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
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|
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For the quarterly period ended September 30, 2010
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|
o
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934
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For the transition period from
to
Commission File Number 000-30833
BRUKER
CORPORATION
(Exact
name of registrant as specified in its charter)
Delaware
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04-3110160
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(State
or other jurisdiction of
incorporation or organization)
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(I.R.S.
Employer
Identification No.)
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40 Manning Road, Billerica, MA 01821
(Address
of principal executive offices) (Zip Code)
Registrants
telephone number, including area code:
(978) 663-3660
Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past
90 days. Yes
x
No
o
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the registrant was required to submit
and post such files). Yes
o
No
o
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See the definitions of accelerated
filer, large accelerated filer, smaller reporting company in Rule 12b-2
of the Exchange Act. (Check one):
Large
accelerated filer
o
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Accelerated
filer
x
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Non-accelerated
filer
o
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Smaller
reporting company
o
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(Do
not check if a smaller reporting company)
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Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
o
No
x
Indicate the number of
shares outstanding of each of the issuers classes of common stock, as of the
latest practicable date.
Class
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Outstanding
at November 2, 2010
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Common
Stock, $0.01 par value per share
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164.844.564
shares
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Table of Contents
B
RUKER CORPORATION
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2010
Index
Table of Contents
PART I
FINANCIAL INFORMATION
ITEM 1.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BRUKER CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data)
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September 30,
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December 31,
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2010
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2009
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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188.0
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$
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207.1
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Restricted cash
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2.5
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2.0
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Accounts receivable, net
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195.4
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184.1
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Inventory
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487.8
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422.8
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Other current assets
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80.3
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57.5
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Total current assets
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954.0
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873.5
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Property, plant and equipment, net
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218.7
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223.4
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Intangibles and other long-term assets
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104.4
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75.1
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Total assets
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$
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1,277.1
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$
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1,172.0
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LIABILITIES
AND SHAREHOLDERS EQUITY
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Current liabilities:
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Short-term borrowings
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$
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27.1
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$
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22.0
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Accounts payable
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60.1
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49.8
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Customer advances
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211.7
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219.2
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Other current liabilities
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292.7
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249.2
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Total current liabilities
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591.6
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540.2
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Long-term debt
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94.3
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115.7
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Other long-term liabilities
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97.2
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97.3
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Commitments and contingencies (Note 18)
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Shareholders Equity:
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Preferred stock, $0.01 par value 5,000,000 shares
authorized,
none issued or outstanding at September 30, 2010 and December 31,
2009
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Common stock, $0.01 par value 260,000,000 shares
authorized,
164,861,846 and 164,384,679 shares issued and 164,844,627 and 164,371,384
outstanding at September 30, 2010 and December 31, 2009,
respectively
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1.6
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1.6
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Treasury stock at cost, 17,219 at
September 30, 2010 and 13,295 at December 31, 2009
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(0.2
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)
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(0.1
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)
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Other shareholders equity
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490.4
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415.7
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Total shareholders equity attributable to Bruker
Corporation
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491.8
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417.2
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Noncontrolling interest in consolidated
subsidiaries
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2.2
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1.6
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Total shareholders equity
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494.0
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418.8
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Total liabilities and shareholders equity
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$
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1,277.1
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$
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1,172.0
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The accompanying notes are an integral part of these
statements.
1
Table of Contents
BRUKER CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(in millions, except per share data)
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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2010
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2009
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2010
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2009
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Product revenue
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$
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269.7
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$
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230.7
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$
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780.7
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$
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655.8
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Service revenue
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39.1
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32.4
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103.1
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87.6
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Other revenue
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1.4
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2.0
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5.0
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4.7
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Total revenue
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310.2
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265.1
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888.8
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748.1
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Cost of product revenue
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143.5
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127.9
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426.8
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364.8
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Cost of service revenue
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19.8
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18.0
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53.1
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50.2
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Total cost of revenue
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163.3
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145.9
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479.9
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415.0
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Gross profit
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146.9
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119.2
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408.9
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333.1
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Operating expenses:
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Selling, general and administrative
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72.2
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61.2
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201.9
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180.1
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Research and development
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32.5
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31.6
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96.5
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91.8
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Amortization of acquisition-related intangible
assets
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1.0
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0.4
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2.1
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1.3
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Other charges (credits), net
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1.9
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4.3
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(0.6
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)
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Total operating expenses
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107.6
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93.2
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304.8
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272.6
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Operating income
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39.3
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26.0
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104.1
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60.5
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Interest and other income (expense), net
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(1.1
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)
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(1.8
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)
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(5.6
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)
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(4.6
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)
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Income before income taxes and noncontrolling
interest in consolidated subsidiaries
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38.2
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24.2
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98.5
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55.9
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Income tax provision
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10.3
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8.1
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31.7
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18.5
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Consolidated net income
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27.9
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16.1
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66.8
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37.4
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Net income (loss) attributable to noncontrolling
interest in consolidated subsidiaries
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0.5
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(0.3
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)
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0.7
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(0.3
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)
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Net income attributable to Bruker Corporation
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$
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27.4
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$
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16.4
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$
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66.1
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$
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37.7
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Net income per common share attributable to
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Bruker Corporation shareholders:
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Basic and diluted
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$
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0.17
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$
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0.10
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$
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0.40
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$
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0.23
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Weighted average common shares outstanding:
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Basic
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164.5
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163.5
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164.3
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163.4
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Diluted
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165.7
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165.0
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165.6
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164.7
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The accompanying notes are an integral part of these
statements.
2
Table of Contents
BRUKER CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(in millions)
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Nine Months Ended
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September 30,
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2010
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2009
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Cash flows from operating activities:
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Consolidated net income
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$
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66.8
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$
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37.4
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Adjustments to reconcile consolidated net income
to cash flows from operating activities:
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|
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Depreciation and amortization
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23.8
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20.4
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Amortization of deferred financing costs
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0.5
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0.5
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Stock-based compensation
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5.0
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4.8
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Deferred income taxes
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(7.5
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)
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(6.8
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)
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Gain on bargain purchase
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|
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(2.1
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)
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Other non-cash expense
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1.7
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0.5
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Changes in operating assets and liabilities:
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Accounts receivable
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(11.4
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)
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26.9
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Inventories
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(55.5
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)
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7.7
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Accounts payable
|
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10.8
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0.6
|
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Customer advances
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(2.1
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)
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(16.6
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)
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Other changes in operating assets and liabilities,
net
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30.6
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(6.0
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)
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Net cash provided by operating activities
|
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62.7
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67.3
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|
|
|
|
|
|
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Cash flows from investing activities:
|
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|
|
|
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Purchases of property, plant and equipment
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(20.5
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)
|
(8.9
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)
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Acquisitions, net of cash acquired
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(37.8
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)
|
(1.6
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)
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Net cash used in investing activities
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|
(58.3
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)
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(10.5
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)
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|
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Cash flows from financing activities:
|
|
|
|
|
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Repayments of revolving lines of credit, net
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(0.5
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)
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(51.5
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)
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Repayment of term debt
|
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(15.8
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)
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(20.1
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)
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Changes in restricted cash
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(0.8
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)
|
(0.7
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)
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Issuance of common stock under stock plans
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2.7
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|
0.6
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|
Cash payments to noncontrolling interests
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(0.1
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)
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Net cash used in financing activities
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(14.5
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)
|
(71.7
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)
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Effect of exchange rate changes on cash and cash
equivalents
|
|
(9.0
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)
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(2.8
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)
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Net change in cash and cash equivalents
|
|
(19.1
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)
|
(17.7
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)
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Cash and cash equivalents at beginning of period
|
|
207.1
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|
166.2
|
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Cash and cash equivalents at end of period
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$
|
188.0
|
|
$
|
148.5
|
|
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 (Bruker or the Company) is a designer and
manufacturer of proprietary life science and materials research systems and
associated products that address the rapidly evolving needs of a diverse array
of customers in life science, pharmaceutical, biotechnology and molecular
diagnostics research, as well as in materials and chemical analysis in various
industries and government applications. The Companys core technology platforms
include X-ray technologies, magnetic resonance technologies, mass spectrometry
technologies, optical emission spectroscopy and infrared and Raman molecular
spectroscopy technologies. The Company also manufactures and distributes a
broad range of field analytical systems for chemical, biological, radiological,
nuclear and explosives, or CBRNE, detection. The Company also develops and
manufactures low temperature and high temperature superconducting materials,
consisting primarily of wire, and superconducting devices for use in advanced
magnet technology, physics research and energy applications. The Company
maintains major technical and manufacturing centers in Europe, North America
and Japan, and has sales offices located throughout the world. The Companys
diverse customer base includes life science, pharmaceutical, biotechnology and
molecular diagnostic research companies, academic institutions, advanced
materials and semiconductor manufacturers and government agencies.
Management reports results
on the basis of the following two segments:
·
Scientific
Instruments.
The operations of
this segment include the design, manufacture and distribution of advanced
instrumentation and automated solutions based on X-ray technology,
spark-optical emission spectroscopy technology, atomic force microscopy,
magnetic resonance technology, mass spectrometry technology and infrared and
Raman molecular spectroscopy technology. Typical customers of the Scientific
Instruments segment include pharmaceutical, biotechnology and molecular
diagnostic companies, academic institutions, medical school and other
non-profit organizations, and clinical microbiology laboratories, government
departments and agencies, and nanotechnology, semiconductor, chemical, cement,
metals and petroleum companies, and food, beverage and agricultural analysis
companies and laboratories.
·
Energy &
Supercon Technologies.
The operations of this segment include the
design, manufacture and marketing of superconducting materials, primarily
metallic low temperature superconductors, for use in magnetic resonance
imaging, nuclear magnetic resonance, fusion energy research and other
applications, and ceramic high temperature superconductors primarily for fusion
energy research applications. The Company also utilizes its low temperature and
high temperature superconductors to develop, manufacture and market devices
that have applications primarily in big science research. Typical customers
of the Energy & Supercon Technologies segment include companies in the
medical, power and energy, and processing industries, private and public research
and development laboratories in the fields of fundamental and applied sciences
and energy research, academic institutions and government agencies.
The Company has announced
plans to sell a minority ownership position in its Bruker Energy &
Supercon Technologies, Inc. (BEST) subsidiary through an initial public
offering of the capital stock of BEST. The Company believes the offering will
provide Bruker shareholders greater visibility into BESTs performance and
growth and strengthen BESTs access to financing for its revenue growth
initiatives, including the development of products for the renewable energy and
energy infrastructure markets.
The financial statements
represent the consolidated accounts of the Company. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The unaudited condensed consolidated financial statements as of and for the
three and nine months ended September 30, 2010 and 2009 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 (SEC)
for Quarterly Reports on Form 10-Q and Article 10 of Regulation S-X.
Accordingly, the financial information presented herein does not include all of
the information and footnotes required by GAAP for complete financial
statements. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, considered necessary for a fair presentation have
been included. The results for interim periods are not necessarily indicative
of the results expected for the full year. Certain prior year amounts have been
reclassified to conform to the current year presentation. These
reclassifications had no effect on previously reported net income or
shareholders equity.
4
Table of Contents
2.
Acquisitions
On October 7, 2010, the
Company completed the acquisition of Veeco Metrology Inc., a
scanning probe microscopy and optical industrial
metrology instruments business (the nano surfaces business), from
Veeco
Instruments Inc.
for cash
consideration of $229.4 million. The Company financed the acquisition with
$167.6 million borrowed under a revolving credit agreement and the balance with
cash on hand.
The acquired business complements the Companys
existing atomic force microscopy products and expands the Companys offerings
to industrial and applied markets, specifically in the fields of materials and
nanotechnology research and analysis. Under the purchase agreement $22.9
million of the purchase price was paid into escrow pending the resolution of
indemnification obligations and working capital obligations of the seller.
On May 19, 2010, the
Company completed the acquisition of three former Varian, Inc. product
lines which Agilent Technologies, Inc. divested in connection with
obtaining regulatory approval for its May 14, 2010 acquisition of Varian.
The Company acquired certain assets and assumed certain liabilities in Varians
inductively coupled plasma mass spectrometry instruments business, laboratory
gas chromatography instruments business, and gas chromatography
triple-quadrupole mass spectrometry instruments business (collectively, the chemical
analysis business) for cash consideration of $37.5 million. The acquired
business complements the Companys existing mass spectrometry products and
expands the Companys offerings to industrial and applied markets that we did
not previously serve.
