Table
of Contents
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT of 1934
|
For
the quarterly period ended September 30, 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
November 6, 2008, there were 164,066,289 shares of the Registrants common
stock outstanding.
Table
of Contents
BRUKER
CORPORATION
Quarterly
Report on Form 10-Q
For
the Quarter Ended September 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 data)
|
|
September 30,
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
84,381
|
|
$
|
332,368
|
|
Short term
investments and restricted cash
|
|
2,986
|
|
12,186
|
|
Accounts
receivable, net
|
|
156,068
|
|
185,217
|
|
Inventories
|
|
456,814
|
|
447,688
|
|
Other current
assets
|
|
71,473
|
|
57,238
|
|
|
|
|
|
|
|
Total current
assets
|
|
771,722
|
|
1,034,697
|
|
Property, plant
and equipment, net
|
|
219,317
|
|
207,588
|
|
Intangibles and
other assets
|
|
86,471
|
|
69,346
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,077,510
|
|
$
|
1,311,631
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Short-term
borrowings
|
|
$
|
44,276
|
|
$
|
35,591
|
|
Accounts payable
|
|
46,528
|
|
52,293
|
|
Customer
advances
|
|
201,084
|
|
233,466
|
|
Other current
liabilities
|
|
217,465
|
|
239,841
|
|
|
|
|
|
|
|
Total current
liabilities
|
|
509,353
|
|
561,191
|
|
|
|
|
|
|
|
Long-term debt
|
|
169,703
|
|
8,605
|
|
Other long-term liabilities
|
|
103,274
|
|
105,445
|
|
Minority
interest in consolidated subsidiaries
|
|
810
|
|
538
|
|
Commitments and
contingencies (Note 16)
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders
Equity:
|
|
|
|
|
|
Preferred stock,
$0.01 par value, 5,000,000 shares authorized, none issued or outstanding at
September 30, 2008 or December 31, 2007
|
|
|
|
|
|
Common stock,
$0.01 par value, 260,000,000 and 200,000,000 shares authorized, 164,076,221
and 163,251,890 shares issued and outstanding at September 30, 2008 and
December 31, 2007, respectively
|
|
1,633
|
|
1,624
|
|
Treasury stock,
at cost, 9,869 shares and 0 shares at September 30, 2008 and
December 31, 2007, respectively
|
|
(115
|
)
|
|
|
Other
shareholders equity
|
|
292,852
|
|
634,228
|
|
|
|
|
|
|
|
Total
shareholders equity
|
|
294,370
|
|
635,852
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders equity
|
|
$
|
1,077,510
|
|
$
|
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
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Product revenue
|
|
$
|
209,936
|
|
$
|
215,838
|
|
$
|
695,820
|
|
$
|
607,624
|
|
Service revenue
|
|
30,638
|
|
24,848
|
|
92,328
|
|
77,605
|
|
Other revenue
|
|
1,490
|
|
1,074
|
|
3,817
|
|
2,409
|
|
Total revenue
|
|
242,064
|
|
241,760
|
|
791,965
|
|
687,638
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product
revenue
|
|
113,841
|
|
115,424
|
|
380,673
|
|
332,883
|
|
Cost of service
revenue
|
|
18,153
|
|
15,228
|
|
59,455
|
|
49,184
|
|
Total cost of
revenue
|
|
131,994
|
|
130,652
|
|
440,128
|
|
382,067
|
|
Gross profit
|
|
110,070
|
|
111,108
|
|
351,837
|
|
305,571
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
Sales and
marketing
|
|
44,173
|
|
38,327
|
|
133,717
|
|
110,818
|
|
General and
administrative
|
|
17,675
|
|
15,580
|
|
51,657
|
|
42,435
|
|
Research and
development
|
|
33,089
|
|
26,841
|
|
100,808
|
|
80,462
|
|
Acquisition-related
charges
|
|
|
|
544
|
|
6,153
|
|
544
|
|
Total operating
expenses
|
|
94,937
|
|
81,292
|
|
292,335
|
|
234,259
|
|
Operating income
|
|
15,133
|
|
29,816
|
|
59,502
|
|
71,312
|
|
|
|
|
|
|
|
|
|
|
|
Interest and
other income (expense), net
|
|
814
|
|
1,580
|
|
(7,848
|
)
|
4,544
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
tax provision and minority interest in consolidated subsidiaries
|
|
15,947
|
|
31,396
|
|
51,654
|
|
75,856
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
provision (benefit)
|
|
(1,966
|
)
|
4,616
|
|
12,500
|
|
16,923
|
|
|
|
|
|
|
|
|
|
|
|
Income before
minority interest in consolidated subsidiaries
|
|
17,913
|
|
26,780
|
|
39,154
|
|
58,933
|
|
Minority
interest in consolidated subsidiaries
|
|
73
|
|
109
|
|
313
|
|
255
|
|
Net income
|
|
$
|
17,840
|
|
$
|
26,671
|
|
$
|
38,841
|
|
$
|
58,678
|
|
|
|
|
|
|
|
|
|
|
|
Net income per
common share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.11
|
|
$
|
0.16
|
|
$
|
0.24
|
|
$
|
0.36
|
|
Diluted
|
|
$
|
0.11
|
|
$
|
0.16
|
|
$
|
0.23
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
162,847
|
|
161,922
|
|
162,531
|
|
161,351
|
|
Diluted
|
|
165,918
|
|
164,224
|
|
165,606
|
|
164,029
|
|
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)
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2008
|
|
2007
|
|
Operating
activities:
|
|
|
|
|
|
Net income
|
|
$
|
38,841
|
|
$
|
58,678
|
|
Adjustments to
reconcile net income to cash flow from operating activities:
|
|
|
|
|
|
Depreciation and
amortization
|
|
22,292
|
|
22,764
|
|
Stock-based
compensation
|
|
3,115
|
|
1,497
|
|
Other noncash
reconciling items, net
|
|
(7,295
|
)
|
(13,563
|
)
|
Changes in
operating assets and liabilities:
|
|
|
|
|
|
Accounts
receivable
|
|
41,776
|
|
(3,386
|
)
|
Inventories
|
|
(35,591
|
)
|
(34,905
|
)
|
Accounts payable
|
|
(14,658
|
)
|
6,297
|
|
Customer
advances
|
|
(26,075
|
)
|
(13,855
|
)
|
Other changes in
operating assets and liabilities, net
|
|
(3,403
|
)
|
9,354
|
|
Net cash
provided by operating activities
|
|
19,002
|
|
32,881
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
Purchases of
property, plant and equipment
|
|
(39,793
|
)
|
(19,878
|
)
|
Acquisitions,
net of cash acquired
|
|
(4,106
|
)
|
(2,855
|
)
|
Payments in
connection with the acquistion of Bruker BioSpin
|
|
(6,478
|
)
|
|
|
Purchase of
short-term investments
|
|
|
|
2,473
|
|
Proceeds from
sale of short-term investments
|
|
9,609
|
|
|
|
Changes in
restricted cash
|
|
(183
|
)
|
(323
|
)
|
Net cash used in
investing activities
|
|
(40,951
|
)
|
(20,583
|
)
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
Proceeds from
(repayments of) short-term borrowings, net
|
|
3,794
|
|
(6,052
|
)
|
Proceeds from
(repayments of) long-term debt, net
|
|
168,931
|
|
(5,638
|
)
|
Payments of
deferred financing costs
|
|
(2,916
|
)
|
|
|
Proceeds from
issuance of common stock, net of repurchases
|
|
3,678
|
|
18,772
|
|
Deemed dividend
in connection with the acquistion of Bruker BioSpin
|
|
(385,963
|
)
|
|
|
Cash payments to
shareholders
|
|
(23,416
|
)
|
(42,641
|
)
|
Net cash used in
financing activities
|
|
(235,892
|
)
|
(35,559
|
)
|
|
|
|
|
|
|
Effect of
exchange rate changes on cash and cash equivalents
|
|
9,854
|
|
19,743
|
|
Net change in
cash and cash equivalents
|
|
(247,987
|
)
|
(3,518
|
)
|
Cash and cash
equivalents at beginning of period
|
|
332,368
|
|
311,240
|
|
Cash and cash
equivalents at end of period
|
|
$
|
84,381
|
|
$
|
307,722
|
|
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 and infrared
and Raman molecular spectroscopy technologies. The Company also sells a broad
range of field analytical systems for chemical, biological, radiological and
nuclear detection. The Company maintains major technical and manufacturing
centers in Europe, North America and Japan and sales offices throughout the
world. The Companys diverse customer base includes pharmaceutical,
biotechnology and proteomics companies, academic institutions, advanced
materials and semiconductor industries and government agencies.
The financial statements
represent the consolidated accounts of the Company. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The condensed consolidated financial statements as of and for the three and
nine months ended September 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 unaudited condensed consolidated balance sheets,
statements of operations, statements of cash flows and notes to the unaudited
condensed 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 and high temperature
superconductor 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
4
Table
of Contents
historical carrying
values at the date of the acquisition. Historical unaudited condensed
consolidated balance sheets, statements of operations, statements of cash flows
and notes to the
unaudited
condensed 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 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 audited financial statements of the
Company 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 August 14, 2008,
the Company acquired S.I.S. Surface Imaging Systems GmbH (S.I.S.), a
privately-held company located in Herzogenrath, Germany. S.I.S. develops,
manufactures and distributes advanced atomic force/scanning probe microscopy
for applications in materials research, including semiconductors, data storage,
electronic materials, solar cells, polymers and catalysts. The results of S.I.S.
have been included in the BioScience segment from the date of acquisition. The
aggregate purchase price of S.I.S. was $2.8 million, of which $2.1 million was
paid in cash and $0.7 million was funded
by the issuance of an aggregate of 59,342 restricted unregistered shares of the
Companys common stock, par value $0.01 per share, to certain of S.I.S.s
shareholders. The Company recorded $2.9 million of goodwill in connection with
the acquisition of S.I.S. and assigned the goodwill to the BioScience segment. Proforma
financial information reflecting the acquisition of S.I.S. has not been
presented because the impact on revenues, net income and net income per common
share would not have been material.
