Table of Contents
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT of 1934
|
For
the quarterly period ended June 30, 2008
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT of 1934
|
Commission File Number 000-30833
BRUKER
CORPORATION
(Exact name of
registrant as specified in its charter)
Delaware
|
|
04-3110160
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
40 Manning Road, Billerica, MA 01821
(Address of
principal executive offices) (Zip Code)
Registrants telephone number, including area
code:
(978) 663-3660
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes
x
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of accelerated filer, large accelerated filer, smaller
reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer
o
|
|
Accelerated filer
x
|
|
|
|
Non-accelerated
filer
o
|
|
Smaller reporting
company
o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). Yes
o
No
x
As of
August 5, 2008, there were 163,626,252 shares of the Registrants common
stock outstanding.
Table of Contents
BRUKER
CORPORATION
Quarterly
Report on Form 10-Q
For
the Quarter Ended June 30, 2008
Index
Table
of Contents
PART I
|
FINANCIAL
INFORMATION
|
|
|
ITEM
1.
|
UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
BRUKER
CORPORATION
UNAUDITED CONDENSED CONSOLIDATED
BALANCE SHEETS
(in
thousands, except share and per share data)
|
|
June 30,
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
125,399
|
|
$
|
332,368
|
|
Short term
investments and restricted cash
|
|
6,391
|
|
12,186
|
|
Accounts
receivable, net
|
|
164,236
|
|
185,217
|
|
Inventories
|
|
487,503
|
|
447,688
|
|
Other current
assets
|
|
75,697
|
|
57,238
|
|
Total current
assets
|
|
859,226
|
|
1,034,697
|
|
Property, plant
and equipment, net
|
|
236,321
|
|
207,588
|
|
Intangibles and
other assets
|
|
75,895
|
|
69,346
|
|
Total assets
|
|
$
|
1,171,442
|
|
$
|
1,311,631
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Short-term
borrowings
|
|
$
|
66,431
|
|
$
|
35,591
|
|
Accounts payable
|
|
54,288
|
|
52,293
|
|
Customer
advances
|
|
220,254
|
|
233,466
|
|
Other current
liabilities
|
|
235,455
|
|
239,841
|
|
Total current
liabilities
|
|
576,428
|
|
561,191
|
|
Long-term debt
|
|
175,719
|
|
8,605
|
|
Other long-term
liabilities
|
|
109,713
|
|
105,445
|
|
Minority
interest in consolidated subsidiaries
|
|
753
|
|
538
|
|
Commitments and
contingencies (Note 16)
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders
Equity:
|
|
|
|
|
|
Preferred stock,
$0.01 par value, 5,000,000 shares authorized, none issued or outstanding at
June 30, 2008 or December 31, 2007
|
|
|
|
|
|
Common stock,
$0.01 par value, 260,000,000 and 200,000,000 shares authorized, 163,636,184
and 163,251,890 shares issued and outstanding at June 30, 2008 and
December 31, 2007, respectively
|
|
1,628
|
|
1,624
|
|
Treasury stock,
at cost, 9,359 shares and 0 shares at June 30, 2008 and
December 31, 2007, respectively
|
|
(109
|
)
|
|
|
Other
shareholders equity
|
|
307,310
|
|
634,228
|
|
Total
shareholders equity
|
|
308,829
|
|
635,852
|
|
Total liabilities
and shareholders equity
|
|
$
|
1,171,442
|
|
$
|
1,311,631
|
|
The accompanying
notes are an integral part of these statements.
1
Table of Contents
BRUKER
CORPORATION
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
thousands, except per share data)
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Product revenue
|
|
$
|
278,849
|
|
$
|
210,177
|
|
$
|
485,884
|
|
$
|
391,786
|
|
Service revenue
|
|
31,733
|
|
27,570
|
|
61,690
|
|
52,757
|
|
Other revenue
|
|
883
|
|
595
|
|
2,327
|
|
1,335
|
|
Total revenue
|
|
311,465
|
|
238,342
|
|
549,901
|
|
445,878
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product
revenue
|
|
161,931
|
|
120,810
|
|
266,832
|
|
217,459
|
|
Cost of service
revenue
|
|
20,896
|
|
17,617
|
|
41,302
|
|
33,956
|
|
Total cost of
revenue
|
|
182,827
|
|
138,427
|
|
308,134
|
|
251,415
|
|
Gross profit
|
|
128,638
|
|
99,915
|
|
241,767
|
|
194,463
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
Sales and
marketing
|
|
46,151
|
|
37,029
|
|
89,544
|
|
72,491
|
|
General and
administrative
|
|
17,178
|
|
13,442
|
|
33,982
|
|
26,855
|
|
Research and
development
|
|
36,514
|
|
27,657
|
|
67,719
|
|
53,621
|
|
Acquisition
related charges
|
|
360
|
|
|
|
6,153
|
|
|
|
Total operating
expenses
|
|
100,203
|
|
78,128
|
|
197,398
|
|
152,967
|
|
Operating income
|
|
28,435
|
|
21,787
|
|
44,369
|
|
41,496
|
|
|
|
|
|
|
|
|
|
|
|
Interest and
other income (expense), net
|
|
3,527
|
|
2,214
|
|
(8,662
|
)
|
2,964
|
|
Income before
income tax provision and minority interest in consolidated subsidiaries
|
|
31,962
|
|
24,001
|
|
35,707
|
|
44,460
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
provision
|
|
10,196
|
|
6,284
|
|
14,466
|
|
12,307
|
|
Income before
minority interest in consolidated subsidiaries
|
|
21,766
|
|
17,717
|
|
21,241
|
|
32,153
|
|
Minority
interest in consolidated subsidiaries
|
|
80
|
|
60
|
|
240
|
|
146
|
|
Net income
|
|
$
|
21,686
|
|
$
|
17,657
|
|
$
|
21,001
|
|
$
|
32,007
|
|
Net income per
common share - basic and diluted
|
|
$
|
0.13
|
|
$
|
0.11
|
|
$
|
0.13
|
|
$
|
0.20
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
162,440
|
|
161,728
|
|
162,371
|
|
161,050
|
|
Diluted
|
|
165,438
|
|
164,343
|
|
165,308
|
|
163,731
|
|
The accompanying
notes are an integral part of these statements.
2
Table of Contents
BRUKER
CORPORATION
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands)
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
Operating
activities:
|
|
|
|
|
|
Net cash
provided by operating activities
|
|
$
|
18,103
|
|
$
|
16,633
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
Purchases of
property and equipment
|
|
(27,066
|
)
|
(13,023
|
)
|
Acquisitions,
net of cash acquired
|
|
(2,056
|
)
|
(2,468
|
)
|
Payments in connection
with the acquisition of Bruker BioSpin
|
|
(5,247
|
)
|
|
|
Purchase of short-term
investments
|
|
|
|
(273
|
)
|
Proceeds from
sale of short-term investments
|
|
9,798
|
|
|
|
Changes in
restricted cash
|
|
(3,390
|
)
|
144
|
|
Net cash used in
investing activities
|
|
(27,961
|
)
|
(15,620
|
)
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
Proceeds from
(repayments of) short-term borrowings, net
|
|
15,096
|
|
(9,321
|
)
|
Proceeds from
(repayments of) long-term debt, net
|
|
178,289
|
|
(5,856
|
)
|
Payments of
deferred financing costs
|
|
(2,916
|
)
|
|
|
Proceeds from
issuance of common stock
|
|
1,534
|
|
18,417
|
|
Repurchase of
common stock
|
|
(109
|
)
|
(92
|
)
|
Deemed dividend
in connection with the acquisition of Bruker BioSpin
|
|
(385,963
|
)
|
|
|
Cash payments to
shareholders
|
|
(23,416
|
)
|
(37,641
|
)
|
Net cash used in
financing activities
|
|
(217,485
|
)
|
(34,493
|
)
|
Effect of
exchange rate changes on cash and cash equivalents
|
|
20,374
|
|
3,828
|
|
Net change in
cash and cash equivalents
|
|
(206,969
|
)
|
(29,652
|
)
|
Cash and cash
equivalents at beginning of period
|
|
332,368
|
|
311,240
|
|
Cash and cash
equivalents at end of period
|
|
$
|
125,399
|
|
$
|
281,588
|
|
The accompanying
notes are an integral part of these statements.
3
Table of Contents
BRUKER
CORPORATION
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
Bruker Corporation and
its wholly-owned subsidiaries (the Company) design, manufacture, service and
market proprietary life science and materials research systems based on its
core technology platforms, including X-ray technologies, magnetic resonance
technologies, mass spectrometry technologies, and optical emission spectroscopy
and infrared and Raman molecular spectroscopy technology. The Company also
sells a broad range of field analytical systems for chemical, biological,
radiological and nuclear (CBRN) detection. The Company maintains major technical
and manufacturing centers in Europe, North America and Japan and sales offices
throughout the world. The Companys diverse customer base includes
pharmaceutical, biotechnology and proteomics companies, academic institutions,
advanced materials and semiconductor industries and government agencies.
The financial statements
represent the consolidated accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation. The condensed consolidated financial statements as
of and for the three and six months ended June 30, 2008 and 2007 have been
prepared in accordance with accounting principles generally accepted in the
United States (GAAP) for interim financial information and pursuant to the rules and
regulations of the Securities and Exchange Commission for Quarterly Reports on
Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial
information presented herein does not include all of the information and
footnotes required by GAAP for complete financial statements. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
considered necessary for a fair presentation have been included. The results
for interim periods are not necessarily indicative of the results expected for
the full year.
On February 26,
2008, the Company completed the acquisition of all of the Bruker BioSpin Group
(Bruker BioSpin). Both the Company and Bruker BioSpin were majority owned by
six affiliated stockholders prior to the acquisition. As a result, the
acquisition of Bruker BioSpin was considered a combination of companies under
common control and has been accounted for at historical carrying values at the
date of the acquisition. The consolidated balance sheets, statements of
operations, statements of cash flows and notes to the consolidated financial
statements for all periods presented herein have been restated by combining the
historical consolidated financial statements of the Company and Bruker BioSpin.
Following the acquisition
of Bruker BioSpin, management reevaluated the way the Company is managed and
the internal reporting structure and, as a result of that evaluation, reports
its financial results on the basis of the following two reportable segments:
·
BioScience.
The operations of this segment include the
design, manufacture and distribution of advanced instrumentation and automated
solutions based on X-ray technology and optical emission spectroscopy, mass
spectrometry technology and infrared and Raman molecular spectroscopy
technology. Typical customers of the BioScience segment include pharmaceutical,
biotechnology, proteomics and molecular diagnostic companies, academic
institutions, government agencies, semiconductor companies, chemical, cement,
metals and petroleum companies, raw material manufacturers and food, beverage
and agricultural companies.
·
BioSpin.
The operations of this segment include the design,
manufacture and distribution of enabling life science tools based on its core
technology, magnetic resonance, as well as the manufacturing and development of
low temperature superconductor (LTS) and high temperature superconductor (HTS)
wires for use in advanced magnet technology and energy applications. Typical
customers of the BioSpin segment include pharmaceutical and biotechnology
companies, academic institutions and government agencies.
2. Acquisition of Bruker
BioSpin
On February 26,
2008, the Company completed the acquisition of all of Bruker BioSpin in
accordance with the terms of various agreements dated as of December 2,
2007. Both the Company and Bruker BioSpin were majority owned by six affiliated
stockholders prior to the acquisition. As a result, the acquisition of Bruker
BioSpin by the Company was considered a combination of companies under common
control and has been accounted for at historical
4
Table of Contents
carrying values at the date of the acquisition. Historical consolidated
balance sheets, statements of operations, statements of cash flows and notes to
the consolidated financial statements have been restated by combining the
historical consolidated financial statements of Bruker Corporation with those
of Bruker BioSpin. In addition, because the transaction is accounted for a
combination of companies under common control, all one-time transaction costs
have been expensed as incurred. With the addition of Bruker BioSpin, the
Company enhanced its position as a leading supplier for life science and
materials research, its distribution in the Americas, Europe and Asia, and its
sales and service infrastructure.
Upon the completion of
this acquisition, the Company paid an aggregate of $914.0 million of
consideration to the shareholders of Bruker BioSpin, which was financed with
57,544,872 shares of unregistered common stock valued at $526.0 million, $351.0
million of cash obtained under a new credit facility, and the balance with cash
on hand. The value of the shares of common stock in connection with the merger
was determined using a trailing average of the closing market prices of the
Companys stock for a period of ten consecutive trading days ending two days
prior to the signing of the various stock purchase agreements.
Under the stock purchase
agreements, $98.8 million of the purchase price was paid into escrow accounts
pending the resolution of indemnification obligations and working capital
obligations of the sellers. The unused portion of the $92.0 million indemnity
escrow will be released to the sellers at the later of (1) the 30
th
day following the receipt by the Company of combined audited financial
statements of Bruker BioSpin for the fiscal year ended December 31, 2008
or (2) the resolution of any claim for indemnification of which the
sellers have received notice prior to the conclusion of the 30 day period
described in (1) above. The $6.8 million working capital escrow was
released to the sellers in May 2008 following the receipt by the Company
of combined audited financial statements of Bruker BioSpin for the fiscal year
ended December 31, 2007.