The acquisition of the
chemical analysis business is being accounted for under the acquisition method.
The Company made the following adjustments to its allocation of the
consideration transferred in the third quarter of 2010 (in millions):
|
|
Acquisition Date Fair Values, as Initially Reported
|
|
Measurement Period Adjustments
|
|
Acquisition Date Fair Values, as Adjusted
|
|
Accounts receivable
|
|
$
|
|
|
$
|
9.2
|
|
$
|
9.2
|
|
Inventory
|
|
13.0
|
|
3.6
|
|
16.6
|
|
Property, plant and equipment
|
|
2.8
|
|
(0.4
|
)
|
2.4
|
|
Intangible assets
|
|
9.7
|
|
12.2
|
|
21.9
|
|
Goodwill
|
|
22.0
|
|
(20.4
|
)
|
1.6
|
|
Liabilities assumed
|
|
(10.0
|
)
|
(4.2
|
)
|
(14.2
|
)
|
|
|
$
|
37.5
|
|
$
|
|
|
$
|
37.5
|
|
The Company expects to
finalize the allocation of the consideration transferred in connection with the
chemical analysis business in the fourth quarter of 2010.The Company has not
finalized the valuation of inventory, intangible assets and certain assumed
liabilities. The measurement period adjustments made during the third quarter
of 2010 did not have a material impact on the results of operations for the
three months ended September 30, 2010 and would not have had a material
impact on the results of operations for the three months ended June 30,
2010.
The results of the chemical
analysis business have been included in the Scientific Instruments segment from
the date of acquisition. Pro forma financial information reflecting the acquisition
of the chemical analysis business has not been presented because the impact on
revenues, net income and net income per common share attributable to Bruker
Corporation shareholders is not material.
In April 2009, the
Company acquired substantially all of the assets of the research instruments
portion of ACCEL Instruments GmbH (the RI business) from Varian Medical
Systems, Inc. The acquisition of the RI business was accounted for under
the acquisition method. The RI business, located in Bergisch Gladbach, Germany,
consists of the development and manufacture of electron and ion linear
accelerators, superconducting and normal conducting accelerator cavities,
insertion devices, superconducting fault current limiters, other accelerator
components and specialty superconducting magnets for physics and energy
research and a variety of other scientific applications. The consideration
transferred in acquiring the RI business was approximately $0.4 million and
consisted entirely of cash. The Company acquired approximately $2.8 million of
receivables, $4.4 million of inventory, $2.2 million of other current assets
and $4.9 million of property, plant and equipment in this acquisition and
assumed approximately $12.1 million of current liabilities. The Company also
recorded $0.5 million representing the fair value of a noncontrolling interest.
In 2009, in connection with the acquisition of the RI business, the Company
recorded a gain of approximately $1.3 million that was recorded as a component
of acquisition-related charges in the
5
Table of Contents
consolidated statements of
operations. A gain of $2.1 million was initially recorded in the second quarter
of 2009 based on a preliminary purchase price allocation, but was subsequently
reduced by $0.8 million in the fourth quarter of 2009 based on the final
allocation. The results of the RI business have been included in the Energy &
Supercon Technologies segment from the date of acquisition. Pro forma financial
information reflecting the acquisition of the RI business has not been
presented because the impact on revenues, net income and net income per common
share attributable to Bruker Corporation shareholders is not material.
3.
Stock-Based
Compensation
The Companys primary types
of share-based compensation are in the form of stock options and restricted
stock. The Company recorded stock-based compensation expense for the three and
nine months ended September 30, 2010 and 2009 as follows (in millions):
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Stock options
|
|
$
|
1.4
|
|
$
|
1.2
|
|
$
|
4.2
|
|
$
|
3.7
|
|
Restricted stock
|
|
0.3
|
|
0.3
|
|
0.8
|
|
1.1
|
|
Total stock-based compensation, pre-tax
|
|
1.7
|
|
1.5
|
|
5.0
|
|
4.8
|
|
Tax benefit
|
|
0.3
|
|
0.3
|
|
0.8
|
|
0.9
|
|
Total stock-based compensation, net of tax
|
|
$
|
1.4
|
|
$
|
1.2
|
|
$
|
4.2
|
|
$
|
3.9
|
|
Compensation expense is
amortized on a straight-line basis over the underlying vesting terms of the
share-based award. Stock options to purchase the Companys common stock are
periodically awarded to executive officers and other employees of the Company
subject to a vesting period of three to five years. The fair value of each
option award is estimated on the date of grant using the Black-Scholes
option-pricing model. Assumptions regarding volatility, expected life, dividend
yield and risk-free interest rate are required for the Black-Scholes model and
are presented in the table below:
|
|
2010
|
|
2009
|
|
Risk-free interest rate
|
|
1.85%-3.46%
|
|
1.71%-3.60%
|
|
Expected life
|
|
6.5 years
|
|
6.5 years
|
|
Volatility
|
|
62.0%
|
|
64.0%
|
|
Expected dividend yield
|
|
0.0%
|
|
0.0%
|
|
The risk-free interest rate
is the yield on zero-coupon U.S. Treasury securities for a period that is
commensurate with the expected life assumption. Expected life is determined
through the simplified method as defined in the SEC Staff Accounting Bulletin
No. 110. The Company believes that this is the best estimate of the
expected life of a new option. Expected volatility can be based on a number of
factors but the Company currently believes that the exclusive use of historical
volatility results in the best estimate of the grant-date fair value of
employee stock options because it reflects the markets current expectations of
future volatility. Expected dividend yield was not considered in the option
pricing formula since the Company does not pay dividends and has no current
plans to do so in the future. The terms of some of the Companys indebtedness
also currently restrict its ability to pay dividends to its shareholders.
Bruker Corporation Stock Plan
In February 2010, the
Bruker BioSciences Corporation Amended and Restated 2000 Stock Option Plan (the
2000 Plan) expired at the end of its scheduled ten-year term. On March 9,
2010, the Companys Board of Directors unanimously approved and adopted the
Bruker Corporation 2010 Incentive Compensation Plan (the 2010 Plan) and on May 14,
2010, the 2010 Plan was approved by the Companys stockholders. The 2010 Plan
provides for the issuance of up to 8,000,000 shares of the Companys common
stock. The Plan allows a committee of the Board of Directors (the Committee)
to grant incentive stock options, non-qualified stock options and restricted
stock awards. The Committee has the authority to determine which employees will
receive the awards, the amount of the awards and other terms and conditions of
the award. Awards granted by the Committee typically vest over a period of
three to five years.
At September 30, 2010,
the Company expects to recognize pre-tax stock-based compensation expense of
$11.1 million associated with outstanding stock option awards granted under the
Companys stock plans over the weighted average remaining service period of 1.6
years. In addition, the Company expects to recognize additional pre-tax
stock-based compensation expense of $1.6 million associated with outstanding
restricted stock awards granted under the Companys stock plans over the
weighted average remaining service period of 0.6 years.
6
Table of Contents
Bruker Energy & Supercon Technologies Stock Plan
In October 2009, the
Board of Directors of BEST adopted the Bruker Energy & Supercon
Technologies, Inc. 2009 Stock Option Plan (the BEST Plan). The BEST Plan
provides for the issuance of up to 1,600,000 shares of BEST common stock in
connection with awards under the BEST Plan. The BEST Plan allows a committee of
the BEST Board of Directors to grant incentive stock options, non-qualified
stock options and restricted stock awards. The Compensation Committee of the
BEST Board of Directors has the authority to determine which employees will
receive the awards, the amount of the awards and other terms and conditions of
the award. Awards granted pursuant to the BEST Plan typically vest over a
period of three to five years.
At September 30, 2010,
the Company expects to recognize pre-tax stock-based compensation expense of
$1.9 million associated with outstanding stock option awards granted under the
BEST Plan over the weighted average remaining service period of 3.6 years.
4.
Earnings
Per Share
Net income per share is
calculated by dividing net income by the weighted-average shares outstanding
during the period. The diluted net income per share computation includes the
effect of shares which would be issuable upon the exercise of outstanding stock
options and the vesting of restricted stock, reduced by the number of shares
assumed to be purchased by the Company based on the treasury stock method.
The following table sets
forth the computation of basic and diluted average shares outstanding for the
three and nine months ended September 30, 2010 and 2009 (in millions,
except per share amounts):
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Net income attributable to Bruker Corporation
|
|
$
|
27.4
|
|
$
|
16.4
|
|
$
|
66.1
|
|
$
|
37.7
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding-basic
|
|
164.5
|
|
163.5
|
|
164.3
|
|
163.4
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock
|
|
1.2
|
|
1.5
|
|
1.3
|
|
1.3
|
|
|
|
165.7
|
|
165.0
|
|
165.6
|
|
164.7
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share attributable
to Bruker Corporation shareholders:
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.17
|
|
$
|
0.10
|
|
$
|
0.40
|
|
$
|
0.23
|
|
Stock options to purchase
approximately 0.5 million shares and 2.1 million shares were excluded from the
computation of diluted earnings per share in the three months ended September 30,
2010 and 2009, respectively, and approximately 0.4 million shares and 3.3
million shares were excluded from the computation of diluted earnings per share
in the nine months ended September 30, 2010 and 2009, respectively, as
their effect would have been anti-dilutive.
5.
Fair Value
of Financial Instruments
The Company applies the
following hierarchy, which prioritizes the input used to measure fair value
into three levels and bases the categorization within the hierarchy upon the
lowest level of input that is available and significant to the fair value
measurement. The 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.
7
Table of Contents
Level 3:
Inputs to the valuation
methodology are unobservable and significant to the fair value measurement.
The Company measures the
following financial assets and liabilities at fair value on a recurring basis.
The fair value of these financial assets and liabilities was determined using
the following inputs at September 30, 2010 (in millions):
|
|
|
|
Quoted Prices in Active Markets Available
|
|
Significant Other Observable Inputs
|
|
Significant Unobservable Inputs
|
|
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
93.2
|
|
$
|
93.2
|
|
$
|
|
|
$
|
|
|
Embedded derivatives in purchase and delivery
contracts
|
|
0.1
|
|
|
|
0.1
|
|
|
|
Foreign exchange contracts
|
|
0.7
|
|
|
|
0.7
|
|
|
|
Total assets recorded at fair value
|
|
$
|
94.0
|
|
$
|
93.2
|
|
$
|
0.8
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
$
|
3.7
|
|
$
|
|
|
$
|
3.7
|
|
$
|
|
|
Embedded derivatives in purchase and delivery
contracts
|
|
3.4
|
|
|
|
3.4
|
|
|
|
Foreign exchange contracts
|
|
0.7
|
|
|
|
0.7
|
|
|
|
Total liabilities recorded at fair value
|
|
$
|
7.8
|
|
$
|
|
|
$
|
7.8
|
|
$
|
|
|
The Companys financial
instruments consist primarily of cash equivalents, derivative instruments
consisting of forward foreign exchange contracts and an interest rate swap,
accounts receivable, short-term borrowings, accounts payable and long-term
debt. The carrying amounts of the Companys cash equivalents, accounts
receivable, short-term borrowings and accounts payable approximate fair value
due to their short-term nature. Derivative assets and liabilities are measured
at fair value on a recurring basis. The fair value of derivative instruments is
based primarily on quotes received from third party banks. These values
represent the estimated amount the Company would receive or pay to terminate
the agreements taking into consideration current foreign exchange or interest
rates, as well as the creditworthiness of the counterparty. The Companys
long-term debt consists primarily of variable rate arrangements with interest
rates that reset every three months and, as a result, reflect current interest
rates. Consequently, the carrying value of the Companys long-term debt
approximates fair value.
6.
Inventories
Inventories consisted of the
following as of September 30, 2010 and December 31, 2009 (in
millions):
|
|
September 30,
2010
|
|
December 31,
2009
|
|
Raw materials
|
|
$
|
132.0
|
|
$
|
108.8
|
|
Work-in-process
|
|
181.4
|
|
134.6
|
|
Demonstration units
|
|
47.2
|
|
41.3
|
|
Finished goods
|
|
127.2
|
|
138.1
|
|
Inventories
|
|
$
|
487.8
|
|
$
|
422.8
|
|
The Company reduces the
carrying value of its demonstration inventories for differences between its cost
and estimated net realizable value through a charge to cost of product revenue
that is based on a number of factors including the age of the unit, the
physical condition of the unit and an assessment of technological obsolescence.
