Our failure to comply with any of these restrictions or covenants may result
in an event of default under the applicable debt instrument, which could permit acceleration of the debt under that instrument and require us to prepay that debt before its scheduled due date. As of
December 31, 2012, the latest measurement date, we were in compliance with the covenants of the Amended Credit Agreement as our leverage ratio was 1.2 and our interest coverage ratio was 13.1.
60
Table of Contents
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 December 31, 2012 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average
Interest Rate
|
|
Total Amount
Committed by
Lenders
|
|
Outstanding
Borrowings
|
|
Outstanding
Letters of
Credit
|
|
Total Amount
Available
|
|
Amended Credit Agreement
|
|
|
1.4
|
%
|
$
|
250.0
|
|
$
|
93.0
|
|
$
|
1.5
|
|
$
|
155.5
|
|
Other revolving loans
|
|
|
|
|
|
185.5
|
|
|
|
|
|
141.7
|
|
|
43.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revolving loans
|
|
|
|
|
$
|
435.5
|
|
$
|
93.0
|
|
$
|
143.2
|
|
$
|
199.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
January 2012, we entered into a note purchase agreement (the "Note Purchase Agreement") with a group of accredited institutional investors. Under the Note Purchase Agreement we issued
and sold $240.0 million of senior notes, which consist of the following:
-
-
$20.0 million 3.16% Series 2012A senior notes due January 18, 2017;
-
-
$15.0 million 3.74% Series 2012A senior notes due January 18, 2019;
-
-
$105.0 million 4.31% Series 2012A senior notes due January 18, 2022; and
-
-
$100.0 million 4.46% Series 2012A senior notes due January 18, 2024.
We
used a portion of the net proceeds of the senior notes to reduce outstanding indebtedness under our revolving credit facilities and intend to use the remainder for general corporate
purposes. We currently expect to incur approximately $13 million of interest expense in 2013.
In
2013, we expect to incur $20 million to $25 million of expense related to facility exits within our CAM division and Bruker Energy & Supercon Technologies
segment, as well as various outsourcing initiatives.
As
of December 31, 2012, we have approximately $27.9 million of U.S. net operating loss carryforwards available to reduce future state taxable income, which expire at
various times through 2032, and approximately $51.9 million of German Trade Tax net operating losses that are carried forward indefinitely. We also have U.S. tax credits of approximately
$13.0 million available to offset future tax liabilities that expire at various dates. These credits include research and development tax credits of $11.6 million expiring at various
times through 2032 and foreign tax credits of $1.4 million expiring at various times through 2022. These U.S. operating loss 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 December 31, 2012 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations
|
|
Total
|
|
Less than 1
Year
|
|
1-3 Years
|
|
4-5 Years
|
|
More than 5
Years
|
|
Revolving lines of credit
|
|
$
|
93.0
|
|
$
|
|
|
$
|
|
|
$
|
93.0
|
|
$
|
|
|
Other long-term debt, including current portion
|
|
|
244.2
|
|
|
1.3
|
|
|
1.7
|
|
|
20.9
|
|
|
220.3
|
|
Interest payable on long-term debt
|
|
|
100.4
|
|
|
10.3
|
|
|
20.4
|
|
|
20.4
|
|
|
49.3
|
|
Operating lease obligations
|
|
|
85.2
|
|
|
19.4
|
|
|
29.6
|
|
|
19.5
|
|
|
16.7
|
|
Pension liabilities
|
|
|
61.6
|
|
|
7.3
|
|
|
7.8
|
|
|
9.6
|
|
|
36.9
|
|
Uncertain tax contingencies
|
|
|
42.1
|
|
|
7.1
|
|
|
35.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
626.5
|
|
$
|
45.4
|
|
$
|
94.5
|
|
$
|
163.4
|
|
$
|
323.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 amount that is less than
one year is
61
Table of Contents
attributable
to a tax audit in Switzerland that was settled in the fourth quarter of 2012 and will be paid in 2013. The remaining 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.
TRANSACTIONS WITH RELATED PARTIES
We lease certain office space from certain of our principal shareholders, certain of which are also members of our Board of Directors.
During each of the years ended December 31, 2012, 2011 and 2010, these shareholders were paid approximately $2.4 million, which was estimated to be equal to the fair market value of the
rentals.
During
the years ended December 31, 2012, 2011 and 2010, we incurred expenses of $2.4 million, $3.2 million and $2.9 million, respectively, to a law firm in
which one of the members of our Board of Directors is a partner.
During
the years ended December 31, 2012, 2011 and 2010, we incurred expenses of $0.4 million, $0.5 million and $0.3 million, respectively, to a financial
services firm in which one of the members of our Board of Directors is a partner.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 2013, the FASB issued ASU No. 2013-02,
Reporting of Amounts Reclassified Out of
Accumulated Other Comprehensive Income
. Under this standard, entities will be required to disclose additional information with respect to changes in accumulated other
comprehensive income (AOCI) balances by component and significant items reclassified out of AOCI. Expanded disclosures for presentation of changes in AOCI involve disaggregating the total change of
each component of other comprehensive income as well as presenting separately for each such component the portion of the change in AOCI related to (1) amounts reclassified into income and
(2) current-period other comprehensive income. Additionally, for amounts reclassified into income, disclosure in one location would be required, based upon each specific AOCI component, of the
amounts impacting individual income statement line items. Disclosure of the income statement line item impacts will be required only for components of AOCI reclassified into income in their entirety.
The disclosures required with respect to income statement line item impacts would be made in either the notes to the consolidated financial statements or parenthetically on the face of the financial
statements. The ASU is effective for fiscal years beginning after December 15, 2012. The adoption of this amendment in 2013 will not have an impact on our consolidated financial position,
results of operations or cash flows.
In
July 2012, the FASB issued ASU No. 2012-02,
IntangiblesGoodwill and Other (Topic 350): Testing Indefinite-Lived Intangible
Assets for Impairment.
This update is intended to simplify the guidance for impairment testing of indefinite-lived intangible assets as it provides entities an option to
perform a qualitative assessment to determine whether further impairment testing is
necessary. The amended provisions are effective for fiscal years beginning after September 15, 2012. However early adoption is permitted. The adoption of this amendment in 2013 will not have an
impact on the Company's consolidated financial position, results of operations or cash flows.
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
65
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board of Directors and Shareholders of
Bruker Corporation
We
have audited the accompanying consolidated balance sheets of Bruker Corporation as of December 31, 2012 and 2011, and the related consolidated statements of income and
comprehensive income, and statements of shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2012. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bruker Corporation at December 31, 2012
and 2011, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2012, in conformity with U.S. generally accepted
accounting principles.
We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Bruker Corporation's internal control over financial reporting as
of December 31, 2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
February 28, 2013 expressed an unqualified opinion thereon.
Boston,
Massachusetts
February 28, 2013
66
Table of Contents
BRUKER CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share data)
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
2011
|
|
ASSETS
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
310.6
|
|
$
|
246.0
|
|
Accounts receivable, net
|
|
|
289.3
|
|
|
282.8
|
|
Inventories
|
|
|
611.5
|
|
|
576.2
|
|
Deferred tax assets
|
|
|
5.8
|
|
|
11.5
|
|
Other current assets
|
|
|
92.5
|
|
|
77.6
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,309.7
|
|
|
1,194.1
|
|
Property, plant and equipment, net
|
|
|
283.6
|
|
|
249.0
|
|
Goodwill
|
|
|
115.9
|
|
|
100.2
|
|
Intangible assets, net
|
|
|
117.0
|
|
|
136.4
|
|
Long-term deferred tax assets
|
|
|
17.6
|
|
|
17.2
|
|
Other long-term assets
|
|
|
12.6
|
|
|
13.6
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,856.4
|
|
$
|
1,710.5
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
1.3
|
|
$
|
83.7
|
|
Accounts payable
|
|
|
69.6
|
|
|
72.3
|
|
Customer advances
|
|
|
267.3
|
|
|
268.6
|
|
Deferred tax liabilities
|
|
|
6.9
|
|
|
11.2
|
|
Other current liabilities
|
|
|
336.7
|
|
|
320.0
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
681.8
|
|
|
755.8
|
|
Long-term debt
|
|
|
335.9
|
|
|
219.4
|
|
Long-term deferred revenue
|
|
|
34.9
|
|
|
32.7
|
|
Long-term deferred tax liabilities
|
|
|
12.1
|
|
|
23.8
|
|
Accrued pension
|
|
|
60.0
|
|
|
39.2
|
|
Other long-term liabilities
|
|
|
22.0
|
|
|
14.7
|
|
Commitments and contingencies (Note 14)
|
|
|
|
|
|
|
|
Shareholders' equity:
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value 5,000,000 shares authorized, none issued or outstanding at December 31, 2012 and 2011
|
|
|
|
|
|
|
|
Common stock, $0.01 par value 260,000,000 shares authorized, 166,625,976 and 165,892,170 shares issued and 166,604,427 and 165,871,905 outstanding at
December 31, 2012 and 2011, respectively
|
|
|
1.7
|
|
|
1.7
|
|
Treasury stock at cost, 21,549 and 20,265 shares at December 31, 2012 and 2011, respectively
|
|
|
(0.2
|
)
|
|
(0.2
|
)
|
Additional paid-in capital
|
|
|
48.3
|
|
|
36.0
|
|
Retained earnings
|
|
|
519.0
|
|
|
441.5
|
|
Accumulated other comprehensive income
|
|
|
137.8
|
|
|
142.5
|
|
|
|
|
|
|
|
Total shareholders' equity attributable to Bruker Corporation
|
|
|
706.6
|
|
|
621.5
|
|
Noncontrolling interest in consolidated subsidiaries
|
|
|
3.1
|
|
|
3.4
|
|
|
|
|
|
|
|
Total shareholders' equity
|
|
|
709.7
|
|
|
624.9
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity
|
|
$
|
1,856.4
|
|
$
|
1,710.5
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
67
Table of Contents
BRUKER CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Product revenue
|
|
$
|
1,556.5
|
|
$
|
1,445.6
|
|
$
|
1,145.4
|
|
Service revenue
|
|
|
210.0
|
|
|
194.8
|
|
|
151.1
|
|
Other revenue
|
|
|
24.9
|
|
|
11.3
|
|
|
8.4
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
1,791.4
|
|
|
1,651.7
|
|
|
1,304.9
|
|
Cost of product revenue
|
|
|
839.0
|
|
|
792.5
|
|
|
621.5
|
|
Cost of service revenue
|
|
|
121.0
|
|
|
106.7
|
|
|
79.4
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
960.0
|
|
|
899.2
|
|
|
700.9
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
831.4
|
|
|
752.5
|
|
|
604.0
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
442.4
|
|
|
406.6
|
|
|
301.1
|
|
Research and development
|
|
|
195.3
|
|
|
177.2
|
|
|
141.4
|
|
Impairment of assets
|
|
|
23.8
|
|
|
|
|
|
|
|
Write-off of deferred offering costs
|
|
|
|
|
|
3.4
|
|
|
|
|
Other charges, net
|
|
|
13.9
|
|
|
9.7
|
|
|
5.8
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
675.4
|
|
|
596.9
|
|
|
448.3
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
156.0
|
|
|
155.6
|
|
|
155.7
|
|
Interest and other income (expense), net
|
|
|
(17.7
|
)
|
|
(10.1
|
)
|
|
(5.6
|
)
|
|
|
|
|
|
|
|
|
Income before income taxes and noncontrolling interest in consolidated subsidiaries
|
|
|
138.3
|
|
|
145.5
|
|
|
150.1
|
|
Income tax provision
|
|
|
60.1
|
|
|
51.5
|
|
|
53.3
|
|
|
|
|
|
|
|
|
|
Consolidated net income
|
|
|
78.2
|
|
|
94.0
|
|
|
96.8
|
|
Net income attributable to noncontrolling interest in consolidated subsidiaries
|
|
|
0.7
|
|
|
1.7
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
Net income attributable to Bruker Corporation
|
|
$
|
77.5
|
|
$
|
92.3
|
|
$
|
95.4
|
|
|
|
|
|
|
|
|
|
Net income per common share attributable to Bruker Corporation shareholders:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.47
|
|
$
|
0.56
|
|
$
|
0.58
|
|
Diluted
|
|
$
|
0.46
|
|
$
|
0.55
|
|
$
|
0.58
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
166.0
|
|
|
165.4
|
|
|
164.4
|
|
Diluted
|
|
|
167.4
|
|
|
166.9
|
|
|
165.7
|
|
Consolidated net income
|
|
$
|
78.2
|
|
$
|
94.0
|
|
$
|
96.8
|
|
Foreign currency translation adjustments
|
|
|
8.8
|
|
|
(14.7
|
)
|
|
8.1
|
|
Changes in hedging instruments
|
|
|
1.1
|
|
|
1.9
|
|
|
0.5
|
|
Pension liability adjustments (net of tax of $3.7 million, $0.6 million and $2.6 million, respectively)
|
|
|
(15.0
|
)
|
|
2.9
|
|
|
(9.9
|
)
|
|
|
|
|
|
|
|
|
Net comprehensive income
|
|
|
73.1
|
|
|
84.1
|
|
|
95.5
|
|
Less: Comprehensive income attributable to noncontrolling interests
|
|
|
0.3
|
|
|
1.7
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Bruker Corporation
|
|
$
|
72.8
|
|
$
|
82.4
|
|
$
|
94.3
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
68
Table of Contents
BRUKER CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Shares
|
|
Common
Stock
Amount
|
|
Treasury
Shares
|
|
Treasury
Stock
Amount
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income
|
|
Total
Shareholders'
Equity
Attributable to
Bruker
Corporation
|
|
Noncontrolling
Interests in
Consolidated
Subsidiaries
|
|
Total
Shareholders'
Equity
|
|
Balance at December 31, 2009
|
|
|
164,371,384
|
|
$
|
1.6
|
|
|
13,295
|
|
$
|
(0.1
|
)
|
$
|
8.4
|
|
$
|
253.8
|
|
$
|
153.5
|
|
$
|
417.2
|
|
$
|
1.6
|
|
$
|
418.8
|
|
Stock options exercised
|
|
|
861,747
|
|
|
|
|
|
|
|
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
6.0
|
|
|
|
|
|
6.0
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.9
|
|
|
|
|
|
|
|
|
6.9
|
|
|
|
|
|
6.9
|
|
Excess tax benefit related to exercise of stock awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
0.3
|
|
Treasury stock acquired
|
|
|
(3,924
|
)
|
|
|
|
|
3,924
|
|
|
(0.1
|
)
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
(0.1
|
)
|
Consolidated net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95.4
|
|
|
|
|
|
95.4
|
|
|
1.4
|
|
|
96.8
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.1
|
)
|
|
(1.1
|
)
|
|
(0.2
|
)
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
165,229,207
|
|
$
|
1.6
|
|
|
17,219
|
|
$
|
(0.2
|
)
|
$
|
21.7
|
|
$
|
349.2
|
|
$
|
152.4
|
|
$
|
524.7
|
|
$
|
2.7
|
|
$
|
527.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
69
Table of Contents
BRUKER CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued)
(In millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Shares
|
|
Common
Stock
Amount
|
|
Treasury
Shares
|
|
Treasury
Stock
Amount
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income
|
|
Total
Shareholders'
Equity
Attributable to
Bruker
Corporation
|
|
Noncontrolling
Interests in
Consolidated
Subsidiaries
|
|
Total
Shareholders'
Equity
|
|
Balance at December 31, 2010
|
|
|
165,229,207
|
|
$
|
1.6
|
|
|
17,219
|
|
$
|
(0.2
|
)
|
$
|
21.7
|
|
$
|
349.2
|
|
$
|
152.4
|
|
$
|
524.7
|
|
$
|
2.7
|
|
$
|
527.4
|
|
Shares issued in connection with acquisitions
|
|
|
134,362
|
|
|
|
|
|
|
|
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
2.9
|
|
|
|
|
|
2.9
|
|
Restricted shares issued in connection with acquisitions
|
|
|
156,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
354,559
|
|
|
0.1
|
|
|
|
|
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
3.4
|
|
|
|
|
|
3.4
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.9
|
|
|
|
|
|
|
|
|
7.9
|
|
|
|
|
|
7.9
|
|
Excess tax benefit related to exercise of stock awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
0.2
|
|
Treasury stock acquired
|
|
|
(3,046
|
)
|
|
|
|
|
3,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.0
|
)
|
|
(1.0
|
)
|
Consolidated net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92.3
|
|
|
|
|
|
92.3
|
|
|
1.7
|
|
|
94.0
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9.9
|
)
|
|
(9.9
|
)
|
|
|
|
|
(9.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2011
|
|
|
165,871,905
|
|
$
|
1.7
|
|
|
20,265
|
|
$
|
(0.2
|
)
|
$
|
36.0
|
|
$
|
441.5
|
|
$
|
142.5
|
|
$
|
621.5
|
|
$
|
3.4
|
|
$
|
624.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
70
Table of Contents
BRUKER CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued)
(In millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Shares
|
|
Common
Stock
Amount
|
|
Treasury
Shares
|
|
Treasury
Stock
Amount
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income
|
|
Total
Shareholders'
Equity
Attributable to
Bruker
Corporation
|
|
Noncontrolling
Interests in
Consolidated
Subsidiaries
|
|
Total
Shareholders'
Equity
|
|
Balance at December 31, 2011
|
|
|
165,871,905
|
|
$
|
1.7
|
|
|
20,265
|
|
$
|
(0.2
|
)
|
$
|
36.0
|
|
$
|
441.5
|
|
$
|
142.5
|
|
$
|
621.5
|
|
$
|
3.4
|
|
$
|
624.9
|
|
Restricted shares issued
|
|
|
188,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
545,778
|
|
|
|
|
|
|
|
|
|
|
|
4.5
|
|
|
|
|
|
|
|
|
4.5
|
|
|
|
|
|
4.5
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.8
|
|
|
|
|
|
|
|
|
7.8
|
|
|
|
|
|
7.8
|
|
Treasury stock acquired
|
|
|
(1,284
|
)
|
|
|
|
|
1,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.6
|
)
|
|
(0.6
|
)
|
Consolidated net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77.5
|
|
|
|
|
|
77.5
|
|
|
0.7
|
|
|
78.2
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.7
|
)
|
|
(4.7
|
)
|
|
(0.4
|
)
|
|
(5.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012
|
|
|
166,604,427
|
|
$
|
1.7
|
|
|
21,549
|
|
$
|
(0.2
|
)
|
$
|
48.3
|
|
$
|
519.0
|
|
$
|
137.8
|
|
$
|
706.6
|
|
$
|
3.1
|
|
$
|
709.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
71
Table of Contents
BRUKER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income
|
|
$
|
78.2
|
|
$
|
94.0
|
|
$
|
96.8
|
|
Adjustments to reconcile consolidated net income to cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
59.1
|
|
|
52.9
|
|
|