On January 31, 2008,
the Company acquired JUWE Laborgeraete GmbH (JUWE), 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 (Benefit) for Income Taxes
The income tax provision
(benefit) for the three months ended September 30, 2008 was $(2.0) million
compared to an income tax provision (benefit) of $4.6 million for the three
months ended September 30, 2007, representing effective tax rates of
(12.3)% and 14.7%, respectively. The income tax provision (benefit) for the
nine months ended September 30, 2008 was $12.5 million compared to an
income tax provision (benefit) of $16.9 million for the nine months ended September 30,
2007, representing effective tax rates of 24.2% and 22.3%, respectively.
5
Table
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The Companys effective
tax rate reflects the tax provision (benefit) for non-U.S. entities only, since
no benefit was recognized for cumulative losses incurred in the U.S. A full
valuation allowance will be maintained for U.S. net operating losses 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.
During the third quarter
of 2008, two German subsidiaries in the BioSpin segment were merged into a
third German subsidiary. As a result of the merger, the Company will be able to
use certain net operating loss carryforwards that existed in the merged
entities but had previously been fully reserved. The valuation allowance
related to these net operating loss carryforwards was reversed in the third
quarter of 2008 and resulted in a tax benefit of approximately $6.5 million.
Additionally, the Company
established a profit and loss sharing agreement between two of the German
subsidiaries of Bruker AXS Inc. during the third quarter of 2008. This
agreement allows the losses of one entity to reduce the taxable income of the
other entity. Prior to this agreement being put in place, certain deferred tax
assets related to these entities had full valuation allowances. These valuation
allowances were reversed during the third quarter of 2008, resulting in a tax
benefit of approximately $1.2 million.
The Company received a
$0.5 million refund of French taxes on inter-corporate dividends during the
third quarter of 2008 which was recorded as a tax benefit. This refund related
to withholding taxes paid in connection with dividends paid by a French
subsidiary to its Swiss parent company in 2005 and 2006. At the end of 2007, as
a result of a tax law change in France, the Company determined that a refund of
these withholding taxes was uncertain and did not meet the more-likely-than-not
threshold for recording a tax receivable. As such, the 2005, 2006 and 2007
taxes paid on dividends from the French subsidiary to its Swiss parent were
expensed through the income tax provision with no corresponding tax receivable
recorded. Because the facts and circumstances around the dividends and the
withholding taxes were the same for all three years and the 2005 and 2006
withholding taxes were refunded by the French government, the Company concluded
that it is more likely than not that the 2007 French withholding taxes would
also be refunded. As such, the Company also recorded a tax benefit of
approximately $2.7 million during the third quarter of 2008 for the 2007
withholding tax receivable.
In July 2006, the
Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48,
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 $20.0 million as of September 30,
2008, of which $9.5 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
fourth quarter of 2008. The audit covers tax years 2003-2006 and the Company
cannot reasonably estimate the outcome of this audit. As of September 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 September 30, 2008, approximately $2.6 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 $0.8 million was recorded during the three and nine months ended September 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.
6
Table
of Contents
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 September 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 nine months ended September 30,
2008 and 2007, as follows (in thousands):
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Stock options
|
|
$
|
1,213
|
|
$
|
557
|
|
$
|
2,714
|
|
$
|
1,031
|
|
Restricted stock
|
|
116
|
|
143
|
|
401
|
|
466
|
|
Total
stock-based compensation, pre-tax
|
|
1,329
|
|
700
|
|
3,115
|
|
1,497
|
|
Tax benefit
|
|
(200
|
)
|
(196
|
)
|
(555
|
)
|
(419
|
)
|
Total
stock-based compensation, net of tax
|
|
$
|
1,129
|
|
$
|
504
|
|
$
|
2,560
|
|
$
|
1,078
|
|
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
compensation for restricted stock is recorded based on the stock price on the
grant date and charged to expense ratably through the restriction period. The
following table summarizes information about restricted stock activity during
the nine months ended September 30, 2008:
|
|
|
|
Weighted
|
|
|
|
Shares
|
|
Average
|
|
|
|
Subject to
|
|
Grant Date
|
|
|
|
Restriction
|
|
Fair Value
|
|
Outstanding at
December 31, 2007
|
|
569,402
|
|
$
|
5.74
|
|
Granted
|
|
|
|
|
|
Vested
|
|
(131,370
|
)
|
5.39
|
|
Forfeited
|
|
(6,180
|
)
|
6.39
|
|
Outstanding at
September 30, 2008
|
|
431,852
|
|
$
|
5.77
|
|
Unrecognized pretax
expense of $1.5 million related to restricted stock awards is expected to be
recognized over the weighted average remaining service period of 2.6 years for
awards outstanding at September 30, 2008.
Stock options of the
Companys common stock are periodically awarded to executive officers and other
7
Table
of Contents
employees of the Company
subject to a vesting period which expires ratably over a period of three to
five years. The fair value of each stock option award is estimated on the date
of grant using the Black-Scholes option-pricing model. Assumptions regarding
volatility, expected term, dividend yield and risk-free interest rate are
required for the Black-Scholes model. Volatility and expected term assumptions
are based on the Companys historical experience. The risk-free interest rate
is based on a U.S. treasury note with a maturity similar to the stock option
awards expected life. The assumptions for volatility, expected life, dividend
yield and risk-free interest rate are presented in the table below:
|
|
2008
|
|
2007
|
|
Risk-free
interest rate
|
|
2.71% - 3.95%
|
|
3.48% - 5.21%
|
|
Expected life
|
|
6.5 years
|
|
6.5 years
|
|
Volatility
|
|
72.0%
|
|
82.0%
|
|
Expected
dividend yield
|
|
0%
|
|
0%
|
|
All stock options granted
had an exercise price equal to or greater than the market value of the
underlying common stock on the date of grant. Stock option activity for the
nine months ended September 30, 2008 was as follows:
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
Average
|
|
Aggregate
|
|
|
|
Shares
|
|
Option
|
|
Remaining
|
|
Intrinsic
|
|
|
|
Subject to
|
|
Price Per
|
|
Contractual
|
|
Value
|
|
|
|
Options
|
|
Share
|
|
Term (in years)
|
|
($ s in 000s)
|
|
Outstanding at
December 31, 2007
|
|
4,423,712
|
|
$
|
6.87
|
|
|
|
|
|
Granted
|
|
1,621,500
|
|
12.09
|
|
|
|
|
|
Exercised
|
|
(652,791
|
)
|
5.63
|
|
|
|
|
|
Forfeited
|
|
(107,298
|
)
|
9.22
|
|
|
|
|
|
Outstanding at
September 30, 2008
|
|
5,285,123
|
|
$
|
8.57
|
|
4.6
|
|
$
|
25,819
|
|
Exercisable at
September 30, 2008
|
|
2,223,356
|
|
$
|
6.97
|
|
3.9
|
|
$
|
14,811
|
|
The following table
summarizes information about stock options outstanding and exercisable at September 30,
2008:
|
|
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
|
|
556,185
|
|
3.0
|
|
$
|
3.20
|
|
$
|
5,636
|
|
498,585
|
|
3.0
|
|
$
|
3.19
|
|
$
|
5,055
|
|
$4.01 to $6.00
|
|
1,168,669
|
|
3.9
|
|
5.14
|
|
9,568
|
|
770,379
|
|
3.8
|
|
5.09
|
|
6,345
|
|
$6.01 to $10.00
|
|
1,431,165
|
|
6.6
|
|
7.71
|
|
8,047
|
|
488,246
|
|
6.4
|
|
7.26
|
|
2,965
|
|
$10.01 to $13.00
|
|
1,741,604
|
|
7.5
|
|
11.86
|
|
2,556
|
|
186,146
|
|
3.5
|
|
10.94
|
|
446
|
|
$13.01 and above
|
|
387,500
|
|
2.6
|
|
15.01
|
|
12
|
|
280,000
|
|
2.6
|
|
15.68
|
|
|
|
|
|
5,285,123
|
|
4.6
|
|
$
|
8.57
|
|
$
|
25,819
|
|
2,223,356
|
|
3.9
|
|
$
|
6.97
|
|
$
|
14,811
|
|
The intrinsic values
above are based on the Companys closing stock price of $13.33 on September 30,
2008. The weighted-average grant-date fair value of options granted during the
nine months ended September 30, 2008 was $12.09. Unrecognized pretax
expense of $19.5 million related to stock options is expected to be recognized
over the weighted average remaining service period of 3.6 years for awards outstanding
at September 30, 2008.
8
Table
of Contents
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) SFAS No. 157-2,
Effective
Date of FASB Statement No. 157
(FSP SFAS No. 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 SFAS No. 157-2 and has
not yet determined the expected impact on the Companys financial position, results
of operations, or cash flows.
In October 2008, the
FASB issued FSP No. 157-3,
Determining
the Fair Value of a Financial Asset When the Market for That Asset Is Not
Active
(FSP SFAS No. 157-3).
FSP SFAS No. 157-3 clarifies the application of SFAS No. 157
for markets that are not active and provides an example to illustrate the key
considerations in determining fair value when the market for a financial asset
is not active. FSP SFAS No. 157-3 was effective upon being issued,
including prior periods for which financial statements have not been issued.
The adoption of this position did not have an effect 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 and liabilities at fair value on a recurring
basis. The fair value of these financial assets and liabilities was determined
using the following inputs at September 30, 2008 (in thousands):
|
|
Total
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
16,547
|
|
$
|
16,547
|
|
$
|
|
|
$
|
|
|
Short-term
investments and restricted cash
|
|
2,986
|
|
2,986
|
|
|
|
|
|
Long-term
restricted cash (a)
|
|
1,739
|
|
1,739
|
|
|
|
|
|
Total assets
recorded at fair value
|
|
$
|
21,272
|
|
$
|
21,272
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Interest rate
swaps
|
|
$
|
137
|
|
$
|
|
|
$
|
137
|
|
$
|
|
|
Total
liabilities recorded at fair value
|
|
$
|
137
|
|
$
|
|
|
$
|
137
|
|
$
|
|
|
(a) Long-term restricted
cash is recorded as a component of intangibles and other assets in the
unaudited condensed consolidated balance sheets.