3. Other Acquisitions
On January 31, 2008,
the Company acquired JUWE Laborgeraete GmbH, a privately-held company located
in Viersen, Germany. JUWE develops, manufactures and distributes advanced
combustion analysis systems for various carbon, hydrogen, nitrogen, oxygen and
sulfur elemental applications. JUWEs products are complementary to the Companys
optical emission spectroscopy products. The results of JUWE have been included
in the BioScience segment from the date of acquisition. The aggregate purchase
price of JUWE was $2.7 million, of which $1.2 million was paid in cash, $1.1
million was funded by the issuance of an aggregate of 111,000 restricted
unregistered shares of the Companys common stock, par value $0.01 per share,
to JUWEs shareholders and $0.4 million of net liabilities assumed by the
Company. The Company recorded $2.2 million of goodwill in connection with the
acquisition of JUWE and assigned the goodwill to the BioScience segment.
Proforma financial information reflecting the acquisition of JUWE has not been
presented because the impact on revenues, net income and net income per common
share would not have been material.
4. Provision for Income
Taxes
The income tax provision
for the three months ended June 30, 2008 was $10.2 million compared to an
income tax provision of $6.3 million for the three months ended June 30,
2007, representing effective tax rates of 31.9% and 26.2%, respectively. The
income tax provision for the six months ended June 30, 2008 was $14.5
million compared to an income tax provision of $12.3 million for the six months
ended June 30, 2007, representing effective tax rates of 40.5% and 27.7%,
respectively.
The Companys effective
tax rate reflects the tax provision for non-U.S. entities only, since no benefit
was recognized for cumulative losses incurred in the U.S. A full valuation
allowance will be maintained for U.S. net operating losses until evidence
exists that it is more likely than not that the loss carryforward amounts will
be utilized to offset U.S. taxable income. The Companys tax rate may change
over time as the amount or mix of income and taxes outside the U.S. changes.
The effective tax rate is calculated using projected annual pre-tax income or
loss and is affected by research and development tax credits, the expected
level of other tax benefits, the impact of changes to the valuation allowance,
and changes in the mix of the Companys pre-tax income and losses among
jurisdictions with varying statutory tax rates and credits.
In July 2006, the
Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48,
5
Table of Contents
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement 109
(FIN No. 48). Among
other things, FIN No. 48 provides guidance to address uncertainty in tax
positions and clarifies the accounting for income taxes by prescribing a
minimum recognition threshold which income tax positions must achieve before
being recognized in the financial statements. In connection with the
adoption of FIN No. 48, the Company recorded a net reduction to
retained earnings of $2.0 million as of January 1, 2007. The Company has
unrecognized tax benefits of approximately $19.4 million as of June 30,
2008, of which $8.8 million, if recognized, would result in a reduction of the
Companys effective tax rate. One of the Companys Swiss entities is
currently being audited and the audit is expected to be completed during the
second half of 2008. The audit covers tax years 2003-2006 and the Company
cannot reasonably estimate the outcome of this audit. As of June 30, 2008,
the Company does not expect any material changes, except for the Swiss tax
audit mentioned previously, to unrecognized tax positions within the next
twelve months.
The Company recognizes
penalties and interest related to unrecognized tax benefits in the provision
for income taxes. As of June 30, 2008, approximately $2.4 million of
accrued interest and penalties related to uncertain tax positions was included
in other current liabilities on the consolidated balance sheet, of which $0.2
million and $0.6 million was recorded during the three and six months ended June 30,
2008.
The tax years 2003 to
2007 are open tax years in the Companys major taxing jurisdictions. The
Company files returns in many foreign and state jurisdictions with varying
statutes of limitations.
5. Stock-Based Compensation
In 2000, the Board of
Directors adopted and the shareholders approved the 2000 Stock Option Plan. The
2000 Stock Option Plan allows a committee of the Board of Directors to grant
incentive stock options, non-qualified stock options, stock appreciation rights
and stock awards (including restricted stock and phantom shares). The committee
has the authority to determine which employees will receive the awards, the
amount of the awards and other terms and conditions of the awards. Awards
granted by the committee typically vest over a period of three to five years.
In 2003, the Companys
shareholders approved an amendment and restatement of the 2000 Stock Option
Plan to change the plan name and increase the number of shares available for
issuance by 4,132,000 shares, from 2,188,000 shares to 6,320,000 shares. The
name of the amended plan is the Bruker BioSciences Corporation Amended and
Restated 2000 Stock Option Plan. In 2006, the Companys shareholders approved
an amendment and restatement of the Bruker BioSciences Corporation Amended and Restated
2000 Stock Option Plan to increase the number of shares available for issuance
by 1,680,000 shares, from 6,320,000 shares to 8,000,000 shares. In January 2008,
the Companys shareholders approved another amendment and restatement of the
Bruker BioSciences Corporation Amended and Restated 2000 Stock Option Plan to
increase the number of shares available for issuance by 2,000,000 shares, from
8,000,000 shares to 10,000,000 shares.
As of June 30, 2008,
the Companys primary types of share-based compensation were in the form of
issuances of stock options and restricted stock. The Company recorded
stock-based compensation expense for the three and six months ended June 30,
2008 and 2007, as follows (in thousands):
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Stock options
|
|
$
|
973
|
|
$
|
241
|
|
$
|
1,501
|
|
$
|
474
|
|
Restricted stock
|
|
142
|
|
162
|
|
285
|
|
323
|
|
Total
stock-based compensation, pre-tax
|
|
1,115
|
|
403
|
|
1,786
|
|
797
|
|
Tax benefit
|
|
(167
|
)
|
(113
|
)
|
(355
|
)
|
(223
|
)
|
Total
stock-based compensation, net of tax
|
|
$
|
948
|
|
$
|
290
|
|
$
|
1,431
|
|
$
|
574
|
|
Restricted shares of the
Companys common stock are periodically awarded to executive officers and
certain key employees of the Company subject to a service restriction which
expires ratably over a period of three to five years. The restricted shares of
common stock may not be sold or transferred during the restriction period.
Stock
6
Table of Contents
compensation for restricted stock is recorded based on the stock price
on the grant date and charged to expense ratably through the restriction
period. The following table summarizes information about restricted stock
activity during the six months ended June 30, 2008:
|
|
|
|
Weighted
|
|
|
|
Shares
|
|
Average
|
|
|
|
Subject to
|
|
Grant Date
|
|
|
|
Restriction
|
|
Fair Value
|
|
Outstanding at
December 31, 2007
|
|
569,402
|
|
$
|
5.74
|
|
Granted
|
|
|
|
|
|
Vested
|
|
(31,370
|
)
|
5.70
|
|
Forfeited
|
|
(5,670
|
)
|
6.56
|
|
Outstanding at
June 30, 2008
|
|
532,362
|
|
$
|
5.68
|
|
Unrecognized pretax
expense of $1.9 million related to restricted stock awards is expected to be
recognized over the weighted average remaining service period of 2.9 years for
awards outstanding at June 30, 2008.
Stock options of the
Companys common stock are periodically awarded to executive officers and other
employees of the Company subject to a vesting period which expires ratably over
a period of three to five years. The fair value of each stock option award is
estimated on the date of grant using the Black-Scholes option-pricing model.
Assumptions regarding volatility, expected term, dividend yield and risk-free
interest rate are required for the Black-Scholes model. Volatility and expected
term assumptions are based on the Companys historical experience. The
risk-free interest rate is based on a U.S. treasury note with a maturity
similar to the stock option awards expected life. The assumptions for
volatility, expected life, dividend yield and risk-free interest rate are
presented in the table below:
|
|
2008
|
|
2007
|
|
Risk-free
interest rate
|
|
2.71% - 3.95
|
%
|
3.48% - 5.21
|
%
|
Expected life
|
|
6.5 years
|
|
6.5 years
|
|
Volatility
|
|
72.0
|
%
|
82.0
|
%
|
Expected
dividend yield
|
|
0
|
%
|
0
|
%
|
All stock options granted
had an exercise price equal to the market value of the underlying common stock
on the date of grant. Stock option activity for the six months ended June 30,
2008 was as follows:
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
Average
|
|
Aggregate
|
|
|
|
Shares
|
|
Option
|
|
Remaining
|
|
Intrinsic
|
|
|
|
Subject to
|
|
Price Per
|
|
Contractual
|
|
Value
|
|
|
|
Options
|
|
Share
|
|
Term (in years)
|
|
($s in 000s)
|
|
Outstanding at
December 31, 2007
|
|
4,423,712
|
|
$
|
6.87
|
|
|
|
|
|
Granted
|
|
1,621,500
|
|
12.09
|
|
|
|
|
|
Exercised
|
|
(272,096
|
)
|
5.22
|
|
|
|
|
|
Forfeited
|
|
(106,298
|
)
|
9.18
|
|
|
|
|
|
Outstanding at
June 30, 2008
|
|
5,666,818
|
|
$
|
8.39
|
|
4.7
|
|
$
|
26,107
|
|
Exercisable at
June 30, 2008
|
|
2,341,186
|
|
$
|
6.75
|
|
3.8
|
|
$
|
15,081
|
|
The following table
summarizes information about stock options outstanding and exercisable at June 30,
2008:
7
Table of Contents
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
Average
|
|
Aggregate
|
|
|
|
Average
|
|
Average
|
|
Aggregate
|
|
|
|
|
|
Remaining
|
|
Option
|
|
Intrinsic
|
|
|
|
Remaining
|
|
Option
|
|
Intrinsic
|
|
Range of
|
|
Number
|
|
Contractual
|
|
Price Per
|
|
Value
|
|
Number
|
|
Contractual
|
|
Price Per
|
|
Value
|
|
Exercise Prices
|
|
Outstanding
|
|
Term (in years)
|
|
Share
|
|
($s in 000s)
|
|
Exercisable
|
|
Term (in years)
|
|
Share
|
|
($s in 000s)
|
|
$ 2.12 to $4.00
|
|
619,340
|
|
3.3
|
|
$
|
3.18
|
|
$
|
5,988
|
|
561,140
|
|
3.2
|
|
$
|
3.05
|
|
$
|
5,428
|
|
$ 4.01 to $6.00
|
|
1,355,804
|
|
4.0
|
|
5.14
|
|
10,452
|
|
887,139
|
|
4.0
|
|
5.07
|
|
6,904
|
|
$ 6.01 to $10.00
|
|
1,532,280
|
|
6.6
|
|
7.68
|
|
7,918
|
|
396,471
|
|
5.6
|
|
6.89
|
|
2,363
|
|
$ 10.01 to
$13.00
|
|
1,759,894
|
|
7.6
|
|
11.86
|
|
1,749
|
|
204,436
|
|
3.9
|
|
10.96
|
|
386
|
|
$ 13.01 and
above
|
|
399,500
|
|
2.9
|
|
14.98
|
|
|
|
292,000
|
|
2.8
|
|
15.62
|
|
|
|
|
|
5,666,818
|
|
4.7
|
|
$
|
8.39
|
|
$
|
26,107
|
|
2,341,186
|
|
|
|
$
|
6.75
|
|
$
|
15,081
|
|
The intrinsic values
above are based on the Companys closing stock price of $12.85 on June 30,
2008. The weighted-average grant-date fair value of options granted during the
six months ended June 30, 2008 was $12.09. Unrecognized pretax expense of
$20.4 million related to stock options is expected to be recognized over the
weighted average remaining service period of 3.8 years for awards outstanding
at June 30, 2008.
6. Fair Value of Financial
Instruments
In September 2006,
the FASB issued Statement of Financial Accounting Standard (SFAS) No. 157,
Fair Value Measurements
(SFAS No. 157),
which is effective for fiscal years beginning after November 15, 2007. The
Company adopted SFAS No. 157 as of January 1, 2008. As permitted by
FASB Staff Position (FSP) No. SFAS 157-2,
Effective
Date of FASB Statement No. 157
(FSP No. SFAS 157-2), the
Company elected to defer the adoption of SFAS No. 157 for all non-financial
assets and non-financial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis until January 1,
2009. There was no cumulative effect of adoption related to SFAS No. 157
and the adoption did not have an impact on the Companys financial position,
results of operations, or cash flows. The Company is studying SFAS No. 157
with respect to non-financial assets and non-financial liabilities falling
under the scope of FSP No. SFAS 157-2 and has not yet determined the
expected impact on the Companys financial position, results of operations, or
cash flows.
SFAS No. 157
establishes a three-level valuation hierarchy for measuring fair value and
expands financial statement disclosures about fair value measurements. The
valuation hierarchy is based upon the transparency of inputs to the valuation
of an asset or liability as of the measurement date. The three levels 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.
A financial instruments
categorization within the valuation hierarchy is based upon the lowest level of
input that is significant to the fair value measurement. The Company measures
the following financial assets at fair value on a recurring basis. The fair
value of these financial assets was determined using the following inputs at June 30,
2008 (in thousands):
8
Table of Contents
|
|
Total
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
125,399
|
|
$
|
125,399
|
|
$
|
|
|
$
|
|
|
Short term
investments and restricted cash
|
|
6,391
|
|
6,391
|
|
|
|
|
|
Interest rate
swaps
|
|
875
|
|
|
|
875
|
|
|
|
Total assets
recorded at fair value
|
|
$
|
132,665
|
|
$
|
131,790
|
|
$
|
875
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate
swaps
|
|
$
|
77
|
|
$
|
|
|
$
|
77
|
|
$
|
|
|
Total liabilities
recorded at fair value
|
|
$
|
77
|
|
$
|
|
|
$
|
77
|
|
$
|
|
|
In February 2007,
the FASB issued SFAS No. 159,
The Fair Value Option for
Financial Assets and Financial Liabilities Including an amendment of FASB
Statement No. 115
(SFAS No. 159). SFAS No. 159 permits
entities to choose to measure many financial instruments and certain other
items at fair value and is effective for fiscal years beginning after November 15,
2007. The Company has elected not to apply the fair value option to any of its
assets and liabilities.