36.1
|
|
Write down of demonstration inventories to net realizable value
|
|
|
31.5
|
|
|
30.0
|
|
|
24.4
|
|
Impairment of assets
|
|
|
23.8
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
7.8
|
|
|
7.9
|
|
|
6.9
|
|
Deferred income taxes
|
|
|
(11.7
|
)
|
|
(4.8
|
)
|
|
(3.6
|
)
|
Gain on disposal of product line
|
|
|
(2.2
|
)
|
|
|
|
|
|
|
Other non-cash expenses, net
|
|
|
4.9
|
|
|
1.2
|
|
|
1.9
|
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1.6
|
|
|
(52.8
|
)
|
|
(27.3
|
)
|
Inventories
|
|
|
(49.5
|
)
|
|
(103.3
|
)
|
|
(68.0
|
)
|
Accounts payable and accrued expenses
|
|
|
4.6
|
|
|
23.4
|
|
|
29.6
|
|
Income taxes payable
|
|
|
(2.4
|
)
|
|
(0.8
|
)
|
|
20.6
|
|
Deferred revenue
|
|
|
(4.4
|
)
|
|
17.4
|
|
|
15.5
|
|
Customer advances
|
|
|
(4.6
|
)
|
|
31.3
|
|
|
27.9
|
|
Other changes in operating assets and liabilities, net
|
|
|
(3.6
|
)
|
|
(8.7
|
)
|
|
(4.7
|
)
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
133.1
|
|
|
87.7
|
|
|
156.1
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash acquired
|
|
|
(27.0
|
)
|
|
(14.3
|
)
|
|
(269.8
|
)
|
Disposal of product line
|
|
|
3.3
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(72.8
|
)
|
|
(61.6
|
)
|
|
(31.9
|
)
|
Sales of property, plant and equipment
|
|
|
3.3
|
|
|
7.2
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(93.2
|
)
|
|
(68.7
|
)
|
|
(299.0
|
)
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Repayments of revolving lines of credit
|
|
|
(216.5
|
)
|
|
|
|
|
|
|
Proceeds of revolving lines of credit
|
|
|
93.0
|
|
|
30.7
|
|
|
185.0
|
|
Proceeds from Note Purchase Agreement
|
|
|
240.0
|
|
|
|
|
|
|
|
Repayment of other debt, net
|
|
|
(83.2
|
)
|
|
(29.3
|
)
|
|
(21.6
|
)
|
Payment of deferred financing costs
|
|
|
(1.4
|
)
|
|
(1.3
|
)
|
|
|
|
Proceeds from issuance of common stock, net
|
|
|
4.5
|
|
|
3.3
|
|
|
6.0
|
|
Excess tax benefit related to exercise of stock awards
|
|
|
|
|
|
0.2
|
|
|
0.3
|
|
Changes in restricted cash
|
|
|
(1.4
|
)
|
|
0.1
|
|
|
(1.3
|
)
|
Cash payments to noncontrolling interests
|
|
|
(0.6
|
)
|
|
(0.4
|
)
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
34.4
|
|
|
3.3
|
|
|
168.3
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(9.7
|
)
|
|
(6.7
|
)
|
|
(2.1
|
)
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
64.6
|
|
|
15.6
|
|
|
23.3
|
|
Cash and cash equivalents at beginning of year
|
|
|
246.0
|
|
|
230.4
|
|
|
207.1
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
310.6
|
|
$
|
246.0
|
|
$
|
230.4
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
10.1
|
|
$
|
6.7
|
|
$
|
4.5
|
|
|
|
|
|
|
|
|
|
Cash paid for taxes
|
|
$
|
79.9
|
|
$
|
69.7
|
|
$
|
38.7
|
|
|
|
|
|
|
|
|
|
Non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in connection with acquisition of Michrom Bioresources Inc.
|
|
$
|
|
|
$
|
2.9
|
|
$
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
72
Table of Contents
BRUKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1Description of Business
Bruker Corporation, together with its consolidated subsidiaries ("Bruker" or the "Company"), is a designer and manufacturer of
proprietary life science and materials research systems and associated products that address the rapidly evolving needs of a diverse array of customers in life science, pharmaceutical, biotechnology,
clinical and molecular diagnostics research, as well as in materials and chemical analysis in various industries and government applications. The Company's core technology platforms include magnetic
resonance technologies, mass spectrometry technologies, gas
chromatography technologies, X-ray technologies, spark-optical emission spectroscopy, atomic force microscopy, stylus and optical metrology technology and infrared and Raman molecular
spectroscopy technologies. The Company also manufactures and distributes a broad range of field analytical systems for chemical, biological, radiological, nuclear and explosives ("CBRNE") detection.
Additionally, the Company develops and manufactures superconducting and non-superconducting materials and devices for use in renewable energy, energy infrastructure, healthcare and "big
science" research. The Company maintains major technical and manufacturing centers in Europe, North America and Japan and has sales offices located throughout the world. The Company's diverse customer
base includes life science, pharmaceutical, biotechnology and molecular diagnostic research companies, academic institutions, advanced materials and semiconductor manufacturers and government
agencies.
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 magnetic resonance technology, mass spectrometry technology, gas chromatography
technology, X-ray technology, spark-optical emission spectroscopy technology, atomic force microscopy technology, stylus and optical metrology technology, and infrared and Raman molecular
spectroscopy technology. Typical customers of the Scientific Instruments segment include: pharmaceutical, biotechnology and molecular diagnostic companies; academic institutions, medical schools and
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 & Supercon Technologies.
The operations of
this segment include the design, manufacture and marketing of superconducting materials, primarily metallic low temperature superconductors, for use in magnetic resonance imaging, nuclear magnetic
resonance, fusion energy research and other applications, and ceramic high temperature superconductors primarily for energy grid and magnet applications. Typical customers of the Energy &
Supercon Technologies segment include companies in the medical industry, private and public research and development laboratories in the fields of fundamental and applied sciences and energy research,
academic institutions and government agencies. The Energy & Supercon Technologies segment is also developing superconductors and superconducting-enabled devices for applications in power and
energy grid, as well as industrial processing industries.
Note 2Summary of Significant Accounting Policies
The accompanying consolidated financial statements reflect the application of certain significant accounting policies as described
below and elsewhere in these notes to the consolidated financial statements.
73
Table of Contents
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and all majority and wholly-owned subsidiaries.
All intercompany accounts and transactions have been eliminated.
Noncontrolling Interests
Noncontrolling interests represents the minority shareholders' proportionate share of the Company's majority-owned indirect
subsidiaries. The portion of net income or net loss attributable to non-controlling interests is presented as net income attributable to noncontrolling interests in consolidated
subsidiaries in the consolidated statements of income and comprehensive income, and the portion of other comprehensive income of these subsidiaries is presented in the consolidated statements of
shareholders' equity.
Subsequent Events
The Company has evaluated all subsequent events and determined that there are no material recognized or unrecognized subsequent events.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of highly liquid investments with original maturities of three months or less at the date
of acquisition. Cash and cash equivalents primarily include cash on hand, money market funds and time deposits. Time deposits represent amounts on deposit in banks and temporarily invested in
instruments with maturities of three months or less at the time of purchase. Certain of these investments represent deposits which are not insured by the FDIC or any other government agency. Cash
equivalents are carried at cost, which approximates market value.
Restricted Cash
Certain customers require the Company to provide bank guarantees on customer advances. Generally, lines of credit satisfy this
requirement. However, to the extent the required guarantee exceeds the available local line of credit, the Company maintains restricted cash balances. Restricted cash balances are classified as
non-current unless, under the terms of the applicable agreements, the funds will be released from restrictions within one year from the balance sheet date. At December 31, 2012, the
Company had $7.6 million of restricted cash, of which $3.9 million was classified as non-current. At December 31, 2011, the Company had $6.1 million of
restricted cash, of which $3.9 million was classified as non-current.
Derivative Financial Instruments
All derivatives, whether designated in a hedging relationship or not, are recorded on the consolidated balance sheets at fair value.
The accounting for changes in fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging
relationship. For those derivative instruments that are
designated and qualify as hedging instruments, the Company must designate the hedging instrument, based on the exposure being hedged, as a fair value hedge, cash flow hedge or a hedge of a net
investment in a foreign operation.
A
fair value hedge is a derivative instrument designated for the purpose of hedging the exposure of changes in fair value of an asset or a liability resulting from a particular risk. If
the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are both recognized in the same caption in
the consolidated statements
74
Table of Contents
of
income and comprehensive income. 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 achieved through a derivative instrument 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.
Fair Value
The Company applies the following hierarchy to determine the fair value of financial instruments, which prioritizes the inputs used to
measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. The levels in the
hierarchy are defined as follows:
-
-
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
valuation techniques that may be used by the Company to determine the fair value of Level 2 and Level 3 financial instruments are the market approach, the income
approach and the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The income
approach uses valuation techniques to convert future amounts to a single present value based on current market expectations about those future amounts, including present value techniques,
option-pricing models and the excess earnings method. The cost approach is based on the amount that would be required to replace the service capacity of an asset (replacement cost).
The
Company's financial instruments consist primarily of cash equivalents, restricted cash, derivative instruments consisting of forward foreign exchange contracts, commodity contracts,
derivatives embedded in certain purchase and sale contracts, accounts receivable, short-term borrowings, accounts payable, contingent consideration and long-term debt. The
carrying amounts of the Company's cash equivalents and restricted cash, accounts receivable, short-term borrowings and accounts payable approximate fair value due to their
short-term nature. Derivative assets and liabilities are measured at fair value on a recurring basis. The Company's long-term debt consists principally of a private placement
arrangement entered into in 2012 with various fixed interest rates based on the maturity date.
The
Company has evaluated the estimated fair value of financial instruments using available market information and management's estimates. The use of different market assumptions and/or
estimation methodologies could have a significant effect on the estimated fair value amounts.
75
Table of Contents
Concentration of Credit Risk
Financial instruments which subject the Company to credit risk consist of cash and cash equivalents, derivative instruments, accounts
receivables and restricted cash. The risk with respect to cash and cash equivalents is minimized by the Company's policy of investing in short-term financial instruments issued by
highly-rated financial institutions. The risk with respect to derivative instruments is minimized by the Company's policy of entering into arrangements with highly-rated financial institutions. The
risk with respect to accounts receivables is minimized by the creditworthiness and diversity of the Company's customers. The Company performs periodic credit evaluations of its customers' financial
condition and generally requires an advanced deposit for a portion of the purchase price. Credit losses have been within management's expectations and the allowance for doubtful accounts totaled
$7.9 million and $5.6 million as of December 31, 2012 and 2011, respectively. As of December 31, 2012 and 2011, no single customer represented 10% of the Company's accounts
receivable. For the years ended December 31, 2012, 2011 and 2010, no single customer represented 10% of the Company's total revenue.
Inventories
Components of inventory include raw materials, work-in-process, demonstration units and finished goods.
Demonstration units include systems which are located in the Company's demonstration laboratories or installed at the sites of potential customers and are considered available for sale. Finished goods
include in-transit systems that have been shipped to the Company's customers, but not yet installed and accepted by the customer. All inventories are stated at the lower of cost or market.
Cost is determined principally by the first-in, first-out method for a majority of subsidiaries and by average-cost for certain other subsidiaries. The Company
reduces the carrying value of its inventories for differences between cost and estimated net realizable value, taking into consideration usage in the preceding twelve months, expected demand,
technological obsolescence and other information including the physical condition of demonstration and in-transit inventories. The Company records a charge to cost of revenue for the
amount required to reduce the carrying value of inventory to net realizable value. Costs associated with the procurement of inventories, such as inbound freight charges and purchasing and receiving
costs, are capitalized as part of inventory and are also included in the cost of revenue line item within the consolidated statements of income and comprehensive income.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Major improvements are capitalized
while expenditures for maintenance, repairs and minor improvements are charged to expense as incurred. When assets are retired or otherwise disposed of, the assets and related accumulated depreciation
and amortization are eliminated from the accounts and any resulting gain or loss is reflected in the consolidated statements of income and comprehensive income. Depreciation and amortization are
calculated on a straight-line basis over the estimated useful lives of the assets as follows:
|
|
|
|
|
Buildings
|
|
25-40 years
|
|
Machinery and equipment
|
|
3-10 years
|
|
Computer equipment and software
|
|
3-5 years
|
|
Furniture and fixtures
|
|
3-10 years
|
|
Leasehold improvements
|
|
Lesser of 15 years or the remaining lease term
|
Goodwill and Intangible Assets
Goodwill and indefinite-lived intangible assets are not amortized, but are evaluated for impairment on an annual basis, or on an
interim basis when events or changes in circumstances indicate that the
76
Table of Contents
carrying
value may not be recoverable. In assessing the recoverability of goodwill and indefinite-lived intangible assets, the Company must make assumptions regarding the estimated future cash flows,
and other factors, to determine the fair value of these assets. If these estimates or their related assumptions change in the future, the Company may be required to record impairment charges against
these assets in the reporting period in which the impairment is determined.
The
Company tests goodwill for impairment at the reporting unit level, which is the operating segment or one level below an operating segment. The first step involves comparing the fair
values of the applicable reporting units with their aggregate carrying values, including goodwill. The Company generally determines fair value of reporting units using a weighting of both the market
and the income methodologies. Estimating the fair value of the reporting units requires significant judgment by management. If the carrying amount of a reporting unit exceeds the fair value of the
reporting unit, the
Company performs the second step of the goodwill impairment test to measure the amount of the impairment. In the second step of the goodwill impairment test the Company compares the implied fair value
of the reporting unit's goodwill with the carrying value of that goodwill.
Acquired
in process research and development, or IPR&D, acquired as part of business combinations under the acquisition method represents ongoing development work associated with
enhancements to existing products, as well as the development of next generation products. IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for
impairment on an annual basis, or when indicators of impairment are identified. When the IPR&D project is complete, it is reclassified as a finite-lived intangible asset and is amortized over its
estimated useful life, typically seven to ten years. If an IPR&D project is abandoned before completion or is otherwise determined to be impaired, the value of the asset or the amount of the
impairment is charged to the consolidated statements of income and comprehensive income in the period the project is abandoned or impaired.
Intangible
assets with a finite useful life are amortized on a straight-line basis over their estimated useful lives as follows:
|
|
|
|
|
Existing technology and related patents
|
|
3-10 years
|
|
Customer and distributor relationships
|
|
5-12 years
|
|
Trade names
|
|
5-10 years
|
Impairment of Long-Lived Assets
Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the
quoted market price, if available, or the estimated fair value of those assets are less than the assets' carrying value. Impairment losses are charged to the consolidated statements of income and
comprehensive income for the difference between the fair value and carrying value of the asset.