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
9
Table
of Contents
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 September 30, 2008 and December 31, 2007 (in
thousands):
|
|
September 30,
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
120,709
|
|
$
|
116,883
|
|
Work-in process
|
|
147,886
|
|
137,959
|
|
Demonstration
units
|
|
38,701
|
|
37,195
|
|
Finished goods
|
|
149,518
|
|
155,651
|
|
Total
inventories
|
|
$
|
456,814
|
|
$
|
447,688
|
|
Finished goods include
in-transit systems that have been shipped to the Companys customers but not
yet installed and accepted by the customer. At September 30, 2008 and December 31,
2007, inventory in-transit was $79.9 million and $92.0 million, respectively.
8.
Goodwill and Other Intangible Assets
The following is a
summary of other intangible assets subject to amortization as of September 30,
2008 and December 31, 2007 (in thousands):
|
|
|
|
September 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
|
|
$
|
13,973
|
|
$
|
(8,714
|
)
|
$
|
5,259
|
|
$
|
13,292
|
|
$
|
(7,937
|
)
|
$
|
5,355
|
|
Customer
relationships
|
|
5
|
|
1,158
|
|
(643
|
)
|
515
|
|
1,115
|
|
(477
|
)
|
638
|
|
Trade names
|
|
5 to 10
|
|
439
|
|
(212
|
)
|
227
|
|
439
|
|
(176
|
)
|
263
|
|
Total
amortizable intangible assets
|
|
|
|
$
|
15,570
|
|
$
|
(9,569
|
)
|
$
|
6,001
|
|
$
|
14,846
|
|
$
|
(8,590
|
)
|
$
|
6,256
|
|
For the three months
ended September 30, 2008 and 2007, the Company recorded amortization
expense of $0.4 million and $0.4 million, respectively, related to other
amortizable intangible assets. For the nine months ended September 30,
2008 and 2007, the Company recorded amortization expense of $1.2 million and
$1.8 million, respectively, related to other amortizable intangible assets.
The estimated future
amortization expense related to other intangible assets is as follows (in
thousands):
For the year ending December 31,
|
|
|
|
2008 (a)
|
|
$
|
562
|
|
2009
|
|
1,764
|
|
2010
|
|
1,599
|
|
2011
|
|
951
|
|
2012
|
|
396
|
|
Thereafter
|
|
729
|
|
Total
|
|
$
|
6,001
|
|
(a) Amount represents estimated
amortization expense for the remaining three months ended December 31,
2008.
10
Table
of Contents
The carrying amount of
goodwill was $48.1 million and $40.8 million as of September 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 31each
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 September 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. The Company also offers its customers warranty and service
agreements extending beyond the initial term of the 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 nine months ended September 30, 2008
were as follows (in thousands):
Warranty accrual
at December 31, 2007
|
|
$
|
27,181
|
|
Accruals for
warranties issued during the period
|
|
21,782
|
|
Settlements of
warranty claims
|
|
(24,446
|
)
|
Foreign currency
impact
|
|
765
|
|
Warranty accrual
at September 30, 2008
|
|
$
|
25,282
|
|
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, that
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 September 30, 2008,
the weighted average interest rate of borrowings under the Credit Agreement was
approximately 3.5%.
Borrowings under the
Credit Agreement are secured by the pledge to the banks of 100% of the capital
stock of each of the Companys wholly-owned domestic subsidiaries and 65% of
the capital stock of certain of the Companys direct or indirect wholly-owned
foreign subsidiaries. The Credit Agreement also requires the Company to maintain
certain financial ratios related to maximum leverage and minimum interest
coverage as defined in the Credit Agreement. In addition to the financial
ratios, the Credit Agreement restricts, among other things, the Companys
ability to do the following: make certain payments; incur additional debt;
incur certain liens; make certain investments, including derivative agreements;
merge, consolidate, sell or transfer all or substantially all of the Companys
assets; and enter into certain transactions with affiliates.
At September 30,
2008, the Company had outstanding debt totaling $214.0 million consisting of
$170.6 million outstanding under the Credit Agreement, $30.5 million
outstanding under other long-term debt arrangements, $10.6 million outstanding
under other revolving lines of credit and $2.3 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 at September 30, 2008 include both
collateralized and uncollateralized arrangements with various financial
institutions in Germany and Japan. The terms of these arrangements also include
fixed and variable interest rates ranging from 1.8% to 8.0% at September 30,
2008.
11
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The Companys other
revolving lines of credit are with various financial institutions in Germany,
Switzerland, Japan and France and have aggregate maximum borrowing amounts of
approximately $76.2 million and $145.5 million at September 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 drawn under revolving lines of credit, the
Company had availability of approximately $51.3 million and $119.0 million
under other revolving lines of credit at September 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 September 30, 2008.
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,
as amended, (SFAS
No. 133). 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 was $90.0 million and it amortizes in proportion to the term debt
component of the Credit Agreement through December 2012. At September 30,
2008, the notional amount of this interest rate swap was $87.8 million. The
Company concluded that this swap met the criteria to qualify as an effective
hedge of the variability of cash flows of the interest payments and accounts
for the hedge as a cash flow hedge under SFAS No. 133. Accordingly, the
Company reflected all changes in the fair value of this interest rate swap in
accumulated other comprehensive income, a component of shareholders equity. As
of September 30, 2008, the Company recorded a liability of $0.1 million
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 nine months
ended September 30, 2008 and 2007 (in thousands):
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Components
of net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
1,321
|
|
$
|
943
|
|
$
|
3,416
|
|
$
|
2,704
|
|
Interest cost
|
|
1,320
|
|
760
|
|
3,441
|
|
2,257
|
|
Expected return
on plan assets
|
|
(995
|
)
|
(718
|
)
|
(3,029
|
)
|
(2,135
|
)
|
Amortization and
actuarial gains and losses
|
|
(11
|
)
|
|
|
(19
|
)
|
|
|
Net periodic
benefit cost
|
|
$
|
1,635
|
|
$
|
985
|
|
$
|
3,809
|
|
$
|
2,826
|
|
The Company made
contributions of $1.9 million to its defined benefit plans during the nine
months ended September 30, 2008 and estimates contributions of $0.5
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.
12
Table
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The following table sets
forth the computation of basic and diluted average shares outstanding for the
three and nine months ended September 30, 2008 and 2007 (in thousands,
except per share data):
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Net income, as
reported
|
|
$
|
17,840
|
|
$
|
26,671
|
|
$
|
38,841
|
|
$
|
58,678
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding - basic
|
|
162,847
|
|
161,922
|
|
162,531
|
|
161,351
|
|
Effect of
dilutive securities:
|
|
|
|
|
|
|
|
|
|
Stock options
and restricted stock
|
|
3,071
|
|
2,302
|
|
3,075
|
|
2,678
|
|
Weighted average
shares outstanding - diluted
|
|
165,918
|
|
164,224
|
|
165,606
|
|
164,029
|
|
Net income per
common share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.11
|
|
$
|
0.16
|
|
$
|
0.24
|
|
$
|
0.36
|
|
Diluted
|
|
$
|
0.11
|
|
$
|
0.16
|
|
$
|
0.23
|
|
$
|
0.36
|
|
Stock options to purchase
approximately 100,000 shares and 640,000 shares were excluded from the
computation of diluted earnings per share in the three months ended September 30,
2008 and 2007 respectively, and approximately 390,000 shares and 640,000 shares
were excluded from the computation of diluted earnings per share in the nine
months ended September 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 nine months
ended September 30, 2008 and 2007 (in thousands):
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Interest income
|
|
$
|
677
|
|
$
|
3,315
|
|
$
|
4,294
|
|
$
|
7,803
|
|
Interest expense
|
|
(3,384
|
)
|
(965
|
)
|
(9,060
|
)
|
(2,415
|
)
|
Exchange gains
(losses) on foreign currency transactions
|
|
3,177
|
|
(2,928
|
)
|
(5,864
|
)
|
(2,436
|
)
|
Other
|
|
344
|
|
2,158
|
|
2,782
|
|
1,592
|
|
Interest and
other income (expense), net
|
|
$
|
814
|
|
$
|
1,580
|
|
$
|
(7,848
|
)
|
$
|
4,544
|
|
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 nine months
ended September 30, 2008 and 2007 (in thousands):
13
Table of Contents
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Net income
|
|
$
|
17,840
|
|
$
|
26,671
|
|
$
|
38,841
|
|
$
|
58,678
|
|
Foreign currency
translation adjustments
|
|
(35,794
|
)
|
27,537
|
|
(612
|
)
|
34,963
|
|
Unrealized gains
(losses) on interest rate swap:
|
|
|
|
|
|
|
|
|
|
Unrealized
holding gains (losses) arising during the period
|
|
(126
|
)
|
|
|
219
|
|
|
|
Less
reclassification adjustments for settlements included in the determination of
net income
|
|
(234
|
)
|
|
|
(356
|
)
|
|
|
Unrealized gains
on available for sales securities:
|
|
|
|
|
|
|
|
|
|
Unrealized
holding gains (losses) arising during the period
|
|
|
|
(362
|
)
|
(71
|
)
|
336
|
|
Less reclassification
adjustments for gains included in the determination of net income
|
|
|
|
|
|
(1,335
|
)
|
|
|
Pension
liability adjustments
|
|
(478
|
)
|
(21
|
)
|
(872
|
)
|
|
|
Total
comprehensive income (loss)
|
|
$
|
(18,792
|
)
|
$
|
53,825
|
|
$
|
35,814
|
|
$
|
93,977
|
|
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 September 30,
2008 and December 31, 2007, the Company had letters of credit and bank
guarantees of $65.1 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 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.