7. Inventories
Inventories consisted of
the following as of June 30, 2008 and December 31, 2007 (in
thousands):
|
|
June 30,
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
132,222
|
|
$
|
116,883
|
|
Work-in process
|
|
170,707
|
|
137,959
|
|
Demonstration
units
|
|
40,552
|
|
37,195
|
|
Finished goods
|
|
144,022
|
|
155,651
|
|
|
|
|
|
|
|
Total
inventories
|
|
$
|
487,503
|
|
$
|
447,688
|
|
8. Goodwill and Other
Intangible Assets
The following is a
summary of other intangible assets subject to amortization as of June 30,
2008 and December 31, 2007 (in thousands):
|
|
|
|
June 30, 2008
|
|
December 31, 2007
|
|
|
|
Useful
|
|
Gross
|
|
|
|
Net
|
|
Gross
|
|
|
|
Net
|
|
|
|
Lives
|
|
Carrying
|
|
Accumulated
|
|
Carrying
|
|
Carrying
|
|
Accumulated
|
|
Carrying
|
|
|
|
in Years
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Existing
technology and related patents
|
|
3 to 10
|
|
$
|
14,582
|
|
$
|
(9,153
|
)
|
$
|
5,429
|
|
$
|
13,292
|
|
$
|
(7,937
|
)
|
$
|
5,355
|
|
Customer
relationships
|
|
5
|
|
1,115
|
|
(573
|
)
|
542
|
|
1,115
|
|
(477
|
)
|
638
|
|
Trade names
|
|
5 to 10
|
|
439
|
|
(206
|
)
|
233
|
|
439
|
|
(176
|
)
|
263
|
|
Total
amortizable intangible assets
|
|
|
|
$
|
16,136
|
|
$
|
(9,932
|
)
|
$
|
6,204
|
|
$
|
14,846
|
|
$
|
(8,590
|
)
|
$
|
6,256
|
|
For the three months
ended June 30, 2008 and 2007, the Company recorded amortization expense of
$0.3 million and $0.7 million, respectively, related to other amortizable
intangible assets. For the six months ended June 30, 2008 and 2007, the
Company recorded amortization expense of $1.3 million and $1.4 million,
respectively, related to other amortizable intangible assets.
9
Table of Contents
The estimated future
amortization expense related to other amortizable intangible assets is as
follows (in thousands):
For the
year ending December 31,
|
|
|
|
2008 (a)
|
|
$
|
828
|
|
2009
|
|
1,734
|
|
2010
|
|
1,470
|
|
2011
|
|
920
|
|
2012
|
|
386
|
|
Thereafter
|
|
866
|
|
|
|
|
|
Total
|
|
$
|
6,204
|
|
|
(a) Amount represents estimated amortization expense for the
remaining six months ended December 31, 2008.
|
The carrying amount of
goodwill was $43.0 million and $40.8 million as of June 30, 2008 and December 31,
2007, respectively, and is included in the BioScience segment. The Company
performs its annual test for indications of impairment as of December 31st each
year. The Company completed its annual test for impairment as of December 31,
2007 and determined that goodwill was not impaired at that time. The Company
has not identified any indicators of impairment as of June 30, 2008.
9. Warranty Costs
The Company typically
provides a one to two 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 balance sheet. The
Company also offers to its customers warranty and service agreements extending
beyond the initial year of warranty for a fee. These fees are recorded as
deferred revenue and amortized into income over the life of the extended
warranty contract.
Changes in the Companys
accrued warranty liability during the six months ended June 30, 2008 were
as follows (in thousands):
Warranty accrual
at December 31, 2007
|
|
$
|
27,181
|
|
Accruals for
warranties issued during the period
|
|
15,392
|
|
Settlements of
warranty claims
|
|
(16,035
|
)
|
Foreign currency
impact
|
|
2,520
|
|
|
|
|
|
Warranty accrual
at June 30, 2008
|
|
$
|
29,058
|
|
10. Debt
In connection with the
acquisition of Bruker BioSpin, the Company entered into a credit agreement with
a syndication of lenders, which is referred to as the Credit Agreement, and provides
for a revolving credit line with a maximum commitment of $230.0 million and a
term facility of $150.0 million. The outstanding principal under the term loan
is payable in quarterly installments through December 2012. Borrowings
under the Credit Agreement bear interest, at the Companys option, at either (i) the
higher of the prime rate or the federal funds rate plus 0.50%, or (ii) adjusted
LIBOR, plus margins ranging from 0.40% to 1.25% and a facility fee ranging from
0.10% to 0.20%. As of June 30, 2008, the weighted average interest rate of
borrowings under the Credit Agreement was approximately 4.0%.
Borrowings under the
Credit Agreement are secured by the pledge to the banks of 100% of the capital
stock of each of the Companys wholly-owned domestic subsidiaries and 65% of
the capital stock of certain of the Companys direct or indirect wholly-owned
foreign subsidiaries. The Credit Agreement also requires the Company to
maintain certain financial ratios related to leverage and interest coverage as
defined in the Credit Agreement. In addition to the
10
Table of Contents
financial ratios, the
Credit Agreement restricts, among other things, the Companys ability to do the
following: make certain payments; incur additional debt; incur certain liens;
make certain investments, including derivative agreements; merge, consolidate,
sell or transfer all or substantially all of the Companys assets; and enter
into certain transactions with affiliates.
At June 30, 2008,
the Company had outstanding debt totaling $242.2 million consisting of $194.3
million outstanding under the Credit Agreement, $33.6 million outstanding under
other long-term debt arrangements, $11.2 million outstanding under revolving
lines of credit and $3.1 million under capital lease obligations. At December 31,
2007, the Company had outstanding debt totaling $44.2 million consisting of
$28.0 million outstanding under other long-term debt arrangements, $13.2
million outstanding under other revolving lines of credit and $3.0 million
under capital lease obligations.
Amounts outstanding under
other long-term debt arrangements include both collateralized and uncollateralized
arrangements with various financial institutions in France, Germany, Japan and
a government agency in the United States. The Companys long-term debt
arrangements also consist of fixed and variable interest rates ranging from
1.8% to 8.0% at June 30, 2008 and December 31, 2007. In connection
with certain of these agreements the Company is required to maintain certain
financial ratios as defined in the agreements. At June 30, 2008, the
Company was not in compliance with one of the covenants required by its
arrangement with a government agency in the United States. The failure to meet
this covenant did not trigger any cross-default provisions in other borrowing
arrangements, including the Credit Agreement. On July 28, 2008, the
Company received a limited waiver from the holder of this debt for the
quarterly period ended June 30, 2008 and agreement from the holder of the
debt to modify the covenant for the remainder of 2008.
The Companys revolving
lines of credit are with various financial institutions in Germany,
Switzerland, Japan and France and have aggregate maximum borrowing amounts of
approximately $90.0 million and $145.5 million at June 30, 2008 and December 31,
2007, respectively. Effective February 26, 2008, the Company terminated a
$75.0 million line of credit in the United States and replaced it with the
revolving credit available under the Credit Agreement. With consideration to
outstanding letters of credit, the Company had availability of approximately
$65.5 million and $119.0 million under other revolving lines of credit at June 30,
2008 and December 31, 2007, respectively. The Companys revolving lines of
credit are generally uncollateralized and bear interest at variable rates
ranging from 1.5% to 9.8% at June 30, 2008 and December 31, 2007.
11. Derivative Instruments
and Hedging Activities
The Company accounts for
derivative financial instruments in accordance with SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities
,
(SFAS No. 133), as amended. 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 will pay a fixed rate of 3.8% and receive a variable
rate based on three month LIBOR. The initial notional amount of this interest
rate swap is $90.0 million and will amortize in proportion to the term debt
component of the Credit Agreement through December 2012. At June 30,
2008, the notional amount of this interest rate swap was $88.9 million. The
Company has concluded that this swap has met the criteria to qualify as an
effective hedge of the variability of cash flows of the interest payments and
will account for the hedge as a cash flow hedge under SFAS No. 133.
Accordingly, the Company has reflected all changes in the fair value of this
interest rate swap in accumulated other comprehensive income, a component of
shareholders equity. As of June 30, 2008, the Company has recorded a gain
of $0.2 million, net of tax, related to the fair value of the interest rate
swap.
12. Employee Benefit Plans
The Company has defined
benefit retirement plans that cover substantially all employees of a BioScience
subsidiary in Germany who were employed as of September 30, 1997, as well
as all employees of the BioSpin subsidiaries located in Switzerland, France,
and Japan and certain employees of a BioSpin subsidiary in Germany. The plans
provide pension benefits based upon final average salary and years of service.
The net periodic pension
benefit cost includes the following components during the three and six months
ended June 30, 2008 and 2007 (in thousands):
11
Table of Contents
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Components
of net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
1,159
|
|
$
|
932
|
|
$
|
2,095
|
|
$
|
1,761
|
|
Interest cost
|
|
1,168
|
|
749
|
|
2,121
|
|
1,497
|
|
Expected return
on plan assets
|
|
(1,034
|
)
|
(705
|
)
|
(2,034
|
)
|
(1,417
|
)
|
Amortization and
actuarial gains and losses
|
|
(6
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic
benefit cost
|
|
$
|
1,287
|
|
$
|
976
|
|
$
|
2,174
|
|
$
|
1,841
|
|
The Company made contributions
of $1.3 million to its defined benefit plans during the six months ended June 30,
2008 and estimates contributions of $1.1 million during the remainder of 2008.
13. Earnings Per Share
Basic earnings per share
is calculated by dividing net earnings by the weighted-average number of common
shares outstanding during the period. Restricted stock is not included in
the calculation of basic EPS until the time-based restriction has lapsed.
Except where the result would be anti-dilutive, the diluted earnings per share
computation includes the effect of potential shares, shares which would be
issuable upon the exercise of outstanding stock options or outstanding
restricted stock issuable when the restrictions lapse, reduced by the number of
shares which are assumed to be purchased by the Company from the resulting
proceeds at the average market price during the period.
The following table sets
forth the computation of basic and diluted average shares outstanding for the
three and six months ended June 30, 2008 and 2007 (in thousands, except
per share data):
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Net income, as
reported
|
|
$
|
21,686
|
|
$
|
17,657
|
|
$
|
21,001
|
|
$
|
32,007
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding - basic
|
|
162,440
|
|
161,728
|
|
162,371
|
|
161,050
|
|
Effect of
dilutive securities:
|
|
|
|
|
|
|
|
|
|
Stock options
and restricted stock
|
|
2,998
|
|
2,615
|
|
2,937
|
|
2,681
|
|
Weighted average
shares outstanding - diluted
|
|
165,438
|
|
164,343
|
|
165,308
|
|
163,731
|
|
|
|
|
|
|
|
|
|
|
|
Net income per
share - basic and diluted
|
|
$
|
0.13
|
|
$
|
0.11
|
|
$
|
0.13
|
|
$
|
0.20
|
|
Stock options to purchase
approximately 360,000 shares and 530,000 shares were excluded from the computation
of diluted earnings per share in the three months ended June 30, 2008 and
2007 respectively, and approximately 330,000 shares and 530,000 shares were
excluded from the computation of diluted earnings per share in the six months
ended June 30, 2008 and 2007, respectively, because the exercise price of
the stock options exceeded the average market price of the Companys common
stock and, as a result, would have had an anti-dilutive effect.
14. Interest and Other Income
(Expense), Net
The components of interest
and other income (expense), net, were as follows for the three and six months
ended June 30, 2008 and 2007 (in thousands):
12
Table of Contents
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Interest income
|
|
$
|
1,930
|
|
$
|
2,620
|
|
$
|
3,617
|
|
$
|
4,488
|
|
Interest expense
|
|
(3,817
|
)
|
(830
|
)
|
(5,676
|
)
|
(1,450
|
)
|
Exchange gains
(losses) on foreign currency transactions
|
|
3,263
|
|
1,164
|
|
(8,956
|
)
|
453
|
|
Other
|
|
2,151
|
|
(740
|
)
|
2,353
|
|
(527
|
)
|
Interest and
other income (expense), net
|
|
$
|
3,527
|
|
$
|
2,214
|
|
$
|
(8,662
|
)
|
$
|
2,964
|
|
15. Comprehensive Income
Comprehensive income
refers to revenues, expenses, gains and losses that under GAAP are included in
other comprehensive income, but excluded from net income as these amounts are
recorded directly as an adjustment to shareholders equity, net of tax. The
following is a summary of comprehensive income for the three and six months
ended June 30, 2008 and 2007 (in thousands):
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Net income
|
|
$
|
21,686
|
|
$
|
17,657
|
|
$
|
21,001
|
|
$
|
32,007
|
|
Foreign currency
translation adjustments
|
|
(3,841
|
)
|
2,360
|
|
35,182
|
|
7,426
|
|
Unrealized gains
on interest rate swap
|
|
222
|
|
|
|
222
|
|
|
|
Unrealized gains
(losses) on available for sales securities:
|
|
|
|
|
|
|
|
|
|
Unrealized
holding gains (losses) arising during the period
|
|
(234
|
)
|
53
|
|
(71
|
)
|
698
|
|
Less reclassification
adjustments for gains included in the determination of net income
|
|
(1,335
|
)
|
|
|
(1,335
|
)
|
|
|
Pension
liability adjustments
|
|
115
|
|
69
|
|
(393
|
)
|
21
|
|
Total
comprehensive income
|
|
$
|
16,613
|
|
$
|
20,139
|
|
$
|
54,606
|
|
$
|
40,152
|
|
16. Commitments and Contingencies
Lawsuits, claims and
proceedings of a nature considered normal to its businesses may be pending from
time to time against the Company. The Company believes the outcome of these
proceedings, if any, will not have a material impact on the Companys financial
position or results of operations.