Warranty Costs and Deferred Revenue
The Company typically provides a one year parts and labor warranty with the purchase of equipment. The anticipated cost for this
warranty is accrued upon recognition of the sale and is included as a current liability on the accompanying consolidated balance sheets. The Company's warranty reserve reflects estimated material and
labor costs for potential product issues for which the Company expects to incur an obligation. The Company's estimates of anticipated rates of warranty claims and costs are primarily based on
historical information and future forecasts. The Company assesses the adequacy of the warranty reserve on a quarterly basis and adjusts the amount as necessary. If the historical data used to
calculate the adequacy of the warranty reserve is not indicative of future requirements, additional or reduced warranty reserves may be required.
77
Table of Contents
The
Company also offers to its customers extended warranty and service agreements extending beyond the initial warranty for a fee. These fees are recorded as deferred revenue and
recognized ratably into income over the life of the extended warranty contract once the extended warranty period has commenced.
Income Taxes
Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the
financial statement carrying amounts and the income tax basis of assets and liabilities. A valuation allowance is applied against any net deferred tax asset if, based on the available evidence, it is
more likely than not that some or all of the deferred tax assets will not be realized.
The
Company records liabilities related to uncertain tax positions in accordance with the guidance that clarifies the accounting for uncertainty in income taxes recognized in a Company's
financial statements by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in
a tax return.
Customer Advances
The Company typically requires an advance deposit under the terms and conditions of contracts with customers. These deposits are
recorded as a liability until revenue is recognized on the specific contract in accordance with the Company's revenue recognition policy.
Revenue Recognition
The Company recognizes revenue from systems sales when persuasive evidence of an arrangement exists, the price is fixed or
determinable, title and risk of loss has been transferred to the customer and collectability of the resulting receivable is reasonably assured. Title and risk of loss is generally transferred upon
customer acceptance for a system that has been delivered to the customer. When products are sold through an independent distributor or a strategic distribution partner who assumes responsibility for
installation, the Company recognizes the system sale when the product has been shipped and title and risk of loss have been transferred to the distributor. The Company's distributors do not have price
protection rights or rights of return; however, the Company's products are typically warranted to be free from defect for a period of one year. Revenue is deferred until cash is received when
collectability is not reasonably assured or when the price is not fixed or determinable.
For
transactions entered into subsequent to the adoption of ASU No. 2009-13
, Revenue Recognition (Topic 605)- Multiple-Deliverable Revenue
Arrangements,
that include multiple elements, arrangement consideration is allocated to each element based on the relative selling prices of all of the elements in the
arrangement using the fair value hierarchy as required by ASU No. 2009-13. The Company limits the amount of revenue recognized for delivered elements to the amount that is not
contingent on the future delivery of products or services, future performance obligations, or subject to customer-specific return or refund privileges.
The
Company attempts to determine the fair value of its products and services based on vendor specific objective evidence ("VSOE"). The Company determines VSOE based on its normal
selling pricing and discounting practices for the specific product or service when sold on a stand-alone basis. In determining VSOE, the Company's policy requires a substantial majority of selling
prices for a product or service to be within a reasonably narrow range. The Company also considers the class of customer, method of distribution and the geographies into which products and services
are being sold when determining VSOE.
78
Table of Contents
If VSOE cannot be established, which may occur in instances where a product or service has not been sold separately, stand-alone sales are too infrequent or
product pricing is not within a sufficiently narrow range, the Company attempts to establish the selling price based on third-party evidence ("TPE"). TPE is determined based on competitor prices for
similar deliverables when sold separately. The Company, however, is typically not able to determine TPE for its products or services. Generally, the Company's offerings contain a significant level of
differentiation such that the comparable pricing of products with similar functionality cannot be determined. Furthermore, the Company is unable to reliably determine the selling prices on a
stand-alone basis of similar products offered by its competitors.
When
the Company cannot determine VSOE or TPE, it uses estimated selling price ("ESP") in its allocation of arrangement consideration. The objective of ESP is to determine the price at
which the Company would typically transact a stand-alone sale of the product or service. ESP is determined by considering a number of factors including the Company's pricing policies, internal costs
and gross profit objectives, method of distribution, market research and information, recent technological trends, competitive landscape and geographies. The Company analyzes the selling prices used
in its allocation of arrangement consideration, at a minimum, on an annual basis. Selling prices will be analyzed more frequently if a significant change in the Company's business or other factors
necessitate more frequent analysis or if the Company experiences significant variances in its selling prices.
Revenue
from accessories and parts is recognized upon shipment and service revenue is recognized as the services are performed.
The
Company also has contracts for which it applies the percentage-of-completion model and completed contract model of revenue recognition. Application of these methods
requires the Company to make reasonable estimates of the extent of progress toward completion of the contract and the total costs the Company will incur under the contract. Changes in the estimates of
progress toward completion of the contract and the total costs could affect the timing of revenue recognition.
Other
revenues primarily comprise research grants and licensing arrangements. Grant revenue is recognized when the requirements in the grant agreement are achieved. Licensing revenue is
recognized ratably over the term of the related contract.
Shipping and Handling Costs
The Company includes costs incurred in connection with shipping and handling of products within selling, general and administrative
expenses in the accompanying statements of income and comprehensive income. Shipping and handling costs were $30.5 million, $28.7 million and $20.8 million in the years ended
December 31, 2012, 2011 and 2010, respectively. Amounts billed to customers in connection with these costs are included in total revenues.
Research and Development
Research and development costs are expensed as incurred and include salaries, wages and other personnel related costs, material costs
and depreciation, consulting costs and facility costs.
Software Costs
Purchased software is capitalized at cost and is amortized over the estimated useful life, generally three years. Software developed
for use in the Company's products is expensed as incurred until technological feasibility is reasonably assured and is classified as research
and development expense. Subsequent to the achievement of technological feasibility, amounts are capitalizable, however, to date such amounts have not been material.
79
Table of Contents
Advertising
The Company expenses advertising costs as incurred. Advertising expenses were $7.5 million, $8.1 million and $9.1 million
during the years ended December 31, 2012, 2011 and 2010, respectively.
Stock-Based Compensation
The Company recognizes stock-based compensation expense in the consolidated statements of income and comprehensive income based on the
fair value of the share-based award at the grant date. The Company's primary types of share-based compensation are stock options and restricted stock. The Company recorded stock-based compensation
expense for the years ended December 31, 2012, 2011 and 2010, as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Stock options
|
|
$
|
6.5
|
|
$
|
6.6
|
|
$
|
5.8
|
|
Restricted stock
|
|
|
1.3
|
|
|
1.3
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation
|
|
$
|
7.8
|
|
$
|
7.9
|
|
$
|
6.9
|
|
|
|
|
|
|
|
|
|
Compensation
expense is amortized on a straight-line basis over the underlying vesting terms of the share-based award. Stock options to purchase the Company's common stock
are periodically awarded to executive officers and other employees of the Company subject to a vesting period of three to five years. The fair value of each option award is estimated on the date of
grant using the Black-Scholes option-pricing model. Assumptions regarding volatility, expected term, dividend yield and risk-free interest rate are required for the Black-Scholes model and are
presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Risk-free interest rate
|
|
|
0.91%-1.78%
|
|
|
1.24%-3.12%
|
|
|
1.73%-3.46%
|
|
Expected life
|
|
|
6.5 years
|
|
|
6.5 years
|
|
|
6.5 years
|
|
Volatility
|
|
|
55.9%
|
|
|
57.2%
|
|
|
62.0%
|
|
Expected dividend yield
|
|
|
|
|
|
|
|
|
|
|
The
risk-free interest rate is based on the yield on zero-coupon U.S. Treasury securities for a period that is commensurate with the expected life assumption.
Expected life is determined through the simplified method as defined in the Securities and Exchange Commission Staff Accounting Bulletin No. 110. The Company believes that this is the best
estimate of the expected term of a new option. Expected volatility is based on a number of factors, but the Company currently believes that the exclusive use of its historical volatility results in
the best estimate of the grant-date fair value of employee stock options because it reflects the market's current expectations of future volatility. The expected dividend yield was not
considered in the option pricing formula since the Company does not pay dividends and has no current plans to do so in the future. The terms of certain of the Company's indebtedness currently restrict
its ability to pay dividends to its shareholders. The weighted average fair values of options granted was $7.11, $7.89 and $8.56 per share for the years ended December 31, 2012, 2011 and 2010,
respectively.
In
addition, the Company utilizes an estimated forfeiture rate when calculating the stock-based compensation expense for the period. The Company has applied estimated forfeiture rates
derived from an analysis of historical data of 5.7%, 5.2% and 5.4% for the years ended December 31, 2012, 2011 and 2010, respectively, in determining the expense recorded in the accompanying
consolidated statements of income and comprehensive income.
Earnings Per Share
Net income per common share attributable to Bruker Corporation shareholders is calculated by dividing net income attributable to Bruker
Corporation by the weighted-average shares outstanding
80
Table of Contents
during
the period. The diluted net income per share computation includes the effect of shares, which would be issuable upon the exercise of outstanding stock options and the vesting of restricted
stock, reduced by the number of shares, which are assumed to be purchased by the Company under the treasury stock method.
The
following table sets forth the computation of basic and diluted weighted average shares outstanding for the years ended December 31, (in millions, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Net income attributable to Bruker Corporation
|
|
$
|
77.5
|
|
$
|
92.3
|
|
$
|
95.4
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding-basic
|
|
|
166.0
|
|
|
165.4
|
|
|
164.4
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock
|
|
|
1.4
|
|
|
1.5
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding-diluted
|
|
|
167.4
|
|
|
166.9
|
|
|
165.7
|
|
|
|
|
|
|
|
|
|
Net income per common share attributable to Bruker Corporation shareholders:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.47
|
|
$
|
0.56
|
|
$
|
0.58
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.46
|
|
$
|
0.55
|
|
$
|
0.58
|
|
|
|
|
|
|
|
|
|
Stock
options to purchase approximately 0.6 million shares, 0.1 million shares and 0.7 million shares were excluded from the computation of diluted earnings per
share for the years ended December 31, 2012, 2011 and 2010, respectively, because their effect would have been anti-dilutive.
Employee Retirement Plans
The Company recognizes the over-funded or under-funded status of defined benefit pension and other postretirement defined
benefit plans as an asset or liability, respectively, in its consolidated balance sheets and recognizes changes in the funded status in the year in which the changes occur through other comprehensive
income.
Other Comprehensive Income
Other comprehensive income refers to revenues, expenses, gains and losses that are excluded from net income as these amounts are
recorded directly as an adjustment to shareholders' equity, net of tax. The Company's other comprehensive income is composed primarily of foreign currency translation adjustments, changes in the
funded status of defined benefit pension plans and changes in the fair value of derivatives that have been designated as cash flow hedges.
Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiaries, where the functional currency is the local currency, are translated into
U.S. dollars using year-end exchange rates, or historical rates, as appropriate. Revenues and expenses of foreign subsidiaries are translated at the average exchange rates in effect during
the year. Adjustments resulting from financial statement translations are included as a separate component of shareholders' equity. Gains and losses resulting from foreign currency transactions are
reported in interest and other income (expense), net in the consolidated statements of income and comprehensive income for all periods presented. The Company may periodically have certain intercompany
foreign currency transactions that are deemed to be of a long-term investment nature. Exchange adjustments related to those transactions are made directly to a separate component of
shareholders' equity.
81
Table of Contents
Risk and Uncertainties
The Company is subject to risks common to its industry including, but not limited to, global economic conditions, rapid technological
change, spending patterns from its customers, protection of its intellectual property, availability of key raw materials and components, compliance with existing and future regulation by government
agencies, dependence on key personnel and fluctuations in foreign currency exchange rates.
Contingencies
The Company is subject to proceedings, lawsuits and other claims related to patents, product and other matters. The Company assesses
the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies
is made after analysis of each individual issue. The required reserves may change in the future due to new developments in each situation or changes in settlement strategy in assessing these matters.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period.
Significant
estimates and judgments made by management in preparing these financial statements include revenue recognition, allowances for doubtful accounts, writedowns for excess and
obsolete
inventory,estimated fair values used to record impairment charges related to intangible assets, goodwill, and other long-lived assets, amortization periods, expected future cash flows used
to evaluate the recoverability of long-lived assets, stock-based compensation expense, warranty allowances, restructuring and other related charges, contingent liabilities and the
recoverability of the Company's net deferred tax assets.
Although
the Company regularly reassesses the assumptions underlying these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in
the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results
may differ from management's estimates if these results differ from historical experience or other assumptions prove not to be substantially accurate, even if such assumptions are reasonable when
made.
Reclassifications
Certain line items in prior period financial statements have been reclassified to conform to current period presentation.
Note 3Acquisitions
Acquisitions Completed in 2012
In March 2012, the Company completed the acquisition of SkyScan N.V. (the "SkyScan business"), a privately owned company based
in Belgium that provides advanced, high-resolution micro-computed tomography systems for three-dimensional X-ray imaging in preclinical imaging applications and materials
research markets. The Company expects synergies from combining the SkyScan business into its current product portfolio. The acquisition of the SkyScan business is being accounted for under the
82
Table of Contents
acquisition
method. The components and fair value allocation of the consideration transferred in connection with the SkyScan business are as follows (in millions):
|
|
|
|
|
Consideration Transferred:
|
|
|
|
|
Cash paid
|
|
$
|
24.6
|
|
Cash acquired
|
|
|
(2.9
|
)
|
Contingent consideration
|
|
|
3.7
|
|
|
|
|
|
Total consideration transferred
|
|
$
|
25.4
|
|
|
|
|
|
Allocation of Consideration Transferred:
|
|
|
|
|
Accounts receivable
|
|
$
|
3.1
|
|
Inventories
|
|
|
6.6
|
|
Other current assets
|
|
|
0.3
|
|
Property, plant and equipment
|
|
|
2.3
|
|
Intangible assets:
|
|
|
|
|
Existing technology
|
|
|
7.2
|
|
Customer relationships
|
|
|
6.4
|
|
Goodwill
|
|
|
10.3
|
|
Liabilities assumed
|
|
|
(10.8
|
)
|
|
|
|
|
Total consideration transferred
|
|
$
|
25.4
|
|
|
|
|
|
The
fair value allocation includes contingent consideration in the amount of $3.7 million, which represents the estimated fair value of future payments to the former shareholders
of the SkyScan business based on achieving annual revenue targets for the years 2012-2014. The maximum potential future payments related to the contingent consideration is capped at
approximately $5.9 million. The Company's allocation of the consideration transferred in connection with the acquisition of the SkyScan business will be finalized in the first quarter of 2013
upon final valuation procedures. The final fair value allocation of the purchase price may differ from the information presented in these consolidated financial statements. The weighted-average
amortization period for intangible assets acquired in connection with the SkyScan business is 7 years for existing technology and 10 years for customer relationships.
The
results of the SkyScan business, including the amount allocated to goodwill, have been included in the Scientific Instruments segment from the date of acquisition. Pro forma
financial information reflecting the acquisition of the SkyScan 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.
Acquisitions Completed in 2011
In October 2011, the Company completed the acquisition of Center for Tribology, Inc. (the "tribology business"), a privately
owned company based in California, U.S.A. The acquired business provides nano-mechanical and tribological test instrumentation for basic materials research and industrial manufacturing in
a range of fields, including biomedical, petroleum, microelectronics, energy, and automotive markets. The tribology business expands the Company's nano surfaces business into an adjacent market that
the Company could not previously address. The Company acquired the tribology business for $12.7 million in cash and a contingent consideration arrangement that could require the Company to pay
the former shareholder of the tribology business an additional $1.5 million in each of the years 2012 and 2013. The former shareholder of the tribology business will earn the contingent
consideration if certain revenue and gross profit margin targets are achieved in 2012 and 2013 and their employment continues at the Company. The targets were not achieved for 2012. Under the purchase
agreement $1.6 million of the purchase price was paid into escrow pending the resolution of
83
Table of Contents
indemnification
obligations and working capital obligations of the former shareholder of the acquired business. The Company anticipates the final settlement of the amounts in escrow to occur in 2013.
In
April 2011, the Company completed the acquisition of Michrom Bioresources Inc. (the "HPLC business"), a privately owned company based in California, U.S.A., that provides high
performance liquid chromatography instrumentation, accessories and consumables to the life science market. High performance liquid chromatography is a chromatographic technique that can separate a
mixture of compounds and is often used as the front-end to a mass spectrometer to identify, quantify and purify the individual components of the sample. The acquisition of the HPLC
business expands the Company's mass spectrometry businesses. The Company acquired the HPLC business for $1.1 million in cash, 134,362 shares of unrestricted common stock and 156,823 shares of
restricted common stock. The restricted common stock will vest over a five year period and is contingent on continuing employment with the Company. Under the purchase agreement $0.1 million of
cash and 10% of the total shares issued were paid into escrow pending the resolution of indemnification obligations and working capital obligations of the former shareholders of the acquired business.
Final settlement of the amounts in escrow occurred in 2012.