14
Table
of Contents
Selected business segment
information for the three and nine months ended September 30, 2008 and
2007 is presented below (in thousands):
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
BioScience
|
|
$
|
141,187
|
|
$
|
135,138
|
|
$
|
444,409
|
|
$
|
372,094
|
|
BioSpin
|
|
112,523
|
|
118,482
|
|
388,411
|
|
351,893
|
|
Corporate,
eliminations and other (a)
|
|
(11,646
|
)
|
(11,860
|
)
|
(40,855
|
)
|
(36,349
|
)
|
Total
|
|
$
|
242,064
|
|
$
|
241,760
|
|
$
|
791,965
|
|
$
|
687,638
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income:
|
|
|
|
|
|
|
|
|
|
BioScience
|
|
$
|
8,444
|
|
$
|
13,360
|
|
$
|
26,920
|
|
$
|
30,427
|
|
BioSpin
|
|
10,047
|
|
17,659
|
|
46,579
|
|
48,855
|
|
Corporate,
eliminations and other (a)
|
|
(3,358
|
)
|
(1,203
|
)
|
(13,997
|
)
|
(7,970
|
)
|
Total
|
|
$
|
15,133
|
|
$
|
29,816
|
|
$
|
59,502
|
|
$
|
71,312
|
|
(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 September 30, 2008 and December 31, 2007 are as follows (in
thousands):
|
|
September 30,
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
BioScience
|
|
$
|
613,402
|
|
$
|
584,902
|
|
BioSpin
|
|
850,849
|
|
782,627
|
|
Corporate
|
|
390,675
|
|
314,988
|
|
Eliminations
|
|
(777,416
|
)
|
(370,886
|
)
|
Total
|
|
$
|
1,077,510
|
|
$
|
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
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
15
Table of Contents
currently evaluating the
impact that the adoption of SFAS No. 161 will have on its financial
position, results of operations and cash flows.
16
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 unaudited condensed consolidated financial
statements and the notes to those statements included in Part 1, Item 1 of
this Quarterly Report on Form 10-Q, and in conjunction with the
consolidated financial statements contained in our Annual Report on Form 10-K
for the year ended December 31, 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 nine months ended September 30,
2008 compared to the three and nine months ended September 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 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
17
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, we completed our 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 unaudited condensed
consolidated balance sheets, statements of operations, statements of cash flows
and notes to the unaudited condensed 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 we are managed and our
internal reporting structure and, as a result of that evaluation, determined
that we have four operating segments, representing each of our 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.
18
Table
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Financial
Overview
For the three months
ended September 30, 2008, our revenue increased by $0.3 million, or 0.1%,
to $242.1 million, compared to $241.8 million for the comparable period in
2007. Included in this change in revenue is approximately $13.6 million from
the impact of foreign exchange. Excluding the effect of foreign exchange,
revenue decreased by $13.3 million, or 5.5%. The decrease in revenue, excluding
the effect of foreign exchange, is attributable to a decrease in system and
wire revenue in the BioSpin segment and is related primarily to lower sales of
magnetic resonance systems. Because of the nature of the magnetic resonance
products sold by the BioSpin segment, BioSpin segment revenues are generally
subject to a high degree of volatility when comparing any two quarters, whether
they be year-over-year or sequential.
For the nine months ended
September 30, 2008, our revenue increased by $104.4 million, or 15.2%, to
$792.0 million, compared to $687.6 million for the comparable period in 2007.
Included in this change in revenue is approximately $62.1 million from the
impact of foreign exchange. Excluding the effect of foreign exchange, revenue
increased by $42.3 million, or 6.1%. The increase in revenue, excluding the
effect of foreign exchange, is attributable to increases in system and
aftermarket revenues in the BioScience segment. BioScience segment revenues
increased through growth of a number of product lines, particularly X-ray
systems, molecular spectroscopy systems and chemical detection systems.
Income from operations
for the three months ended September 30, 2008 was $15.1 million, resulting
in an operating margin of 6.3%, compared to income from operations of $29.8
million, resulting in an operating margin of 12.3%, for the comparable period
in 2007. Income from operations decreased as a result of the lower gross profit
margins and higher operating expenses for the three months ended September 30,
2008 when compared to the comparable period in 2007.
Our gross profit margin
for the third quarter of 2008 was 45.5%, compared 46.0% for the comparable
period in 2007. Lower gross margins were driven primarily by the the mix of
products sold and pricing pressure in certain product lines. Additionally, the
increase in operating expenses related primarily to higher sales and marketing
expenses and higher research and development expenses. The higher costs are a
result of increased headcounts in support of our planned revenue growth and new
product development and higher material costs associated with a number of new
products recently released, or scheduled to be released over the next six
months. Changes in foreign currency exchange rates, primarily the Euro, also
contributed significantly to the increase in operating expenses as a majority
of our research and development is performed in Europe.
Income from operations
for the nine months ended September 30, 2008 was $59.5 million, resulting
in an operating margin of 7.5%, compared to income from operations of $71.3
million, resulting in an operating margin of 10.4%, for the comparable period
in 2007. Income from operations for the nine months ended September 30,
2008 includes $6.2 million of charges related to the acquisition of Bruker
BioSpin and income from operations for the nine months ended September 30,
2007 includes $0.5 million of charges related to the acquisition of Bruker
BioSpin. Income from operations, excluding the effect of acquisition-related
charges, decreased despite higher revenues and constant gross margins, as a
result of higher operating expenses.
Our gross profit margin
for the nine months ended September 30, 2008 and 2007 was 44.4%. While
gross profit margin was unchanged for the nine months ended September 30,
2008 in comparison to the nine months ended September 30, 2007, the
increase in revenue described above resulted in gross margin improvement
through better factory utilization. Improvements resulting from utilization
were offset by the mix of products sold and increased pricing pressure in
certain product lines. Additionally, the increase in operating expenses related
primarily to higher sales and marketing expenses and higher research and
development expenses. The higher costs are a result of increased headcounts in
support of our planned revenue growth and new product development, higher
commissions associated with the increase in revenue described above and higher
material costs associated with a number of new products scheduled to be
released over the next six months. Changes in foreign currency exchange rates,
primarily the Euro, also contributed significantly to the increase in operating
expenses as a majority of our research and development is performed in Europe.
Income from operations
for the three and nine months ended September 30, 2008 has been below
managements expectations and, as a result, we began implementing cost savings
programs throughout our organization. The objective of these programs is to
refocus our gross margin improvement programs, reduce our
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operating and interest
expenses and further reduce our exposure to changes in foreign currency
exchange rates. We have also implemented certain programs to improve our
effective tax rate. We currently expect that the implementation of these
initiatives will result in restructuring charges of approximately $6.0 million.
During the nine months
ended September 30, 2008, we recorded net losses on foreign currency
transactions of $5.9 million compared to net losses of $2.4 million for the
comparable period in 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 weakening of the U.S. Dollar and the Euro relative to the
Swiss Franc by approximately 11% and 3%, respectively, from the date of closing
of the Bruker BioSpin acquisition to the end of the first quarter of 2008. In
the second and third quarters of 2008, we recorded cumulative gains on foreign
currency transactions of $6.3 million that were also the result of the
re-measurement of certain foreign currency denominated assets but we
experienced less volatility as a result of settling inter-company balances in a
timelier manner and reducing certain foreign currency denominated assets.
We incurred approximately
$7.2 million of interest expense on acquisition-related debt during the nine
months ended September 30, 2008, of which approximately $1.6 million was
incurred in the third quarter of 2008. There was no acquisition-related debt
outstanding during the three and nine months ended September 30, 2007. We
repaid approximately $180.0 million of acquisition-related debt during the nine
months ended September 30, 2008, of which approximately $21.0 million
was repaid during the third quarter of 2008.
Our effective tax rate
for the nine months ended September 30, 2008 was 24.2%, resulting from a
tax benefit of $2.0 million recorded during the three months ended September 30,
2008 and a tax provision of $14.5 million recorded in the first half of 2008.
The tax benefit in the third quarter of 2008 was primarily the result of $10.9
million related to reversing certain valuation allowances and reaching the
more-likely-than-not threshold for recognizing certain tax receivables.
Our net income for the
three months ended September 30, 2008 was $17.8 million, or $0.11 per diluted
share, compared to net income of $26.7 million, or $0.16 per diluted share, for
the comparable period in 2007.
Our net income for the
nine months ended September 30, 2008 was $38.8 million, or $0.23 per
diluted share, compared to net income of $58.7 million, or $0.36 per diluted
share, for the comparable period in 2007.
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
20
Table
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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 and indefinite lived intangible assets are impaired
annually and when events occur or circumstances change. Goodwill is impaired
when the fair value of a reporting unit is less than its carrying amount. Fair
value is determined using market comparables for similar businesses or
forecasts of discounted future cash flows. We also review long-lived intangible
assets and other assets when indication of potential impairment exists, such as
a significant reduction in 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.