17. Letters of Credit and
Guarantees
As of June 30, 2008
and December 31, 2007, the Company had letters of credit and bank
guarantees of $55.8 million and $67.7 million, respectively, for its customer
advances. Certain of these letters of credit and bank guarantees affect the
availability of the Companys lines of credit.
18. Business Segment Information
SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information
,
establishes standards for reporting information about operating segments in
annual financial statements of public business enterprises. It also establishes
standards for related disclosures about products and service, geographic areas
and major customers. Operating segments are identified as components of an
enterprise for which separate discrete financial information is available for
evaluation by the chief operating decision maker for the purpose of allocating
resources and assessing performance.
In February 2008,
the Company completed its acquisition of Bruker BioSpin and, as a result,
management reevaluated the way the Company is managed and its internal
reporting structure. The Company determined that it had four operating
segments, representing each of its four divisions; Bruker AXS, Bruker
Daltonics, Bruker Optics and
13
Table of Contents
Bruker BioSpin. Bruker
AXS is in the business of manufacturing and distributing advanced X-ray and
OES-spark instrumentation used in non-destructive molecular and elemental
analysis. Bruker Daltonics is in the business of manufacturing and distributing
mass spectrometry instruments that can be integrated and used along with other
analytical instruments. Bruker Optics is in the business of manufacturing and
distributing research, analytical and process analysis instruments and
solutions based on infrared and Raman molecular spectroscopy technologies. Bruker
BioSpin is in the business of manufacturing and distributing enabling life
science tools based on magnetic resonance technology, as well as the
development and manufacturing of low temperature superconductor and high
temperature superconductor wires for use in advanced magnet technology and
energy applications.
The Company has combined
the Bruker AXS, Bruker Daltonics and Bruker Optics operating segments into the
BioScience reporting segment because each has similar economic characteristics,
product processes and services, types and classes of customers, methods of
distribution and regulatory environments. All historical segment numbers have
been restated to conform to this change in reportable segments.
Selected business segment
information for the three and six months ended June 30, 2008 and 2007 is
presented below (in thousands):
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
BioScience
|
|
$
|
160,593
|
|
$
|
124,203
|
|
$
|
303,222
|
|
$
|
236,956
|
|
BioSpin
|
|
163,770
|
|
125,764
|
|
275,888
|
|
233,411
|
|
Corporate,
eliminations and other (a)
|
|
(12,898
|
)
|
(11,625
|
)
|
(29,209
|
)
|
(24,489
|
)
|
Total
|
|
$
|
311,465
|
|
$
|
238,342
|
|
$
|
549,901
|
|
$
|
445,878
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income:
|
|
|
|
|
|
|
|
|
|
BioScience
|
|
$
|
6,727
|
|
$
|
8,124
|
|
$
|
18,476
|
|
$
|
17,067
|
|
BioSpin
|
|
26,471
|
|
15,965
|
|
36,532
|
|
31,196
|
|
Corporate,
eliminations and other (a)
|
|
(4,763
|
)
|
(2,302
|
)
|
(10,639
|
)
|
(6,767
|
)
|
Total
|
|
$
|
28,435
|
|
$
|
21,787
|
|
$
|
44,369
|
|
$
|
41,496
|
|
|
(a)
|
Represents revenue transactions between segments
which are eliminated in consolidation and corporate costs not allocated to
the reportable segments.
|
Total assets by segment
as of June 30, 2008 and December 31, 2007 are as follows (in
thousands):
|
|
June 30,
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
BioScience
|
|
$
|
650,009
|
|
$
|
584,902
|
|
BioSpin
|
|
912,389
|
|
782,627
|
|
Corporate
|
|
383,733
|
|
314,988
|
|
Eliminations
|
|
(774,689
|
)
|
(370,886
|
)
|
Total
|
|
$
|
1,171,442
|
|
$
|
1,311,631
|
|
19. Recent Accounting
Pronouncements
In December 2007,
the FASB issued SFAS No. 141(R),
Business Combinations
(SFAS
No. 141(R)). This statement will significantly change the accounting for
business combinations. Under SFAS No. 141(R), an acquiring entity will be
required to recognize all of the assets acquired and liabilities assumed in a
transaction at the acquisition date fair value with certain limited exceptions.
In addition, SFAS No. 141(R) will change the accounting treatment for
acquisition costs, in-process research and development, restructuring costs
associated with business combinations and
14
Table of Contents
changes in deferred tax
asset valuation allowances and income tax uncertainties after the acquisition
date. SFAS No. 141(R) also includes a significant number of new
disclosure requirements. Early adoption of SFAS No. 141(R) is
prohibited and the Company will be required to apply SFAS No. 141(R) to
acquisitions that occur on or after January 1, 2009.
In December 2007,
the FASB issued SFAS No. 160,
Noncontrolling Interests
in Consolidated Financial Statements An Amendment of ARB No. 51
(SFAS
No. 160). This statement establishes new accounting and reporting
standards for the minority interest in a subsidiary and the deconsolidation of
a subsidiary. SFAS No. 160 is effective as of the beginning of fiscal 2009
and early adoption is prohibited. The Company has not yet assessed the effect,
if any, that adoption of SFAS No. 160 will have on its results of
operations and financial position.
In March 2008, the
FASB issued SFAS No. 161,
Disclosures about
Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133
(SFAS No. 161). SFAS No. 161 requires enhanced
disclosures about an entitys derivative and hedging activities and, thereby,
improves the transparency of financial reporting. SFAS No. 161 is
effective for fiscal years beginning on or after November 15, 2008. The
Company is currently evaluating the impact that the adoption of SFAS No. 161
will have on its financial position, results of operations and cash flows.
15
Table of Contents
ITEM 2.
|
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The following discussion
of our financial condition and results of operations should be read in
conjunction with our interim condensed consolidated financial statements and
the notes to those statements included in Part 1, Item 1 of this Quarterly
Report on Form 10-Q, and in conjunction with the consolidated financial
statements contained in our Annual Report on Form 10-K for the year ended December 31,
2007.
Statements contained in
Managements Discussion and Analysis of Financial Condition and Results of
Operations which express that we believe, anticipate, plan, expect, seek,
estimate, or should, as well as other statements which are not historical
fact, are forward-looking statements within the meaning of the Private
Securities Litigation Act of 1995. Actual events or results may differ
materially from those set forth in forward-looking statements. Certain factors
that might cause such a difference are discussed in Factors Affecting Our
Business, Operating Results and Financial Condition set forth in our Annual
Report on Form 10-K for the year ended December 31, 2007.
OVERVIEW
The following Managements
Discussion and Analysis of Financial Condition and Results of Operations, or
MD&A, describes the principal factors affecting the results of our
operations, financial condition and changes in financial condition, as well as
our critical accounting policies and estimates. Our MD&A is organized as
follows:
·
Executive overview
. This section provides a general
description and history of our business, a brief discussion of our reportable
segments, significant recent developments in our business and other
opportunities, challenges and risks that may impact our business in the future.
·
Critical accounting policies
. This section discusses the accounting
estimates that are considered important to our financial condition and results
of operations and require us to exercise subjective or complex judgments in their
application.
·
Results of operations
. This section provides our analysis of
the significant line items on our consolidated statement of operations for the
three and six months ended June 30, 2008 compared to the three and six
months ended June 30, 2007.
·
Liquidity and capital resources
. This section provides an analysis of
our liquidity and cash flow and a discussion of our outstanding debt and
commitments.
·
Recent accounting pronouncements
. This section provides information about
new accounting standards that have been issued but for which adoption is not
yet required.
EXECUTIVE OVERVIEW
Business
Bruker Corporation and
its wholly-owned subsidiaries design, manufacture, market and service
proprietary life science and materials research systems based on our core
technology platforms, including X-ray technologies, magnetic resonance
technologies, mass spectrometry technologies, optical emission spectroscopy and
infrared and Raman molecular spectroscopy technologies. We also manufacture and
distribute a broad range of field analytical systems for chemical, biological,
radiological and nuclear, or CBRN, detection. We maintain major technical and
manufacturing centers in Europe, North America and Japan and we have sales
offices located throughout the world. Our corporate headquarters are located in
Billerica, Massachusetts.
Our business strategy is
to capitalize on our ability to innovate and generate rapid revenue growth,
both organically and through acquisitions. Our revenue growth strategy,
combined with anticipated improvements to our
16
Table of Contents
gross profit margins and
increased leverage on our research and development, sales and marketing and
distribution investments and general and administrative expenses, are expected
to enhance our operating margins and improve our earnings in the future.
On February 26,
2008, the Company completed its acquisition of Bruker BioSpin. Both the Company
and Bruker BioSpin were majority owned by six affiliated stockholders prior to
the acquisition. As a result, the acquisition of Bruker BioSpin by the Company
is considered a combination of companies under common control, and has been accounted
for at historical carrying values. Historical consolidated balance sheets,
statements of operations, statements of cash flows and notes to the
consolidated financial statements have been restated by combining the
historical consolidated financial statements of Bruker Corporation with those
of Bruker BioSpin. In addition, because the transaction is accounted for as an
acquisition of businesses under common control, all one-time transaction costs
have been expensed as incurred.
With the addition of Bruker
BioSpin, we enhanced our position as a leading supplier of life science and
materials research systems. The technologies of Bruker BioSpin are particularly
complementary to our accurate-mass electrospray time-of-flight mass
spectrometers and our single-crystal diffraction X-ray spectrometers and are
expected to create revenue synergies and provide opportunities to supply
customers with equipment packages that have a broader range of applications and
value. We believe the addition of Bruker BioSpin will also enhance our
distribution in the Americas, Europe and Asia and our sales and service
infrastructure, all of which should provide us with revenue growth
opportunities and accelerate our drive to improve our margins, net income and
operating cash flows.
Following the acquisition
of Bruker BioSpin, management reevaluated the way the Company is managed and
the internal reporting structure and, as a result of that evaluation,
determined that it has four operating segments, representing each of its four divisions;
Bruker AXS, Bruker Daltonics, Bruker Optics and Bruker BioSpin. Bruker AXS is
in the business of manufacturing and distributing advanced X-ray and OES-spark
instrumentation used in non-destructive molecular and elemental analysis.
Bruker Daltonics is in the business of manufacturing and distributing mass
spectrometry instruments that can be integrated and used along with other
analytical instruments. Bruker Optics is in the business of manufacturing and
distributing research, analytical and process analysis instruments and
solutions based on infrared and Raman molecular spectroscopy technologies.
Bruker BioSpin is in the business of manufacturing and distributing enabling
life science tools based on magnetic resonance technology, as well as the development
and manufacturing of low temperature superconductor and high temperature
superconductor wires for use in advanced magnet technology and energy
applications.
We have combined the
Bruker AXS, Bruker Daltonics and Bruker Optics operating segments into the
BioScience reporting segment because each has similar economic characteristics,
product processes and services, types and classes of customers, methods of
distribution and regulatory environments. Management reports its results based
on the following reportable segments:
·
BioScience
. The operations of this segment include
the design, manufacture and distribution of advanced instrumentation and
automated solutions based on X-ray technology, OES-spark technology, mass
spectrometry technology and infrared and Raman molecular spectroscopy
technology. Typical customers of the BioScience segment include pharmaceutical,
biotechnology, proteomics and molecular diagnostic companies, academic
institutions, government agencies, semiconductor companies, chemical, cement,
metals and petroleum companies, raw material manufacturers and food, beverage
and agricultural companies.
·
BioSpin
. The operations of this segment include
the design, manufacture and distribution of enabling life science tools based
on its core technology, magnetic resonance, as well as the manufacturing and
development of low temperature superconductor (LTS) and high temperature
superconductor (HTS) wires for use in advanced magnet technology and in energy
applications. Typical customers of the BioSpin segment include pharmaceutical
and biotechnology companies, academic institutions and government agencies.
Financial Overview
For the three months
ended June 30, 2008, our revenue increased by $73.1 million, or 30.7%, to
$311.5 million, compared to $238.3 million for the comparable period in 2007.
Included in this change in revenue is approximately
17
Table of Contents
$26.9 million from the
impact of foreign exchange. Excluding the effect of foreign exchange, revenue
increased by $46.2 million, or 19.4%. The increase in revenue, excluding the
effect of foreign exchange, is attributable to increases in system and
aftermarket revenues in the BioScience segment and system and wire revenues in
the BioSpin segment.
For the six months ended June 30,
2008, our revenue increased by $104.0 million, or 23.3%, to $549.9 million,
compared to $445.9 million for the comparable period in 2007. Included in this
change in revenue is approximately $47.5 million from the impact of foreign
exchange. Excluding the effect of foreign exchange, revenue increased by $56.5
million, or 12.7%. The increase in revenue, excluding the effect of foreign
exchange, is attributable to increases in system and aftermarket revenues in
the BioScience segment and system and wire revenues in the BioSpin segment.
Income from operations
for the three months ended June 30, 2008 was $28.4 million, resulting in
an operating margin of 9.1%, compared to income from operations of $21.8
million, resulting in an operating margin of 9.1%, for the comparable period of
2007. The increase in income from operations was driven by the increase in
revenue described above offset, in part, by lower gross profit margins and
increases in operating expenses. The decrease in gross profit margins and increase
in costs is, in part, attributable to changes in foreign currency exchange
rates, primarily the Euro, as a majority of our production and research and
development is performed in Europe. However, increases in headcount, material
costs and other operating expenses also contributed to the increase in expenses
for the three months ended June 30, 2008.
Income from operations
for the six months ended June 30, 2008 was $44.4 million, resulting in an
operating margin of 8.1%, compared to income from operations of $41.5 million,
resulting in an operating margin of 9.3%, for the comparable period of 2007.