The
acquisition of the tribology business and the HPLC business were accounted for under the acquisition method. The components of the consideration transferred and the allocation of the
consideration transferred for these businesses is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
Tribology
|
|
HPLC
|
|
Consideration Transferred:
|
|
|
|
|
|
|
|
Cash paid
|
|
$
|
12.7
|
|
$
|
1.1
|
|
Stock issued
|
|
|
|
|
|
2.9
|
|
Cash acquired
|
|
|
(0.2
|
)
|
|
(0.2
|
)
|
|
|
|
|
|
|
Total consideration transferred
|
|
$
|
12.5
|
|
$
|
3.8
|
|
|
|
|
|
|
|
Allocation of Consideration Transferred:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
1.5
|
|
$
|
0.2
|
|
Inventory
|
|
|
1.0
|
|
|
1.3
|
|
Property, plant and equipment
|
|
|
|
|
|
0.2
|
|
Intangible assets:
|
|
|
|
|
|
|
|
Existing technology and related patents
|
|
|
12.0
|
|
|
1.3
|
|
Customer and distributor relationships
|
|
|
0.6
|
|
|
1.5
|
|
Tradename
|
|
|
|
|
|
0.1
|
|
In-process research and development
|
|
|
0.1
|
|
|
|
|
Goodwill
|
|
|
3.5
|
|
|
1.2
|
|
Liabilities assumed
|
|
|
(6.2
|
)
|
|
(2.0
|
)
|
|
|
|
|
|
|
Total consideration transferred
|
|
$
|
12.5
|
|
$
|
3.8
|
|
|
|
|
|
|
|
The
fair value of the 134,362 shares of unrestricted common stock issued in connection with the HPLC business was determined based on the closing market price of the Company's common
shares on the acquisition date, or $21.28 per share.
The
fair value of the contingent consideration arrangement in the acquisition of the tribology business is not included in the total consideration transferred because it is forfeited if
the former shareholder's employment is terminated. Similarly, the fair value of the restricted common stock issued in the acquisition of the HPLC business is not included in the total consideration
transferred because it is forfeited if the former shareholders' employment is terminated. Because these arrangements are forfeited if employment is terminated, the amounts are considered to be
compensation for post-combination service and will be accounted for as compensation expense over the period the contingent amounts, if any, are earned.
84
Table of Contents
The
allocation of the consideration transferred in connection with the tribology business was completed in 2012. The allocation of the consideration transferred in connection with the
HPLC business was completed in 2011.
The
acquisition of the tribology business and the HPLC business were made at prices above the fair value of the net acquired assets, resulting in $3.5 million and
$1.2 million of goodwill, respectively. The Company was willing to pay these prices based on expectations of synergies that will result from combining the businesses with the Company's existing
operations. These synergies include expanded product offerings to adjacent markets that the Company was previously not able to address in a comprehensive manner and leveraging selling, general and
administrative expenses.
In
performing the purchase price allocation, the Company considered, among other factors, its intention for future use of the acquired assets, analyses of historical financial
performance, and estimates of future cash flows from the tribology and HPLC products and services. The purchase price was allocated based upon the fair value of the identified assets acquired and
liabilities assumed as of the acquisition date from a market participant's perspective.
The
Company used the multi-period excess-earnings method, a form of the income approach, to value the existing technology and patents related to the tribology and HPLC businesses. The
principle behind this method is that the value of the intangible asset is equal to the present value of the after-tax cash flows attributable to the intangible asset only. The Company also
used the multi-period excess-earnings method to value the customer relationships acquired in the connection with the HPLC business and the IPR&D acquired with the tribology business. The multi-period
excess-earnings method was used to value the customer relationships acquired in the connection with the HPLC business because the customer relationships were deemed to be one of the primary cash
generating assets acquired in the transaction. The Company used the lost-profit/avoided cost method, a form of the income approach, to value the distributor relationships related to the
tribology business. The principle behind this method is that the economic value of an asset can be estimated based on the total costs that were avoided by having the asset in place. The Company used
the relief from royalty method, a form of the income approach, to value the tradenames acquired in the HPLC business. The principle behind this method is that the value of the intangible asset is
equal to the present value of the after-tax royalty savings attributable to owning the intangible asset. The weighted-average amortization periods for intangible assets acquired in
connection with the tribology and HPLC businesses are 7.1 years for existing technology and related patents, 6.8 years for customer and distributor relationships and 1 year for
tradenames. IPR&D is carried at its initial fair value and will be amortized to expense upon completion of development. If further development becomes unfeasible or is abandoned, the carrying value of
the IPR&D will be expensed in the period it occurs.
Transaction
costs associated with the acquisition of the tribology and HPLC businesses were expensed as incurred. The Company incurred $1.1 million in expenses that are included
in other charges, net in the consolidated statements of income and comprehensive income for the year ended December 31, 2011. These costs consist primarily of professional fees.
The
results of the tribology and HPLC businesses have been included in the Scientific Instruments segment from the date of acquisition. Pro forma financial information reflecting the
acquisition of these businesses 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.
85
Table of Contents
Acquisitions Completed in 2010
In October 2010, the Company completed the acquisition of Veeco Metrology Inc., a scanning probe microscopy and optical
industrial metrology instruments business (the "nano surfaces business"), from Veeco Instruments Inc. ("Veeco") for cash consideration of $230.4 million. The Company financed the
acquisition with $167.6 million borrowed under a revolving credit agreement and the balance with cash on hand. The acquired business complements the Company's existing atomic force microscopy
products and expanded the Company's offerings to industrial and applied markets, specifically in the fields of materials and nanotechnology research and analysis. $22.9 million of the purchase
price was paid into escrow pending the resolution of indemnification obligations and working capital obligations of the seller. In October 2011, the escrow was released to Veeco.
In
May 2010, the Company completed the acquisition of three former Varian, Inc. ("Varian") product lines, which Agilent Technologies, Inc. ("Agilent") divested in
connection with its acquisition of Varian. The Company acquired certain assets and assumed certain liabilities in Varian's inductively coupled plasma mass spectrometry instruments business, gas
chromatography instruments business, and gas chromatography triple-quadrupole mass spectrometry instruments business (collectively, the "chemical analysis business") for cash consideration of
$37.5 million. The acquired business complements the
Company's existing mass spectrometry products and expands the Company's offerings to industrial and applied markets.
The
acquisitions of the nano surfaces business and chemical analysis business were accounted for under the acquisition method. The components of the consideration transferred and the
allocation of the consideration transferred for these businesses, including measurement period adjustments recorded in 2011, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
Nano
Surfaces
|
|
Chemical
Analysis
|
|
Consideration Transferred:
|
|
|
|
|
|
|
|
Cash paid
|
|
$
|
230.4
|
|
$
|
37.5
|
|
|
|
|
|
|
|
Total consideration transferred
|
|
$
|
230.4
|
|
$
|
37.5
|
|
|
|
|
|
|
|
Allocation of Consideration Transferred:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
21.8
|
|
$
|
|
|
Notes receivable
|
|
|
|
|
|
10.3
|
|
Inventory
|
|
|
33.5
|
|
|
16.9
|
|
Other current assets
|
|
|
8.1
|
|
|
|
|
Property, plant and equipment
|
|
|
18.0
|
|
|
2.4
|
|
Intangible assets:
|
|
|
|
|
|
|
|
Existing technology and related patents
|
|
|
89.7
|
|
|
7.1
|
|
Customer and distributor relationships
|
|
|
1.5
|
|
|
15.8
|
|
In-process research and development
|
|
|
21.3
|
|
|
|
|
Goodwill
|
|
|
49.0
|
|
|
0.4
|
|
Liabilities assumed
|
|
|
(12.5
|
)
|
|
(15.4
|
)
|
|
|
|
|
|
|
Total consideration transferred
|
|
$
|
230.4
|
|
$
|
37.5
|
|
|
|
|
|
|
|
The
Company finalized the allocation of the consideration transferred in connection with the nano surfaces business in the third quarter of 2011. The Company finalized the allocation of
the consideration transferred in connection with the chemical analysis business in the fourth quarter of 2010. Measurement period adjustments made to the acquisition date fair values of the nano
surfaces business in 2011 consisted of a reclassification of $2.0 million from goodwill to intangible assets in connection with finalizing the fair value of a license agreement that was
acquired in the transaction.
86
Table of Contents
The
acquisitions of the nano surfaces business and the chemical analysis business were made at prices above the fair value of the net acquired assets, resulting in $49.0 million
and $0.4 million of goodwill, respectively. The Company was willing to pay these prices based on expectations of synergies that will result from combining the businesses with the Company's
existing operations. These synergies include expanded product offerings to applied analytical markets that the Company was previously not able to address in a comprehensive manner and leveraging
selling, general and administrative expenses.
Transaction
costs associated with the acquisitions of the nano surfaces and chemical analysis businesses have been expensed as incurred. The Company incurred $3.1 million and
$4.6 million in expenses that are included in other charges, net in the consolidated statements of income and comprehensive income for the years ended December 31, 2011 and 2010,
respectively. The costs incurred in 2011 consist primarily of transition costs whereby Agilent and Veeco provided administrative services on behalf of the Company for defined periods. The transition
service arrangements expired in 2011. In 2010, transaction costs include $2.8 million of transition costs provided by Agilent and Veeco and transaction expenses of $1.8 million
consisting of various professional fees.
The
results of the nano surfaces business and the chemical analysis business have been included in the Scientific Instruments segment from the date of acquisition.
The
following table sets forth unaudited pro forma financial information reflecting the acquisition of the nano surfaces business as if the acquisition had occurred on January 1,
2010, for the year ended December 31, 2010 (in millions, except per share date):
|
|
|
|
|
|
|
2010
(Unaudited)
|
|
Revenue
|
|
$
|
1,410.7
|
|
Net income attributable to Bruker Corporation
|
|
|
97.0
|
|
Net income per common share attributable to Bruker Corporation shareholders:
|
|
|
|
|
Basic and diluted
|
|
$
|
0.59
|
|
|
|
|
|
Pro
forma financial information reflecting the acquisition of the chemical analysis 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.
Note 4Fair Value of Financial Instruments
The Company measures the following financial assets and liabilities at fair value on a recurring basis. The following tables set forth
the Company's financial instruments and presents them within the
87
Table of Contents
fair
value hierarchy using the lowest level of input that is significant to the fair value measurement at December 31, 2012 and 2011 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
Total
|
|
Quoted Prices in
Active Markets
Available
(Level 1)
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
8.2
|
|
$
|
8.2
|
|
$
|
|
|
$
|
|
|
Restricted cash
|
|
|
3.7
|
|
|
3.7
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
1.8
|
|
|
|
|
|
1.8
|
|
|
|
|
Embedded derivatives in purchase and delivery contracts
|
|
|
0.3
|
|
|
|
|
|
0.3
|
|
|
|
|
Long-term restricted cash
|
|
|
3.9
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets recorded at fair value
|
|
$
|
17.9
|
|
$
|
15.8
|
|
$
|
2.1
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
3.7
|
|
$
|
|
|
$
|
|
|
$
|
3.7
|
|
Embedded derivatives in purchase and delivery contracts
|
|
|
0.3
|
|
|
|
|
|
0.3
|
|
|
|
|
Fixed price commodity contracts
|
|
|
0.2
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities recorded at fair value
|
|
$
|
4.2
|
|
$
|
|
|
$
|
0.5
|
|
$
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
Total
|
|
Quoted Prices in
Active Markets
Available
(Level 1)
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
26.3
|
|
$
|
26.3
|
|
$
|
|
|
$
|
|
|
Restricted cash
|
|
|
2.2
|
|
|
2.2
|
|
|
|
|
|
|
|
Embedded derivatives in purchase and delivery contracts
|
|
|
0.6
|
|
|
|
|
|
0.6
|
|
|
|
|
Fixed price commodity contracts
|
|
|
0.5
|
|
|
|
|
|
0.5
|
|
|
|
|
Long-term restricted cash
|
|
|
3.9
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets recorded at fair value
|
|
$
|
33.5
|
|
$
|
32.4
|
|
$
|
1.1
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contract
|
|
$
|
1.1
|
|
$
|
|
|
$
|
1.1
|
|
$
|
|
|
Foreign exchange contracts
|
|
|
4.2
|
|
|
|
|
|
4.2
|
|
|
|
|
Embedded derivatives in purchase and delivery contracts
|
|
|
0.4
|
|
|
|
|
|
0.4
|
|
|
|
|
Fixed price commodity contracts
|
|
|
0.5
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities recorded at fair value
|
|
$
|
6.2
|
|
$
|
|
|
$
|
6.2
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
financial instruments are classified within level 2 because there is not an active market for each derivative contract, however, the inputs used to calculate the value
of the instruments are obtained from active markets.
The
interest rate swap matured at December 31, 2012.
The
fair value of the long-term fixed interest rate debt, which has been classified as Level 2, was $255.6 million at December 31, 2012 based on market
and observable sources with similar maturity dates.
88
Table of Contents
The
Company measures assets and liabilities at fair value with changes in fair value recognized in earnings. Fair value treatment may be elected either upon initial recognition of an
eligible asset or liability or, for an existing asset or liability, if an event triggers a new basis of accounting. The Company did not elect to remeasure any of its existing financial assets or
liabilities during the year ended December 31, 2012. During 2012, as part of the Company's acquisition of the SkyScan business, the Company recorded a contingent consideration liability that
has been classified as a Level 3 in the fair value hierarchy. The contingent consideration represents the estimated fair value of future payments to the former shareholders of the SkyScan
business based on achieving annual revenue targets for the years 2012-2014. The Company initially valued the contingent consideration by using the discounted cash flow method. Changes to
the fair value of the contingent consideration as of December 31, 2012 have not been material.
Note 5Accounts Receivable
The following is a summary of trade accounts receivable at December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Gross accounts receivable
|
|
$
|
297.2
|
|
$
|
288.4
|
|
Allowance for doubtful accounts
|
|
|
(7.9
|
)
|
|
(5.6
|
)
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
289.3
|
|
$
|
282.8
|
|
|
|
|
|
|
|
The
allowance for doubtful accounts is management's estimate of credit losses in the accounts receivable. The allowance for doubtful accounts is based on a number of factors, including
an evaluation of customer credit worthiness, the age of the outstanding receivable, economic trends and historical experience. The allowance for doubtful accounts is reviewed on a quarterly basis and
changes in estimates are reflected in the period in which they become known. The Company writes off account balances against the allowance after all means of collection have been exhausted and the
potential for recovery is considered remote. Provisions for doubtful accounts are recorded in selling, general and administrative expenses in the accompanying consolidated statements of income and
comprehensive income.
The
following is a summary of the activity in the Company's allowance for doubtful accounts at December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
Beginning of
Period
|
|
Additions
Charged to
Expense
|
|
Deductions
Amounts
Written Off
|
|
Balance at End
of Period
|
|
2012
|
|
$
|
5.6
|
|
$
|
3.0
|
|
$
|
(0.7
|
)
|
$
|
7.9
|
|
2011
|
|
|
5.1
|
|
|
0.9
|
|
|
(0.4
|
)
|
|
5.6
|
|
2010
|
|
|
5.4
|
|
|
0.3
|
|
|
(0.6
|
)
|
|
5.1
|
|
Note 6Inventories
Inventories consisted of the following at December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Raw materials
|
|
$
|
199.0
|
|
$
|
175.5
|
|
Work-in-process
|
|
|
197.0
|
|
|
169.4
|
|
Finished goods
|
|
|
160.5
|
|
|
175.3
|
|
Demonstration units
|
|
|
55.0
|
|
|
56.0
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
611.5
|
|
$
|
576.2
|
|
|
|
|
|
|
|
89
Table of Contents
Finished goods include in-transit systems that have been shipped to the Company's customers but not yet installed and accepted by the customer. As of
December 31, 2012 and 2011, inventory-in-transit was $93.9 million and $116.8 million, respectively.
The
Company reduces the carrying value of its demonstration inventories for differences between its cost and estimated net realizable value through a charge to cost of product revenue
that is based on a number of factors including the age of the unit, the physical condition of the unit and an assessment of technological obsolescence. Amounts recorded in cost of revenue related to
the write-down of demonstration units to net realizable value were $31.5 million, $30.0 million and $24.4 million for the years ended December 31, 2012, 2011
and 2010, respectively.
Note 7Property, Plant and Equipment
The following is a summary of property, plant and equipment by major asset class at December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Land
|
|
$
|
33.8
|
|
$
|
32.3
|
|
Building and leasehold improvements
|
|
|
278.0
|
|
|
241.3
|
|
Machinery, equipment, software and furniture and fixtures
|
|
|
353.1
|
|
|
298.9
|
|
|
|
|
|
|
|
|
|
|
664.9
|
|
|
572.5
|
|
Less accumulated depreciation and amortization
|
|
|
(381.3
|
)
|
|
(323.5
|
)
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
283.6
|
|
$
|
249.0
|
|
|
|
|
|
|
|
Depreciation
expense, which includes the amortization of leasehold improvements, for the years ended December 31, 2012, 2011 and 2010 was $37.1 million,
$34.8 million and $30.3 million, respectively.