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 September 30, 2008 Compared to the
Three Months Ended September 30, 2007
Consolidated Results
The following table
presents our results for the three months ended September 30, 2008 and
2007 (dollars in
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thousands):
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
|
|
2008
|
|
2007
|
|
Product revenue
|
|
$
|
209,936
|
|
$
|
215,838
|
|
Service revenue
|
|
30,638
|
|
24,848
|
|
Other revenue
|
|
1,490
|
|
1,074
|
|
Total revenue
|
|
242,064
|
|
241,760
|
|
|
|
|
|
|
|
Cost of product
revenue
|
|
113,841
|
|
115,424
|
|
Cost of service
revenue
|
|
18,153
|
|
15,228
|
|
Total cost of
revenue
|
|
131,994
|
|
130,652
|
|
Gross profit
|
|
110,070
|
|
111,108
|
|
Operating
expenses:
|
|
|
|
|
|
Sales and
marketing
|
|
44,173
|
|
38,327
|
|
General and
administrative
|
|
17,675
|
|
15,580
|
|
Research and
development
|
|
33,089
|
|
26,841
|
|
Acquisition-related
charges
|
|
|
|
544
|
|
Total operating
expenses
|
|
94,937
|
|
81,292
|
|
Operating income
|
|
15,133
|
|
29,816
|
|
|
|
|
|
|
|
Interest and
other income (expense), net
|
|
814
|
|
1,580
|
|
Income before
income tax provision and minority interest in consolidated subsidiaries
|
|
15,947
|
|
31,396
|
|
|
|
|
|
|
|
Income tax
provision (benefit)
|
|
(1,966
|
)
|
4,616
|
|
|
|
|
|
|
|
Income before
minority interest in consolidated subsidiaries
|
|
17,913
|
|
26,780
|
|
Minority
interest in consolidated subsidiaries
|
|
73
|
|
109
|
|
|
|
|
|
|
|
Net income
|
|
$
|
17,840
|
|
$
|
26,671
|
|
Net income per
common share - basic and diluted
|
|
$
|
0.11
|
|
$
|
0.16
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
Basic
|
|
162,847
|
|
161,922
|
|
Diluted
|
|
165,918
|
|
164,224
|
|
Revenue
Our revenue increased by
$0.3 million, or 0.1%, to $242.1 million for the three months ended September 30,
2008, compared to $241.8 million for the comparable period in 2007. Included in
this change in revenue is approximately $13.6 million from the impact of
foreign exchange. Excluding the effect of foreign exchange, revenue decreased
by 5.5%. The decrease in revenue, excluding the effect of foreign exchange, is
attributable to a decrease in system and wire revenue in the BioSpin segment
and is related primarily to lower sales of magnetic resonance systems. Because
of the nature of the magnetic resonance products sold by the BioSpin segment,
BioSpin segment revenues are generally subject to a high degree of volatility
when comparing any two quarters, whether they be year-over-year or sequential.
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Cost of Revenue
Our cost of product and
service revenue for the three months ended September 30, 2008, was $132.0
million, resulting in a gross profit margin of 45.5%, compared to cost of
product and service revenue of $130.7 million, resulting in a gross profit
margin of 46.0%, for the comparable period in 2007. Lower gross margins were
driven primarily by the mix of products sold and pricing pressure in certain product
lines.
Sales and Marketing
Our sales and marketing
expense for the three months ended September 30, 2008 increased to $44.2
million, or 18.4% of product and service revenue, from $38.3 million, or 15.9%
of product and service revenue, for the comparable period in 2007. The increase
in sales and marketing expense is attributable to increases in headcount in
support of our planned revenue growth. Additionally, changes in foreign
currency exchange rates, primarily the Euro, have contributed to an increase in
sales and marketing expense.
General and Administrative
Our general and
administrative expense for the three months ended September 30, 2008
increased to $17.7 million, or 7.3% of product and service revenue, from $15.6
million, or 6.5% of product and service revenue, for the comparable period in
2007. The increase is attributable to additional headcount and was related
primarily to Bruker BioSpin becoming part of a publicly-traded company and, to
a lesser degree, other acquisitions made during the nine months ended September 30,
2008.
Research and Development
Our research and
development expense for the three months ended September 30, 2008
increased to $33.1 million, or 13.8% of product and service revenue, from $26.8
million, or 11.2% of product and service revenue, for the comparable period in
2007. The increase in research and development expenses is attributable
primarily to increases in headcount and higher material costs associated with a
number of new products recently released, or scheduled to be released over the
next six months. Additionally, changes in foreign currency exchange rates,
primarily the Euro, have contributed to an increase in research and development
expense, as a majority of our research and development is performed in Europe.
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. There were no acquisition-related charges incurred during the
three months ended September 30, 2008. During the three months ended September 30,
2007, we incurred and expensed acquisition-related charges totaling $0.5
million, which consisted primarily of legal and investment banking fees.
Interest and Other Income (Expense), Net
Interest and other income
(expense), net during the three months ended September 30, 2008, was $0.8
million, compared to $1.6 million during the three months ended September 30,
2007.
During the three months
ended September 30, 2008, the major component within interest and other
income (expense), net, was gains on foreign currency transactions of $3.2
million partially offset by net interest expense of $2.7 million.
During the three months
ended September 30, 2007, the major components within interest and other
income (expense), net, were net interest income of $2.4 million and other
income of $2.2 million partially offset by losses on foreign currency transactions
of $2.9 million.
23
Table
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Provision (Benefit) for Income Taxes
Our effective tax rate
reflects our tax provision (benefit) 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.
The income tax provision
(benefit) for the three months ended September 30, 2008, was $(2.0)
million compared to an income tax provision (benefit) of $4.6 million for the
three months ended September 30, 2007, representing effective tax rates of
(12.3)% and 14.7%, respectively. The tax benefit in the third quarter of 2008
was primarily the result of reversing certain valuation allowances and reaching
the more-likely-than-not threshold for recognizing certain tax receivables.
During the third quarter
of 2008, two German subsidiaries in the BioSpin segment were merged into a
third German subsidiary. As a result of the merger, we will be able to use
certain net operating loss carryforwards that existed in the merged entities
but had previously been fully reserved. The valuation allowance related to
these net operating loss carryforwards was reversed in the third quarter of
2008 and resulted in a tax benefit of approximately $6.5 million.
Additionally, we
established a profit and loss sharing agreement between two of the German
subsidiaries of Bruker AXS Inc. during the third quarter of 2008. This
agreement allows the losses of one entity to reduce the taxable income of the
other entity. Prior to this agreement being put in place, certain deferred tax
assets related to these entities had full valuation allowances. These valuation
allowances were reversed during the third quarter of 2008 resulting in a tax
benefit of approximately $1.2 million.
We received a $0.5
million refund of French taxes on inter-corporate dividends during the third
quarter of 2008 which was recorded as a tax benefit. This refund related to
withholding taxes paid in connection with dividends paid by a French subsidiary
to its Swiss parent company in 2005 and 2006. At the end of 2007, as a result
of a tax law change in France, we determined that a refund of these withholding
taxes was uncertain and did not meet the more likely than not threshold for
recording a tax receivable. As such, the 2005, 2006 and 2007 taxes paid on
dividends from the French subsidiary to its Swiss parent were expensed through
the income tax provision with no corresponding tax receivable recorded. Because
the facts and circumstances around the dividends and the withholding taxes were
the same for all three years and the 2005 and 2006 withholding taxes were
refunded by the French government, we concluded that it is more likely than not
that the 2007 French withholding taxes would also be refunded. As such, we also
recorded a tax benefit of approximately $2.7 million during the third quarter
of 2008 for the 2007 withholding tax receivable.
Minority Interest in Consolidated Subsidiaries
Minority interest in
consolidated subsidiaries for the three months ended September 30, 2008
and September 30, 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 September 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 September 30, 2008, was $17.8 million, or $0.11 per
diluted share, compared to net income of $26.7 million, or $0.16 per diluted share,
for the comparable period in 2007.
24
Table
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Segment Results
Revenue
The following table
presents revenue, change in revenue and revenue growth by reportable segment
for the three months ended September 30, 2008 and 2007 (dollars in
thousands):
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
2008
|
|
2007
|
|
$ Change
|
|
Change
|
|
BioScience
|
|
$
|
141,187
|
|
$
|
135,138
|
|
$
|
6,049
|
|
4.5
|
%
|
BioSpin
|
|
112,523
|
|
118,482
|
|
(5,959
|
)
|
(5.0
|
)%
|
Eliminations (a)
|
|
(11,646
|
)
|
(11,860
|
)
|
214
|
|
|
|
Total Revenue
|
|
$
|
242,064
|
|
$
|
241,760
|
|
$
|
304
|
|
0.1
|
%
|
(a) Represents
product and service revenue between reportable segments.
BioScience Segment Revenues
BioScience segment
revenue increased by $6.0 million, or 4.5%, to $141.2 million for the three
months ended September 30, 2008, compared to $135.1 million for the
comparable period in 2007. Included in this change in revenue is approximately
$8.3 million from the impact of foreign exchange. Excluding the effect of
foreign exchange, revenue decreased by 1.6%. The decrease in revenue, excluding
the effect of foreign exchange, is attributable to a decrease in sales of X-ray
systems offset, in part, by higher sales of molecular spectroscopy systems and
chemical detection systems. Revenue in the three months ended September 30,
2007 includes $0.8 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 September 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 September 30,
2008 and 2007 (dollars in thousands):
|
|
2008
|
|
2007
|
|
|
|
|
|
Percentage of
|
|
|
|
Percentage of
|
|
|
|
Revenue
|
|
Segment Revenue
|
|
Revenue
|
|
Segment Revenue
|
|
System Revenue
|
|
$
|
101,679
|
|
72.0
|
%
|
$
|
100,798
|
|
74.6
|
%
|
Other System
Revenue
|
|
8,587
|
|
6.1
|
%
|
7,763
|
|
5.7
|
%
|
Aftermarket
Revenue
|
|
30,921
|
|
21.9
|
%
|
26,577
|
|
19.7
|
%
|
Total Revenue
|
|
$
|
141,187
|
|
100.0
|
%
|
$
|
135,138
|
|
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
decreased by $6.0 million, or 5.0%, to $112.5 million for the three months
ended September 30, 2008, compared to $118.5 million for the comparable
period in 2007. Included in this change in revenue is approximately $5.3
million from the impact of foreign exchange. Excluding the effect of foreign
exchange, revenue decreased by 9.5%. The decrease in revenue, excluding the
effect of foreign exchange, is attributable to decreases in magnetic resonance
system revenues. Because of the nature of the magnetic resonance products sold
by the BioSpin segment, particularly the complexity of the instruments coupled with
relatively low volumes and high selling prices, BioSpin segment revenues are
generally subject to a high degree of volatility when comparing any two
quarters, whether they be year-over-year or sequential.