Income from operations for the six months ended June 30, 2008 includes
$6.2 million of charges related to the acquisition of Bruker BioSpin. The
increase in income from operations was driven by the increase in revenue
described above offset, in part, by increases in operating expenses. The
increase in costs is, in part, attributable to changes in foreign currency
exchange rates, primarily the Euro, as a majority of our production and
research and development is performed in Europe. However, increases in
headcount, material costs and other operating expenses also contributed to the
increase in expenses for the six months ended June 30, 2008. In the second
half of 2008 we intend to refocus efforts on gross margin improvement programs
and implement various cost saving programs, including a partial hiring freeze,
with the goal of improving operating margins.
During the six months
ended June 30, 2008, we recorded net losses on foreign currency
transactions of $(9.0) million compared to net gains of $0.5 million for the
comparable period of 2007. Foreign exchange losses of $12.2 million were
incurred in the first three months of 2008 and were driven by the re-measurement
of certain foreign currency denominated assets, principally cash, inter-company
receivables and a short-term inter-company loan into the functional currency of
the affected entities. The losses in the first quarter of 2008 resulted from
the continued weakening of the U.S. Dollar and the Euro by approximately 11%
and 3%, respectively, during the five weeks between the closing of the Bruker
BioSpin acquisition and the end of the first quarter of 2008. In the second
quarter of 2008 we recorded gains on foreign currency transactions of $3.2
million that were the result of more timely settlement of inter-company
balances and a reduction of certain foreign currency denominated assets,
principally cash. We believe that the actions we took in the second quarter of
2008 will reduce the impact that foreign currency gains and losses will have on
our results in the second half of 2008.
We incurred approximately
$4.5 million of interest expense on acquisition-related debt during the six months
ended June 30, 2008, of which approximately $3.1 million was incurred in
the second quarter of 2008. There was no acquisition-related debt outstanding
during three and six months ended June 30, 2007. In an effort to reduce
interest expense in future periods, we repaid approximately $158.4 million of
acquisition-related debt in April and May 2008. Additionally, in April 2008,
we entered into an interest rate swap with an initial notional amount of $90.0
million that will hedge a portion of our $150.0 million variable-rate term loan
and fix the interest rate on the hedged portion of the debt at a rate of 3.8%.
Our net income for the
three months ended June 30, 2008, was $21.7 million, or $0.13 per diluted
share, compared to net income of $17.7 million, or $0.11 per diluted share, for
the comparable period of 2007.
Our net income for the
six months ended June 30, 2008, was $21.0 million, or $0.13 per diluted
share, compared to net income of $32.0 million, or $0.20 per diluted share, for
the comparable period of 2007.
18
Table
of Contents
CRITICAL ACCOUNTING POLICIES
The 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, allowance for doubtful accounts, inventories,
goodwill, long-lived assets, warranty costs and income taxes. 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 condition and
those that require the most subjective judgment.
Revenue recognition
.
We recognize revenue from system sales when persuasive evidence of an
arrangement exists, the price is fixed or determinable, title and risk of loss
has been transferred to the customer and collectibility of the resulting
receivable is reasonably assured. Title and risk of loss is generally transferred
to the customer upon receipt of a signed customer acceptance form for a system
that has been shipped, installed, and for which the customer has been trained.
As a result, the timing of customer acceptance or readiness could cause our
reported revenues to differ materially from expectations. When products are
sold through an independent distributor or a strategic distribution partner,
which assumes responsibility for installation, we recognize the system sale
when the product has been shipped and title and risk of loss have been
transferred. 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 to two-years. Revenue is deferred until cash is received
when a significant portion of the fee is due over one year after delivery,
installation and acceptance of a system. For arrangements with multiple
elements, we recognize revenue for each element based on the fair value of the
element, provided all other criteria for revenue recognition have been met. The
fair value for each element provided in multiple element arrangements is
typically determined by referencing historical pricing policies when the
element is sold separately. Changes in our ability to establish the fair value
for each element in multiple element arrangements could affect the timing of
revenue recognition. Revenue from accessories and parts is recognized upon
shipment and service revenue is recognized as the services are performed. Grant
revenue is recognized when we complete the services required under the grant.
Warranty costs
.
We normally provide a one to two-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 balance
sheet. Although our facilities 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.
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 one international location. We maintain an allowance for excess and
obsolete inventory to reflect the expected non-saleable or non-refundable
inventory based on an evaluation of slow moving products. If ultimate usage or
demand varies significantly from expected usage or demand, additional
write-downs may be required, resulting in a charge 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 that would more
likely than not reduce the fair value of a reporting unit below its carrying
amount. Fair value is determined using market comparables for similar
businesses or forecasts of discounted future cash flows. We also review other
intangible assets and other long-lived assets when indication of potential
impairment exists, such as a significant reduction in cash flows associated
with the assets. Should the fair value of our long-lived assets decline because
of reduced operating performance, market declines, or other indicators of
impairment, a charge to operations for impairment may be necessary.
19
Table
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Allowance for doubtful accounts
.
We maintain allowances for doubtful accounts for estimated losses resulting
from the inability of our customers to pay amounts due. If the financial
condition of our customers were to deteriorate, reducing their ability to make
payments, additional allowances would be required, resulting in a charge to
operations.
Income taxes
.
We estimate the degree to which tax assets and loss carryforwards will result
in a benefit based on expected profitability by tax jurisdiction, and 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.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2008 Compared to the Three Months
Ended June 30, 2007
Consolidated
Results
The following table presents our results for the three
months ended June 30, 2008 and 2007 (dollars in thousands):
20
Table
of Contents
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
Product revenue
|
|
$
|
278,849
|
|
$
|
210,177
|
|
Service revenue
|
|
31,733
|
|
27,570
|
|
Other revenue
|
|
883
|
|
595
|
|
Total revenue
|
|
311,465
|
|
238,342
|
|
|
|
|
|
|
|
Cost of product
revenue
|
|
161,931
|
|
120,810
|
|
Cost of service
revenue
|
|
20,896
|
|
17,617
|
|
Total cost of
revenue
|
|
182,827
|
|
138,427
|
|
Gross profit
|
|
128,638
|
|
99,915
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
Sales and marketing
|
|
46,151
|
|
37,029
|
|
General and
administrative
|
|
17,178
|
|
13,442
|
|
Research and
development
|
|
36,514
|
|
27,657
|
|
Acquisition
related charges
|
|
360
|
|
|
|
Total operating
expenses
|
|
100,203
|
|
78,128
|
|
Operating income
|
|
28,435
|
|
21,787
|
|
|
|
|
|
|
|
Interest and
other income (expense), net
|
|
3,527
|
|
2,214
|
|
Income before
income tax provision and minority interest in consolidated subsidiaries
|
|
31,962
|
|
24,001
|
|
|
|
|
|
|
|
Income tax
provision
|
|
10,196
|
|
6,284
|
|
Income before
minority interest in consolidated subsidiaries
|
|
21,766
|
|
17,717
|
|
Minority
interest in consolidated subsidiaries
|
|
80
|
|
60
|
|
Net income
|
|
$
|
21,686
|
|
$
|
17,657
|
|
Net income per
common share - basic and diluted
|
|
$
|
0.13
|
|
$
|
0.11
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
Basic
|
|
162,440
|
|
161,728
|
|
Diluted
|
|
165,438
|
|
164,343
|
|
Revenue
Our revenue increased by $73.1 million, or 30.7%, to
$311.5 million for the three months ended June 30, 2008, compared to
$238.3 million for the comparable period in 2007. Included in this change in
revenue is approximately $26.9 million from the impact of foreign exchange.
Excluding the effect of foreign exchange, revenue increased by 19.4%. The
increase in revenue, excluding the effect of foreign exchange, is attributable
to increases in system and aftermarket revenues in the BioScience segment and
system and wire revenues in the BioSpin segment.
Cost
of Revenue
Our cost of product and service revenue for the three
months ended June 30, 2008, was $182.8 million, resulting in a gross
profit margin of 41.3%, compared to cost of product and service revenue of
$138.4 million, resulting in a gross profit margin of 41.9% for the comparable
period of 2007. Cost of revenue for the three months ended June 30, 2008
and 2007 includes charges of approximately $2.1 million and $1.5 million,
respectively, to write down certain inventories to the lower of cost or market.
The decrease in gross profit margins is
21
Table
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attributable primarily to changes in foreign currency exchange rates,
primarily the Euro, as a majority of our production is performed in Europe.
Additionally, the mix of products sold and pricing pressure in certain markets
and certain product lines contributed to the decrease in gross profit margins.
Sales
and Marketing
Our sales and marketing expense for the three months
ended June 30, 2008 increased to $46.2 million, or 14.9% of product and
service revenue, from $37.0 million, or 15.6% of product and service revenue,
for the comparable period of 2007. The increase in sales and marketing expense
is attributable to higher commissions and other selling expenses associated
with the increase in revenue. Additionally, increases in headcount resulting
from our continued investment in direct sales, inside sales, product
specialists and application resources have contributed to an increase in sales
and marketing expense.
General
and Administrative
Our general and administrative expense for the three
months ended June 30, 2008 increased to $17.2 million, or 5.5% of product
and service revenue, from $13.4 million, or 5.7% of product and service
revenue, for the comparable period of 2007. The increase is attributable to
additional headcount, primarily in the BioSpin segment, and was related to
Bruker BioSpin becoming part of a publicly-traded company.
Research
and Development
Our research and development expense for the three
months ended June 30, 2008 increased to $36.5 million, or 11.8% of product
and service revenue, from $27.7 million, or 11.6% of product and service
revenue, for the comparable period of 2007. The increase in research and
development expenses is attributable primarily to changes in foreign currency exchange
rates, primarily the Euro, as a majority of our research and development is
performed in Europe. We also incurred higher material costs associated with new
product development.
Acquisition-Related
Charges
On December 3, 2007, we announced that we had
entered into a definitive agreement to acquire all of the stock of Bruker
BioSpin. The acquisition of Bruker BioSpin was approved by our shareholders on February 25,
2008 and was completed on February 26, 2008. The acquisition represented a
combination of companies under common control due to a majority of ownership of
both Bruker Corporation and Bruker BioSpin by the same individuals and, as a
result, transaction costs are expensed as incurred. During the three months
ended June 30, 2008, the Company incurred and expensed acquisition-related
charges totaling $0.4 million, which consisted primarily of legal fees.
Interest
and Other Income (Expense), Net
Interest and other income (expense), net during the
three months ended June 30, 2008, was $3.5 million, compared to $2.2
million during the three months ended June 30, 2007.
During the three months ended June 30, 2008, the
major component within interest and other income (expense), net, was gains on
foreign currency transactions of $3.3 million. These gains offset some of the
foreign exchange losses recorded in the first quarter of 2007 and were
partially the result of more timely settlement of inter-company balances and a
reduction of foreign currency denominated assets, principally cash.
During the three months ended June 30, 2007, the
major components within interest and other income (expense), net, were net
interest income of $1.8 million and gains on foreign currency transactions of
$1.2 million.
Provision
for Income Taxes
Our effective tax rate reflects our tax provision for
non-U.S. entities only, since no benefit was recognized for losses incurred in
the U.S. We will maintain a full valuation allowance for our U.S. net operating
losses until evidence exists that it is more likely than not that the loss
carryforward amounts will be utilized to offset U.S. taxable income.
22
Table
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Our tax rate may change over time as the amount and mix of income and
taxes outside the U.S. changes. The effective tax rate is calculated using our
projected annual pre-tax income or loss and is affected by research and
development tax credits, the expected level of other tax benefits, and the
impact of changes to the valuation allowance, as well as changes in the mix of
our pre-tax income and losses among jurisdictions with varying statutory tax
rates and credits.
The income tax provision for the three months ended June 30,
2008, was $10.2 million compared to an income tax provision of $6.3 million for
the three months ended June 30, 2007, representing effective tax rates of
31.9% and 26.2%, respectively.
Minority
Interest in Consolidated Subsidiaries
Minority interest in consolidated subsidiaries for the
three months ended June 30, 2008 and 2007 was $0.1 million. The minority
interest in subsidiaries represents the minority shareholders proportionate
share of net income of those subsidiaries for the three months ended June 30,
2008 and 2007. The minority interest relates to our two majority-owned indirect
subsidiaries, InCoaTec GmbH and Bruker Baltic Ltd.
Net
Income
Our net income for the three months ended June 30,
2008, was $21.7 million, or $0.13 per diluted share, compared to net income of
$17.7 million, or $0.11 per diluted share, for the comparable period of 2007.
Segment
Results
Revenue
The following table presents revenue, change in
revenue and revenue growth by reportable segment for the three months ended June 30,
2008 and 2007 (dollars in thousands):
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
2008
|
|
2007
|
|
$ Change
|
|
Change
|
|
BioScience
|
|
$
|
160,593
|
|
$
|
124,203
|
|
36,390
|
|
29.3
|
%
|
BioSpin
|
|
163,770
|
|
125,764
|
|
38,006
|
|
30.2
|
%
|
Eliminations (a)
|
|
(12,898
|
)
|
(11,625
|
)
|
(1,273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
311,465
|
|
$
|
238,342
|
|
73,123
|
|
30.7
|
%
|
(a) Represents product and service revenue between reportable
segments.
BioScience
Segment Revenues
BioScience segment revenue increased by $36.4 million,
or 29.3%, to $160.6 million for the three months ended June 30, 2008,
compared to $124.2 million for the comparable period in 2007. Included in this
change in revenue is approximately $11.5 million from the impact of foreign
exchange. Excluding the effect of foreign exchange, revenue increased by 20.0%.