The
Company recorded an impairment charge for the year ended December 31, 2012 in the amount of $6.0 million, related to property, plant and equipment within the CAM
division as a result of
experiencing increased deterioration in its financial performance and the Energy & Supercon Technologies segment based on the abandonment of a project, to reduce the carrying value of those
assets to their estimated fair values. The change is recorded within "Impairment of assets" in the accompanying statements of income and comprehensive income.
Note 8Goodwill and Other Intangible Assets
The following table sets forth the changes in the carrying amount of goodwill for the years ended December 31, 2012 and 2011 (in
millions):
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
98.3
|
|
Acquisitions
|
|
|
4.7
|
|
Dispositions
|
|
|
(0.1
|
)
|
Current period adjustments
|
|
|
(2.0
|
)
|
Foreign currency impact
|
|
|
(0.7
|
)
|
|
|
|
|
Balance at December 31, 2011
|
|
|
100.2
|
|
Acquisitions
|
|
|
10.5
|
|
Impairment of assets
|
|
|
(1.4
|
)
|
Current period adjustments
|
|
|
6.1
|
|
Foreign currency impact
|
|
|
0.5
|
|
|
|
|
|
Balance at December 31, 2012
|
|
$
|
115.9
|
|
|
|
|
|
90
Table of Contents
At
December 31, 2012 and 2011, all goodwill was allocated to the Scientific Instruments segment. The goodwill acquired in 2012 primarily relates to the acquisition of the SkyScan
business. The goodwill acquired in 2011 relates to the acquisition of the tribology business and the HPLC business.
At
December 31, 2012, the Company performed its annual impairment evaluation and concluded all reporting units' fair values exceeded their carrying values, with the exception of
the CAM division, which is part of the Scientific Instruments segment, as a result of experiencing increased deterioration in its financial performance. The Company, therefore, performed step two of
the impairment test to measure potential impairment and concluded an impairment charge of $1.4 million was required. This amount represents all the goodwill allocated to the CAM division and is
recorded within "Impairment of assets" in the accompanying statements of income and comprehensive income for the year ended December 31, 2012. There are no indefinite-lived intangible assets
associated with the CAM division nor any impairment of indefinite-lived intangible assets during year ended December 31, 2012.
No
impairment losses were recorded on goodwill during the years ended December 31, 2011 and 2010.
The
following is a summary of intangible assets at December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Existing technology and related patents
|
|
$
|
151.5
|
|
$
|
(47.6
|
)
|
$
|
103.9
|
|
$
|
141.4
|
|
$
|
(29.9
|
)
|
$
|
111.5
|
|
Customer relationships
|
|
|
15.3
|
|
|
(7.9
|
)
|
|
7.4
|
|
|
22.0
|
|
|
(5.1
|
)
|
|
16.9
|
|
Trade names
|
|
|
0.2
|
|
|
(0.2
|
)
|
|
|
|
|
0.2
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets subject to amortization
|
|
|
167.0
|
|
|
(55.7
|
)
|
|
111.3
|
|
|
163.6
|
|
|
(35.2
|
)
|
|
128.4
|
|
In-process research and development
|
|
|
5.7
|
|
|
|
|
|
5.7
|
|
|
8.0
|
|
|
|
|
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
$
|
172.7
|
|
$
|
(55.7
|
)
|
$
|
117.0
|
|
$
|
171.6
|
|
$
|
(35.2
|
)
|
$
|
136.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company determined the increased deterioration in financial performance of the CAM division discussed above was an indicator requiring the evaluation of the definite-lived intangible
assets within that reporting unit for recoverability. The Company performed a valuation at December 31, 2012 and determined that the definite-lived intangible assets within the CAM division
were impaired. The Company recorded an impairment charge in the amount of $16.4 million for the year ended December 31, 2012 to reduce the carrying value of those assets to their
estimated fair values. This impairment charge is included within "Impairment of assets" in the accompanying statement of income and comprehensive income. No impairment losses were recorded related to
definite-lived intangible assets during the years ended December 31, 2011 and 2010.
For
the years ended December 31, 2012, 2011 and 2010, the Company recorded amortization expense of approximately $22.0 million, $18.1 million and
$5.8 million, respectively, in the consolidated statements of income and comprehensive income.
91
Table of Contents
The
estimated future amortization expense related to amortizable intangible assets at December 31, 2012 is as follows (in millions):
|
|
|
|
|
2013
|
|
$
|
20.4
|
|
2014
|
|
|
19.8
|
|
2015
|
|
|
19.6
|
|
2016
|
|
|
19.1
|
|
2017
|
|
|
18.7
|
|
Thereafter
|
|
|
13.7
|
|
|
|
|
|
Total
|
|
$
|
111.3
|
|
|
|
|
|
Note 9Other Current Liabilities
The following is a summary of other current liabilities at December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Deferred revenue
|
|
$
|
82.5
|
|
$
|
83.0
|
|
Accrued compensation
|
|
|
85.1
|
|
|
77.5
|
|
Income taxes payable
|
|
|
60.9
|
|
|
55.8
|
|
Accrued warranty
|
|
|
27.9
|
|
|
27.9
|
|
Derivative liabilities
|
|
|
0.5
|
|
|
6.2
|
|
Other accrued expenses
|
|
|
79.8
|
|
|
69.6
|
|
|
|
|
|
|
|
Other current liabilities
|
|
$
|
336.7
|
|
$
|
320.0
|
|
|
|
|
|
|
|
The
following table sets forth the changes in accrued warranty for the years ended December 31, 2012 and 2011 (in millions):
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
28.4
|
|
Accruals for warranties issued during the year
|
|
|
13.5
|
|
Settlements of warranty claims
|
|
|
(13.0
|
)
|
Foreign currency impact
|
|
|
(1.0
|
)
|
|
|
|
|
Balance at December 31, 2011
|
|
|
27.9
|
|
Accruals for warranties issued during the year
|
|
|
15.7
|
|
Settlements of warranty claims
|
|
|
(15.9
|
)
|
Foreign currency impact
|
|
|
0.2
|
|
|
|
|
|
Balance at December 31, 2012
|
|
$
|
27.9
|
|
|
|
|
|
92
Table of Contents
Note 10Debt
The Company's debt obligations consist of the following as of December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
US Dollar term loan under the Amended Credit Agreement
|
|
$
|
|
|
$
|
82.5
|
|
US Dollar revolving loan under the Amended Credit Agreement
|
|
|
93.0
|
|
|
216.5
|
|
US Dollar notes under the Note Purchase Agreement
|
|
|
240.0
|
|
|
|
|
Capital lease obligations and other loans
|
|
|
4.2
|
|
|
4.1
|
|
|
|
|
|
|
|
Total debt
|
|
|
337.2
|
|
|
303.1
|
|
Current portion of long-term debt
|
|
|
(1.3
|
)
|
|
(83.7
|
)
|
|
|
|
|
|
|
Total long-term debt, less current portion
|
|
$
|
335.9
|
|
$
|
219.4
|
|
|
|
|
|
|
|
In
February 2008, the Company entered into a credit agreement (the "Credit Agreement") with a syndicate of lenders that provided 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 was payable in quarterly installments through December 2012. As of
December 31, 2012, there were no amounts outstanding under the term loan. Borrowings under the Credit Agreement accrued interest, at the Company's 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%.
In
May 2011, the Company entered into an amendment to and restatement of the Credit Agreement, referred to as the Amended Credit Agreement. The Company accounted for the amendment as a
modification under FASB ASC No. 470,
Debt
("ASC No. 470"). The Amended Credit Agreement increases the maximum commitment on the Company's
revolving credit line to $250.0 million and extends the maturity date to May 2016. Borrowings under the revolving credit line of the Amended Credit Agreement accrue interest, at the Company's
option, at either (a) the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.50%, (iii) adjusted LIBOR plus 1.00% or (iv) LIBOR, plus margins ranging
from 0.80% to 1.65%. There is also a facility fee ranging from 0.20% to 0.35%. The Amended Credit Agreement had no impact on the maturity or pricing of the Company's term loan that matured on
December 31, 2012.
Borrowings
under the Amended Credit Agreement are secured by guarantees from certain material subsidiaries, as defined in the Amended Credit Agreement, and Bruker Energy &
Supercon Technologies, Inc. The Amended Credit Agreement also requires the Company to maintain certain financial ratios related to maximum leverage and minimum interest coverage, as defined in
the Amended Credit Agreement. Specifically, the Company's leverage ratio cannot exceed 3.0 and the Company's interest coverage ratio cannot be less than 3.0. In addition to the financial ratios, the
Amended Credit Agreement restricts, among other things, the Company's 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 its assets; and enter into certain transactions with affiliates. Failure to comply with any of these
restrictions or covenants may result in an event of default under the applicable debt instrument, which could permit acceleration of the debt under that instrument and require the Company to prepay
that debt before its scheduled due date.
93
Table of Contents
The following is a summary of the maximum commitments and the net amounts available to the Company under the revolving loan arrangements at December 31,
2012 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average
Interest Rate
|
|
Total Amount
Committed by
Lenders
|
|
Outstanding
Borrowings
|
|
Outstanding
Letters of
Credit
|
|
Total Amount
Available
|
|
Amended Credit Agreement
|
|
|
1.4
|
%
|
$
|
250.0
|
|
$
|
93.0
|
|
$
|
1.5
|
|
$
|
155.5
|
|
Other revolving loans
|
|
|
|
|
|
185.5
|
|
|
|
|
|
141.7
|
|
|
43.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revolving loans
|
|
|
|
|
$
|
435.5
|
|
$
|
93.0
|
|
$
|
143.2
|
|
$
|
199.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
revolving loans are with various financial institutions located primarily in Germany, Switzerland and France. The Company's other revolving lines of credit are typically 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.
In
January 2012, the Company entered into a note purchase agreement (the "Note Purchase Agreement") with a group of accredited institutional investors. Pursuant to the Note Purchase
Agreement, the Company issued and sold $240.0 million of senior notes, referred to as the Senior Notes, which consist of the following:
-
-
$20 million 3.16% Series 2012A Senior Notes, Tranche A, due January 18, 2017;
-
-
$15 million 3.74% Series 2012A Senior Notes, Tranche B, due January 18, 2019;
-
-
$105 million 4.31% Series 2012A Senior Notes, Tranche C, due January 18, 2022; and
-
-
$100 million 4.46% Series 2012A Senior Notes, Tranche D, due January 18, 2024.
Under
the terms of the Note Purchase Agreement, the Company may issue and sell additional senior notes up to an aggregate principal amount of $600 million, subject to certain
conditions. Interest on the Senior Notes is payable semi-annually on January 18 and July 18 of each year, commencing July 18, 2012. The Senior Notes are unsecured
obligations of the Company and are fully and unconditionally guaranteed by certain of the Company's direct and indirect subsidiaries. The Senior Notes rank pari passu in right of repayment with the
Company's other senior unsecured indebtedness. The Company may prepay some or all of the Senior Notes at any time in an amount not less than 10% of the original aggregate principal amount of the
Senior Notes to be prepaid, at a price equal to the sum of (a) 100% of the principal amount thereof, plus accrued and unpaid interest, and (b) the applicable make-whole
amount, upon not less than 30 and no more than 60 days' written notice to the holders of the Senior Notes. In the event of a change in control of the Company, as defined in the Note Purchase
Agreement, the Company may be required to prepay the Notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest.
The
Note Purchase Agreement contains affirmative covenants, including, without limitation, maintenance of corporate existence, compliance with laws, maintenance of insurance and
properties, payment of taxes, addition of subsidiary guarantors and furnishing notices and other information. The Note Purchase Agreement also contains certain restrictive covenants that restrict the
Company's ability to, among other things, incur liens, transfer or sell assets, engage in certain mergers and consolidations and enter into transactions with affiliates. The Note Purchase Agreement
also includes customary representations and warranties and events of default. In the case of an event of default arising from specified events of bankruptcy or insolvency, all outstanding Senior Notes
will become due and payable immediately without further action or notice. In the case of payment events of defaults, any holder of Senior Notes affected thereby may declare all Senior Notes held by it
due and payable immediately. In the case of any other event of default, a majority of the holders of the Senior Notes may declare all the Senior Notes to be due and payable immediately. Pursuant to
the Note Purchase Agreement, so long as any Senior Notes are outstanding the Company will not permit (i) its leverage ratio, as determined
94
Table of Contents
pursuant
to the Note Purchase Agreement, as of the end of any fiscal quarter to exceed 3.50 to 1.00, (ii) its interest coverage ratio as determined pursuant to the Note Purchase Agreement as of
the end of any fiscal quarter for any period of four consecutive fiscal quarters to be less than 2.50 to 1 or (iii) priority debt at any time to exceed 25% of consolidated net worth, as
determined pursuant to the Note Purchase Agreement.
As
of December 31, 2012, the Company was in compliance with the covenants of the Amended Credit Agreement and the Note Purchase Agreement.
Annual
maturities of long-term debt outstanding at December 31, 2012 are as follows (in millions):
|
|
|
|
|
2013
|
|
$
|
1.3
|
|
2014
|
|
|
0.9
|
|
2015
|
|
|
0.8
|
|
2016
|
|
|
93.8
|
|
2017
|
|
|
20.1
|
|
Thereafter
|
|
|
220.3
|
|
|
|
|
|
Total
|
|
$
|
337.2
|
|
|
|
|
|
Interest
expense for the years ended December 31, 2012, 2011 and 2010, was $14.3 million, $7.3 million and $5.6 million, respectively.
Note 11Derivative Instruments and Hedging Activities
Interest Rate Risks
The Company's exposure to interest rate risk relates primarily to outstanding variable rate debt and adverse movements in the related
short-term market rates. The most significant component of the Company's interest rate risk relates to amounts outstanding under the Amended 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 paid a fixed rate of approximately 3.8% and received a variable rate based on three month LIBOR. The initial notional amount of this interest rate swap was $90.0 million and it
amortized in proportion to the term debt component of the Amended Credit Agreement through December 2012. The notional amount of this interest rate swap matured at December 31, 2012 along with
the final payment on the related 2008 term loan. At December 31, 2011, the notional amount of this interest rate swap was $49.5 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 interest rate swap as a cash flow hedge. Accordingly, the Company reflected
changes in the fair value of the effective portion of this interest rate swap in accumulated other comprehensive income, a separate component of shareholders' equity. Amounts recorded in accumulated
other comprehensive income are reclassified to interest and other income (expense), net in the consolidated statement of income and comprehensive income when either the forecasted transaction occurs
or it becomes probable that the forecasted transaction will not occur. As of December 31, 2012, the Company has no interest rate swaps outstanding.
Foreign Exchange Rate Risk Management
The Company generates a substantial portion of its revenues and expenses in international markets, principally Germany and other
countries in the European Union, Switzerland and Japan, which subjects its operations to the exposure of exchange rate fluctuations. The impact of currency exchange rate movement can be positive or
negative in any period. The Company periodically enters into foreign currency contracts in order to minimize the volatility that fluctuations in exchange rates
95
Table of Contents
have
on its cash flows. Under these arrangements, the Company typically agrees to purchase a fixed amount of a foreign currency in exchange for a fixed amount of U.S. Dollars or other currencies on
specified dates with maturities of less than twelve months. These transactions do not qualify for hedge accounting and, accordingly, the instrument is recorded at fair value with the corresponding
gains and losses recorded in the consolidated statements of income and comprehensive income. The Company
had the following notional amounts outstanding under foreign currency contracts at December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy
|
|
Notional
Amount in
Buy Currency
|
|
Sell
|
|
Maturity
|
|
Notional
Amount in
U.S. Dollars
|
|
Fair Value
of Assets
|
|
Fair Value
of Liabilities
|
|
December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro
|
|
|
1.2
|
|
Australian Dollars
|
|
January 2013 to April 2013
|
|
$
|
1.6
|
|
$
|
0.0
|
|
$
|
|
|
Euro
|
|
|
49.3
|
|
U.S. Dollars
|
|
January 2013 to October 2013
|
|
|
64.0
|
|
|
1.2
|
|
|
|
|
Swiss Francs
|
|
|
26.1
|
|
U.S. Dollars
|
|
January 2013
|
|
|
27.9
|
|
|
0.6
|
|
|
|
|
U.S. Dollars
|
|
|
0.8
|
|
Mexican Pesos
|
|
January 2013
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
94.3
|
|
$
|
1.8
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro
|
|
|
1.5
|
|
Australian Dollars
|
|
January 2012
|
|
$
|
2.1
|
|
$
|
|
|
$
|
0.1
|
|
Euro
|
|
|
35.0
|
|
U.S. Dollars
|
|
January 2012 to October 2012
|
|
|
48.2
|
|
|
|
|
|
2.9
|
|
Swiss Francs
|
|
|
24.5
|
|
U.S. Dollars
|
|
January 2012
|
|
|
27.4
|
|
|
|
|
|
1.2
|
|
U.S. Dollars
|
|
|
2.5
|
|
Mexican Pesos
|
|
January 2012 to November 2012
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
80.2
|
|
$
|
|
|
$
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
addition, the Company periodically enters into purchase and sales contracts denominated in currencies other than the functional currency of the parties to the transaction. The Company
accounts for these transactions separately valuing the "embedded derivative" component of these contracts. The contracts, denominated in currencies other than the functional currency of the
transacting parties, amounted to $40.2 million for the delivery of products and $10.3 million for the purchase of products at December 31, 2012 and $34.8 million for the
delivery of products and $4.9 million for the purchase of products at December 31, 2011. The changes in the fair value of these embedded derivatives are recorded in interest and other
income (expense), net in the consolidated statements of income and comprehensive income.