Amounts recorded in cost of product revenue related to the write-down of
demonstration units to net realizable value were $6.0 million and $7.0 million
for the three months ended September 30, 2010 and 2009, respectively and
$17.3 million and $18.9 million for the nine months ended September 30,
2010 and 2009, respectively.
Finished goods include
in-transit systems that have been shipped to the Companys customers but have
not yet been installed and accepted by the customer. As of September 30,
2010 and December 31, 2009, inventory-in-transit was $63.4 million and
$80.8 million, respectively.
8
Table of Contents
7.
Goodwill
and Other Intangible Assets
The following table sets
forth the changes in the carrying amount of goodwill for the nine months ended
September 30, 2010 (in millions):
Balance at December 31, 2009
|
|
$
|
47.5
|
|
Goodwill acquired during the period
|
|
1.9
|
|
Foreign currency impact
|
|
(1.0
|
)
|
Balance at September 30, 2010
|
|
$
|
48.4
|
|
Goodwill is not amortized,
instead, goodwill is tested for impairment on a reporting unit basis annually,
or on an interim basis when events or changes in circumstances warrant. The
Company performed its annual test for impairment as of December 31, 2009
and determined that goodwill and other intangible assets were not impaired at
that time. The Company did not identify any indicators of impairment during the
nine month period ended September 30, 2010 that would warrant an interim
test.
The following is a summary
of other intangible assets subject to amortization at September 30, 2010
and December 31, 2009 (in millions):
|
|
September 30, 2010
|
|
December 31, 2009
|
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Existing technology and related patents
|
|
$
|
20.1
|
|
$
|
(11.8
|
)
|
$
|
8.3
|
|
$
|
14.4
|
|
$
|
(10.7
|
)
|
$
|
3.7
|
|
Customer relationships
|
|
17.8
|
|
(1.6
|
)
|
16.2
|
|
2.0
|
|
(0.9
|
)
|
1.1
|
|
Trade names
|
|
0.4
|
|
(0.2
|
)
|
0.2
|
|
0.4
|
|
(0.3
|
)
|
0.1
|
|
Intangible assets subject to amortization, net
|
|
$
|
38.3
|
|
$
|
(13.6
|
)
|
$
|
24.7
|
|
$
|
16.8
|
|
$
|
(11.9
|
)
|
$
|
4.9
|
|
For the three months ended September 30,
2010 and 2009, the Company recorded amortization expense of $1.0 million and
$0.4 million, respectively, related to intangible assets subject to
amortization. For the nine months ended September 30, 2010 and 2009, the
Company recorded amortization expense of $2.1 million and $1.3 million,
respectively, related to intangible assets subject to amortization.
8.
Debt
At September 30, 2010
and December 31, 2009, the Companys debt obligations consisted of the
following (in millions):
|
|
September 30,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
US Dollar term loan under the Credit Agreement
|
|
$
|
116.3
|
|
$
|
131.3
|
|
|
|
|
|
|
|
Euro bank loans at fixed rate of 2.95%,
collateralized by land and buildings of Bruker Daltonik GmbH, quarterly
principal payments and monthly interest payments due and payable through 2010
|
|
|
|
0.3
|
|
|
|
|
|
|
|
Capital lease obligations
|
|
5.1
|
|
6.0
|
|
Total long-term debt
|
|
121.4
|
|
137.6
|
|
Current portion of long-term debt
|
|
(27.1
|
)
|
(21.9
|
)
|
Total long-term debt, less current portion
|
|
$
|
94.3
|
|
$
|
115.7
|
|
In 2008, the Company entered
into a credit agreement with a syndication of lenders (the Credit Agreement)
which provides for a revolving credit line with a maximum commitment of $230.0
million and a term facility of $150.0 million. The outstanding principal and
interest under the term loan is payable in quarterly installments through
December 2012. Borrowings under the Credit Agreement bear interest, at the
Companys option, at either (i) the higher of the prime rate or the
federal funds rate plus 0.50%, or (ii) adjusted LIBOR, plus margins
ranging from 0.40% to 1.25% and a facility fee ranging from 0.10% to 0.20%. As
of September 30, 2010, the weighted average interest rate of borrowings
under the term facility of the Credit Agreement was approximately 2.7%.
9
Table of Contents
Borrowings under the Credit
Agreement are secured by the pledge to the banks of 100% of the capital stock
of each of the Companys wholly-owned domestic subsidiaries and 65% of the
capital stock of certain of the Companys direct or indirect wholly-owned
foreign subsidiaries. The Credit Agreement also requires the Company to
maintain certain financial ratios related to leverage ratios and interest
coverage ratios 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. As
of September 30, 2010, the latest measurement date, the Company was in
compliance with the covenants under the Credit Agreement.
In addition to its long-term
arrangements, the Company had the following amounts outstanding under revolving
loan arrangements (in millions):
|
|
September 30,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
Revolving loans under the Credit Agreement
|
|
$
|
|
|
$
|
|
|
Other revolving loans
|
|
|
|
0.1
|
|
Total short-term borrowings
|
|
$
|
|
|
$
|
0.1
|
|
The following is a summary
of the maximum commitments and net amounts available to the Company under
revolving loans as of September 30, 2010 (in millions):
|
|
Weighted
Average
Interest Rate
|
|
Total Amount
Committed by
Lenders
|
|
Outstanding
Borrowings
|
|
Outstanding
Letters of
Credit
|
|
Total Amount
Available
|
|
Credit Agreement
|
|
|
%
|
$
|
230.0
|
|
$
|
|
|
$
|
1.5
|
|
$
|
228.5
|
|
Other revolving loans
|
|
|
%
|
112.6
|
|
|
|
90.9
|
|
21.7
|
|
Total revolving loans
|
|
|
|
$
|
342.6
|
|
$
|
|
|
$
|
92.4
|
|
$
|
250.2
|
|
On October 1, 2010, we
borrowed
$170.0
million under
the revolving loan component of the Credit Agreement to finance our acquisition
and the working capital requirements of the nano surfaces business. The
borrowing under the Credit Agreement reduced the total amount available to us
from our lenders.
Other revolving loans are
with various financial institutions located primarily in Germany, Switzerland
and France. The Companys other revolving loans are typically due upon demand
with interest payable monthly. Certain of these loans are unsecured while
others are secured by the accounts receivable and inventory of the related
subsidiary.
9. Derivative
Instruments and Hedging Activities
Interest
Rate Risks
The Companys exposure to
interest rate risk relates primarily to outstanding variable rate debt and
adverse movements in the related short-term market rates. The most significant
component of the Companys interest rate risk relates to amounts outstanding
under the Credit Agreement. In April 2008, the Company entered into an
interest rate swap arrangement to manage its exposure to interest rate
movements and the related effect on its variable rate debt. Under this interest
rate swap arrangement, the Company will pay a fixed rate of approximately 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, 2010, the notional amount of this
interest rate swap was $69.8 million. The Company concluded that this swap met
the criteria to qualify as an effective hedge of the
10
Table of Contents
variability of cash flows of
the interest payments and accounts for the interest rate swap as a cash flow
hedge. Accordingly, the Company reflects changes in the fair value of the
effective portion of this interest rate swap in accumulated other comprehensive
income, a separate component of shareholders equity. As of September 30,
2010 and December 31, 2009, the Company recorded a liability of $3.7
million and $3.5 million, respectively, related to the fair value of the
interest rate swap that is included in other current liabilities in the
consolidated balance sheets. Amounts recorded in accumulated other
comprehensive income (loss) are reclassified to interest and other income
(expense), net in the consolidated statement of operations when either the
forecasted transaction occurs or it becomes probable that the forecasted
transaction will not occur. The Company expects $2.2 million of the accumulated
loss to be reclassified into earnings over the next twelve months.
Foreign Exchange Rate Risk Management
The Company generates a
substantial portion of its revenues in international markets, principally
Germany and other countries in the European Union, Switzerland 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.
The Company periodically
enters into foreign currency contracts, primarily forward contracts, to
minimize the volatility that fluctuations in currency exchange rates have on
the Companys cash flows related to purchases and sales denominated in foreign
currencies. Under these arrangements, the Company typically agrees to purchase
a fixed amount of a foreign currency in exchange for a fixed amount of U.S.
Dollars or other currencies on specified dates with maturities of less than two
years. These transactions do not qualify for hedge accounting and, accordingly,
the instrument is recorded at fair value with the corresponding gains and
losses recorded in interest and other income (expense), net in the consolidated
statements of operations. At September 30, 2010, and December 31,
2009, the following foreign currency contracts were outstanding (in millions):
|
|
|
|
Notional Amount
|
Buy
|
|
Sell
|
|
September 30,
2010
|
|
December 31,
2009
|
Euro
|
|
Australian
Dollars
|
|
$
|
2.1
|
|
$
|
|
Euro
|
|
U.S.
Dollars
|
|
20.3
|
|
5.5
|
Swiss
Francs
|
|
Euro
|
|
18.5
|
|
|
Swiss
Francs
|
|
U.S.
Dollars
|
|
64.0
|
|
13.1
|
U.S.
Dollars
|
|
Euro
|
|
|
|
6.7
|
U.S.
Dollars
|
|
Swiss
Francs
|
|
49.7
|
|
|
|
|
|
|
$
|
154.6
|
|
$
|
25.3
|
In addition, the Company
periodically enters into purchase and sales contracts denominated in currencies
other than the functional currency of the parties to the transaction. The
Company accounts for these transactions separately valuing the embedded
derivative component of these contracts. The contracts, denominated in
currencies other than the functional currency of the transacting parties, amounted
to $18.8 million for the delivery of products and $0.2 million for the purchase
of products at September 30, 2010 and $30.4 million for the delivery of
products and $0.2 million for the purchase of products at December 31,
2009. The changes in the fair value of these embedded derivatives are recorded
in interest and other income (expense), net in the consolidated statements of
operations.
The fair value of the
foreign exchange derivative instruments described above is recorded in our
consolidated balance sheets for the periods ended September 30, 2010 and
December 31, 2009 as follows (in millions):
11
Table of Contents
|
|
|
|
Fair Value
|
|
|
|
Balance Sheet Location
|
|
September 30,
2010
|
|
December 31,
2009
|
|
Derivative assets:
|
|
|
|
|
|
|
|
Embedded derivatives in purchase and delivery
contracts
|
|
Other current assets
|
|
$
|
0.1
|
|
$
|
|
|
Foreign exchange contracts
|
|
Other current assets
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
Interest rate swap contract
|
|
Other current liabilities
|
|
$
|
3.7
|
|
$
|
3.5
|
|
Embedded derivatives in purchase and delivery
contracts
|
|
Other current liabilities
|
|
3.4
|
|
1.5
|
|
Foreign exchange contracts
|
|
Other current liabilities
|
|
0.7
|
|
|
|
The losses recognized in
other comprehensive income related to the effective portion of the interest
rate swap designated as a hedging instrument for the three and nine months
ended September 30, 2010 and 2009 are as follows (in millions):
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Interest rate swap contract
|
|
$
|
(0.7
|
)
|
$
|
(1.0
|
)
|
$
|
(2.2
|
)
|
$
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The losses related to the
effective portion of the interest rate swap designated as a hedging instrument
that were reclassified from other comprehensive income and recognized in net
income for the three and nine months ended September 30, 2010 and 2009 are
as follows (in millions):
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Interest rate swap contract
|
|
$
|
(0.6
|
)
|
$
|
(0.7
|
)
|
$
|
(2.0
|
)
|
$
|
(1.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company did not
recognize any amounts related to ineffectiveness in the results of operations
for the three and nine months ended September 30, 2010 and 2009.
The impact on net income of
changes in the fair value of derivative instruments not designated as hedging
instruments for the three and nine months ended September 30, 2010 and
2009 are as follows (in millions):
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Foreign exchange contracts
|
|
$
|
1.3
|
|
$
|
(1.0
|
)
|
$
|
|
|
$
|
(1.0
|
)
|
Embedded derivatives in purchase and delivery
contracts
|
|
0.5
|
|
(0.7
|
)
|
(1.8
|
)
|
(0.1
|
)
|
Income (expense), net
|
|
$
|
1.8
|
|
$
|
(1.7
|
)
|
$
|
(1.8
|
)
|
$
|
(1.1
|
)
|
The amounts recorded in the
results of operations related to derivative instruments not designated as
hedging instruments are recorded in interest and other income (expense), net.