The increase in revenue, excluding the effect of foreign exchange, is
attributable to increases in system revenues across several of the product
lines, in particular X-ray systems, molecular spectroscopy systems and chemical
detections systems, as well as higher aftermarket revenue. Revenue in the three
months ended June 30, 2007 includes $2.6 million of molecular spectroscopy
revenue that was recognized from our order with the Chinese State Food and Drug
Administration. The order from the Chinese State Food and Drug Administration
was completed during 2007 and we did not recognize any system revenue from this
order during the three months ended June 30, 2008.
System revenue, other system revenue and aftermarket
revenue as a percentage of total BioScience segment revenue were as follows
during the three months ended June 30, 2008 and 2007 (dollars in
thousands):
23
Table
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|
|
2008
|
|
2007
|
|
|
|
|
|
Percentage of
|
|
|
|
Percentage of
|
|
|
|
Revenue
|
|
Segment Revenue
|
|
Revenue
|
|
Segment Revenue
|
|
System Revenue
|
|
$
|
117,720
|
|
73.3
|
%
|
$
|
93,564
|
|
75.3
|
%
|
Other System
Revenue
|
|
12,487
|
|
7.8
|
%
|
9,223
|
|
7.4
|
%
|
Aftermarket
Revenue
|
|
30,386
|
|
18.9
|
%
|
21,416
|
|
17.3
|
%
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
160,593
|
|
100.0
|
%
|
$
|
124,203
|
|
100.0
|
%
|
System revenues in the BioScience segment include
X-ray systems, mass spectrometry systems, CBRN detection systems and molecular
spectroscopy systems. Other system revenues in the BioScience segment relate
primarily to the distribution of products not manufactured by the BioScience
segment. Aftermarket revenues in the BioScience segment include accessory
sales, consumables, training and services.
BioSpin
Segment Revenues
BioSpin segment revenue increased by $38.0 million, or
30.2%, to $163.8 million for the three months ended June 30, 2008,
compared to $125.8 million for the comparable period in 2007. Included in this
change in revenue is approximately $15.4 million from the impact of foreign
exchange. Excluding the effect of foreign exchange, revenue increased by 18.0%.
The increase in revenue, excluding the effect of foreign exchange, is
attributable to increases in magnetic resonance system revenues, offset partially
by lower aftermarket revenue.
System and wire revenue, other system revenue and
aftermarket revenue as a percentage of total BioSpin segment revenue were as
follows during the three months ended June 30, 2008 and 2007 (dollars in
thousands):
|
|
2008
|
|
2007
|
|
|
|
|
|
Percentage of
|
|
|
|
Percentage of
|
|
|
|
Revenue
|
|
Segment Revenue
|
|
Revenue
|
|
Segment Revenue
|
|
System and Wire
Revenue
|
|
$
|
134,227
|
|
82.0
|
%
|
$
|
94,653
|
|
75.3
|
%
|
Other System
Revenue
|
|
7,135
|
|
4.3
|
%
|
2,534
|
|
2.0
|
%
|
Aftermarket
Revenue
|
|
22,408
|
|
13.7
|
%
|
28,577
|
|
22.7
|
%
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
163,770
|
|
100.0
|
%
|
$
|
125,764
|
|
100.0
|
%
|
System and wire revenues in the BioSpin segment
include nuclear magnetic resonance systems, magnetic resonance imaging systems,
electron paramagnetic resonance systems, Minispec systems, power supplies and
our LTS and HTS wire business. Other system revenues in the BioSpin segment
relate primarily to the distribution of products not manufactured by the
BioSpin segment. Aftermarket revenues in the BioSpin segment include accessory
sales, consumables, training and services.
Income
from Operations
The following table presents income from operations
and operating margins on revenue by reportable segment for the three months
ended June 30, 2008 and 2007 (dollars in thousands):
|
|
2008
|
|
2007
|
|
|
|
Operating
|
|
Operating
|
|
Operating
|
|
Operating
|
|
|
|
Income
|
|
Margin
|
|
Income
|
|
Margin
|
|
BioScience
|
|
$
|
6,727
|
|
4.2
|
%
|
$
|
8,124
|
|
6.5
|
%
|
BioSpin
|
|
26,471
|
|
16.2
|
%
|
15,965
|
|
12.7
|
%
|
Corporate,
Eliminations and Other (a)
|
|
(4,763
|
)
|
|
|
(2,302
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating
Income
|
|
$
|
28,435
|
|
9.1
|
%
|
$
|
21,787
|
|
9.1
|
%
|
(a) Represents
corporate costs not allocated to the reportable
segments.
BioScience segment income from operations for the
three months ended June 30, 2008, was $6.7 million,
24
Table
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resulting in an operating margin of 4.2%, compared to income from
operations of $8.1 million, resulting in an operating margin of 6.5%, for the
comparable period of 2007. The decrease in income from operations was driven by
lower gross profit margins and increases in operating expenses offset partially
by an increase in revenue. The increase in costs is, in part, attributable to
changes in foreign currency exchange rates, primarily the Euro, as a majority
of our production and research and development is performed in Europe. However,
increases in headcount, primarily in sales and marketing, and research and
development material costs also contributed to the increase in expenses for the
three months ended June 30, 2008.
BioSpin segment income from operations for the three
months ended June 30, 2008, was $26.5 million, resulting in an operating
margin of 16.2%, compared to income from operations of $16.0 million, resulting
in an operating margin of 12.7%, for the comparable period of 2007. The
increase in income from operations was attributable primarily to an increase in
revenue and higher gross profit margins offset partially by higher operating
expenses. The increase in gross profit margins is the result of improved
utilization driven by higher revenues. The increase in costs relates primarily
to research and development expenses and is associated with changes in foreign
currency exchange rates and higher material costs and salaries associated with
new product development.
Six Months Ended June 30, 2008 Compared to the Six Months Ended June 30,
2007
Consolidated
Results
The following table presents our results for the six months
ended June 30, 2008 and 2007 (dollars in thousands):
25
Table
of Contents
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
Product revenue
|
|
$
|
485,884
|
|
$
|
391,786
|
|
Service revenue
|
|
61,690
|
|
52,757
|
|
Other revenue
|
|
2,327
|
|
1,335
|
|
Total revenue
|
|
549,901
|
|
445,878
|
|
|
|
|
|
|
|
Cost of product
revenue
|
|
266,832
|
|
217,459
|
|
Cost of service
revenue
|
|
41,302
|
|
33,956
|
|
Total cost of
revenue
|
|
308,134
|
|
251,415
|
|
Gross profit
|
|
241,767
|
|
194,463
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
Sales and
marketing
|
|
89,544
|
|
72,491
|
|
General and
administrative
|
|
33,982
|
|
26,855
|
|
Research and
development
|
|
67,719
|
|
53,621
|
|
Acquisition
related charges
|
|
6,153
|
|
|
|
Total operating
expenses
|
|
197,398
|
|
152,967
|
|
Operating income
|
|
44,369
|
|
41,496
|
|
|
|
|
|
|
|
Interest and
other income (expense), net
|
|
(8,662
|
)
|
2,964
|
|
Income before
income tax provision and minority interest in consolidated subsidiaries
|
|
35,707
|
|
44,460
|
|
|
|
|
|
|
|
Income tax
provision
|
|
14,466
|
|
12,307
|
|
Income before
minority interest in consolidated subsidiaries
|
|
21,241
|
|
32,153
|
|
Minority
interest in consolidated subsidiaries
|
|
240
|
|
146
|
|
Net income
|
|
$
|
21,001
|
|
$
|
32,007
|
|
Net income per
common share - basic and diluted
|
|
$
|
0.13
|
|
$
|
0.20
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
Basic
|
|
162,371
|
|
161,050
|
|
Diluted
|
|
165,308
|
|
163,731
|
|
Revenue
Our revenue increased by $104.0 million, or 23.3%, to
$549.9 million for the six months ended June 30, 2008, compared to $445.9
million for the comparable period in 2007. Included in this change in revenue
is approximately $47.5 million from the impact of foreign exchange. Excluding
the effect of foreign exchange, revenue increased by 12.7%. The increase in
revenue, excluding the effect of foreign exchange, is attributable to increases
in system and aftermarket revenues in the BioScience segment and system and
wire revenues in the BioSpin segment.
Cost
of Revenue
Our cost of product and service revenue for the six
months ended June 30, 2008, was $308.1 million, resulting in a gross
profit margin of 44.0%, compared to cost of product and service revenue of
$251.4 million, resulting in a gross profit margin of 43.6% for the comparable
period of 2007. The increase in gross profit margins as a percentage of revenue
is attributable primarily to product mix and improved utilization resulting
from higher revenues. The increase in gross profit margins was partially offset
by the continued weakening of the U.S. Dollar coupled with the fact that most
of our manufacturing is done in Europe.
Sales
and Marketing
Our sales and marketing expense for the six months
ended June 30, 2008 increased to $89.5 million, or 16.4% of
26
Table
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product and service revenue, from $72.5 million, or 16.3% of product
and service revenue, for the comparable period of 2007. The increase in sales
and marketing expense is attributable to higher commission expenses associated
with the increase in revenue. Additionally, increases in headcount resulting
from our continued investment in direct sales, inside sales, product
specialists and application resources have contributed to an increase in sales
and marketing expense.
General
and Administrative
Our general and administrative expense for the six
months ended June 30, 2008 increased to $34.0 million, or 6.2% of product
and service revenue, from $26.9 million, or 6.0% of product and service
revenue, for the comparable period of 2007. The increase is attributable to
additional headcount, primarily in the BioSpin segment, and was related to Bruker
BioSpin becoming part of a publicly-traded company.
Research
and Development
Our research and development expense for the six
months ended June 30, 2008 increased to $67.7 million, or 12.4% of product
and service revenue, from $53.6 million, or 12.1% of product and service
revenue, for the comparable period of 2007. The increase in research and
development expenses is attributable primarily to changes in foreign currency
exchange rates, primarily the Euro, as a majority of our research and development
is performed in Europe. We also incurred higher material costs associated with
new product development.
Acquisition
Related Charges
On December 3, 2007, we announced that we had
entered into a definitive agreement to acquire all of the stock of Bruker BioSpin.
The acquisition of Bruker BioSpin was approved by our shareholders on February 25,
2008 and was completed on February 26, 2008. The acquisition represented a
business combination of companies under common control due to a majority of
ownership of both Bruker Corporation and Bruker BioSpin by the same individuals
and, as a result, transaction costs are expensed as incurred. During the six
months ended June 30, 2008, the Company incurred and expensed
acquisition-related charges totaling $6.2 million, which consisted of
investment banking fees, legal fees and accounting fees.
Interest
and Other Income (Expense), Net
Interest and other income (expense), net during the
six months ended June 30, 2008, was $(8.7) million, compared to $3.0
million during the six months ended June 30, 2007.
During the six months ended June 30, 2008, the
major component within interest and other income (expense), net, was losses on
foreign currency transactions of $9.0 million. Foreign exchange losses of $12.2
million were incurred in the first three months of 2008 and were driven
primarily by the re-measurement of certain foreign currency denominated assets,
principally cash, inter-company receivables and a short-term inter-company loan,
into the functional currency of the affected entities. The losses resulted from
the continued weakening of the U.S. Dollar and the Euro by approximately 11%
and 3%, respectively, during the five weeks between the closing of the Bruker
BioSpin acquisition and the end of the first quarter of 2008.
During the six months ended June 30, 2007, the
major components within interest and other income (expense), net, were net
interest income of $3.0 million and gains on foreign currency transactions of
$0.5 million.
Provision
for Income Taxes
Our effective tax rate reflects our tax provision for
non-U.S. entities only, since no benefit was recognized for losses incurred in
the U.S. We will maintain a full valuation allowance for our U.S. net operating
losses until evidence exists that it is more likely than not that the loss
carryforward amounts will be utilized to offset U.S. taxable income. Our tax
rate may change over time as the amount and mix of income and taxes outside the
U.S. changes. The effective tax rate is calculated using our projected annual
pre-tax income or loss and is affected by research and development tax credits,
the expected level of other tax benefits, and the impact of changes to the
valuation allowance, as well as changes in the mix of our pre-tax income and
losses among jurisdictions with varying statutory tax rates and credits.
27
Table of Contents
The income tax provision
for the six months ended June 30, 2008, was $14.5 million compared to an
income tax provision of $12.3 million for the six months ended June 30,
2007, representing effective tax rates of 40.5% and 27.7%, respectively. The
effective tax rate for the six months ended June 30, 2008 is a result of
the acquisition-related charges and the foreign exchange losses that resulted
in only modest tax benefits. The acquisition-related costs did not generate tax
significant benefits for us because they were incurred primarily in the U.S.
and the foreign exchange losses did not generate tax significant benefits for
us because they occurred in foreign locations with relatively low tax rates.
Minority
Interest in Consolidated Subsidiaries
Minority interest in
consolidated subsidiaries for the six months ended June 30, 2008, was $0.2
million compared to $0.1 million for the comparable period of 2007. The minority
interest in subsidiaries represents the minority shareholders proportionate
share of net income of those subsidiaries for the six months ended June 30,
2008 and 2007. The minority interest relates to our two majority-owned indirect
subsidiaries, InCoaTec GmbH and Bruker Baltic Ltd.
Net
Income
Our net income for the
six months ended June 30, 2008, was $21.0 million, or $0.13 per diluted
share, compared to $32.0 million, or $0.20 per diluted share, for the
comparable period of 2007.