Commodity Price Risk Management
The Company has an arrangement with a customer under which it has a firm commitment to deliver copper based superconductors at a fixed
price. In order to minimize the volatility that fluctuations in the price of copper have on the Company's sales of these commodities, the Company enters into commodity hedge contracts. At
December 31, 2012 and 2011, the Company had fixed price commodity contracts with notional amounts aggregating $3.4 million and $3.9 million, respectively. The changes in the fair
value of these commodity contracts are recorded in interest and other income (expense), net in the consolidated statements of income and comprehensive income.
96
Table of Contents
The
fair value of the derivative instruments described above are recorded in our consolidated balance sheets for the years ending December 31, 2012 and 2011 as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location
|
|
2012
|
|
2011
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Other current assets
|
|
$
|
1.8
|
|
$
|
|
|
Embedded derivatives in purchase and delivery contracts
|
|
Other current assets
|
|
|
0.3
|
|
|
0.6
|
|
Fixed price commodity contracts
|
|
Other current assets
|
|
|
|
|
|
0.5
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Other current liabilities
|
|
$
|
|
|
$
|
4.2
|
|
Interest rate swap contract
|
|
Other current liabilities
|
|
|
|
|
|
1.1
|
|
Embedded derivatives in purchase and delivery contracts
|
|
Other current liabilities
|
|
|
0.3
|
|
|
0.4
|
|
Fixed price commodity contracts
|
|
Other current liabilities
|
|
|
0.2
|
|
|
0.5
|
|
The
losses recognized in other comprehensive income related to the effective portion of the interest rate swap designated as a hedging instrument for the years ending December 31,
are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Interest rate swap contract
|
|
$
|
(0.2
|
)
|
$
|
(0.3
|
)
|
$
|
(2.1
|
)
|
The
losses related to the effective portion of the interest rate swap designated as a hedging instrument that were reclassified from other comprehensive income and recognized in net
income for the years ending December 31, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Interest rate swap contract
|
|
$
|
(1.3
|
)
|
$
|
(2.2
|
)
|
$
|
(2.6
|
)
|
The
Company did not recognize any amounts related to ineffectiveness in the results of operations for the years ended December 31, 2012, 2011 and 2010, respectively.
The
impact on net income of unrealized gains and losses resulting from changes in the fair value of derivative instruments not designated as hedging instruments for the years ending
December 31, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Foreign exchange contracts
|
|
$
|
6.0
|
|
$
|
(4.6
|
)
|
$
|
0.4
|
|
Embedded derivatives
|
|
|
(0.2
|
)
|
|
1.6
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
Income (expense), net
|
|
$
|
5.8
|
|
$
|
(3.0
|
)
|
$
|
0.5
|
|
|
|
|
|
|
|
|
|
These
amounts are recorded in interest and other income (expense), net in the consolidated statements of income and comprehensive income.
97
Table of Contents
Note 12Income Taxes
The domestic and foreign components of income before taxes are as follows for the years ended December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Domestic
|
|
$
|
(11.6
|
)
|
$
|
(25.3
|
)
|
$
|
(12.5
|
)
|
Foreign
|
|
|
149.9
|
|
|
170.8
|
|
|
162.6
|
|
|
|
|
|
|
|
|
|
|
|
$
|
138.3
|
|
$
|
145.5
|
|
$
|
150.1
|
|
|
|
|
|
|
|
|
|
The
components of the income tax provision are as follows for the years ended December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Current income tax (benefit) expense:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
1.4
|
|
$
|
(0.6
|
)
|
$
|
0.3
|
|
State
|
|
|
0.9
|
|
|
0.2
|
|
|
|
|
Foreign
|
|
|
69.5
|
|
|
56.7
|
|
|
56.6
|
|
|
|
|
|
|
|
|
|
Total current income tax expense
|
|
|
71.8
|
|
|
56.3
|
|
|
56.9
|
|
Deferred income tax (benefit):
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1.2
|
|
|
(3.8
|
)
|
|
0.3
|
|
State
|
|
|
|
|
|
(0.9
|
)
|
|
|
|
Foreign
|
|
|
(12.9
|
)
|
|
(0.1
|
)
|
|
(3.9
|
)
|
|
|
|
|
|
|
|
|
Total deferred income tax (benefit)
|
|
|
(11.7
|
)
|
|
(4.8
|
)
|
|
(3.6
|
)
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
60.1
|
|
$
|
51.5
|
|
$
|
53.3
|
|
|
|
|
|
|
|
|
|
A
reconciliation of the United States federal statutory rate to the effective income tax rate is as follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Statutory tax rate
|
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
Foreign tax rate differential
|
|
|
(7.2
|
)
|
|
(8.0
|
)
|
|
(5.7
|
)
|
Permanent differences
|
|
|
18.7
|
|
|
12.8
|
|
|
13.7
|
|
Tax contingencies
|
|
|
3.0
|
|
|
6.1
|
|
|
4.4
|
|
Change in tax rates
|
|
|
(0.7
|
)
|
|
0.2
|
|
|
0.1
|
|
Withholding taxes
|
|
|
0.3
|
|
|
|
|
|
(1.3
|
)
|
State income taxes, net of federal benefits
|
|
|
0.3
|
|
|
(0.3
|
)
|
|
0.7
|
|
Purchase accounting
|
|
|
0.9
|
|
|
(3.0
|
)
|
|
0.2
|
|
Tax Credits
|
|
|
(9.5
|
)
|
|
(5.1
|
)
|
|
(4.1
|
)
|
Other
|
|
|
0.1
|
|
|
(1.5
|
)
|
|
(0.5
|
)
|
Change in valuation allowance for unbenefitted losses
|
|
|
2.6
|
|
|
(0.8
|
)
|
|
(7.0
|
)
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
43.5
|
%
|
|
35.4
|
%
|
|
35.5
|
%
|
|
|
|
|
|
|
|
|
98
Table of Contents
The
tax effect of temporary items that give rise to significant portions of the deferred tax assets and liabilities are as follows as of December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
1.3
|
|
$
|
|
|
Accrued expenses
|
|
|
0.8
|
|
|
6.1
|
|
Compensation
|
|
|
8.6
|
|
|
8.2
|
|
Investments
|
|
|
0.8
|
|
|
4.2
|
|
Deferred revenue
|
|
|
2.2
|
|
|
4.4
|
|
Net operating loss carryforwards
|
|
|
10.6
|
|
|
15.3
|
|
Capital loss carryforwards
|
|
|
|
|
|
0.3
|
|
Foreign tax and other tax credit carryforwards
|
|
|
15.5
|
|
|
14.8
|
|
Foreign statutory reserves
|
|
|
15.0
|
|
|
4.9
|
|
Unrealized currency gain/loss
|
|
|
4.8
|
|
|
|
|
Warranty reserve
|
|
|
3.1
|
|
|
2.9
|
|
Other
|
|
|
0.6
|
|
|
1.3
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
63.3
|
|
|
62.4
|
|
Less valuation allowance
|
|
|
(39.9
|
)
|
|
(33.7
|
)
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
23.4
|
|
|
28.7
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
0.1
|
|
|
1.0
|
|
Fixed assets
|
|
|
2.8
|
|
|
4.0
|
|
Foreign statutory reserves
|
|
|
5.8
|
|
|
12.5
|
|
Investments
|
|
|
0.3
|
|
|
2.5
|
|
Inventory
|
|
|
0.3
|
|
|
0.6
|
|
Intangibles
|
|
|
5.8
|
|
|
7.6
|
|
Accrued expenses
|
|
|
3.9
|
|
|
3.8
|
|
Other
|
|
|
|
|
|
3.0
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
19.0
|
|
|
35.0
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
4.4
|
|
$
|
(6.3
|
)
|
|
|
|
|
|
|
The
valuation allowance was determined through an assessment of both positive and negative evidence whether it is more likely than not that deferred tax assets are recoverable. The
Company's assessment was made on a jurisdiction-by-jurisdiction basis. The Company fully reserved all U.S. net deferred tax assets, which are predominantly net operating losses
and tax credit carryforwards.
As
of December 31, 2012, the Company has approximately $27.9 million of U.S. net operating loss carryforwards available to reduce future state taxable income which expire
at various times through 2032 and approximately $51.9 million of German Trade Tax net operating losses that are carried forward indefinitely. The Company also has U.S. tax credits of
approximately $13.0 million available to offset future tax liabilities that expire at various dates, which include research and development tax credits of $11.6 million expiring at
various times through 2032 and foreign tax credits of $1.4 million expiring at various times through 2022. Utilization of the U.S. net operating loss carryforwards and credits may be subject to
annual limitations due to the ownership percentage change limitations provided by the Internal Revenue Code Section 382 and similar state provisions. In the event of a deemed change in control
under Internal Revenue Code Section 382, an annual limitation on the utilization of net operating losses and credits may result in the expiration of all or a portion of the net operating loss
and credit carryforwards.
99
Table of Contents
The
Company has permanently reinvested the earnings of its subsidiaries in the cumulative amount of approximately $979.8 million as of December 31, 2012, and therefore, has
not provided for U.S. income taxes that could result from the distribution of such earnings to the U.S. parent. If these earnings were ultimately distributed to the U.S. in the form of dividends or
otherwise, or if the shares of the subsidiaries were sold or transferred, the Company would likely be subject to additional U.S. income taxes, net of the impact of any available foreign tax credits.
It is not practical to estimate the amount of unrecognized deferred U.S. income taxes on these undistributed earnings.
The
Company has gross unrecognized tax benefits of approximately $42.1 million as of December 31, 2012, of which $23.6 million, if recognized, would result in a
reduction of the Company's effective tax rate. A tabular reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):
|
|
|
|
|
Gross unrecognized tax benefits at December 31, 2009
|
|
$
|
23.2
|
|
Gross increasestax positions in prior periods
|
|
|
3.1
|
|
Gross decreasestax positions in prior periods
|
|
|
(1.4
|
)
|
Gross increasescurrent period tax positions
|
|
|
2.1
|
|
|
|
|
|
Gross unrecognized tax benefits at December 31, 2010
|
|
|
27.0
|
|
Gross increasestax positions in prior periods
|
|
|
5.5
|
|
Gross decreasestax positions in prior periods
|
|
|
(0.6
|
)
|
Gross increasescurrent period tax positions
|
|
|
3.1
|
|
Gross decreasescurrent period tax positions
|
|
|
(0.4
|
)
|
|
|
|
|
Gross unrecognized tax benefits at December 31, 2011
|
|
|
34.6
|
|
Gross increasestax positions in prior periods
|
|
|
5.9
|
|
Gross decreasestax positions in prior periods
|
|
|
(2.2
|
)
|
Gross increasescurrent period tax positions
|
|
|
12.0
|
|
Settlements
|
|
|
(4.6
|
)
|
Lapse of statutes
|
|
|
(3.6
|
)
|
|
|
|
|
Gross unrecognized tax benefits at December 31, 2012
|
|
$
|
42.1
|
|
|
|
|
|
The
Company recognizes penalties and interest related to unrecognized tax benefits in the provision for income taxes. As of December 31, 2012 and 2011, the Company had
approximately $3.7 million and $5.6 million, respectively, of accrued interest and penalties related to uncertain tax positions included in other current liabilities in the consolidated
balance sheets. Penalties and interest related to unrecognized tax benefits of $2.0 million and $1.3 million were recorded in the provision for income taxes during the year ended
December 31, 2012 and 2011, respectively.
The
Company files tax returns in the United States, which include federal, state and local jurisdictions and many foreign jurisdictions with varying statutes of limitations. The Company
considers Germany, the United States and Switzerland to be its significant tax jurisdictions. The tax years 2009 to 2012 are open tax years in these significant jurisdictions. In the fourth quarter of
2012, the Company settled tax audits in Switzerland and Germany. The Company recorded an additional $4.6 million, $6.3 million and $2.8 million of tax reserves related to these
audits in 2012, 2011 and 2010, respectively. In addition, the Company has been contacted by the United States Internal Revenue Service and a tax audit has commenced in 2012 for the tax year 2010. It
is expected that this audit will be completed in the fourth quarter of 2013.
100
Table of Contents
Note 13Employee Benefit Plans
Defined Benefit Plans
Substantially all of the Company's employees in Switzerland, France and Japan, as well as certain employees in Germany, are covered by
Company-sponsored defined benefit pension plans. Retirement benefits are generally earned based on years of service and compensation during active employment. Eligibility is generally determined in
accordance with local statutory requirements, however, the level of benefits and terms of vesting varies among plans.
Net Periodic Pension Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Components of net periodic benefit costs:
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
4.6
|
|
$
|
5.5
|
|
$
|
3.9
|
|
Interest cost
|
|
|
4.8
|
|
|
4.9
|
|
|
4.4
|
|
Expected return on plan assets
|
|
|
(4.0
|
)
|
|
(4.1
|
)
|
|
(3.4
|
)
|
Amortization of net loss
|
|
|
1.1
|
|
|
1.3
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
Net periodic benefit costs
|
|
$
|
6.5
|
|
$
|
7.6
|
|
$
|
5.5
|
|
|
|
|
|
|
|
|
|
The
Company measures its benefit obligation and the fair value of plan assets as of December 31st each year. The changes in benefit obligations and plan assets under the
defined benefit pension plans, projected benefit obligation and funded status of the plans were as follows at December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
153.5
|
|
$
|
151.7
|
|
Service cost
|
|
|
4.6
|
|
|
5.5
|
|
Interest cost
|
|
|
4.8
|
|
|
4.9
|
|
Plan participant contributions
|
|
|
3.4
|
|
|
3.4
|
|
Benefits paid
|
|
|
(5.0
|
)
|
|
(3.3
|
)
|
Actuarial loss (gain)
|
|
|
20.4
|
|
|
(7.7
|
)
|
Impact of foreign currency exchange rates
|
|
|
3.8
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
185.5
|
|
|
153.5
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
112.9
|
|
|
111.3
|
|
Return on plan assets
|
|
|
4.4
|
|
|
(2.1
|
)
|
Plan participant and employer contributions
|
|
|
8.7
|
|
|
7.6
|
|
Benefits paid
|
|
|
(5.0
|
)
|
|
(3.3
|
)
|
Impact of foreign currency exchange rates
|
|
|
2.9
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
123.9
|
|
|
112.9
|
|
|
|
|
|
|
|
Net funded status
|
|
$
|
(61.6
|
)
|
$
|
(40.6
|
)
|
|
|
|
|
|
|
The
accumulated benefit obligation for the defined benefit pension plans is $176.5 million and $145.5 million at December 31, 2012 and 2011, respectively. All
defined benefit pension plans have an accumulated benefit obligation and projected benefit obligation in excess of plan assets at December 31, 2012 and 2011.
101
Table of Contents
The following amounts were recognized in the accompanying consolidated balance sheets for the Company's defined benefit plans at December 31, (in
millions):
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Current liabilities
|
|
$
|
(1.6
|
)
|
$
|
(1.4
|
)
|
Non-current liabilities
|
|
|
(60.0
|
)
|
|
(39.2
|
)
|
|
|
|
|
|
|
Net benefit obligation
|
|
$
|
(61.6
|
)
|
$
|
(40.6
|
)
|
|
|
|
|
|
|
The
following pre-tax amounts were recognized in accumulated other comprehensive income for the Company's defined benefit plans at December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Reconciliation of amounts recognized in the consolidated balance sheets:
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
(41.1
|
)
|
$
|
(22.2
|
)
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
(41.1
|
)
|
|
(22.2
|
)
|
Accumulated contributions in excess of net periodic benefit cost
|
|
|
(20.5
|
)
|
|
(18.4
|
)
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(61.6
|
)
|
$
|
(40.6
|
)
|
|
|
|
|
|
|
The
amount in accumulated other comprehensive income at December 31, 2012 expected to be recognized as amortization of net loss within net periodic benefit cost in 2013 is
$2.1 million.