10. Other
Charges (Credits), Net
The components of other
charges (credits), net, were as follows for the three and nine months ended September 30,
2010 and 2009 (in millions):
12
Table of Contents
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related charges
|
|
$
|
1.0
|
|
$
|
|
|
$
|
1.7
|
|
$
|
0.8
|
|
Transition-related charges incurred in connection
with acquired businesses
|
|
0.9
|
|
|
|
1.4
|
|
|
|
Loss on divestiture of businesses
|
|
|
|
|
|
1.0
|
|
|
|
Restructuring charges (Note 11)
|
|
|
|
|
|
0.2
|
|
|
|
Impairment charges (Note 12)
|
|
|
|
|
|
|
|
0.7
|
|
Gain on bargain purchase (Note 2)
|
|
|
|
|
|
|
|
(2.1
|
)
|
Other charges (credits), net
|
|
$
|
1.9
|
|
$
|
|
|
$
|
4.3
|
|
$
|
(0.6
|
)
|
11. Restructuring
Charges
In
the first quarter of 2010, the Company recorded restructuring charges of $0.2
million, which related primarily to severance incurred in connection with the
closing of a production facility in Herzogenrath, Germany and relocating the
associated operations. These charges were recorded in the Scientific
Instruments segment. The Company does not expect to incur any additional costs
related to this move. The liability for restructuring charges was included in
other current liabilities in the unaudited condensed consolidated balance
sheets. The charges related to this restructuring reserve are as follows (in
millions):
|
|
Total
|
|
Severance
|
|
Balance at December 31, 2009
|
|
$
|
|
|
$
|
|
|
Restructuring charges
|
|
0.2
|
|
0.2
|
|
Cash payments
|
|
(0.2
|
)
|
(0.2
|
)
|
Foreign currency impact
|
|
|
|
|
|
Balance at September 30, 2010
|
|
$
|
|
|
$
|
|
|
12. Impairment
Charges
In the second quarter of
2009, the Company recorded an impairment charge of $0.7 million, which
consisted of certain fixed assets used in the production of certain
superconducting wire. The impairment loss was recorded because the Company
determined that the carrying value of the assets exceeded their fair value
based on the estimated undiscounted operating cash flows generated by those
assets. The impairment charge was allocated to the Energy & Supercon
Technologies segment and has been recorded as a component of other charges
(credits), net in the unaudited condensed consolidated statements of
operations.
13. Employee
Benefit Plans
Substantially all of the
Companys employees in Switzerland, France and Japan, as well as certain
employees in Germany, are covered by Company-sponsored defined benefit pension
plans. Retirement benefits are generally earned based on years of service and
compensation during active employment. Eligibility is generally determined in
accordance with local statutory requirements; however, the level of benefits
and terms of vesting varies among plans.
The net periodic pension
cost consists of the following components for the three and nine months ended
September 30, 2010 and 2009 (in millions):
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Components of net periodic benefit costs:
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
1.3
|
|
$
|
1.3
|
|
$
|
3.3
|
|
$
|
3.4
|
|
Interest cost
|
|
1.5
|
|
1.3
|
|
4.0
|
|
3.4
|
|
Expected return on plan assets
|
|
(0.9
|
)
|
(1.0
|
)
|
(2.7
|
)
|
(3.0
|
)
|
Amortization of prior service costs
|
|
|
|
|
|
0.5
|
|
|
|
Net periodic benefit costs
|
|
$
|
1.9
|
|
$
|
1.6
|
|
$
|
5.1
|
|
$
|
3.8
|
|
13
Table of Contents
The Company made
contributions of $1.9 million to its defined benefit plans during the nine
months ended September 30, 2010 and estimates contributions of $0.7
million will be made during the remainder of 2010.
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, 2010 and 2009 (in millions):
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Interest income
|
|
$
|
0.1
|
|
$
|
0.4
|
|
$
|
0.4
|
|
$
|
1.2
|
|
Interest expense
|
|
(1.2
|
)
|
(1.8
|
)
|
(4.0
|
)
|
(6.2
|
)
|
Exchange gains (losses) on foreign currency
transactions
|
|
(0.1
|
)
|
(0.8
|
)
|
(2.0
|
)
|
(0.2
|
)
|
Other
|
|
0.1
|
|
0.4
|
|
|
|
0.6
|
|
Interest and other income (expense), net
|
|
$
|
(1.1
|
)
|
$
|
(1.8
|
)
|
$
|
(5.6
|
)
|
$
|
(4.6
|
)
|
15. Provision
for Income Taxes
The Company accounts for
income taxes using the asset and liability approach by recognizing deferred tax
assets and liabilities for the expected future tax consequences of differences
between the financial statement basis and the tax basis of assets and
liabilities, calculated using enacted tax rates in effect for the year in which
the differences are expected to be reflected in the tax return. The Company
records a valuation allowance to reduce deferred tax assets to the amount that
is more likely than not to be realized. In addition, the Company accounts for
uncertain tax positions that have reached a minimum recognition threshold.
The income tax provision for
the three months ended September 30, 2010 and 2009 was $10.3 million and
$8.1 million, respectively, representing effective tax rates of 27.0% and
33.5%, respectively. The income tax provision for the nine months ended September 30,
2010 and 2009 was $31.7 million and $18.5 million, respectively, representing
effective tax rates of 32.2% and 33.1%, respectively. In the third quarter of
2010, the Company completed a study of its research and development activities
and identified additional U.S. Federal tax credits of approximately $2.8
million. These credits reduced our effective tax rate by approximately 7.3% and
2.8% for the three and nine month periods ended September 30, 2010,
respectively.
The Companys effective tax
rate mainly reflects the tax provision (benefit) for non-U.S. entities only. A
full valuation allowance will be maintained against all U.S. deferred tax
assets, including U.S. net operating losses and tax credits, until evidence
exists that it is more likely than not that the loss carryforward and credit
amounts will be utilized to offset U.S. taxable income. The Companys tax rate
may change over time as the amount or mix of income and taxes outside the U.S.
changes. The effective tax rate is calculated using projected annual pre-tax
income or loss and is affected by research and development tax credits, the
expected level of other tax benefits, the impact of changes to the valuation
allowance, and changes in the mix of the Companys pre-tax income and losses
among jurisdictions with varying statutory tax rates and credits.
The Company has unrecognized
tax benefits of approximately $25.6 million as of September 30, 2010, of
which $17.3 million, if recognized, would result in a reduction of the Companys
effective tax rate. The Company recognizes penalties and interest related to
unrecognized tax benefits in the provision for income taxes. As of September 30,
2010 and December 31, 2009, approximately $4.5 million and $3.8 million,
respectively, of accrued interest and penalties related to uncertain tax
positions was included in other current liabilities on the unaudited condensed
consolidated balance sheets. Penalties and interest related to unrecognized tax
benefits in the provision for income taxes of $0.2 million were recorded during
the three months ended September 30, 2010 and 2009, and $0.7 million and
$0.6 million were recorded during the nine months ended September 30, 2010
and 2009, respectively.
The Company files returns in
many foreign and state jurisdictions with varying statutes of limitations, but
considers its significant tax jurisdictions to include the United States,
Germany and Switzerland. The tax years 2003 to 2009 are open tax years in these
major taxing jurisdictions. One of the Companys Swiss entities is currently
being audited for the tax years 2003 through 2006. In addition, a majority of
the Companys German subsidiaries are under tax audit for the years 2003
through 2008. The Company cannot reasonably predict the timing or outcome of
these audits.
14
Table of Contents
16. Accumulated
Other Comprehensive Income (Loss)
Comprehensive income (loss)
refers to revenues, expenses, gains and losses that under GAAP are included in
other comprehensive income, but excluded from net income as these amounts are
recorded directly as an adjustment to shareholders equity, net of tax. The
following is a summary of comprehensive income (loss) for the three and nine
months ended September 30, 2010 and 2009 (in millions):
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Consolidated net income
|
|
$
|
27.9
|
|
$
|
16.1
|
|
$
|
66.8
|
|
$
|
37.4
|
|
Foreign currency translation adjustments
|
|
53.3
|
|
19.5
|
|
2.6
|
|
15.8
|
|
Unrealized gains (losses) on interest rate swap:
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during
the period
|
|
(0.7
|
)
|
(1.0
|
)
|
(2.2
|
)
|
(0.9
|
)
|
Less reclassification adjustments for settlements
included in the determination of net income (loss)
|
|
0.6
|
|
0.7
|
|
2.0
|
|
1.8
|
|
Pension liability adjustments
|
|
(2.0
|
)
|
|
|
(1.6
|
)
|
1.0
|
|
Total comprehensive income (loss)
|
|
79.1
|
|
35.3
|
|
67.6
|
|
55.1
|
|
Less: Comprehensive income (loss) attributable to
noncontrolling interests
|
|
0.5
|
|
(0.3
|
)
|
0.7
|
|
(0.3
|
)
|
Comprehensive income (loss) attributable to Bruker
Corporation
|
|
$
|
78.6
|
|
$
|
35.6
|
|
$
|
66.9
|
|
$
|
55.4
|
|
17. Noncontrolling
Interests
Net income (loss)
attributable to noncontrolling interests for the three months ended September 30,
2010 and 2009 was $0.5 million and $(0.3) million, respectively. Net
income (loss) attributable to noncontrolling interests for the nine months
ended September 30, 2010 and 2009 was $0.7 million and $(0.3) million,
respectively. The net income (loss) attributable to noncontrolling
interests represents the minority shareholders proportionate share of the net
loss recorded by the Companys majority-owned indirect subsidiaries.
In the second quarter of
2010, the Company sold its ownership interest in Bruker Baltic Ltd. to one of
its minority shareholders as part of its efforts to consolidate production and
know-how into certain key locations. In addition, the Company made a payment of
$0.1 million to certain minority shareholders of RI Research Instruments GmbH
during the second quarter of 2010.
18. Commitments
and Contingencies
Legal
Lawsuits, claims and
proceedings of a nature considered normal to its businesses may be pending from
time to time against the Company. The Company believes the outcome of these
proceedings, if any, will not have a material impact on the Companys financial
position or results of operations. As of September 30, 2010, the Company
recorded an accrual to recognize an expected loss from a patent infringement
action brought by The Research Foundation of the State University of New York.
At December 31, 2009, no accruals had been recorded for such potential contingencies.
Letters of Credit and Guarantees
At September 30, 2010
and December 31, 2009, the Company had bank guarantees of $92.4 million
and $87.0 million, respectively, for its customer advances. These
arrangements guarantee the refund of advance payments received from customers
in the event that the merchandise is not delivered in compliance with the terms
of the contract. Certain of these guarantees affect the availability of the
Companys lines of credit.
19. Business
Segment Information
The Companys reportable
segments are organized by the types of products and services provided. The
Company has combined the Bruker AXS, Bruker BioSpin, Bruker Daltonics and
Bruker Optics operating segments into the Scientific Instruments reporting
segment because each has similar economic characteristics, product processes
and services, types and classes of customers, methods of distribution and
regulatory environments.
15
Table of Contents
Management evaluates segment
operating performance and allocates resources based on operating income (loss).
The Company uses this measure because it helps provide an understanding of our
core operating results. Selected business segment information is presented
below for the three and nine months ended September 30, 2010 and 2009 (in
millions):
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
Scientific Instruments
|
|
$
|
290.5
|
|
$
|
251.6
|
|
$
|
835.7
|
|
$
|
716.5
|
|
Energy & Supercon Technologies
|
|
22.4
|
|
14.2
|
|
61.2
|
|
36.0
|
|
Eliminations (a)
|
|
(2.7
|
)
|
(0.7
|
)
|
(8.1
|
)
|
(4.4
|
)
|
Total revenue
|
|
$
|
310.2
|
|
$
|
265.1
|
|
$
|
888.8
|
|
$
|
748.1
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss):
|
|
|
|
|
|
|
|
|
|
Scientific Instruments
|
|
$
|
40.4
|
|
$
|
26.9
|
|
$
|
108.5
|
|
$
|
63.4
|
|
Energy & Supercon Technologies
|
|
(0.8
|
)
|
(1.2
|
)
|
(3.0
|
)
|
(4.3
|
)
|
Corporate, eliminations and other (b)
|
|
(0.3
|
)
|
0.3
|
|
(1.4
|
)
|
1.4
|
|
Total operating income
|
|
$
|
39.3
|
|
$
|
26.0
|
|
$
|
104.1
|
|
$
|
60.5
|
|
(a) Represents product and service revenue
between reportable segments.