Segment
Results
Revenue
The following table
presents revenue, change in revenue and revenue growth by reportable segment
for the six months ended June 30, 2008 and 2007 (dollars in thousands):
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
2008
|
|
2007
|
|
$ Change
|
|
Change
|
|
BioScience
|
|
$
|
303,222
|
|
$
|
236,956
|
|
$
|
66,266
|
|
28.0
|
%
|
BioSpin
|
|
275,888
|
|
233,411
|
|
42,477
|
|
18.2
|
%
|
Eliminations (a)
|
|
(29,209
|
)
|
(24,489
|
)
|
(4,720
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
549,901
|
|
$
|
445,878
|
|
$
|
104,023
|
|
23.3
|
%
|
(a) Represents product and service revenue between reportable
segments.
BioScience
Segment Revenues
BioScience segment
revenue increased by $66.3 million, or 28.0%, to $303.2 million for the six
months ended June 30, 2008, compared to $237.0 million for the comparable
period in 2007. Included in this change in revenue is approximately $21.0
million from the impact of foreign exchange. Excluding the effect of foreign
exchange, revenue increased by 19.1%. The increase in revenue, excluding the
effect of foreign exchange, is attributable to increases in system revenues
across several of the product lines, in particular X-ray systems, molecular
spectroscopy systems and chemical detections systems, as well as higher
aftermarket revenue. Revenues in the six months ended June 30, 2007
include $4.1 million of molecular spectroscopy revenue that was recognized from
our order with the Chinese State Food and Drug Administration. The order from
the Chinese State Food and Drug Administration was completed during 2007 and we
did not recognize any system revenue from this order during the six months
ended June 30, 2008.
System revenue, other
system revenue and aftermarket revenue as a percentage of total BioScience
segment revenue were as follows during the six months ended June 30, 2008
and 2007 (dollars in thousands):
28
Table of Contents
|
|
2008
|
|
2007
|
|
|
|
|
|
Percentage of
|
|
|
|
Percentage of
|
|
|
|
Revenue
|
|
Segment Revenue
|
|
Revenue
|
|
Segment Revenue
|
|
System Revenue
|
|
$
|
221,794
|
|
73.1
|
%
|
$
|
174,382
|
|
73.6
|
%
|
Other System
Revenue
|
|
21,979
|
|
7.3
|
%
|
15,449
|
|
6.5
|
%
|
Aftermarket
Revenue
|
|
59,449
|
|
19.6
|
%
|
47,125
|
|
19.9
|
%
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
303,222
|
|
100.0
|
%
|
$
|
236,956
|
|
100.0
|
%
|
System revenues in the
BioScience segment include X-ray systems, mass spectrometry systems, CBRN
detection systems and molecular spectroscopy systems. Other system revenues in
the BioScience segment relate primarily to the distribution of products not
manufactured by the BioScience segment. Aftermarket revenues in the BioScience
segment include accessory sales, consumables, training and services.
BioSpin
Segment Revenues
BioSpin segment revenue
increased by $42.5 million, or 18.2%, to $275.9 million for the six months ended
June 30, 2008, compared to $233.4 million for the comparable period in
2007. Included in this change in revenue is approximately $26.5 million from
the impact of foreign exchange. Excluding the effect of foreign exchange,
revenue increased by 6.8%. The increase in revenue, excluding the effect of
foreign exchange, is attributable to increases in magnetic resonance system
revenues.
System and wire revenue,
other system revenue and aftermarket revenue as a percentage of total BioSpin
segment revenue were as follows during the six months ended June 30, 2008
and 2007 (dollars in thousands):
|
|
2008
|
|
2007
|
|
|
|
|
|
Percentage of
|
|
|
|
Percentage of
|
|
|
|
Revenue
|
|
Segment Revenue
|
|
Revenue
|
|
Segment Revenue
|
|
System and Wire
Revenue
|
|
$
|
213,045
|
|
77.2
|
%
|
$
|
176,600
|
|
75.7
|
%
|
Other System
Revenue
|
|
12,135
|
|
4.4
|
%
|
4,434
|
|
1.9
|
%
|
Aftermarket
Revenue
|
|
50,708
|
|
18.4
|
%
|
52,377
|
|
22.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
275,888
|
|
100.0
|
%
|
$
|
233,411
|
|
100.0
|
%
|
System and wire revenues
in the BioSpin segment include nuclear magnetic resonance systems, magnetic
resonance imaging systems, electron paramagnetic resonance systems, Minispec
systems, power supplies and our LTS and HTS wire business. Other system
revenues in the BioSpin segment relate primarily to the distribution of
products not manufactured by the BioSpin segment. Aftermarket revenues in the
BioSpin segment include accessory sales, consumables, training and services.
Income
from Operations
The following table
presents income from operations and operating margins on revenue by reportable
segment for the six months ended June 30, 2008 and 2007 (dollars in
thousands):
|
|
2008
|
|
2007
|
|
|
|
Operating
|
|
Operating
|
|
Operating
|
|
Operating
|
|
|
|
Income
|
|
Margin
|
|
Income
|
|
Margin
|
|
BioScience
|
|
$
|
18,476
|
|
6.1
|
%
|
$
|
17,067
|
|
7.2
|
%
|
BioSpin
|
|
36,532
|
|
13.2
|
%
|
31,196
|
|
13.4
|
%
|
Corporate,
Eliminations and Other (a)
|
|
(10,639
|
)
|
|
|
(6,767
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating
Income
|
|
$
|
44,369
|
|
8.1
|
%
|
$
|
41,496
|
|
9.3
|
%
|
(a) Represents corporate costs not allocated to the reportable
segments.
BioScience segment income
from operations for the six months ended June 30, 2008, was $18.5 million,
resulting
29
Table of Contents
in an operating margin of
6.1%, compared to income from operations of $17.1 million, resulting in an
operating margin of 7.2%, for the comparable period of 2007. The increase in
income from operations was driven by an increase in revenues offset partially
by lower gross profit margins and increases in operating expenses. The increase
in costs is, in part, attributable to changes in foreign currency exchange
rates, primarily the Euro, as a majority of our production and research and
development is performed in Europe. However, increases in headcount, primarily
in sales and marketing, and research and development material costs also
contributed to the increase in expenses for the six months ended June 30,
2008.
BioSpin segment income
from operations for the six months ended June 30, 2008, was $36.5 million,
resulting in an operating margin of 13.2%, compared to income from operations
of $31.2 million, resulting in an operating margin of 13.4%, for the comparable
period of 2007. The increase in income from operations was attributable
primarily to an increase in revenue and higher gross profit margins offset
partially by higher operating expenses. The increase in gross profit margins is
the result of improved utilization driven by higher revenues. The increase in
costs relates primarily to research and development expenses and is associated
with changes in foreign currency exchange rates and higher material costs
associated with new product development.
LIQUIDITY AND CAPITAL RESOURCES
We currently anticipate
that our existing cash and credit facilities will be sufficient to support our
operating and investing needs for at least the next twelve months, but this
depends on our profitability and our ability to manage working capital
requirements. Our future cash requirements will also be affected by
acquisitions that we may consider. Historically, we have financed our growth
through a combination of debt financings and issuances of common stock. In the
future, there can be no assurances that additional financing alternatives will be
available to us if required, or if available, will be obtained on terms
favorable to us.
During the six months
ended June 30, 2008, net cash provided by operating activities was $18.1
million compared to net cash provided by operating activities of $16.6 million
during the six months ended June 30, 2007. Cash provided by operating
activities in the six months ended June 30, 2008 was attributable to the
results of operations offset partially by changes in the components of working
capital. Cash provided by operating activities in the six months ended June 30,
2007 was also attributable to the results of operations offset partially by
changes in the components of working capital.
During the six months
ended June 30, 2008, net cash used by investing activities was $(28.0)
million, compared to net cash used by investing activities of $(15.6) million
during the six months ended June 30, 2007. Cash used by investing
activities during the six months ended June 30, 2008 was attributable to
$27.1 million of capital expenditures and $7.3 million used for acquisition
related costs and acquisitions. These uses were offset partially by $9.8
million of proceeds from the sale of short-term investments. Cash used by
investing activities during the six months ended June 30, 2007 was
attributable to $13.0 million of capital expenditures and $2.5 million for
acquisitions.
During the six months
ended June 30, 2008, net cash used by financing activities was $(217.5)
million, compared to net cash used by financing activities of $(34.5) million
during the six months ended June 30, 2007. Cash used by financing
activities during the six months ended June 30, 2008 was attributable to $386.0
million paid to certain shareholders in connection with the acquisition of
Bruker BioSpin and $23.4 million of withholding taxes paid by the Company in
connection with a dividend declared by Bruker BioSpin prior to the acquisition.
These uses were offset, in part, by $193.4 million of net borrowings under
long-term and short-term investments. Cash
used by financing activities during the six months ended June 30, 2007 was
attributable to a $37.6 million dividend payment to the shareholders of Bruker
BioSpin and $15.2 million in net repayments of short-term and long-term debt
offset partially by $18.4 million in net proceeds from the offering of common
stock.
On February 26,
2008, the Company completed its acquisition of Bruker BioSpin for $914.0
million. The acquisition of Bruker BioSpin was financed with 57,544,872 shares
of unregistered common stock valued at $526.0 million based on the trailing 10
day trading average closing price of $9.14 per share as of two days prior to
the signing of the transaction agreements, $351.0 million of cash obtained
under new credit facilities and the balance with cash on hand. The Credit
Agreement with a syndication of lenders provides for a revolving credit line
with a maximum commitment of $230.0 million and a term loan facility of $150.0
million. The outstanding principal under the term loan is payable in quarterly
installments through December 2012. Borrowings under the Credit Agreement
bear interest, at the Companys option, at either (i) the higher of the
prime rate or the federal funds rate plus 0.50%, or (ii) adjusted LIBOR,
plus margins ranging from 0.40% to 1.25% and a facility fee ranging from 0.10%
to 0.20%. As
30
Table of Contents
of June 30, 2008,
the weighted-average interest rate of borrowings under the Credit Agreement was
approximately 4.0%.
Borrowings under the
Credit Agreement are secured by the pledge to the banks of 100% of the capital
stock of each of the Companys wholly-owned domestic subsidiaries and 65% of
the capital stock of certain of the Companys wholly-owned direct or indirect
foreign subsidiaries. The Credit Agreement also requires the Company to
maintain certain financial ratios related to maximum leverage and minimum
interest coverage, as defined in the Credit Agreement. In addition to the
financial ratios, the Credit Agreement restricts, among other things, the
Companys ability to do the following: make certain payments; incur additional
debt; incur certain liens; make certain investments, including derivative
agreements; merge, consolidate, sell or transfer all or substantially all of
the Companys assets; and enter into certain transactions with affiliates.
At June 30, 2008, we
had outstanding debt totaling $242.2 million consisting of $194.3 million outstanding
under the Credit Agreement, including $148.1 million drawn on a term loan and
$46.2 million under revolving loans, $33.6 million outstanding under other
long-term debt arrangements, $11.2 million outstanding under other revolving
lines of credit and $3.1 million under capital lease obligations. At December 31,
2007, we had outstanding debt totaling $44.2 million consisting of $28.0
million outstanding under other long-term debt arrangements, $13.2 million
outstanding under other revolving lines of credit and $3.0 million under
capital lease obligations.
Amounts outstanding under
other long-term debt arrangements include both collateralized and
uncollateralized arrangements with various financial institutions in Germany,
Japan and a government agency in the United States. These debt arrangements
consist of fixed and variable interest rates ranging from 1.8% to 8.0% at June 30,
2008. In connection with certain of these agreements, we are required to
maintain certain financial ratios as defined in the agreements. At June 30,
2008, we were not in compliance with one of the covenants required by our
arrangement with the government agency in the United States. The failure to
meet this covenant did not trigger any cross-default provisions in other
borrowing arrangements, including the Credit Agreement. On July 28, 2008,
we received a limited waiver from the holder of the debt for the quarterly
period ended June 30, 2008 and agreement from the holder of the debt to
modify the covenant for the remainder of 2008.
Amounts outstanding under
other revolving lines of credit are with various financial institutions in
Germany, Switzerland, Japan and France and have aggregate maximum borrowing
amounts of approximately $90.0 million at June 30, 2008. With
consideration to outstanding letters of credit, we had availability of
approximately $65.5 million under other revolving lines of credit at June 30,
2008. Our revolving lines of credit are generally uncollateralized and bear
interest at variable rates ranging from 1.5% to 9.8% at June 30, 2008.
Effective February 26, 2008, we terminated a $75.0 million line of credit
in the United States and replaced it with the revolving credit available under
the Credit Agreement.
As of June 30, 2008,
we have approximately $26.0 million of net operating loss carryforwards
available to reduce future U.S. taxable income. These losses have various
expiration dates through 2027. The Company also has U.S. tax credits of
approximately $11.1 million available to offset future tax liabilities that
expire at various dates. These credits include foreign tax credits of $8.0
million expiring in various years through 2017 and research and
development tax credits of $3.1 million expiring through 2025. These operating
losses and tax credit carryforwards may be subject to limitations under
provisions of the Internal Revenue Code.
The following table
summarizes maturities for our significant financial obligations as of June 30,
2008 (in thousands):
31
Table of Contents
|
|
|
|
Less than
|
|
1-3
|
|
4-5
|
|
More than
|
|
Contractual Obligations
|
|
Total
|
|
1 year
|
|
Years
|
|
Years
|
|
5 years
|
|
Short-term
borrowings
|
|
$
|
11,153
|
|
$
|
11,153
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Long-term debt,
including current portion
|
|
227,845
|
|
54,467
|
|
68,537
|
|
104,561
|
|
280
|
|
Capital lease
obligations
|
|
3,152
|
|
811
|
|
1,188
|
|
595
|
|
558
|
|
Uncertain tax
contingencies
|
|
19,418
|
|
|
|
19,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
contractual obligations
|
|
$
|
261,568
|
|
$
|
66,431
|
|
$
|
89,143
|
|
$
|
105,156
|
|
$
|
838
|
|
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 in
the preceding table includes interest and penalties accrued related to these
positions as of June 30, 2008. The total amount of uncertain tax
contingencies is included in the 1-3 Years column as we are not able to
reasonably estimate the timing of potential future payments. If a tax authority
agrees with the tax position taken or expected to be taken or the applicable
statute of limitations expires, then additional payments will not be necessary.