The
range of assumptions used for defined benefit pension plans reflects the different economic environments within the various countries. The range of assumptions used to determine the
projected benefit obligations for the years ended December 31, are as follows:
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Discount rate
|
|
0.8%-4.1%
|
|
1.1%-5.5%
|
|
1.2%-5.6%
|
Expected return on plan assets
|
|
3.5%
|
|
3.4%-4.0%
|
|
3.5%-4.3%
|
Expected rate of compensation increase
|
|
1.0%-3.8%
|
|
1.0%-3.8%
|
|
1.0%-3.0%
|
To
determine the expected long-term rate of return on pension plan assets, the Company considers current asset allocations, as well as historical and expected returns on
various asset categories of plan assets. For the principal pension plans, the Company applies the expected rate of return to a market-related value of assets, which stabilizes variability in assets to
which the expected return is applied.
102
Table of Contents
Asset Allocations by Asset Category
The fair value of the Company's pension plan assets at December 31, 2012 and 2011, by asset category and by level in the fair
value hierarchy, is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
Total
|
|
Quoted Prices in
Active Markets
Available (Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
Plan Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (a)
|
|
$
|
12.1
|
|
$
|
12.1
|
|
$
|
|
|
$
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate (b)
|
|
|
1.3
|
|
|
1.3
|
|
|
|
|
|
|
|
Foreign corporations (c)
|
|
|
7.5
|
|
|
7.5
|
|
|
|
|
|
|
|
Foreign governments (c)
|
|
|
43.3
|
|
|
43.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52.1
|
|
|
52.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign corporations (d)
|
|
|
6.4
|
|
|
6.4
|
|
|
|
|
|
|
|
U.S. corporations (d)
|
|
|
31.4
|
|
|
31.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37.8
|
|
|
37.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate (e)
|
|
|
15.0
|
|
|
15.0
|
|
|
|
|
|
|
|
Mortgage and other asset-backed securities (f)
|
|
|
6.9
|
|
|
|
|
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total plan assets
|
|
$
|
123.9
|
|
$
|
117.0
|
|
$
|
6.9
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
Total
|
|
Quoted Prices in
Active Markets
Available (Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
Plan Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (a)
|
|
$
|
8.3
|
|
$
|
8.3
|
|
$
|
|
|
$
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign corporations (c)
|
|
|
12.5
|
|
|
12.5
|
|
|
|
|
|
|
|
Foreign governments (c)
|
|
|
36.9
|
|
|
36.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49.4
|
|
|
49.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign corporations (d)
|
|
|
28.6
|
|
|
28.6
|
|
|
|
|
|
|
|
U.S. corporations (d)
|
|
|
6.0
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34.6
|
|
|
34.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate (e)
|
|
|
13.9
|
|
|
13.9
|
|
|
|
|
|
|
|
Mortgage and other asset-backed securities (f)
|
|
|
6.7
|
|
|
|
|
|
6.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total plan assets
|
|
$
|
112.9
|
|
$
|
106.2
|
|
$
|
6.7
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
Cash
and cash equivalents consist primarily of highly liquid investments, including cash on hand.
-
(b)
-
Our
U.S. Corporate bond investments had an average rating of AA.
-
(c)
-
Our
Foreign Corporate and Government bond investments had an average rating of AA.
-
(d)
-
U.S.
and International equites primarily include investments in large market capitalization stocks.
103
Table of Contents
-
(e)
-
Real
estate includes Swiss public real estate funds which generate returns in line with the Swiss property market by investing in residential and commerical
properties throughout Switzerland.
-
(f)
-
Mortgage
and other asset-backed securities pool together various cash-flow producing financial assets typically collateralized by residential
mortgages, commercial mortgages and other assets.
The
Managing Directors of the subsidiaries are responsible for setting the policy that serves as the framework for allocating plan assets. The policy defines an investment strategy,
including the asset allocation ranges, which is designed to ensure that the benefit obligations of the plans can be met when they are due. The investment strategy also is targeted at optimizing the
return on investment within the risk constraints of the plans. The Managing Directors appoint the plan fiduciaries, who oversee the investment allocation process, which includes selecting investment
managers, setting long-term strategic targets and monitoring asset allocations. The target allocations are 55% bonds, including cash, 30% equity investments and 15% real estate and
mortgages. Target allocation ranges are guidelines, not limitations, and occasionally plan fiduciaries will approve allocations above or below a target range based on a number of factors, including
market conditions.
Estimated Future Benefit Payments
The estimated future benefit payments are based on the same assumptions used to measure the Company's benefit obligation at
December 31, 2012. The following benefit payments reflect future employee service as appropriate (in millions):
|
|
|
|
|
2013
|
|
$
|
7.3
|
|
2014
|
|
|
3.9
|
|
2015
|
|
|
3.9
|
|
2016
|
|
|
4.8
|
|
2017
|
|
|
4.8
|
|
2018-2022
|
|
|
31.4
|
|
Other Benefit Plans
The Company sponsors various defined contribution plans that cover certain domestic and international employees. The Company may make
contributions to these plans at its discretion. The Company contributed $4.6 million, $3.7 million and $2.5 million to such plans in the years ended December 31, 2012, 2011
and 2010, respectively.
Note 14Commitments and Contingencies
Operating Leases
Certain buildings, office equipment and vehicles are leased under agreements that are accounted for as operating leases. Total rental
expense under operating leases was $21.6 million, $18.5 million and $15.8 million during the years ended December 31, 2012, 2011 and 2010, respectively. Future minimum
104
Table of Contents
lease
payments under non-cancelable operating leases at December 31, 2012, for each of the next five years are as follows (in millions):
|
|
|
|
|
2013
|
|
$
|
19.4
|
|
2014
|
|
|
16.1
|
|
2015
|
|
|
13.5
|
|
2016
|
|
|
10.7
|
|
2017
|
|
|
8.8
|
|
Thereafter
|
|
|
16.7
|
|
|
|
|
|
Total
|
|
$
|
85.2
|
|
|
|
|
|
Capital Leases
The Company leases certain buildings under agreements that are classified as capital leases. The cost of the buildings under the
capital leases is included in the consolidated balance sheets as property, plant and equipment and was $9.9 million at December 31, 2012 and 2011. Accumulated amortization of the leased
buildings at December 31, 2012 and 2011 was $3.0 million and $2.6 million, respectively. Amortization expense related to assets under capital leases is included in depreciation
expense. The obligations related to capital leases are recorded as a component of long-term debt or the current portion of long-term debt in the consolidated balance sheets,
depending on when the lease payments are due.
License Agreements
The Company has entered into cross-licensing agreements for various technologies that allow other companies to utilize certain of its
patents and related technologies over various periods or into perpetuity. Income from these agreements for the years ended December 31, 2012, 2011 and 2010 was $20.2 million,
$2.9 million and $3.2 million, respectively, and is classified in other revenue in the consolidated statements of income and comprehensive income. The increase in the year ended
December 31, 2012 is driven by license revenue from the sale of technology by Bruker Energy & Supercon Technologies. The unearned portions of proceeds from the cross-licensing agreements
are classified as short-term or long-term deferred revenue depending on when the revenue will be earned.
The
Company has also entered into license agreements allowing it to utilize certain patents. If these patents are used in connection with a commercial product sale, the Company pays
royalties ranging from 0.15% to 5.0% on the related product revenues. Licensing fees for the years ended December 31, 2012, 2011 and 2010, were $4.2 million, $2.8 million and
$1.8 million, respectively, and are recorded in cost of product revenue in the consolidated statements of income and comprehensive income.
Grants
The Company has received certain grants from government authorities in the United States and Germany. The grants were made in
connection with the Company's development of specific magnetic resonance core technology equipment, spectrometers and related components and a standalone monitor for chemical agents. The agreements
under which these grants were awarded have expiration dates ranging between 2013 and 2015. Amounts received under these grants during the years ended December 31, 2012, 2011 and 2010, totaled
$4.7 million, $4.0 million and $3.8 million, respectively, and are classified as other revenue in the consolidated statements of income and comprehensive income. Total
expenditures related to these grants during the years ended December 31, 2012, 2011 and 2010 were $5.1 million, $5.5 million and $4.5 million, respectively, and are
classified as research and development expenses in the consolidated statements of income and comprehensive income.
105
Table of Contents
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, individually and in the aggregate, if any, will not have a material impact on the Company's financial position or results of operations. As of
December 31, 2012 and 2011, no accruals have been recorded for such potential contingencies.
On
September 21, 2012, Vertical Analytics LLC filed an action in the U.S. District Court for the District of Delaware against Bruker AXS Inc. ("Bruker AXS"). The
complaint, which claims unspecified damages and injunctive relief, alleges that Bruker AXS infringes, induces infringement, or contributes to the infringement of certain U.S. patents related to
X-ray diffraction analysis held by Vertical Analytics LLC. Bruker AXS filed its response to the complaint in November 2012 and has asserted various defenses. Discovery commenced in
January 2013. Bruker AXS believes the claims to be without merit and intends to vigorously defend this action. At this time, the Company cannot reasonably assess the timing or outcome of this matter.
Accordingly, no provision with respect to this matter has been recorded in the accompanying consolidated financial statements.
On
November 4, 2011, Hyphenated Systems, LLC filed an action in California Superior Court, Santa Clara County, against the Company and Veeco Metrology, Inc. in
connection with certain agreements entered into prior and subsequent to the Company's acquisition of all of the shares of Veeco Metrology, Inc. in October 2010. Upon the closing of the
acquisition, Veeco Metrology, Inc. was renamed Bruker Nano, Inc. ("Bruker Nano"). The suit, which also names one current and one former employee of Bruker Nano, claims unspecified
damages for breach of contract, fraud and unfair competition in connection with the performance of the agreements. The Company believes the claims to be without merit and intends to vigorously defend
this action. At this time, the Company cannot reasonably assess the timing or outcome of this matter. Accordingly, no provision with respect to this matter has been recorded in the accompanying
consolidated financial statements.
Internal Investigation and Compliance Matters
As previously reported, the Audit Committee of the Company's Board of Directors, assisted by independent outside counsel and an
independent forensic consulting firm, conducted an internal investigation in response to anonymous communications received by the Company alleging improper conduct in connection with the China
operations of the Company's Bruker Optics subsidiary. The Audit Committee's investigation, which began in 2011 and was completed in the first quarter of 2012, included a review of compliance by Bruker
Optics and its employees in China and Hong Kong with the requirements of the Foreign Corrupt Practices Act ("FCPA") and other applicable laws and regulations.
The
investigation found evidence indicating that payments were made that improperly benefited employees or agents of government-owned enterprises in China and Hong Kong. The
investigation also found evidence that certain employees of Bruker Optics in China and Hong Kong failed to comply with the Company's policies and standards of conduct. As a result, the Company took
personnel actions, including the termination of certain individuals. The Company also terminated its business relationships with certain third party agents, implemented an enhanced FCPA compliance
program, and strengthened the financial controls and oversight at its subsidiaries operating in China and Hong Kong. During 2011, the Company also initiated a review of the China operations of its
other subsidiaries, with the assistance of an independent audit firm. On the basis of the review conducted to date, the Company has identified additional employees in Bruker subsidiaries operating in
China who failed to comply with the Company's policies and standards of conduct, and has taken additional personnel actions at certain of its subsidiaries as a result. The review is ongoing and no
conclusions can be drawn at this time as to its final outcome.
106
Table of Contents
The Company voluntarily contacted the United States Securities and Exchange Commission and the United States Department of Justice in August 2011 to advise both
agencies of the internal investigation by the Audit Committee regarding the China operations of the Company's Bruker Optics subsidiary. In October 2011, the Company also reported that existence of the
internal investigation to the Hong Kong Joint Financial Intelligence Unit and Independent Commission Against Corruption ("ICAC"). The Company has cooperated with the United States federal agencies and
Hong Kong government authorities with respect to their inquiries and has provided documents and/or made witnesses available in response to requests from the governmental authorities reviewing this
matter. The Company intends to continue to cooperate with these agencies in connection with their inquiries. At this time the Company cannot reasonably assess the timing or outcome of these matters or
their effect, if any, on the Company's business.
The
FCPA and related statutes and regulations provide for potential monetary penalties as well as criminal and civil sanctions in connection with FCPA violations. It is possible that
monetary penalties and other sanctions could be assessed by the U.S. Federal government in connection with these matters. Additionally, to the extent any payments are determined to be illegal by local
government authorities, civil or criminal penalties may be assessed by such authorities and the Company's ability to conduct business in that jurisdiction may be negatively impacted. At this time, the
Company cannot predict the extent to which the Securities and Exchange Commission ("SEC"), the Department of Justice ("DOJ"), the ICAC or any other governmental authorities will pursue administrative,
civil injunctive or criminal proceedings, the imposition of fines or penalties or other remedies or sanctions. Given the current status of the inquiries from these agencies, the Company cannot
reasonably estimate the possible loss or range of possible loss that may result from any proceedings that may be
commenced by the SEC, the DOJ, the ICAC or any other governmental authorities. Accordingly, no provision with respect to such matters has been recorded in the accompanying consolidated financial
statements. Any adverse findings or other negative outcomes from any such proceedings could have a material impact on the Company's consolidated financial statements in future periods.
Letters of Credit and Guarantees
At December 31, 2012 and 2011, the Company had bank guarantees of $143.2 million and $115.4 million, respectively,
related primarily to customer advances. These arrangements guarantee the refund of advance payments received from customers in the event that the merchandise is not delivered or warranty obligations
are not fulfilled in compliance with the terms of the contract. These guarantees affect the availability of the Company's lines of credit.
Indemnifications
The Company enters into standard indemnification arrangements in the Company's ordinary course of business. Pursuant to these
arrangements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, generally the Company's business
partners or customers, in connection with any patent, or any copyright or other intellectual property infringement claim by any third party with respect to its products. The term of these
indemnification agreements is generally perpetual anytime after the execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these
agreements is unlimited. The Company believes the estimated fair value of these agreements is minimal.
The
Company has entered into indemnification agreements with its directors and officers that may require the Company to: indemnify its directors and officers against liabilities that may
arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct of a culpable nature; advance their expenses incurred as a result of any
proceeding against them as to
107
Table of Contents
which
they could be indemnified; and obtain directors' and officers' insurance if available on reasonable terms, which the Company currently has in place.
Environmental Remediation
A former owner of the land and building in Santa Barbara, California, which serves as the headquarters for the Company's nano surfaces
business, has disclosed that there are hazardous substances present in the ground under the building. Management believes that the comprehensive indemnification clause included in the purchase
agreement related to the acquisition of the nano surfaces business provides adequate protection against any environmental issues that may arise.
Note 15Shareholders' Equity
Dividends
The terms of some of the Company's indebtedness currently restrict the Company's ability to pay dividends to its shareholders.
Stock Plans
Bruker Corporation Stock Plan
In February 2010, the Bruker BioSciences Corporation Amended and Restated 2000 Stock Option Plan, or the 2000 Plan, expired at the end
of its scheduled
ten-year term. On March 9, 2010, the Company's Board of Directors unanimously approved and adopted the Bruker Corporation 2010 Incentive Compensation Plan, or the 2010 Plan, and on
May 14, 2010, the 2010 Plan was approved by the Company's stockholders. The 2010 Plan provides for the issuance of up to 8,000,000 shares of the Company's common stock. The Plan allows a
committee of the Board of Directors (the "Committee") to grant incentive stock options, non-qualified stock options and restricted stock awards. The Committee has the authority to
determine which employees will receive the awards, the amount of the awards and other terms and conditions of the award. Awards granted by the Committee typically vest over a period of three to five
years.
Stock
option activity for the year ended December 31, 2012, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Subject to
Options
|
|
Weighted
Average
Option Price
|
|
Weighted Average
Remaining Contractual
Term (Yrs)
|
|
Aggregate
Intrinsic Value
(in millions) (b)
|
|
Outstanding at December 31, 2011
|
|
|
5,096,253
|
|
$
|
10.64
|
|
|
|
|
|
|
|
Granted
|
|
|
584,250
|
|
|
12.78
|
|
|
|
|
|
|
|
Exercised
|
|
|
(545,778
|
)
|
|
8.30
|
|
|
|
|
$
|
3.8
|
|
Forfeited
|
|
|
(246,588
|
)
|
|
11.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2012
|
|
|
4,888,137
|
|
$
|
11.11
|
|
|
6.1
|
|
$
|
20.7
|
|
|
|
|
|
|
|
|
|
|
|
Vested at December 31, 2012
|
|
|
3,047,346
|
|
$
|
9.77
|
|
|
4.8
|
|
$
|
16.8
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2012 (a)
|
|
|
4,783,212
|
|
$
|
11.06
|
|
|
6.0
|
|
$
|
20.5
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
In
addition to the options that are vested at December 31, 2012, the Company expects a portion of the unvested options to vest in the future. Options
expected to vest in the future are determined by applying an estimated forfeiture rate to the options that are unvested as of December 31, 2012.
108
Table of Contents
-
(b)
-
The
aggregate intrinsic value is based on the positive difference between the fair value of the Company's common stock price of $15.24 on
December 31, 2012, or the date of exercises, as appropriate, and the exercise price of the underlying stock options.