(b) Represents corporate costs and eliminations
not allocated to the reportable segments.
16
Table of Contents
Total assets by segment as
of September 30, 2010 and December 31, 2009 are as follows (in
millions):
|
|
September 30,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
Assets:
|
|
|
|
|
|
Scientific Instruments
|
|
$
|
1,251.2
|
|
$
|
1,139.7
|
|
Energy & Supercon Technologies
|
|
70.8
|
|
70.3
|
|
Eliminations and other (a)
|
|
(44.9
|
)
|
(38.0
|
)
|
Total assets
|
|
$
|
1,277.1
|
|
$
|
1,172.0
|
|
(a)
Represents assets not
allocated to the reportable segments and eliminations of intercompany
transactions.
20.
Recent
Accounting Pronouncements
In September 2009, the
Emerging Issues Task Force reached consensus on FASB Accounting Standards
Update 2009-14,
Software (Topic 985)Certain
Revenue Arrangements That Include Software Elements
. FASB Accounting
Standards Updates 2009-14 changes the accounting model for revenue arrangements
that include both tangible products and software elements. Under this guidance,
tangible products containing software components and non-software components
that function together to deliver the tangible products essential
functionality are excluded from the software revenue guidance in Subtopic
985-605,
Software-Revenue Recognition
. In addition, hardware
components of a tangible product containing software components are always
excluded from the software revenue guidance. FASB Accounting Standards Updates
2009-14 is effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010, however,
early adoption is permitted. The Company is currently assessing the impact that
this update will have on its results of operations and financial position and
when the Company will adopt these requirements.
In September 2009, the
Emerging Issues Task Force reached consensus on FASB Accounting Standards
Update 2009-13,
Revenue Recognition (Topic
605)Multiple-Deliverable Revenue Arrangements.
FASB Accounting
Standards Update 2009-13 addresses the accounting for multiple-deliverable
arrangements to enable vendors to account for products or services separately
rather than as a combined unit. Specifically, this guidance amends the criteria
in Subtopic 605-25,
Revenue
Recognition-Multiple-Element Arrangements,
for separating
consideration in multiple-deliverable arrangements. This guidance establishes a
selling price hierarchy for determining the selling price of a deliverable,
which is based on: (a) vendor-specific objective evidence;
(b) third-party evidence; or (c) estimates. This guidance also
eliminates the residual method of allocation and requires that arrangement
consideration be allocated at the inception of the arrangement to all
deliverables using the relative selling price method. In addition, this
guidance significantly expands required disclosures related to a vendors
multiple-deliverable revenue arrangements. FASB Accounting Standards Update
2009-13 is effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010,
however, early adoption is permitted. The Company is currently assessing the
impact that this update will have on its results of operations and financial
position and when the Company will adopt these requirements.
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, 2009.
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, 2009.
17
Table of Contents
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 we face and risks that may impact our business in the future.
·
Critical
accounting policies
. This section discusses the accounting estimates
that are considered important to our financial position and results of
operations and that require us to exercise subjective or complex judgments in
their application.
·
Results
of operations
. This section provides our analysis of the
significant line items on our unaudited condensed consolidated statement of
operations for the three and nine months ended September 30, 2010 compared
to the three and nine months ended September 30, 2009.
·
Liquidity
and capital resources
. This section provides an analysis of our
liquidity and cash flow and discussions of our outstanding debt and commitments
and matters relating to our common stock.
·
Recent
accounting pronouncements
. This section provides information about new
accounting standards that have been issued but for which adoption is not yet
required.
EXECUTIVE
OVERVIEW
Business
Overview
Bruker Corporation and its
wholly-owned subsidiaries design, manufacture, service and market proprietary
life science and materials research systems based on its core technology
platforms, including X-ray technologies, magnetic resonance technologies, mass
spectrometry technologies, optical emission spectroscopy and infrared and Raman
molecular spectroscopy technologies. We sell a broad range of field analytical
systems for chemical, biological, radiological, nuclear and explosive, or
CBRNE, detection. We also develop and manufacture low temperature and high
temperature superconducting wire products and superconducting wire and
superconducting devices for use in advanced magnet technology, physics research
and energy applications. Our diverse customer base includes life science,
pharmaceutical, biotechnology and molecular diagnostic research companies,
academic institutions, advanced materials and semiconductor industries and
government agencies. 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 performance,
both organically and through acquisitions. Our revenue growth strategy,
combined with anticipated improvements to our gross profit margins and
increased leverage on our research and development, sales and marketing and
distribution investments and general and administrative expenses, is expected
to enhance our operating margins and improve our earnings in the future.
On May 19, 2010, we
completed our acquisition of three former Varian, Inc. product lines which
Agilent Technologies, Inc., divested in connection with obtaining
regulatory approval for its May 14, 2010 acquisition of Varian. The
Company acquired certain assets and assumed certain liabilities in Varians
inductively coupled plasma mass spectrometry instruments business, laboratory
gas chromatography instruments business, and gas chromatography triple-quadrupole
mass spectrometry instruments business, collectively, the chemical analysis
business. The chemical analysis business complements our existing mass
spectrometry products and expands our offerings to industrial and applied
markets that we did not previously serve and also provides opportunities to
supply customers with equipment packages that have a broader range of
applications and value.
On August 16, 2010, we
announced that we entered into a Stock Purchase Agreement with Veeco
Instruments Inc. and Veeco Metrology Inc. to acquire Veecos scanning probe
microscopy and optical industrial metrology instruments business, or the
nano surfaces
business. We completed the
acquisition of the
nano
surfaces
business on October 7, 2010. We believe that the acquired business
complements our existing atomic force microscopy products and expands our
offerings to industrial and applied markets, specifically, in the fields of
materials and nanotechnology research and analysis.
18
Table of Contents
We are organized into five
operating segments, representing each of our five divisions: Bruker AXS, Bruker
BioSpin, Bruker Daltonics, Bruker Optics and Bruker Energy & Supercon
Technologies. Bruker AXS is in the business of manufacturing and distributing
advanced X-ray, spark-optical emission spectroscopy and atomic force microscopy
instrumentation used in non-destructive molecular and elemental analysis.
Bruker BioSpin is in the business of manufacturing and distributing enabling
life science tools based on magnetic resonance technology. Bruker Daltonics is
in the business of manufacturing and distributing mass spectrometry instruments
that can be integrated and used along with other analytical instruments, as
well as our CBRNE detection products. Bruker Optics is in the business of
manufacturing and distributing research, analytical and process analysis
instruments and solutions based on infrared and Raman molecular spectroscopy
technologies. Bruker Energy & Supercon Technologies is in the business
of developing and producing superconductivity-based materials and
superconductivity-enabled devices.
We have combined the Bruker
AXS, Bruker BioSpin, Bruker Daltonics and Bruker Optics operating segments into
the Scientific Instruments reporting segment because each has similar economic
characteristics, product processes and services, types and classes of
customers, methods of distribution and regulatory environments. As such,
management reports its results based on the following segments:
·
Scientific
Instruments.
The operations of
this segment include the design, manufacture and distribution of advanced
instrumentation and automated solutions based on X-ray technology,
spark-optical emission spectroscopy technology, atomic force microscopy,
magnetic resonance technology, mass spectrometry technology and infrared and
Raman molecular spectroscopy technology. Typical customers of the Scientific
Instruments segment include pharmaceutical, biotechnology, and molecular
diagnostic companies, academic institutions, medical school and other
non-profit organizations, and clinical microbiology laboratories, government
departments and agencies, and nanotechnology, semiconductor, chemical, cement,
metals and petroleum companies, and food, beverage and agricultural analysis
companies and laboratories.
·
Energy &
Supercon Technologies.
The
operations of this segment include the design, manufacture and marketing of
superconducting materials, primarily metallic low temperature superconductors,
for use in magnetic resonance imaging, nuclear magnetic resonance and fusion
energy research and other applications, and ceramic high temperature
superconductors primarily for fusion energy research applications. We also
utilize our low temperature and high temperature superconductors to develop,
manufacture and market devices that have applications primarily in big
science research. Typical customers of the Energy & Supercon
Technologies segment include companies in the medical, power and energy, and
processing industries, private and public research and development laboratories
in the fields of fundamental and applied sciences and energy research, academic
institutions and government agencies.
We have announced plans to
sell a minority ownership position in our Bruker Energy & Supercon
Technologies, Inc. (BEST) subsidiary through an initial public offering
of the capital stock of BEST. We believe the offering will provide our
shareholders greater visibility into BESTs performance and growth and
strengthen BESTs access to financing for its revenue growth initiatives,
including the development of products for the renewable energy and energy
infrastructure markets.
Financial
Overview
For the three months ended September 30,
2010, our revenue increased by $45.1 million, or 17.0%, to $310.2 million,
compared to $265.1 million for the comparable period in 2009. Included in this
change in revenue is a decrease of approximately $18.1 million from the impact
of foreign exchange due to the strengthening of the U.S. Dollar versus the Euro
and other foreign currencies and an increase of approximately $17.1 million
attributable to the acquisition of the chemical analysis business. Excluding
the effect of foreign exchange and the acquisition, revenue increased by $46.1
million, or 17.4%. The increase in revenue on an adjusted basis is attributable
to both the Scientific Instruments segment, which increased by $37.6 million,
or 14.9%, and the Energy & Supercon Technologies segment, which
increased by $10.5 million, or 73.9%. Revenue in the Scientific Instruments
segment reflects an increase in sales from many of our core technologies,
particularly in magnetic resonance, mass spectrometry and X-ray. Revenues in
the Energy & Supercon Technologies segment increased due to higher demand
for low temperature superconducting wire.
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Table of Contents
For the nine months ended September 30,
2010, our revenue increased by $140.7 million, or 18.8%, to $888.8 million,
compared to $748.1 million for the comparable period in 2009. Included in this
change in revenue is a decrease of approximately $5.3 million from the impact
of foreign exchange due to the strengthening of the U.S. Dollar versus the Euro
and other foreign currencies and an increase of approximately $27.6 million
attributable to the acquisitions of the chemical analysis business and the
research instruments business. Excluding the effect of foreign exchange and the
acquisitions, revenue increased by $118.4 million, or 15.8%. The increase in
revenue on an adjusted basis is attributable to both the Scientific Instruments
segment, which increased by $101.3 million, or 14.1%, and the Energy &
Supercon Technologies segment, which increased by $20.8 million, or 57.8%.
Revenue in the Scientific Instruments segment reflects an increase in sales of
all of our core technologies, particularly in magnetic resonance, X-ray and
mass spectrometry. Revenues in the Energy & Supercon Technologies
segment increased due to higher demand for low temperature superconducting
wire.
The mix of products sold in
the Scientific Instruments segment in the three and nine months ended September 30,
2010 reflects increased demand from academic, government and industrial
customers. We attribute the increase in sales of magnetic resonance and mass
spectrometry products and spending by academic and government customers to our
new product introductions over the last twelve to eighteen months and to
stimulus packages implemented by governments of various countries, including
the U.S., Germany, Japan and China. The improvement in revenues from our
industrial customers reflects an ongoing economic improvement in these end
markets. In general, the spending patterns of our industrial customers were
negatively impacted by the global recession through the first half of 2009.
Over the last several quarters we have experienced an increase in demand from
these customers and we remain optimistic that the industrial markets we serve
will continue to improve. However, we will continue to monitor the recovery of
these markets given the current economic environment. Additionally, while many
European governments have announced their intentions to reduce overall
spending, a number of our key European markets, including Germany, France and
the U.K., have announced that research spending will remain stable, or grow in
some cases. Based on the recent announcements from these governments and recent
announcements from the European Union, we believe that funding for the majority
of our products and markets will remain stable, or grow, in most of our key
European markets.