25
Table
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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 September 30,
2008 and 2007 (dollars in thousands):
|
|
2008
|
|
2007
|
|
|
|
|
|
Percentage of
|
|
|
|
Percentage of
|
|
|
|
Revenue
|
|
Segment Revenue
|
|
Revenue
|
|
Segment Revenue
|
|
System and Wire
Revenue
|
|
$
|
81,305
|
|
72.3
|
%
|
$
|
88,488
|
|
74.7
|
%
|
Other System
Revenue
|
|
2,016
|
|
1.8
|
%
|
3,322
|
|
2.8
|
%
|
Aftermarket
Revenue
|
|
29,202
|
|
25.9
|
%
|
26,672
|
|
22.5
|
%
|
Total Revenue
|
|
$
|
112,523
|
|
100.0
|
%
|
$
|
118,482
|
|
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 September 30, 2008 and 2007 (dollars in
thousands):
|
|
2008
|
|
2007
|
|
|
|
Operating
|
|
Operating
|
|
Operating
|
|
Operating
|
|
|
|
Income
|
|
Margin
|
|
Income
|
|
Margin
|
|
BioScience
|
|
$
|
8,444
|
|
6.0
|
%
|
$
|
13,360
|
|
9.9
|
%
|
BioSpin
|
|
10,047
|
|
8.9
|
%
|
17,659
|
|
14.9
|
%
|
Corporate, eliminations
and other (a)
|
|
(3,358
|
)
|
|
|
(1,203
|
)
|
|
|
Total Operating
Income
|
|
$
|
15,133
|
|
6.3
|
%
|
$
|
29,816
|
|
12.3
|
%
|
(a) Represents corporate costs not allocated to the reportable
segments.
BioScience segment income
from operations for the three months ended September 30, 2008 was $8.4
million, resulting in an operating margin of 6.0%, compared to income from
operations of $13.4 million, resulting in an operating margin of 9.9%, for the
comparable period in 2007.
Income from operations in
the BioScience segment decreased as a result of lower gross margins as a
percentage of total revenue and higher operating expenses for the three months
ended September 30, 2008 relative to the comparable period in 2007. Lower
gross margins were driven primarily by the mix of products sold and pricing
pressure in certain product lines. The increase in operating expenses relates
primarily to higher research and development expenses and higher sales and
marketing expenses. The increase in costs are a result of increased headcounts
in support of our new product development and planned revenue growth and higher
material costs associated with a number of new products recently released, or
scheduled to be released over the next six months. Changes in foreign currency
exchange rates, primarily the Euro, also contributed to the increase in
operating expenses as a majority of research and development in the BioScience
segment is performed in Europe.
BioSpin segment income
from operations for the three months ended September 30, 2008 was $10.0
million, resulting in an operating margin of 8.9%, compared to income from
operations of $17.7 million and an operating margin of 14.9%, for the
comparable period in 2007.
BioSpin segment income
from operations decreased as a result of lower revenues and higher operating
expenses for the three months ended September 30, 2008 when compared to
the comparable period in 2007. While gross
26
Table
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margins as a percentage
of total revenue were unchanged in the third quarter of 2008 compared to the
third quarter of 2007, lower revenues resulted in less gross profit. The
increase in operating expenses is a result of increased headcounts in support
of our planned revenue growth and new product development and higher material
costs associated with a number of new products recently released, or scheduled
to be released over the next six months. Changes in foreign currency exchange rates,
primarily the Euro, also contributed to the increase in operating expenses, as
a majority of research and development in the BioSpin segment is performed in
Europe.
Nine Months Ended September 30, 2008 Compared to the
Nine Months Ended September 30, 2007
Consolidated Results
The following table
presents our results for the nine months ended September 30, 2008 and 2007
(dollars in thousands):
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2008
|
|
2007
|
|
Product revenue
|
|
$
|
695,820
|
|
$
|
607,624
|
|
Service revenue
|
|
92,328
|
|
77,605
|
|
Other revenue
|
|
3,817
|
|
2,409
|
|
Total revenue
|
|
791,965
|
|
687,638
|
|
|
|
|
|
|
|
Cost of product
revenue
|
|
380,673
|
|
332,883
|
|
Cost of service
revenue
|
|
59,455
|
|
49,184
|
|
Total cost of
revenue
|
|
440,128
|
|
382,067
|
|
Gross profit
|
|
351,837
|
|
305,571
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
Sales and
marketing
|
|
133,717
|
|
110,818
|
|
General and
administrative
|
|
51,657
|
|
42,435
|
|
Research and
development
|
|
100,808
|
|
80,462
|
|
Acquisition-related
charges
|
|
6,153
|
|
544
|
|
Total operating
expenses
|
|
292,335
|
|
234,259
|
|
Operating income
|
|
59,502
|
|
71,312
|
|
|
|
|
|
|
|
Interest and
other income (expense), net
|
|
(7,848
|
)
|
4,544
|
|
Income before
income tax provision and minority interest in consolidated subsidiaries
|
|
51,654
|
|
75,856
|
|
Income tax
provision
|
|
12,500
|
|
16,923
|
|
Income before
minority interest in consolidated subsidiaries
|
|
39,154
|
|
58,933
|
|
Minority
interest in consolidated subsidiaries
|
|
313
|
|
255
|
|
Net income
|
|
$
|
38,841
|
|
$
|
58,678
|
|
Net income per
common share:
|
|
|
|
|
|
Basic
|
|
$
|
0.24
|
|
$
|
0.36
|
|
Diluted
|
|
$
|
0.23
|
|
$
|
0.36
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
Basic
|
|
162,531
|
|
161,351
|
|
Diluted
|
|
165,606
|
|
164,029
|
|
27
Table
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Revenue
Our revenue increased by
$104.4 million, or 15.2%, to $792.0 million for the nine months ended September 30,
2008, compared to $687.6 million for the comparable period in 2007. Included in
this change in revenue is approximately $62.1 million from the impact of
foreign exchange. Excluding the effect of foreign exchange, revenue increased
by 6.1%. The increase in revenue, excluding the effect of foreign exchange, is
attributable to increases in system and aftermarket revenues in the BioScience
segment. BioScience segment revenues increased through growth of a number of
product lines, particularly X-ray systems, molecular spectroscopy systems and
chemical detection systems.
Cost of Revenue
Our cost of product and
service revenue for the nine months ended September 30, 2008 was $440.1
million, resulting in a gross profit margin of 44.4%, compared to cost of
product and service revenue of $382.1 million, resulting in a gross profit
margin of 44.4%, for the comparable period in 2007. While gross profit margins
were unchanged for the nine months ended September 30, 2008 in comparison
to the nine months ended September 30, 2007, the increase in revenue
described above resulted in gross margin improvement through better factory
utilization. Improvements resulting from utilization were offset by the mix of
products sold and increased pricing pressure in certain product lines.
Sales and Marketing
Our sales and marketing
expense for the nine months ended September 30, 2008 increased to $133.7
million, or 17.0% of product and service revenue, from $110.8 million, or 16.2%
of product and service revenue, for the comparable period in 2007. The increase
in sales and marketing expense is attributable to increases in headcount in
support of our planned revenue growth and higher commissions associated with
the increase in revenue described above. Additionally, changes in foreign
currency exchange rates, primarily the Euro, have contributed to an increase in
sales and marketing expense.
General and Administrative
Our general and
administrative expense for the nine months ended September 30, 2008
increased to $51.7 million, or 6.6% of product and service revenue, from $42.4
million, or 6.2% of product and service revenue, for the comparable period in
2007. The increase is attributable to additional headcount and was related
primarily to Bruker BioSpin becoming part of a publicly-traded company and to a
lesser degree, other acquisitions made during the nine months ended September 30,
2008.
Research and Development
Our research and
development expense for the nine months ended September 30, 2008 increased
to $100.8 million, or 12.8% of product and service revenue, from $80.5 million,
or 11.7% of product and service revenue, for the comparable period in 2007. The
increase in research and development expenses is attributable primarily to an
increase in headcount and higher material costs associated with a number of new
products recently released, or scheduled to be released over the next six
months. Additionally, changes in foreign currency exchange rates, primarily the
Euro, have contributed to an increase in research and development expense, as a
majority of our research and development is performed in Europe.
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 nine months ended September 30, 2008, we
incurred and expensed acquisition-related charges totaling $6.2 million, which
consisted of
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Table
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investment banking fees,
legal fees and accounting fees. During the nine months ended September 30,
2007, we incurred and expensed acquisition-related charges totaling $0.5
million, which consisted primarily of legal and investment banking fees.
Interest and Other Income (Expense), Net
Interest and other income
(expense), net during the nine months ended September 30, 2008 was $(7.8)
million, compared to $4.5 million during the nine months ended September 30,
2007.
During the nine months
ended September 30, 2008, the major component within interest and other
income (expense), net, was losses on foreign currency transactions of $5.9
million. Foreign exchange losses of $12.2 million incurred in the first three
months of 2008 was 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 weakening of the U.S. Dollar and the
Euro relative to the Swiss Franc 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 nine months ended
September 30, 2007, the major component within interest and other income
(expense), net, was net interest income of $5.4 million partially offset by
losses on foreign currency transactions of $2.4 million.
Provision for Income Taxes
Our effective tax rate
reflects our tax provision (benefit) 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.
The income tax provision
for the nine months ended September 30, 2008 was $12.5 million compared to
an income tax provision of $16.9 million for the nine months ended September 30,
2007, representing effective tax rates of 24.2% and 22.3%, respectively. The
effective tax rate for the nine months ended September 30, 2008 was
favorably impacted as a result of reversing certain valuation allowances and
reaching the more-likely-than-not threshold for recognizing certain tax
receivables. These favorable items were offset, in part, by acquisition-related
charges and the foreign exchange losses that resulted in only modest tax
benefits.