Unrecognized
pre-tax stock-based compensation expense of $11.0 million related to stock options awarded under the 2000 and 2010 Plans is expected to be recognized over
the weighted average remaining service period of 2.1 years for stock options outstanding at December 31, 2012.
Restricted
shares of the Company's 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-based compensation for restricted stock is
recorded based on the stock price on the grant date and charged to expense ratably throughout the restriction period. The following table summarizes information about restricted stock activity during
the year ended December 31, 2012:
|
|
|
|
|
|
|
|
|
|
Shares
Subject to
Restriction
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Outstanding at December 31, 2011
|
|
|
236,232
|
|
$
|
17.76
|
|
Granted
|
|
|
188,028
|
|
|
11.73
|
|
Vested
|
|
|
(82,638
|
)
|
|
14.79
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2012
|
|
|
341,622
|
|
$
|
15.16
|
|
|
|
|
|
|
|
Unrecognized
pre-tax stock-based compensation expense of $4.2 million related to restricted stock awarded under the 2010 Plan is expected to be recognized over the
weighted average remaining service period of 3.7 years for awards outstanding at December 31, 2012. During the year ended December 31, 2012, 2011, 2010, the total fair value of
shares vested from restricted shares of the Company's stock amounted to $1.2 million, $3.1 million and $2.1 million, respectively.
Bruker Energy & Supercon Technologies Stock Plan
In October 2009, the Board of Directors of BEST adopted the Bruker Energy & Supercon Technologies, Inc. 2009 Stock Option
Plan, or the BEST Plan. The BEST Plan provides for the issuance of up to 1,600,000 shares of BEST common stock in connection with awards under the BEST Plan. The BEST Plan allows a committee of the
BEST Board of Directors to grant
incentive stock options, non-qualified stock options and restricted stock awards. The Compensation Committee of the BEST Board of Directors has the authority to determine which employees
will receive the awards, the amount of the awards and other terms and conditions of the awards. As of December 31, 2012 and 2011, 800,000 incentive stock options and non-qualified
stock options, respectively, had been awarded to key employees and directors of the Company with vesting periods of three to five years. As of December 31, 2012 and 2011, no restricted stock
has been awarded under the BEST Plan.
The
Company recorded approximately $0.5 million in 2012 and 2011 of pre-tax stock-based compensation expense related to awards granted under the BEST Plan.
Unrecognized pre-tax stock- based compensation expense of $0.7 million related to stock options awarded under the BEST Plan is expected to be recognized over the weighted average
remaining service period of 1.6 years for awards outstanding at December 31, 2012.
109
Table of Contents
Note 16Accumulated Other Comprehensive Income
The following is a summary of the components of accumulated other comprehensive income, net of tax, at December 31, (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
|
|
Unrealized
Losses on
Cash Flow
Hedges
|
|
Pension
Liability
Adjustment
|
|
Accumulated
Other
Comprehensive
Income
|
|
Balance at December 31, 2009
|
|
$
|
167.5
|
|
$
|
(3.5
|
)
|
$
|
(10.5
|
)
|
$
|
153.5
|
|
Other comprehensive income
|
|
|
8.3
|
|
|
(2.1
|
)
|
|
(10.5
|
)
|
|
(4.3
|
)
|
Realized loss on reclassification
|
|
|
|
|
|
2.6
|
|
|
0.6
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
175.8
|
|
|
(3.0
|
)
|
|
(20.4
|
)
|
|
152.4
|
|
Other comprehensive income (loss)
|
|
|
(14.7
|
)
|
|
(0.3
|
)
|
|
1.6
|
|
|
(13.4
|
)
|
Realized loss on reclassification
|
|
|
|
|
|
2.2
|
|
|
1.3
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2011
|
|
|
161.1
|
|
|
(1.1
|
)
|
|
(17.5
|
)
|
|
142.5
|
|
Other comprehensive income (loss)
|
|
|
9.2
|
|
|
(0.2
|
)
|
|
(16.1
|
)
|
|
(7.1
|
)
|
Realized loss on reclassification
|
|
|
|
|
|
1.3
|
|
|
1.1
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012
|
|
$
|
170.3
|
|
$
|
|
|
$
|
(32.5
|
)
|
$
|
137.8
|
|
|
|
|
|
|
|
|
|
|
|
Note 17Deferred Offering Costs
In September 2010, the Company announced plans to sell a minority ownership position in its BEST subsidiary through an initial public
offering of the capital stock of BEST. As a result of economic and market factors, the timing of the BEST initial public offering was uncertain and the Company expensed deferred offering costs
totaling $3.4 million in 2011. In March
2012, the Company determined not to proceed with the initial public offering of the capital stock of BEST.
Note 18Other Charges, Net
The components of other charges, net for the years ended December 31, 2012, 2011 and 2010, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Acquisition-related charges
|
|
$
|
(0.1
|
)
|
$
|
1.2
|
|
$
|
1.8
|
|
Transition-related charges incurred in connection with acquired businesses
|
|
|
|
|
|
3.0
|
|
|
2.8
|
|
Professional fees incurred in connection with internal investigation
|
|
|
11.1
|
|
|
4.3
|
|
|
|
|
Factory relocation charges
|
|
|
2.0
|
|
|
|
|
|
|
|
Restructuring charges
|
|
|
0.5
|
|
|
1.0
|
|
|
0.2
|
|
Loss on divestiture of business
|
|
|
|
|
|
|
|
|
1.0
|
|
Other charges, net
|
|
|
0.4
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13.9
|
|
$
|
9.7
|
|
$
|
5.8
|
|
|
|
|
|
|
|
|
|
110
Table of Contents
Note 19Interest and Other Income (Expense), Net
The components of interest and other income (expense), net for the years ended December 31, 2012, 2011 and 2010, were as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Interest income
|
|
$
|
0.9
|
|
$
|
1.0
|
|
$
|
0.9
|
|
Interest expense
|
|
|
(14.3
|
)
|
|
(7.3
|
)
|
|
(5.6
|
)
|
Exchange losses on foreign currency transactions
|
|
|
(6.8
|
)
|
|
(4.4
|
)
|
|
(1.5
|
)
|
Gain on disposal of product line
|
|
|
2.2
|
|
|
|
|
|
|
|
Other
|
|
|
0.3
|
|
|
0.6
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
Interest and other income (expense), net
|
|
$
|
(17.7
|
)
|
$
|
(10.1
|
)
|
$
|
(5.6
|
)
|
|
|
|
|
|
|
|
|
Note 20Business Segment Information
The Company has determined that it has four operating segments based on the information reviewed by the Chief Operating Decision Maker,
representing each of its four groups or divisions: the Bruker BioSpin group, the Bruker CALID group, the Bruker MAT group, and Bruker Energy & Supercon Technologies division. The Bruker BioSpin
group is in the business of designing, manufacturing and distributing enabling life science tools based on magnetic resonance technology. The Bruker CALID group combines the Bruker Daltonics, Bruker
Chemical and Applied Markets, Bruker Detection and Bruker Optics divisions and is in the business of designing, manufacturing, and distributing mass spectrometry and chromatography instruments and
solutions for life sciences, including proteomics, metabolomics, and clinical research applications. The Company's mass spectrometry and chromatography instruments also provide solutions for applied
markets that include food safety, environmental analysis and petrochemical analysis. Bruker CALID also designs, manufactures, and distributes various analytical instruments for CBRNE detection and
research, as well as analytical, research and process analysis instruments and solutions based on infrared and Raman molecular spectroscopy technologies. The Bruker MAT group comprises the Bruker AXS,
Bruker Nano Surfaces, Bruker Nano Analytics and Bruker Elemental divisions and is in the business of manufacturing and distributing advanced X-ray, spark-optical emission spectroscopy,
atomic force microscopy and stylus and optical metrology instrumentation used in non-destructive molecular, materials and elemental analysis. The Bruker Energy & Supercon
Technologies division is in the business of developing and producing low temperature superconductor and high temperature superconductor materials for use in advanced magnet technology and energy
applications as well as linear accelerators, accelerator cavities, insertion devices, other accelerator components and specialty superconducting magnets for physics and energy research and a variety
of other scientific applications.
The
Company's reportable segments are organized by the types of products and services provided. The Company has combined the Bruker BioSpin, Bruker CALID and Bruker MAT 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.
111
Table of Contents
Selected
business segment information is presented below for the years ended December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
Scientific Instruments
|
|
$
|
1,666.1
|
|
$
|
1,554.1
|
|
$
|
1,225.1
|
|
Energy & Supercon Technologies
|
|
|
136.2
|
|
|
113.4
|
|
|
90.5
|
|
Eliminations (a)
|
|
|
(10.9
|
)
|
|
(15.8
|
)
|
|
(10.7
|
)
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
1,791.4
|
|
$
|
1,651.7
|
|
$
|
1,304.9
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
Scientific Instruments
|
|
$
|
140.8
|
|
$
|
162.8
|
|
$
|
160.5
|
|
Energy & Supercon Technologies
|
|
|
12.8
|
|
|
(4.1
|
)
|
|
(2.6
|
)
|
Corporate, eliminations and other (b)
|
|
|
2.4
|
|
|
(3.1
|
)
|
|
(2.2
|
)
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
156.0
|
|
$
|
155.6
|
|
$
|
155.7
|
|
|
|
|
|
|
|
|
|
-
(a)
-
Represents
product and service revenue between reportable segments.
-
(b)
-
Represents
corporate costs and eliminations not allocated to the reportable segments.
The
Company recorded an impairment of assets within the Scientific Instruments segment of $22.6 million for the year ended December 31, 2012, comprising goodwill and
definite-lived intangible asset impairment charges of $1.4 million and $16.4 million, respectively, in our CAM division as a result of experiencing increased deterioration in its financial
performance, and an impairment charge of $4.8 million of other long-lived assets to reduce the carrying value to their estimated fair value. The Company recorded an impairment of assets of
$1.2 million within the Energy & Supercon Technologies segment for the year ended December 31, 2012 to reduce the carrying value of certain tangible long-lived assets to
their estimated fair value.
Total
assets by segment as of and for the years ended December 31, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Assets:
|
|
|
|
|
|
|
|
Scientific Instruments
|
|
$
|
1,786.2
|
|
$
|
1,675.0
|
|
Energy & Supercon Technologies
|
|
|
134.4
|
|
|
104.4
|
|
Eliminations and other (a)
|
|
|
(64.2
|
)
|
|
(68.9
|
)
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,856.4
|
|
$
|
1,710.5
|
|
|
|
|
|
|
|
-
(a)
-
Assets
not allocated to the reportable segments and eliminations of intercompany transactions.
112
Table of Contents
Total
capital expenditures and depreciation and amortization by segment are presented below for the years ended December 31, (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
|
|
Scientific Instruments
|
|
$
|
60.1
|
|
$
|
52.3
|
|
$
|
26.6
|
|
Energy & Supercon Technologies
|
|
|
12.7
|
|
|
9.3
|
|
|
5.3
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
72.8
|
|
$
|
61.6
|
|
$
|
31.9
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
|
|
|
Scientific Instruments
|
|
$
|
54.6
|
|
$
|
49.1
|
|
$
|
32.8
|
|
Energy & Supercon Technologies
|
|
|
4.5
|
|
|
3.8
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$
|
59.1
|
|
$
|
52.9
|
|
$
|
36.1
|
|
|
|
|
|
|
|
|
|
Revenue
and property, plant and equipment by geographical area as of and for the year ended December 31, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
377.4
|
|
$
|
309.2
|
|
$
|
264.0
|
|
Germany
|
|
|
174.8
|
|
|
195.3
|
|
|
181.6
|
|
Rest of Europe
|
|
|
531.2
|
|
|
483.2
|
|
|
384.1
|
|
Asia Pacific
|
|
|
570.6
|
|
|
500.7
|
|
|
342.7
|
|
Other
|
|
|
137.4
|
|
|
163.3
|
|
|
132.5
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
1,791.4
|
|
$
|
1,651.7
|
|
$
|
1,304.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Property, plant and equipment:
|
|
|
|
|
|
|
|
United States
|
|
$
|
53.7
|
|
$
|
44.9
|
|
Germany
|
|
|
155.3
|
|
|
132.2
|
|
Rest of Europe
|
|
|
63.5
|
|
|
60.3
|
|
Asia Pacific
|
|
|
6.0
|
|
|
7.3
|
|
Other
|
|
|
5.1
|
|
|
4.3
|
|
|
|
|
|
|
|
Total property, plant and equipment, net
|
|
$
|
283.6
|
|
$
|
249.0
|
|
|
|
|
|
|
|
Note 21Related Parties
The Company rents office space from certain of its principal shareholders, certain of which are also members of the Company's Board of
Directors, under multiple leases, which have expiration dates ranging from 2012 to 2021. Total rent expense under these leases was $2.4 million for each of the years ended December 31, 2012,
2011 and 2010.
During
the years ended December 31, 2012, 2011 and 2010, the Company incurred expenses of $2.4 million, $3.2 million and $2.9 million, respectively, to a law firm in which one of
the members of its Board of Directors is a partner.
During
the years ended December 31, 2012, 2011 and 2010, the Company incurred expenses of $0.4 million, $0.5 million and $0.3 million, respectively, to a financial services firm
in which one of the members of its Board of Directors is a partner.
113
Table of Contents
Note 22Recent Accounting Pronouncements
In February 2013, the FASB issued ASU No. 2013-02,
Reporting of Amounts Reclassified Out of
Accumulated Other Comprehensive Income
. Under this standard, entities will be required to disclose additional information with respect to changes in accumulated other
comprehensive income (AOCI) balances by component and significant items reclassified out of AOCI. Expanded disclosures for presentation of changes in AOCI involve disaggregating the total change of
each component of other comprehensive income as well as presenting separately for each such component the portion of the change in AOCI related to (1) amounts reclassified into income and
(2) current-period other comprehensive income. Additionally, for amounts reclassified into income, disclosure in one location would be required, based upon each specific AOCI component, of the
amounts impacting individual income statement line items. Disclosure of the income statement line item impacts will be required only for components of AOCI reclassified into income in their entirety.
The disclosures required with respect to income statement line item impacts would be made in either the notes to the consolidated financial statements or parenthetically on the face of the financial
statements. The ASU is effective for fiscal years beginning after December 15, 2012. The adoption of this amendment in 2013 will not have an impact on the Company's consolidated financial
position, results of operations or cash flows.
In
July 2012, the FASB issued ASU No. 2012-02,
IntangiblesGoodwill and Other (Topic 350): Testing Indefinite-Lived Intangible
Assets for Impairment.
This update is intended to simplify the guidance for impairment testing of indefinite-lived intangible assets as it provides entities an option to
perform a qualitative assessment to determine whether further impairment testing is necessary. The amended provisions are effective for fiscal years beginning after September 15, 2012. However
early adoption is permitted. The adoption of this amendment in 2013 will not have an impact on the Company's consolidated financial position, results of operations or cash flows.
Note 23Quarterly Financial Data (Unaudited)
A summary of operating results for the quarterly periods in the years ended December 31, 2012 and 2011, is set forth below (in
millions, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31 (1)
|
|
Year ended December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
405.6
|
|
$
|
420.7
|
|
$
|
447.8
|
|
$
|
517.3
|
|
Gross profit
|
|
|
190.4
|
|
|
188.2
|
|
|
210.6
|
|
|
242.2
|
|
Operating income
|
|
|
34.4
|
|
|
22.1
|
|
|
60.3
|
|
|
39.2
|
|
Net income attributable to Bruker Corporation
|
|
|
15.1
|
|
|
9.9
|
|
|
39.7
|
|
|
12.8
|
|
Net income per common share attributable to Bruker Corporation shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.09
|
|
$
|
0.06
|
|
$
|
0.24
|
|
$
|
0.08
|
|
Diluted
|
|
$
|
0.09
|
|
$
|
0.06
|
|
$
|
0.24
|
|
$
|
0.08
|
|
Year ended December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
357.0
|
|
$
|
401.2
|
|
$
|
418.4
|
|
$
|
475.1
|
|
Gross profit
|
|
|
161.8
|
|
|
183.6
|
|
|
189.4
|
|
|
217.7
|
|
Operating income
|
|
|
25.7
|
|
|
38.7
|
|
|
37.5
|
|
|
53.7
|
|
Net income attributable to Bruker Corporation
|
|
|
11.3
|
|
|
22.1
|
|
|
19.8
|
|
|
39.1
|
|
Net income per common share attributable to Bruker Corporation shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.07
|
|
$
|
0.13
|
|
$
|
0.12
|
|
$
|
0.24
|
|
Diluted
|
|
$
|
0.07
|
|
$
|
0.13
|
|
$
|
0.12
|
|
$
|
0.23
|
|
-
(1)
-
The
fourth quarter of 2012 includes an impairment of assets of $23.8 million, comprising goodwill, definite-lived intangible assets and other
long-lived assets.
114
Table of Contents