Income from operations for
the three months ended September 30, 2010 was $39.3 million, resulting in
an operating margin of 12.7%, compared to income from operations of $26.0
million, resulting in an operating margin of 9.8%, for the comparable period in
2009. The increase in operating margin is primarily the result of the higher
revenue described above and a corresponding improvement in our gross profit
margins. Our gross profit margin for the third quarter of 2010 was 47.4%,
compared with 45.0% for the comparable period in 2009. The increase in revenue
also allowed us to leverage our selling, general and administrative costs and
our research and development costs, which decreased to 33.8% of revenue for the
three months ended September 30, 2010 compared with 35.0% of revenue for
the comparable period of 2009. Improvements in operating margins are
attributable to both the Scientific Instruments segment, which increased by
$13.5 million, improving operating margins by 3.2%, and the Energy &
Supercon Technologies segment which decreased its operating loss by $0.4
million, improving operating margins by 4.9%.
Income from operations for
the nine months ended September 30, 2010 was $104.1 million, resulting in
an operating margin of 11.7%, compared to income from operations of $60.5
million, resulting in an operating margin of 8.1%, for the comparable period in
2009. The increase in operating margin is primarily the result of higher
revenue described above and a corresponding improvement in our gross profit
margins. Our gross profit margin as a percentage of revenue was 46.0% for the
first nine months of 2010 and 44.5% for the comparable period in 2009. The
increase in revenue also allowed us to leverage our selling, general and
administrative costs and our research and development costs, which decreased to
33.6% of revenue for the nine months ended September 30, 2010 compared
with 36.3% of revenue for the comparable period of 2009. Improvements in
operating margins are attributable to both the Scientific Instruments segment,
which increased by $45.1 million, improving operating margins by 4.2%, and the
Energy & Supercon Technologies segment which decreased its operating
loss by $1.3 million, improving operating margins by 7.0%.
Higher gross profit margins
in the three and nine months ended September 30, 2010 resulted primarily
from changes in product mix, specifically an increase in revenues from high-end
instrumentation, including our newly introduced products which were designed to
carry higher gross margins than our previous generations of products, and the
weakening of the Euro, which favorably impacts our gross profit margins as a
majority of our production is performed in Europe. The increase in revenue also
allowed us to better utilize our production facilities and leverage our fixed
production costs.
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Table of Contents
We incurred approximately
$4.0 million of interest expense during the nine months ended September 30,
2010 compared to $6.2 million for the comparable period in 2009. Of the total
interest expense incurred in the first nine months of 2010, approximately $3.6
million related to a credit facility that we entered into during the first
quarter of 2008. We initially borrowed $351.0 million under this credit
facility in order to finance the acquisition of Bruker BioSpin. In the first
nine months of 2010, we repaid approximately $15.0 million of the amounts
outstanding under this credit agreement and, from the inception of this
agreement through September 30, 2010, we reduced the net amount
outstanding by approximately $234.7 million. However, in October 2010, we
borrowed $170.0 million under the revolving component of this credit agreement
to finance our acquisition and the working capital requirements of the
nano surfaces
business. The amount
borrowed is at an interest rate of less than 1% and will result in
approximately $0.3 million of incremental interest expense in the fourth
quarter of 2010.
Our effective tax rate for
the three months ended September 30, 2010 was 27.0%, compared to 33.5% for
the comparable period in 2009. Our effective tax rate for the nine months ended
September 30, 2010 was 32.2%, compared to 33.1% for the comparable period
in 2009. In the third quarter of 2010, the Company completed a study of its
research and development activities and identified additional U.S. Federal tax
credits of approximately $2.8 million. These credits reduced our effective tax
rate by approximately 7.3% and 2.8% for the three and nine month periods ended September 30,
2010, respectively. The remaining change in our effective tax rate relates
primarily to the amount and mix of income and taxes outside the U.S.
Our net income attributable
to the shareholders of Bruker Corporation for the three months ended September 30,
2010 was $27.4 million, or $0.17 per diluted share, compared to $16.4 million,
or $0.10 per diluted share, for the comparable period in 2009. Our net income
attributable to the shareholders of Bruker Corporation for the nine months
ended September 30, 2010 was $66.1 million, or $0.40 per diluted share,
compared to $37.7 million, or $0.23 per diluted share, for the comparable
period in 2009.
CRITICAL
ACCOUNTING POLICIES
This discussion and analysis
of our financial condition and results of operations is based upon our
unaudited condensed consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States of America. The preparation of these financial statements requires that
we make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of revenues and expenses
during the reporting period. On an ongoing basis, management evaluates its
estimates and judgments, including those related to revenue recognition, income
taxes, allowance for doubtful accounts, inventories, goodwill, other intangible
assets and long-lived assets, warranty costs and derivative financial
instruments. We base our estimates and judgments on historical experience, current
market and economic conditions, industry trends and other assumptions that we
believe are reasonable and form the basis for making judgments about the
carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results could differ from these estimates.
We believe the following
critical accounting policies to be both those most important to the portrayal
of our financial position and results of operations and those that require the
most subjective judgment.
Revenue
recognition.
We recognize revenue from system sales when
persuasive evidence of an arrangement exists, the price is fixed or
determinable, title and risk of loss has been transferred to the customer and
collectability of the resulting receivable is reasonably assured. Title and
risk of loss generally are transferred to the customer upon receipt of a signed
customer acceptance form for a system that has been shipped, installed, and for
which the customer has been trained. As a result, the timing of customer
acceptance or readiness could cause our reported revenues to differ materially
from expectations. When products are sold through an independent distributor or
a strategic distribution partner who assumes responsibility for installation,
we recognize the system sale when the product has been shipped and title and
risk of loss have been transferred to the distributor. Our distributors do not
have price protection rights or rights of return; however, our products are
typically warranted to be free from defect for a period of one year. Revenue is
deferred until cash is received when collectability is not reasonably assured,
such as 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 relative
fair value of the elements, 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 the prices charged when the
element is sold separately. If there is objective and reliable evidence of the
fair value of the undelivered items in an arrangement, but no such evidence for
the delivered items, we use the residual method to allocate the arrangement
consideration. Changes in our ability to establish
21
Table of Contents
the fair value for each
element in multiple element arrangements could affect the timing of revenue
recognition. Revenue from accessories and parts is recognized upon shipment and
service revenue is recognized as the services are performed. We also have
contracts for which we apply the percentage-of-completion method for revenue
recognition. Application of the percentage-of-completion method requires us to
make reasonable estimates of the extent of progress toward completion of the
contract and the total costs we will incur under the contract. Changes in our
estimates could affect the timing of revenue recognition. Grant revenue is
recognized when we complete the services required under the grant.
Income
taxes.
The determination of income tax expense requires us to make certain
estimates and judgments concerning the calculation of deferred tax assets and
liabilities, as well as the deductions, carryforwards and credits that are
available to reduce taxable income. Deferred tax assets and liabilities arise
from differences in the timing of the recognition of revenue and expenses for
financial statement and tax purposes. Deferred tax assets and liabilities are
measured using the tax rates in effect for the year in which these temporary
differences are expected to be settled. We estimate the degree to which tax
assets and loss carryforwards will result in a benefit based on expected
profitability by tax jurisdiction, and we provide a valuation allowance for tax
assets and loss carryforwards that we believe will more likely than not go
unused. If it becomes more likely than not that a tax asset or loss
carryforward will be used for which a reserve has been provided, we reverse the
related valuation allowance. If our actual future taxable income by tax
jurisdiction differs from estimates, additional allowances or reversals of
reserves may be necessary. In addition, we only recognize benefits for tax
positions that we believe are more likely than not of being sustained upon
review by a taxing authority with knowledge of all relevant information. We
reevaluate our uncertain tax positions on a quarterly basis and any changes to
these positions as a result of tax audits, tax laws or other facts and
circumstances could result in additional charges to operations.
Allowance
for doubtful accounts.
We maintain allowances for doubtful accounts
for estimated losses resulting from the inability of our customers to pay
amounts due. If the financial condition of our customers were to deteriorate,
reducing their ability to make payments, additional allowances would be
required, resulting in a charge to operations.
Inventories.
Inventories
are stated at the lower of cost or market, with costs determined by the
first-in, first-out method for a majority of subsidiaries and by average cost
for certain international subsidiaries. We record provisions to account for
excess and obsolete inventory to reflect the expected non-saleable or
non-refundable inventory based on an evaluation of slow moving products.
Inventories also include demonstration units located in our demonstration
laboratories or installed at the sites of potential customers. We consider our
demonstration units to be available for sale. We reduce the carrying value of
demonstration inventories for differences between cost and estimated net
realizable value, taking into consideration usage in the preceding twelve
months, expected demand, technological obsolescence and other information
including the physical condition of the unit. If ultimate usage or demand
varies significantly from expected usage or demand, additional write-downs may
be required, resulting in additional charges to operations.
Goodwill,
other intangible assets and other long-lived assets.
We evaluate
whether goodwill is impaired annually and when events occur or circumstances
change. We test goodwill for impairment at the reporting unit level (the
operating segment or one level below an operating segment). The performance of
the test involves a two-step process. The first step of the impairment test
involves comparing the fair values of the applicable reporting units with their
aggregate carrying values, including goodwill. We generally determine the fair
value of our reporting units using an income approach methodology of valuation
that includes the discounted cash flow method. Estimating the fair value of the
reporting units requires significant judgments by management about the future
cash flows. If the carrying amount of a reporting unit exceeds the fair value
of the reporting unit, we perform the second step of the goodwill impairment
test to measure the amount of the impairment. In the second step of the
goodwill impairment test we compare the implied fair value of the reporting
units goodwill with the carrying value of that goodwill. We also review
finite-lived intangible assets and other long-lived assets when indications of
potential impairment exists, such as a significant reduction in undiscounted
cash flows associated with the assets. Should the fair value of our long-lived
assets decline because of reduced operating performance, market declines, or
other indicators of impairment, a charge to operations for impairment may be
necessary.
Warranty
costs.
We normally provide a one year parts and labor warranty with the
purchase of equipment. The anticipated cost for this warranty is accrued upon
recognition of the sale based on historical warranty rates and our assumptions
of future warranty claims. The warranty accrual is included as a current
liability on the consolidated balance sheets. Although our products undergo
quality assurance and testing procedures throughout the production process, our
warranty obligation is affected by product failure rates, material usage and
service delivery costs incurred in correcting a product failure. Although our
actual warranty costs have historically been consistent with expectations, to
the extent warranty claim activity or costs associated with servicing those
claims differ from our estimates, revisions to the warranty accrual may be
required.
22
Table of Contents
Derivative
financial instruments.
All derivative instruments are recorded as
assets or liabilities at fair value, which is calculated as an estimate of the
future cash flows, and subsequent changes in a derivatives fair value are
recognized in income, unless specific hedge accounting criteria are met.
Changes in the fair value of a derivative that is highly effective and
designated as a cash flow hedge are recognized in accumulated other
comprehensive income until the forecasted transaction occurs or it becomes
probable that the forecasted transaction will not occur. We perform an
assessment at the inception of the hedge and on a quarterly basis thereafter,
to determine whether our derivatives are highly effective in offsetting changes
in the value of the hedged items. Any changes in the fair value resulting from
hedge ineffectiveness are immediately recognized as income or expense.