During the third quarter
of 2008, two German subsidiaries in the BioSpin segment were merged into a
third German subsidiary. As a result of the merger, we will be able to use
certain net operating loss carryforwards that existed in the merged entities
but had previously been fully reserved. The valuation allowance related to these
net operating loss carryforwards was reversed in the third quarter of 2008 and
resulted in a tax benefit of approximately $6.5 million.
Additionally, we
established a profit and loss sharing agreement between two of the German
subsidiaries of Bruker AXS Inc. during the third quarter of 2008. This
agreement allows the losses of one entity to reduce the taxable income of the
other entity. Prior to this agreement being put in place, certain deferred tax
assets related to these entities had full valuation allowances. These valuation
allowances were reversed during the third quarter of 2008 resulting in a tax
benefit of approximately $1.2 million.
We received a $0.5
million refund of French taxes on inter-corporate dividends during the third
quarter of 2008 which was recorded as a tax benefit. This refund related to
withholding taxes paid in connection with dividends paid by a French subsidiary
to its Swiss parent company in 2005 and 2006. At the end of 2007, as a result
of a tax law change in France, we determined that a refund of these withholding
taxes was uncertain and did not meet the more-likely-than-not threshold for
recording a tax receivable. As such, the 2005, 2006 and 2007 taxes paid on
29
Table
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dividends from the French
subsidiary to its Swiss parent were expensed through the income tax provision
with no corresponding tax receivable recorded. Because the facts and circumstances
around the dividends and the withholding taxes were the same for all three
years and the 2005 and 2006 withholding taxes were refunded by the French
government, we concluded that it is more likely than not that the 2007 French
withholding taxes would also be refunded. As such, we also recorded a tax
benefit of approximately $2.7 million during the third quarter of 2008 for the
2007 withholding tax receivable.
The acquisition-related
costs did not generate significant tax benefits for us because they were
incurred primarily in the U.S. and the foreign exchange losses did not generate
significant tax 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 nine months ended September 30, 2008 and
September 30, 2007 was $0.3 million. The minority interest in subsidiaries
represents the minority shareholders proportionate share of net income of
those subsidiaries for the nine months ended September 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
nine months ended September 30, 2008, was $38.8 million, or $0.23 per
diluted share, compared to $58.7 million, or $0.36 per diluted share, for the
comparable period in 2007.
Segment Results
Revenue
The following table
presents revenue, change in revenue and revenue growth by reportable segment
for the nine months ended September 30, 2008 and 2007 (dollars in
thousands):
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
2008
|
|
2007
|
|
$ Change
|
|
Change
|
|
BioScience
|
|
$
|
444,409
|
|
$
|
372,094
|
|
$
|
72,315
|
|
19.4
|
%
|
BioSpin
|
|
388,411
|
|
351,893
|
|
36,518
|
|
10.4
|
%
|
Eliminations (a)
|
|
(40,855
|
)
|
(36,349
|
)
|
(4,506
|
)
|
|
|
Total Revenue
|
|
$
|
791,965
|
|
$
|
687,638
|
|
$
|
104,327
|
|
15.2
|
%
|
(a) Represents
product and service revenue between reportable segments.
BioScience Segment Revenues
BioScience segment
revenue increased by $72.3 million, or 19.4%, to $444.4 million for the nine
months ended September 30, 2008, compared to $372.1 million for the
comparable period in 2007. Included in this change in revenue is approximately
$30.3 million from the impact of foreign exchange. Excluding the effect of
foreign exchange, revenue increased by 11.3%. 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 detection systems, as well
as higher aftermarket revenue. Revenues in the nine months ended September 30,
2007 include $4.9 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 nine
months ended September 30, 2008.
System revenue, other
system revenue and aftermarket revenue as a percentage of total BioScience
segment
30
Table
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revenue were as follows
during the nine months ended September 30, 2008 and 2007 (dollars in
thousands):
|
|
2008
|
|
2007
|
|
|
|
|
|
Percentage of
|
|
|
|
Percentage of
|
|
|
|
Revenue
|
|
Segment Revenue
|
|
Revenue
|
|
Segment Revenue
|
|
System Revenue
|
|
$
|
323,473
|
|
72.8
|
%
|
$
|
275,180
|
|
74.0
|
%
|
Other System
Revenue
|
|
30,566
|
|
6.9
|
%
|
23,212
|
|
6.2
|
%
|
Aftermarket
Revenue
|
|
90,370
|
|
20.3
|
%
|
73,702
|
|
19.8
|
%
|
Total Revenue
|
|
$
|
444,409
|
|
100.0
|
%
|
$
|
372,094
|
|
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 $36.5 million, or 10.4%, to $388.4 million for the nine months
ended September 30, 2008, compared to $351.9 million for the comparable
period in 2007. Included in this change in revenue is approximately $31.8
million from the impact of foreign exchange. Excluding the effect of foreign
exchange, revenue increased by 1.3%.
System and wire revenue,
other system revenue and aftermarket revenue as a percentage of total BioSpin
segment revenue were as follows during the nine months ended September 30,
2008 and 2007 (dollars in thousands):
|
|
2008
|
|
2007
|
|
|
|
|
|
Percentage of
|
|
|
|
Percentage of
|
|
|
|
Revenue
|
|
Segment Revenue
|
|
Revenue
|
|
Segment Revenue
|
|
System and Wire
Revenue
|
|
$
|
294,350
|
|
75.8
|
%
|
$
|
265,088
|
|
75.3
|
%
|
Other System
Revenue
|
|
14,151
|
|
3.6
|
%
|
7,756
|
|
2.2
|
%
|
Aftermarket
Revenue
|
|
79,910
|
|
20.6
|
%
|
79,049
|
|
22.5
|
%
|
Total Revenue
|
|
$
|
388,411
|
|
100.0
|
%
|
$
|
351,893
|
|
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 nine months ended September 30, 2008 and 2007 (dollars in
thousands):
31
Table
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|
|
2008
|
|
2007
|
|
|
|
Operating
|
|
Operating
|
|
Operating
|
|
Operating
|
|
|
|
Income
|
|
Margin
|
|
Income
|
|
Margin
|
|
BioScience
|
|
$
|
26,920
|
|
6.1
|
%
|
$
|
30,427
|
|
8.2
|
%
|
BioSpin
|
|
46,579
|
|
12.0
|
%
|
48,855
|
|
13.9
|
%
|
Corporate,
eliminations and other
|
|
(13,997
|
)
|
|
|
(7,970
|
)
|
|
|
Total Operating
Income
|
|
$
|
59,502
|
|
7.5
|
%
|
$
|
71,312
|
|
10.4
|
%
|
(a) Represents corporate costs not allocated to the reportable
segments.
Income from operations
for the BioScience segment in the nine months ended September 30, 2008,
was $26.9 million, resulting in an operating margin of 6.1%, compared to income
from operations of $30.4 million, resulting in an operating margin of 8.2%, for
the comparable period in 2007.
Income from operations in
the BioScience segment decreased, despite the increase in revenues, as a result
of lower gross margins as a percentage of total revenue and higher operating
expenses for the nine months ended September 30, 2008 when compared to the
comparable period in 2007. Lower gross margins were driven primarily by the mix
of products sold and pricing pressure in certain product lines. The increase in
operating expenses relates primarily to sales and marketing expenses and
research and development expenses. The higher costs are a result of increased
headcounts in support of our planned revenue growth and new product
development, higher commissions associated with our increase in revenue and
higher material costs associated with a number of new products recently
released, or scheduled to be released over the next six months. Changes in
foreign currency exchange rates, primarily the Euro, also contributed to the
increase in operating expenses, as a majority of research and development in
the BioScience segment is performed in Europe.
BioSpin segment income
from operations for the nine months ended September 30, 2008, was $46.6
million, resulting in an operating margin of 12.0%, compared to income from
operations of $48.9 million, resulting in an operating margin of 13.9%, for the
comparable period in 2007.
BioSpin segment income
from operations decreased, despite improvement in gross margins, as a result of
higher operating expenses for the nine months ended September 30, 2008
relative to the comparable period in 2007. The improvement in gross margin as a
percentage of total revenue was primarily the result of improved factory
utilization and, to a lesser degree, the mix of products sold. However, the
increase in gross margins was more than offset by higher operating expenses,
related primarily to sales and marketing expenses and research and development
expenses. The costs are a result of increased headcounts in support of our
planned revenue growth and new product development and higher material costs associated
with a number of new products recently released, or scheduled to be released
over the next six months. Changes in foreign currency exchange rates, primarily
the Euro, also contributed to the increase in operating expenses, as a majority
of research and development in the BioSpin segment is performed in Europe.
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 nine months
ended September 30, 2008, net cash provided by operating activities was $19.0
million compared to net cash provided by operating activities of $32.9 million
during the nine months ended September 30, 2007. Cash provided by
operating activities in the nine months ended September 30, 2008 was
attributable to the results of operations adjusted for non-cash items and a
decrease in accounts receivable offset partially by an increase
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Table
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in inventory and
decreases in customer advances and accounts payable. Cash provided by operating
activities in the nine months ended September 30, 2007 was attributable to
the results of operations adjusted for non-cash items offset partially by an
increase in inventory and a decrease in customer advances.
During the nine months
ended September 30, 2008, net cash used by investing activities was $41.0
million, compared to net cash used by investing activities of $20.6 million
during the nine months ended September 30, 2007. Cash used by investing
activities during the nine months ended September 30, 2008 was
attributable to $39.8 million of capital expenditures and $10.6 million used for
acquisitions and acquisition-related costs. These uses were offset partially by
$9.6 million of proceeds from the sale of short-term investments. Capital
expenditures during the nine months ended September 30, 2008 related
primarily to the expansion of our facility in Ettlingen, Germany, which was
completed in the third quarter of 2008. Cash used by investing activities
during the nine months ended September 30, 2007 was attributable to $19.9
million of capital expenditures and $2.9 million for acquisitions.