NEW ACCOUNTING PRONOUNCEMENTS
In December 2007,
the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 141(R),
Business
Combinations
(SFAS No. 141(R)). This statement will
significantly change the accounting for business combinations. Under SFAS No. 141(R),
an acquiring entity will be required to recognize all of the assets acquired
and liabilities assumed in a transaction at the acquisition date fair value
with certain limited exceptions. In addition, SFAS No. 141(R) will
change the accounting treatment for acquisition costs, in-process research and
development, restructuring costs associated with business combinations and
changes in deferred tax asset valuation allowances and income tax uncertainties
after the acquisition date. SFAS No. 141(R) also includes a
significant number of new disclosure requirements. Early adoption of SFAS No. 141(R) is
prohibited and we will be required to apply SFAS No. 141(R) to
acquisitions that occur on or after January 1, 2009.
In December 2007,
the FASB issued SFAS No. 160,
Noncontrolling Interests
in Consolidated Financial Statements An Amendment of ARB No. 51
(SFAS
No. 160). This statement establishes new accounting and reporting
standards for the minority interest in a subsidiary and the deconsolidation of
a subsidiary. SFAS No. 160 is effective as of the beginning of fiscal 2009
and early adoption is prohibited. We have not yet assessed the effect, if any,
that adoption of SFAS No. 160 will have on our results of operations and
financial position.
In March 2008, the
FASB issued SFAS No. 161,
Disclosures about
Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133
(SFAS No. 161). SFAS No. 161 requires enhanced disclosures about an
entitys derivative and hedging activities and, thereby, improves the
transparency of financial reporting. SFAS No. 161 is effective for fiscal
years beginning on or after November 15, 2008. We are currently evaluating
the impact that the adoption of SFAS No. 161 will have on our financial
position, results of operations and cash flows.
ITEM 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are potentially
exposed to market risks associated with changes in foreign exchange rates and
interest rates. We selectively use financial instruments to reduce these risks.
All transactions related to risk management techniques are authorized and
executed pursuant to our policies and procedures. Analytical techniques used to
manage and monitor foreign exchange and interest rate risk include market
valuations and sensitivity analysis.
Impact
of Foreign Currencies
We generate a substantial
portion of our revenues in international markets, principally Europe and Japan,
which subjects our operations to the exposure of exchange rate fluctuations.
The impact of currency exchange rate movement can be positive or negative in
any period. Our costs related to sales in foreign currencies are largely
denominated in the same respective currencies, limiting our transaction risk
exposure. However, for sales not
32
Table of Contents
denominated in U.S.
Dollars, if there is an increase in the rate at which a foreign currency is
exchanged for U.S. Dollars, it will require more of the foreign currency to
equal a specified amount of U.S. Dollars than before the rate increase. In such
cases, if we price our products in the foreign currency, we will receive less
in U.S. Dollars than we did before the rate increase went into effect. If we
price our products in U.S. Dollars and competitors price their products in
local currency, an increase in the relative strength of the U.S. Dollar could
result in our prices not being competitive in a market where business is
transacted in the local currency.
Our foreign exchange
gains (losses), net, were $(9.0) million and $0.5 million for the six
months ended June 30, 2008 and 2007, respectively. As we continue to
expand internationally, we will continue to evaluate our currency risks and may
utilize foreign exchange contracts more frequently in order to mitigate our
foreign currency exposures. From time to time, we have entered into foreign
currency contracts in order to minimize the volatility that fluctuations in
exchange rates will have on the Companys cash flows related to purchases and
sales denominated in foreign currencies. There were no outstanding forward
currency contracts at June 30, 2008.
Impact
of Interest Rates
We regularly invest
excess cash in short-term investments that are subject to changes in short-term
interest rates. We believe that the market risk arising from holding these
financial instruments is minimal.
Our exposure related to
adverse movements in interest rates is derived primarily from outstanding
floating rate debt instruments that are indexed to short-term market rates. Our
objective in managing our exposure to interest rates is to decrease the
volatility that changes in interest rates might have on our earnings and cash
flows. To achieve this objective we entered into interest rate swaps and cross
currency rate swaps in order to minimize the volatility that changes in
interest rates might have on earnings and cash flows.
In April 2008, we
entered into an interest rate swap arrangement to pay a fixed rate of approximately
3.8% and receive a variable rate based on three month LIBOR through December 31,
2012. The initial notional amount of this interest rate swap is $90.0 million
and will amortize in proportion to the term debt component of the Credit
Agreement. We have determined that this swap is an effective hedge of the
variability of cash flows of the interest payments under SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities
(SFAS
No. 133).
In addition, in 2002 we
entered into a cross currency interest rate swap arrangement under which the
Company receives semiannual interest payments in Euros based on a variable
interest rate equal to the six-month EURIBOR rate in exchange for semiannual
payments in Swiss francs at a fixed rate of 4.97% through December 2011.
The notional amount of this interest rate swap arrangement was 5.0 million at June 30,
2008. In 1999, the Company entered into an interest rate swap arrangement to
pay a 4.60% fixed rate of interest and receive a variable rate of interest
based on the Securities Industry and Financial Markets Municipal Swap Index
through December 2013. The notional amount of this interest rate swap
arrangement was $1.5 million at June 30, 2008. We have determined that
these swaps are not effective in offsetting the change in interest rates on the
cash flows being hedged as defined by SFAS No. 133.
A 10% increase or
decrease in the average cost of our variable rate debt would not result in a
material change in pre-tax interest expense.
Inflation
We do not believe inflation
had a material impact on our business or operating results during any of the
periods presented.
ITEM 4. CONTROLS
AND PROCEDURES
We have established
disclosure controls and procedures that are designed to ensure that material
information relating to us, including our consolidated subsidiaries, is made
known to our Chief Executive Officer (principal executive officer) and Chief
Financial Officer (principal financial officer) by others within our
organization. Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
we conducted an evaluation of the effectiveness of our disclosure controls and
procedures as of
33
Table of Contents
June 30, 2008. Based
on this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective, as of June 30,
2008, to ensure that the information required to be disclosed by us in the
reports that we file or submit under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the SECs rules and forms.
There were no changes in
our internal control over financial reporting that occurred during the quarter
ended June 30, 2008 that materially affected, or are reasonably likely to
affect, our internal control over financial reporting.
34
Table of Contents
PART II OTHER
INFORMATION
ITEM 1. LEGAL
PROCEEDINGS
Except as set forth
below, there have been no material changes to the legal proceedings disclosed
in Part I, Item 3. Legal Proceedings in our Annual Report on Form 10-K
for the year ended December 31, 2007 and our Quarterly Report on Form 10-Q
for the quarter ended March 31, 2008.
Our subsidiary Bruker
Daltonics is party to an Agreement with Isis Pharmaceuticals, Inc.
regarding the manufacture and sale of certain systems sold by Isis which
incorporate mass spectrometers from Bruker Daltonics. A dispute previously
arose regarding the performance of each party under the Agreement. Pursuant to
the Agreements dispute resolution mechanism, the parties had a series of
executive level meetings and engaged in mediation with a third party mediator.
These efforts did not resolve the dispute, and in May 2008 Bruker
Daltonics filed suit against Isis and its wholly owned subsidiary Ibis
Biosciences, Inc. Isis and Ibis have answered this complaint and asserted
counterclaims that Bruker Daltonics breached the Agreement. Bruker Daltonics
believes that the counterclaims of Ibis and Isis are without merit and intends
to pursue this litigation vigorously.
As previously disclosed
in Part I, Item 3. Legal Proceedings in our Annual Report on Form 10-K
for the year ended December 31, 2007, on October 10, 2007, Brian
Lamy, a former employee of Bruker BioSpin Corporation, filed a complaint with
the United States Department of Labors Occupational Health and Safety
Administration (OSHA) alleging discriminatory employment practices in
violation of Section 806 of the Sarbanes-Oxley Act arising from Bruker
BioSpin Corporations termination of his employment in July 2007. At the
time of the complaint, Bruker BioSpin Corporation was an affiliate of the
Company under common control of the Company. As a result of the Companys
acquisition of the Bruker BioSpin group of companies, Bruker BioSpin
Corporation is now a wholly-owned subsidiary of the Company.
Mr. Lamy also
contacted the Securities and Exchange Commission regarding his complaint. The
SEC contacted counsel for the Company in February 2008 regarding this
matter. Counsel for the Company at that time provided the SEC various materials
relating to the matter, and the Company intends to cooperate fully with any
additional requests that may be made by the SEC for information or documents.
On July 17, 2008, Mr. Lamy
withdrew his action from OSHA and filed in federal court in the District of
Massachusetts a substantially similar complaint against Bruker BioSpin
Corporation, Bruker Corporation and Dirk Laukien, entitled
Brian Lamy
v. Bruker BioSpin Corporation, Bruker Corporation f/k/a Bruker BioSciences
Corporation and Dirk Laukien,
alleging termination in violation of
the Sarbanes-Oxley Act.
The Audit Committee of
the Company has conducted an internal review with regard to Mr. Lamys
claims and has found no evidence of any improper activity. The Company believes
the allegations of Mr. Lamys complaint to be without merit and intends to
defend this matter vigorously.
ITEM 1A. RISK
FACTORS
In addition to the other
information set forth in this report, you should carefully consider the factors
discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K
for the year ended December 31, 2007 and in Part II, Item 1A. Risk
Factors in our Quarterly Report on Form 10-Q for the three months ended March 31,
2008, which could materially affect our business, financial condition or future
results. The risks described in this report and in our Annual Report on Form 10-K
and Quarterly Reports on Form 10-Q are not the only risks facing our
Company. Additional risks and uncertainties not currently known to us or that
we currently deem to be immaterial also may materially adversely affect our
business, financial condition and/or operating results.
There have been no
material changes to the risk factors previously disclosed in our Annual Report
on Form 10-K for the fiscal year ended December 31, 2007 and our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2008.
35
Table of Contents
ITEM 2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS
UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
(a)
|
|
The
Annual Meeting of Stockholders of the Company was held on May 8, 2008.
|
|
|
|
|
|
|
|
(c)
|
|
Proxies
representing 160,382,927 shares were received. Total shares outstanding as of
the record date were 163,368,791. The matters voted upon and the results of the
voting at the Annual Meeting are set forth below:
|
|
|
|
|
|
|
|
(i)
|
|
To elect Collin J. DSilva, Stephen W. Fesik
Ph.D., Dirk D. Laukien, Ph.D., Richard M. Stein and Bernhard Wangler as a Class II
director to hold office until the 2011 Annual Meeting:
|
|
|
|
|
|
|
|
|
|
(i)
|
Collin J. DSilva as Class II director
|
|
|
|
|
|
|
Votes for
|
|
159,762,613
|
|
|
|
|
|
|
Votes withheld
|
|
620,314
|
|
|
|
|
|
|
|
|
|
|
|
|
(ii)
|
Stephen W. Fesik Ph.D. as Class II director
|
|
|
|
|
|
|
Votes for
|
|
159,566,905
|
|
|
|
|
|
|
Votes withheld
|
|
816,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(iii)
|
Dirk D. Laukien, Ph.D. as Class II director
|
|
|
|
|
|
|
Votes for
|
|
145,521,436
|
|
|
|
|
|
|
Votes withheld
|
|
14,861,491
|
|
|
|
|
|
|
|
|
|
|
|
|
(iv)
|
Richard M. Stein as Class II director
|
|
|
|
|
|
|
Votes for
|
|
144,374,888
|
|
|
|
|
|
|
Votes withheld
|
|
16,008,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(v)
|
Bernhard Wangler as Class II director
|
|
|
|
|
|
|
Votes for
|
|
144,303,358
|
|
|
|
|
|
|
Votes withheld
|
|
16,079,569
|
|
|
|
|
|
|
|
|
|
|
(ii)
|
|
To ratify the selection of Ernst & Young
LLP as the Companys independent registered public accounting firm for fiscal
year 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Votes for
|
|
160,136,736
|
|
|
|
|
|
Votes against
|
|
222,858
|
|
|
|
|
|
Votes abstaining
|
|
23,333
|
|
|
|
|
|
|
|
|
|
|
|
Except as set forth above, there were no shares
abstaining and no broker non-voting shares cast.
ITEM 5. OTHER
INFORMATION
None.
36
Table of Contents
ITEM 6. EXHIBITS
Exhibit No.
|
|
Description
|
31.1
|
|
Certification by Chief
Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (1)
|
31.2
|
|
Certification by Chief
Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (1)
|
32.1
|
|
Certification by Chief
Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (2)
|
(1) Filed herewith.
(2) Furnished herewith.
37
Table of Contents
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
BRUKER CORPORATION
|
|
|
Date: August 11,
2008
|
By:
|
/s/ FRANK H.
LAUKIEN, PH.D.
|
|
|
Frank H. Laukien, Ph.D.
President, Chief
Executive Officer and Chairman
(Principal Executive
Officer)
|
Date: August 11,
2008
|
By:
|
/s/ WILLIAM
J. KNIGHT
|
|
|
William J. Knight
Chief Financial Officer
(Principal Financial
and Accounting Officer)
|
38
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