RESULTS OF
OPERATIONS
Three Months Ended September 30, 2010 compared to the Three Months
Ended September 30, 2009
Consolidated Results
The following table presents
our results for the three months ended September 30, 2010 and 2009
(dollars in millions, except per share data):
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
|
|
2010
|
|
2009
|
|
Product revenue
|
|
$
|
269.7
|
|
$
|
230.7
|
|
Service revenue
|
|
39.1
|
|
32.4
|
|
Other revenue
|
|
1.4
|
|
2.0
|
|
Total revenue
|
|
310.2
|
|
265.1
|
|
|
|
|
|
|
|
Cost of product revenue
|
|
143.5
|
|
127.9
|
|
Cost of service revenue
|
|
19.8
|
|
18.0
|
|
Total cost of revenue
|
|
163.3
|
|
145.9
|
|
Gross profit
|
|
146.9
|
|
119.2
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
Selling, general and administrative
|
|
72.2
|
|
61.2
|
|
Research and development
|
|
32.5
|
|
31.6
|
|
Amortization of acquisition-related intangible
assets
|
|
1.0
|
|
0.4
|
|
Other charges
|
|
1.9
|
|
|
|
Total operating expenses
|
|
107.6
|
|
93.2
|
|
Operating income
|
|
39.3
|
|
26.0
|
|
|
|
|
|
|
|
Interest and other income (expense), net
|
|
(1.1
|
)
|
(1.8
|
)
|
Income before income taxes and noncontrolling interest
in consolidated subsidiaries
|
|
38.2
|
|
24.2
|
|
Income tax provision
|
|
10.3
|
|
8.1
|
|
Consolidated net income
|
|
27.9
|
|
16.1
|
|
Net income (loss) attributable to noncontrolling interest
in consolidated subsidiaries
|
|
0.5
|
|
(0.3
|
)
|
Net income attributable to Bruker Corporation
|
|
$
|
27.4
|
|
$
|
16.4
|
|
|
|
|
|
|
|
Net income per common share attributable to
|
|
|
|
|
|
Bruker Corporation shareholders:
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.17
|
|
$
|
0.10
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
Basic
|
|
164.5
|
|
163.5
|
|
Diluted
|
|
165.7
|
|
165.0
|
|
23
Table of Contents
Revenue
For the three months ended September 30,
2010, our revenue increased by $45.1 million, or 17.0%, to $310.2 million,
compared to $265.1 million for the comparable period in 2009. Included in this
change in revenue is a decrease of approximately $18.1 million from the impact
of foreign exchange due to the strengthening of the U.S. Dollar versus the Euro
and other foreign currencies and an increase of approximately $17.1 million
attributable to the acquisition of the chemical analysis business. Excluding
the effect of foreign exchange and the acquisition, revenue increased by $46.1
million, or 17.4%. The increase in revenue on an adjusted basis is attributable
to both the Scientific Instruments segment, which increased by $37.6 million,
or 14.9%, and the Energy & Supercon Technologies segment, which
increased by $10.5 million, or 73.9%. Revenue in the Scientific Instruments
segment reflects an increase in sales from many of our core technologies,
particularly in magnetic resonance, mass spectrometry and X-ray. Revenues in
the Energy & Supercon Technologies segment increased due to higher
demand for low temperature superconducting wire.
The mix of products sold in
the Scientific Instruments segment reflects increased demand from academic,
government and industrial customers. We attribute the increase in sales of
magnetic resonance and mass spectrometry products and spending by academic and
government customers to our new product introductions over the last twelve to
eighteen months and to stimulus packages implemented by governments of various
countries, including the U.S., Germany, Japan and China. The improvement
24
Table of Contents
in revenues from our
industrial customers reflects an ongoing economic improvement in these end
markets.
Cost of Revenue
Our cost of product and
service revenue for the three months ended September 30, 2010 was $163.3
million, resulting in a gross profit margin of 47.4%, compared to cost of
product and service revenue of $145.9 million, resulting in a gross profit
margin of 45.0%, for the comparable period in 2009. Higher gross profit margins
resulted primarily from changes in product mix, specifically an increase in
revenues from high-end instrumentation, including our newly introduced products
which were designed to carry higher gross margins than our previous generations
of products, and the weakening of the Euro, which favorably impacts our gross
profit margins as a majority of our production is performed in Europe. The
increase in revenue also allowed us to better utilize our production facilities
and leverage our fixed production costs. We also reduced production costs
through various cost saving initiatives and strict cost control in our
manufacturing facilities.
In the third quarter of
2010, we delivered, installed and received customer acceptance on a 17.2 Tesla
magnetic resonance imaging system. Because of nature of this project, the
majority of costs incurred were charged to research and development expense
rather than capitalized as inventory. As a result, the sale of the system
carried a gross profit margin that was higher than that of our other magnetic
resonance imaging systems. Additionally, the costs of the labor and materials required
for the rework of certain specialty magnets that did not meet customer
specifications were recorded as a charge to cost of product revenue in the
third quarter of 2010. Although these items individually impacted our gross
profit margin in the third quarter of 2010, in the aggregate they did not have
a material impact on gross profit margins in the quarter.
Selling, General and Administrative
Our selling, general and
administrative expense for the three months ended September 30, 2010
increased to $72.2 million, or 23.3% of total revenue, from $61.2 million, or
23.1% of total revenue, for the comparable period in 2009. The increase in
selling, general and administrative expense is attributable to increases in
headcount in support of our revenue growth and as a result of acquisitions.
Higher revenues resulted in an increase in commissions and related selling
expenses which also contributed to the increase in selling, general and
administrative expense. Increases in selling, general and administrative
expenses were offset, in part, by changes in foreign currency exchange rates,
primarily the Euro.
Research and Development
Our research and development
expense for the three months ended September 30, 2010 increased to $32.5
million, or 10.5% of total revenue, compared with research and development
expense of $31.6 million, or 11.9% of total revenue, for the comparable period
in 2009. Research and development expenses increased in the third quarter of
2010 compared with the third quarter of 2009 as a result of increases in
headcount and materials costs in support of new product development and as a
result of acquisitions. However, these increases were offset by changes in
foreign currency exchange rates, primarily the Euro, as the majority of our
research and development is performed in Europe.
Amortization of Acquisition-Related Intangible Assets
Our amortization expense
from acquisition-related intangible assets was $1.0 million for the three months
ended September 30, 2010 compared with $0.4 million for the comparable
period in 2009. The increase in amortization expense relates to intangible
assets acquired in connection with the purchase of the chemical analysis
business from Agilent.
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Table of Contents
Other Charges
Other charges of $1.9
million in the third quarter of 2010 relate entirely to the Scientific
Instruments segment. Other charges consists of $1.0 million of
acquisition-related costs incurred in connection with our acquisitions of the
chemical analysis business from Agilent and the nano surfaces business from
Veeco and $0.9 million incurred under transition services agreements with
Agilent. We do not expect these transition costs to recur after the end of the
transition services agreements.
There were no similar
charges recorded in the third quarter of 2009.
Interest and Other Income (Expense), Net
Interest and other income
(expense), net during the three months ended September 30, 2010 was $(1.1)
million, compared to $(1.8) million for the comparable period of 2009.
During the three months
ended September 30, 2010, the major component within interest and other
income (expense), net was net interest expense of $1.1 million. During the
three months ended September 30, 2009, the major components within
interest and other income (expense), net, were net interest expense of $1.4
million and realized and unrealized losses on foreign currency transactions of
$0.8 million.
The decrease in interest
expense is a function of lower outstanding debt, as we repaid approximately
$16.3 million of debt in the first nine months of 2010.
Income Tax Provision
Our effective tax rate
generally reflects our tax provision for non-U.S. entities only. We maintain a
full valuation allowance against all U.S. deferred tax assets, including our
U.S. net operating losses and tax credits, until evidence exists that it is
more likely than not that the loss carryforward and credit amounts will be
utilized to offset U.S. taxable income. Our tax rate may change over time as
the amount and mix of income and taxes outside the U.S. changes. The effective
tax rate is calculated using our projected annual pre-tax income or loss and is
affected by tax credits, the expected level of other tax benefits, and the
impact of changes to the valuation allowance, as well as changes in the mix of
our pre-tax income and losses among jurisdictions with varying statutory tax
rates and credits.
The income tax provision for
the three months ended September 30, 2010 was $10.3 million compared to
$8.1 million for the three months ended September 30, 2009, representing
effective tax rates of 27.0% and 33.5%, respectively. In the third quarter of
2010, the Company completed a study of its research and development activities
and identified additional U.S. Federal tax credits of approximately $2.8
million. These credits reduced our effective tax rate by approximately 7.3% for
the third quarter of 2010. There were no discrete items of a material nature
that impacted the effective tax rate for the third quarter of 2009.
Net Income (Loss) Attributable to Noncontrolling Interests
Net income (loss)
attributable to noncontrolling interests for the three months ended September 30,
2010 was $0.5 million compared to $(0.3) million for the comparable period of
2009. Net income (loss) attributable to noncontrolling interests represents the
minority shareholders proportionate share of the net income (loss) recorded by
our majority-owned indirect subsidiaries.
Net Income Attributable to Bruker Corporation
Our net income for the three
months ended September 30, 2010 was $27.4 million, or $0.17 per diluted
share, compared to $16.4 million, or $0.10 per diluted share for the comparable
period in 2009.
Segment Results
Revenue
The following table presents
revenue, change in revenue and revenue growth by reportable segment for the
three months ended September 30, 2010 and 2009 (dollars in millions):
26
Table of Contents
|
|
Three Months Ended September 30,
|
|
Dollar
|
|
Percentage
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
Change
|
|
Scientific Instruments
|
|
$
|
290.5
|
|
$
|
251.6
|
|
$
|
38.9
|
|
15.5
|
%
|
Energy & Supercon Technologies
|
|
22.4
|
|
14.2
|
|
8.2
|
|
57.7
|
%
|
Eliminations (a)
|
|
(2.7
|
)
|
(0.7
|
)
|
(2.0
|
)
|
|
|
|
|
$
|
310.2
|
|
$
|
265.1
|
|
$
|
45.1
|
|
17.0
|
%
|
(a) Represents product and service revenue between reportable
segments.
Scientific Instruments Segment Revenues
Scientific Instruments
segment revenue increased by $38.9 million, or 15.5%, to $290.5 million for the
three months ended September 30, 2010, compared to $251.6 million for the
comparable period in 2009. Included in this change in revenue is a decrease of
approximately $15.8 million from the impact of foreign exchange due to the
strengthening of the U.S. Dollar versus the Euro and other foreign currencies
and an increase of approximately $17.1 million attributable to the acquisition
of the chemical analysis business. Excluding the effect of foreign exchange and
the acquisition, revenue increased by $37.6 million, or 14.9%. The increase in
revenue, excluding the effect of foreign exchange and acquisition, reflects an
increase in sales from many of our core technologies, particularly in magnetic
resonance, mass spectrometry and X-ray. The mix of products sold in the
Scientific Instruments segment reflects increased demand from academic,
government and industrial customers. We attribute the increase in spending by
academic and government customers to our new product introductions over the
last twelve to eighteen months and stimulus packages implemented by governments
of various countries, including the U.S., Germany, Japan and China. We have
also seen increased demand from our industrial customers as economic conditions
have shown signs of improvement.
System revenue and
aftermarket revenue as a percentage of total Scientific Instruments segment
revenue were as follows during the three months ended September 30, 2010
and 2009 (dollars in millions):
|
|
Three Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
|
|
Revenue
|
|
Percentage of
Segment
Revenue
|
|
Revenue
|
|
Percentage of
Segment
Revenue
|
|
System revenue
|
|
$
|
234.5
|
|
80.7
|
%
|
$
|
197.6
|
|
78.5
|
%
|
Aftermarket revenue
|
|
56.0
|
|
19.3
|
%
|
54.0
|
|
21.5
|
%
|
Total revenue
|
|
$
|
290.5
|
|
100.0
|
%
|
$
|
251.6
|
|
100.0
|
%
|
System revenues in the
Scientific Instruments segment include X-ray systems, optical emission
spectroscopy systems, atomic force microscopy systems, nuclear magnetic
resonance systems, magnetic resonance imaging systems, electron paramagnetic
imaging systems, mass spectrometry systems, CBRNE detection systems and
molecular spectroscopy systems. Aftermarket revenues in the Scientific
Instruments segment include accessory sales, consumables, training and
services.
Energy & Supercon Technologies Segment Revenues
Energy & Supercon
Technologies segment revenue increased by $8.2 million, or 57.7%, to $22.4
million for the three months ended September 30, 2010, compared to $14.2
million for the comparable period in 2009. Included in this change in revenue
is a decrease of approximately $2.3 million from the impact of foreign exchange
due to the strengthening of the U.S. Dollar versus the Euro and other foreign
currencies. Excluding the effect of foreign exchange, revenue increased by
$10.5 million, or 73.9%. The increase in revenue was the result of higher
demand for low temperature superconducting wire.
System and wire revenue and
aftermarket revenue as a percentage of total Energy & Supercon
Technologies segment revenue were as follows during the three months ended September 30,
2010 and 2009 (dollars in millions):
27
Table of Contents
|
|
Three Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
|
|
Revenue
|
|
Percentage of
Segment
Revenue
|
|
Revenue
|
|
Percentage of
Segment
Revenue
|
|
System and wire revenue
|
|
$
|
20.9
|
|
93.3
|
%
|
$
|
13.5
|
|
95.1
|
%
|
Aftermarket revenue
|
|
1.5
|
|
6.7
|
%
|
0.7
|
|
4.9
|
%
|
Total revenue
|
|
$
|
22.4
|
|
100.0
|
%
|
$
|
14.2
|
|
100.0
|
%
|
System and wire revenues in
the Energy & Supercon Technologies segment include low and high
temperature superconducting wire and superconducting devices, including
magnets, linear accelerators and radio frequency cavities. Aftermarket revenues
in the Energy & Supercon Technologies segment include accessory sales.