During the nine months
ended September 30, 2008, net cash used by financing activities was $235.9
million, compared to net cash used by financing activities of $35.6 million
during the nine months ended September 30, 2007. Cash used by financing
activities during the nine months ended September 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
in connection with a dividend declared by Bruker BioSpin prior to the
acquisition. These uses were offset, in part, by $172.7 million of net
borrowings under various long-term and short-term credit facilities. Cash used
by financing activities during the nine months ended September 30, 2007
was attributable to a $42.6 million dividend payment to the shareholders of
Bruker BioSpin and $11.7 million in net repayments of short-term and long-term
debt offset partially by $18.8 million in net proceeds from the offering of
common stock, net of repurchases.
On February 26,
2008, we completed our acquisition of Bruker BioSpin for $914.0 million. The
acquisition of Bruker BioSpin was financed with 57,544,872 shares of
unregistered common stock valued at $526.0 million based on the trailing 10 day
trading average closing price of $9.14 per share as of two days prior to the
signing of the transaction agreements, $351.0 million of cash obtained under a
new credit facility 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 of September 30, 2008, the weighted-average interest rate of
borrowings outstanding under the Credit Agreement was approximately 3.5%.
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 that we maintain
certain financial ratios related to maximum leverage and minimum interest
coverage, as defined in the Credit Agreement. In addition to the financial
ratios, the Credit Agreement restricts, among other things, our ability to do
the following: make certain payments; incur additional debt; incur certain
liens; make certain investments, including derivative agreements; merge,
consolidate, sell or transfer all or substantially all of the Companys assets;
and enter into certain transactions with affiliates.
At September 30,
2008, we had outstanding debt totaling $214.0 million consisting of $170.6
million outstanding under the Credit Agreement, including $146.3 million drawn
on a term loan and $24.3 million under revolving loans, $30.5 million
outstanding under other long-term debt arrangements, $10.6 million outstanding
under other revolving lines of credit and $2.3 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 at September 30, 2008 include both
collateralized and uncollateralized arrangements with various financial
institutions in Germany and Japan. The term of these arrangements also include
fixed and variable interest rates ranging from 1.8% to 8.0% at September 30,
2008.
33
Table
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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 $76.2 million at September 30, 2008. With
consideration to outstanding letters of credit drawn under revolving lines of
credit, we had availability of approximately $51.3 million under other
revolving lines of credit at September 30, 2008. Our revolving lines of
credit are generally uncollateralized and bear interest at variable rates
ranging from 1.5% to 9.8% at September 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 September 30,
2008, we have approximately $12.8 million of net operating loss carryforwards
available to reduce future U.S. taxable income. These losses will expire in
2028. We also have U.S. tax credits of approximately $15.7 million available to
offset future tax liabilities that expire at various dates. These credits
include foreign tax credits of $12.6 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 September 30,
2008 (in thousands):
|
|
|
|
Less than
|
|
1-3
|
|
4-5
|
|
More than
|
|
Contractual Obligations
|
|
Total
|
|
1 year
|
|
Years
|
|
Years
|
|
5 years
|
|
Revolving lines
of credit
|
|
$
|
34,937
|
|
$
|
16,637
|
|
$
|
18,300
|
|
$
|
|
|
$
|
|
|
Long-term debt
arrangements, including current portion
|
|
176,728
|
|
26,912
|
|
54,018
|
|
95,798
|
|
|
|
Capital lease
obligations
|
|
2,314
|
|
727
|
|
828
|
|
543
|
|
216
|
|
Uncertain tax
contingencies
|
|
19,981
|
|
|
|
19,981
|
|
|
|
|
|
Total
contractual obligations
|
|
$
|
233,960
|
|
$
|
44,276
|
|
$
|
93,127
|
|
$
|
96,341
|
|
$
|
216
|
|
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 September 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
34
Table
of Contents
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 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
losses, net, were $5.9 million and $2.4 million for the nine months ended September 30,
2008 and 2007, respectively. 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 have on our cash flows related to purchases and sales
denominated in foreign currencies. At September 30, 2008, we had one
outstanding forward contract with a notional amount of approximately $0.2
million that will mature in the fourth quarter of 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 amortizes in proportion to the term debt
component of the Credit Agreement. At September 30, 2008, the outstanding
notional amount of this swap was $87.8 million. 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 we
receive semiannual interest payments in Euros based on a variable interest rate
equal to the nine-month EURIBOR rate in exchange for semiannual payments in
Swiss francs at a fixed rate of 4.97% through December 2011. The initial
notional amount of this cross currency interest rate swap was 5.0 million. In
1999, we entered into
35
Table
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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 initial notional amount of this interest
rate swap arrangement was $2.2 million and amortized in proportion to the
related debt agreement. We determined that these swap arrangements were not
effective in offsetting the change in interest cash flows being hedged as
defined by SFAS No. 133 and accordingly, changes in the fair value of
these swap arrangements were being recorded in the unaudited condensed
consolidated statements of operations as a component of interest and other
income (expense), net. In the third quarter of 2008, we terminated the 5.0
million cross currency interest rate swap arrangement because of its
ineffectiveness in offsetting the change in cash flows being hedged. We also
terminated the $2.2 million interest rate swap in the third quarter of 2008
because the related debt was repaid.
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 September 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 September 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 September 30, 2008 that materially affected, or are reasonably
likely to affect, our internal control over financial reporting.
36
Table
of Contents
PART II
|
OTHER
INFORMATION
|
ITEM 1.
|
LEGAL
PROCEEDINGS
|
Except as set forth
below, there have been no material changes to the legal proceedings disclosed
in Part I, Item 3. Legal Proceedings in our Annual Report on Form 10-K
for the year ended December 31, 2007 and our Quarterly Reports on Form 10-Q
for the quarters ended March 31, 2008 and June 30, 2008.
Our
indirect subsidiary, Bruker Daltonik GmbH, is party to certain agreements with
Agilent Technologies, Inc., as the successor to Hewlett-Packard
Company. A dispute has arisen between the parties concerning Agilents
ability to terminate such agreements and the timing of any such
termination. Pursuant to the dispute resolution mechanism set forth in
the agreements, the parties are presently engaged in discussions in
an attempt to resolve their dispute. If those discussions are unable
to resolve the dispute, the parties may proceed to formal mediation as
contemplated by the agreements. Independent of this dispute, Agilent notified
the Company on September 24, 2008 that it would not extend the underlying
agreements beyond their stated termination dates.
As previously disclosed
in our Annual Report on Form 10-K for the year ended December 31,
2007 and in our Quarterly Report on Form 10-Q for the three months ended June 30,
2008, 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
Bruker BioSpin, 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, alleging termination in
violation of the Sarbanes-Oxley Act. On September 22, 2008, Mr. Lamy
voluntarily dismissed his first federal court action, and subsequently filed in
the same federal court a substantially similar complaint against only Bruker
BioSpin Corporation and Bruker Corporation, entitled
Brian Lamy
v. Bruker BioSpin Corporation and Bruker Corporation f/k/a Bruker BioSciences
Corporation.
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.
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.
Except as set forth
below, there have been no material changes to the risk factors previously
disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31,
2007 and our Quarterly Report on Form 10-Q for the quarter ended March 31,
2008.
37
Table
of Contents
Adverse conditions in the global
economy and disruption of financial markets could negatively impact our
customers and our results of operations and cash flow.
An economic downturn in
the businesses or geographic areas in which we sell our products, or reductions
in the level of government funding for scientific research, could reduce demand
for these products and result in a decrease in sales volume that could have a
negative impact on our results of operations and cash flow. Additionally,
volatility and disruption of global financial markets could limit our customers
ability to obtain adequate financing to maintain operations and proceed with
planned or new capital spending initiatives, leading to a reduction in sales
volume that could have a negative impact on our results of operations and cash
flow.
ITEM 2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
As more fully described
in the first paragraph of Note 3. Other Acquisitions to our unaudited condensed
consolidated financial statements, which disclosure is incorporated by
reference herein, on August 14, 2008 we issued 59,342 restricted
unregistered shares of our common stock to certain sellers in connection with
the acquisition of S.I.S. Surface Imaging Systems GmbH.
The following table sets
forth all purchases made by or on behalf of the Company or any affiliated
purchaser, as defined in Rule 10b-18(a)(3) under the Exchange Act,
of shares of our common stock during each month in the third quarter of 2008.
Period
|
|
Total Number of
Shares Purchased
|
|
Average Price
Paid per Share
|
|
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
|
|
Maximum
Number of Shares
that May Yet Be
Purchased Under
the Plans or
Programs
|
|
July 1July 31,
2008
|
|
|
|
$
|
|
|
|
|
|
|
August 1August 31,
2008
|
|
20,000
|
|
13.65
|
|
|
|
|
|
September 1September 30,
2008
|
|
|
|
|
|
|
|
|
|
Total
|
|
20,000
|
|
$
|
13.65
|
|
|
|
|
|
All share repurchases
were open-market purchases made by the Companys Chief Executive Officer, were
effected in accordance with the safe harbor provisions of Rule 10b-18 of
the Exchange Act and were previously disclosed on Forms 4 filed with the U.S.
Securities and Exchange Commission.
ITEM 3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
None.
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
None.
ITEM 5.
|
OTHER
INFORMATION
|
None.
Exhibit
No.
|
|
Description
|
31.1
|
|
Certification by Chief
Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (1)
|
31.2
|
|
Certification by Chief
Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (1)
|
32.1
|
|
Certification by Chief
Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (2)
|
(1)
|
|
Filed herewith
|
(2)
|
|
Furnished herewith
|
38
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: November 10,
2008
|
|
By:
|
/s/ FRANK H. LAUKIEN,
PH.D.
|
|
|
|
Frank H. Laukien, Ph.D.
President, Chief Executive Officer and Chairman
(Principal Executive Officer)
|
Date: November 10,
2008
|
|
By:
|
/s/ WILLIAM J. KNIGHT
|
|
|
|
William J. Knight
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
39
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