Income (Loss) from Operations
The following table presents
income (loss) from operations and operating margins on revenue by reportable
segment for the three months ended September 30, 2010 and 2009 (dollars in
millions):
|
|
Three Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
|
|
Operating
Income (Loss)
|
|
Percentage of
Segment
Revenue
|
|
Operating
Income (Loss)
|
|
Percentage of
Segment
Revenue
|
|
Scientific Instruments
|
|
$
|
40.4
|
|
13.9
|
%
|
$
|
26.9
|
|
10.7
|
%
|
Energy & Supercon Technologies
|
|
(0.8
|
)
|
(3.6
|
)%
|
(1.2
|
)
|
(8.5
|
)%
|
Corporate, eliminations and other (a)
|
|
(0.3
|
)
|
|
|
0.3
|
|
|
|
Total operating income
|
|
$
|
39.3
|
|
12.7
|
%
|
$
|
26.0
|
|
9.8
|
%
|
(a) Represents
corporate costs and eliminations not allocated to the reportable segments.
Scientific Instruments
segment income from operations for the three months ended September 30,
2010 was $40.4 million, resulting in an operating margin of 13.9%, compared to
income from operations of $26.9 million, resulting in an operating margin of
10.7%, for the comparable period in 2009. Income from operations in the
Scientific Instruments segment improved as a result of the higher revenues
described above and an improvement in gross profit margins.
In the third quarter of
2010, gross profit margin as a percentage of revenue in the Scientific
Instruments segment increased to 49.5% from 45.7% for the comparable period in
2009. Higher gross profit margins resulted primarily from changes in product
mix, specifically an increase in revenues from high-end instrumentation,
including our newly introduced products which were designed to carry higher
gross margins than our previous generations of products, and the weakening of
the Euro, which favorably impacts our gross profit margins as a majority of our
production is performed in Europe. The increase in revenue also allowed us to
better utilize our production facilities and leverage our fixed production
costs. We also reduced production costs through various cost saving
initiatives.
In the third quarter of
2010, selling, general and administrative expenses and research and development
expenses in the Scientific Instruments segment increased to $100.7 million, or
34.7% of segment revenue, from $87.7 million, or 34.9% of segment revenue for
the comparable period in 2009. This increase in cost is a function of
incremental investments in sales and marketing activities and research and
development activities that we believe will generate future growth, as well as
increases in operating expenses related to acquisitions completed in 2010. Changes
in foreign currency exchange rates partially offset the increase in operating
expenses.
Energy & Supercon Technologies
segment loss from operations for the three months ended September 30, 2010
was $0.8 million, resulting in an operating margin of (3.6)%, compared to a
loss from operations of $1.2 million, resulting in an
28
Table of Contents
operating margin of (8.5)%,
for the comparable period in 2009. The improvement in operating loss is a
function of higher revenues.
Nine Months Ended September 30, 2010 compared to the Nine Months
Ended September 30, 2009
Consolidated Results
The following table presents
our results for the nine months ended September 30, 2010 and 2009 (dollars
in millions, except per share data):
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2010
|
|
2009
|
|
Product revenue
|
|
$
|
780.7
|
|
$
|
655.8
|
|
Service revenue
|
|
103.1
|
|
87.6
|
|
Other revenue
|
|
5.0
|
|
4.7
|
|
Total revenue
|
|
888.8
|
|
748.1
|
|
|
|
|
|
|
|
Cost of product revenue
|
|
426.8
|
|
364.8
|
|
Cost of service revenue
|
|
53.1
|
|
50.2
|
|
Total cost of revenue
|
|
479.9
|
|
415.0
|
|
Gross profit
|
|
408.9
|
|
333.1
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
Selling, general and administrative
|
|
201.9
|
|
180.1
|
|
Research and development
|
|
96.5
|
|
91.8
|
|
Amortization of acquisition-related intangible
assets
|
|
2.1
|
|
1.3
|
|
Other charges (credits), net
|
|
4.3
|
|
(0.6
|
)
|
Total operating expenses
|
|
304.8
|
|
272.6
|
|
Operating income
|
|
104.1
|
|
60.5
|
|
|
|
|
|
|
|
Interest and other income (expense), net
|
|
(5.6
|
)
|
(4.6
|
)
|
Income before income taxes and noncontrolling interest
in consolidated subsidiaries
|
|
98.5
|
|
55.9
|
|
Income tax provision
|
|
31.7
|
|
18.5
|
|
Consolidated net income
|
|
66.8
|
|
37.4
|
|
Net income attributable to noncontrolling interest
in consolidated subsidiaries
|
|
0.7
|
|
(0.3
|
)
|
Net income attributable to Bruker Corporation
|
|
$
|
66.1
|
|
$
|
37.7
|
|
|
|
|
|
|
|
Net income per common share attributable to
|
|
|
|
|
|
Bruker Corporation shareholders:
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.40
|
|
$
|
0.23
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
Basic
|
|
164.3
|
|
163.4
|
|
Diluted
|
|
165.6
|
|
164.7
|
|
Revenue
For the nine months ended September 30,
2010, our revenue increased by $140.7 million, or 18.8%, to $888.8 million,
compared to $748.1 million for the comparable period in 2009. Included in this
change in revenue is a decrease of approximately $5.3 million from the impact
of foreign exchange due to the strengthening of the U.S. Dollar versus the Euro
and other foreign currencies and an increase of approximately $27.6 million
attributable to the acquisition of the chemical analysis business and the
research instruments business. Excluding the effect of foreign exchange and
these acquisitions, revenue
29
Table of Contents
increased by $118.4 million,
or 15.8%. The increase in revenue on an adjusted basis is attributable to both
the Scientific Instruments segment, which increased by $101.3 million, or
14.1%, and the Energy & Supercon Technologies segment, which increased
by $20.8 million, or 57.8%. Revenue in the Scientific Instruments segment
reflects an increase in sales of all our core technologies, particularly in
magnetic resonance, mass spectrometry and X-ray. Revenues in the
Energy & Supercon Technologies segment increased due to higher demand
for low temperature superconducting wire.
The mix of products sold in
the Scientific Instruments segment reflects increased demand from academic,
government and industrial customers. We attribute the increase in sales of
magnetic resonance and mass spectrometry products and spending by academic and
government customers to our new product introductions over the last twelve to
eighteen months and to stimulus packages implemented by governments of various
countries, including the U.S., Germany, Japan and China. The improvement in
revenues from our industrial customers reflects an ongoing economic improvement
in these end markets. In general, the spending patterns of our industrial
customers were negatively impacted by the global recession through the first
half of 2009. Over the last several quarters we have experienced an increase in
demand from these customers and we remain optimistic that the industrial
markets we serve will continue to improve. However, we will continue to monitor
the recovery of these markets given the current economic environment.
Additionally, while many European governments have announced their intentions
to reduce overall spending, a number of our key European markets, including
Germany, France and the U.K., have announced that research spending will remain
stable, or grow in some cases. Based on the recent announcements from these
governments and recent announcements from the European Union, we believe that
funding for the majority of our products and markets will remain stable, or grow,
in most of our key European markets.
Cost of Revenue
Our cost of product and
service revenue for the nine months ended September 30, 2010 was $479.9
million, resulting in a gross profit margin of 46.0%, compared to cost of
product and service revenue of $415.0 million, resulting in a gross profit
margin of 44.5%, for the comparable period in 2009. Higher gross profit margins
resulted primarily from changes in product mix, specifically an increase in
revenues from high-end instrumentation, including our newly introduced products
which were designed to carry higher gross margins than our previous generations
of products, and the weakening of the Euro, which favorably impacts our gross
profit margins as a majority of our production is performed in Europe. The
increase in revenue also allowed us to better utilize our production facilities
and leverage our fixed production costs. We also reduced production costs
through various cost saving initiatives and strict cost control in our
manufacturing facilities.
Selling, General and Administrative
Our selling, general and
administrative expense for the nine months ended September 30, 2010
increased to $201.9 million, or 22.7% of revenue, from $180.1 million, or 24.1%
of revenue, for the comparable period in 2009. The increase in selling, general
and administrative expense is attributable to increases in headcount in support
of our revenue growth and as a result of acquisitions. Higher revenues resulted
in an increase in commissions and related selling expenses which also
contributed to the increase in selling, general and administrative expense.
Increases in selling, general and administrative expenses were offset, in part,
by changes in foreign currency exchange rates, primarily the Euro.
Research and Development
Our research and development
expense for the nine months ended September 30, 2010 increased to $96.5
million, or 10.9% of revenue, from $91.8 million, or 12.3% of product and
service revenue, for the comparable period in 2009. Research and development
expenses increased in the first nine months of 2010 compared with the first
nine months of 2009 as a result of increases in headcount and materials costs
in support of new product development and as a result of acquisitions. However,
these increases were offset by changes in foreign currency exchange rates,
primarily the Euro, as the majority of our research and development is
performed in Europe.
30
Table of Contents
Amortization of Acquisition-Related Intangible Assets
Our amortization expense
from acquisition-related intangible assets was $2.1 million for the nine months
ended September 30, 2010 compared with $1.3 million for the comparable
period in 2009. The increase in amortization expense relates to intangible
assets acquired in connection with the purchase of the chemical analysis
business from Agilent.
Other Charges (Credits), Net
Other charges (credits), net
of $4.3 million in the first nine months of 2010 related entirely to the
Scientific Instruments segment and include a loss of $1.0 million associated
with the sale of our investment in Bruker Baltic Ltd., a manufacturing site
located in Riga, Latvia that was engaged in the production of certain
components used in our X-ray product lines. In addition, we incurred $0.2
million of restructuring charges, which related primarily to severance incurred
in connection with closing a production facility in Herzogenrath, Germany. We
incurred the loss on our investment and the restructuring charges as part of
our broader corporate strategy of reducing costs and consolidating critical
production and know-how in certain key production sites. In addition, other
charges (credits), net in the first nine months of 2010 includes $1.7 million
of acquisition-related costs incurred in connection with our acquisitions of
the chemical analysis business from Agilent and the nano surfaces business from
Veeco and $1.4 million incurred under transition services agreements with
Agilent. We do not expect these transition costs to recur after the end of the
transition services agreements.
Acquisition-related credits
of $(0.6) million in the first nine months of 2009 relate entirely to the
Energy & Supercon Technologies segment and include a bargain purchase
gain of $2.1 million recorded in connection with the acquisition of the
research instruments business from Varian Medical Systems, offset, in part, by
$0.8 million of transaction costs incurred in connection with the acquisition
of the research instruments business and $0.7 million of impairment charges
associated with certain fixed assets used in the production of certain
superconducting wire.
Interest and Other Income (Expense), Net
Interest and other income
(expense), net during the nine months ended September 30, 2010 was $(5.6)
million, compared to $(4.6) million for the comparable period of 2009.
During the nine months ended
September 30, 2010, the major components within interest and other income
(expense), net were net interest expense of $3.6 million and unrealized losses
on foreign currency transactions of $2.0 million. During the nine months ended September 30,
2009, the major component within interest and other income (expense), net was
net interest expense of $5.0 million.
The decrease in interest
expense is a function of lower outstanding debt, as we repaid approximately $16.3
million of debt in the first nine months of 2010.
Income Tax Provision
Our effective tax rate
generally reflects our tax provision for non-U.S. entities only. We maintain a
full valuation allowance against all U.S. deferred tax assets, including our
U.S. net operating losses and tax credits, until evidence exists that it is
more likely than not that the loss carryforward and credit amounts will be
utilized to offset U.S. taxable income. Our tax rate may change over time as
the amount and mix of income and taxes outside the U.S. changes. The effective
tax rate is calculated using our projected annual pre-tax income or loss and is
affected by tax credits, the expected level of other tax benefits, and the
impact of changes to the valuation allowance, as well as changes in the mix of
our pre-tax income and losses among jurisdictions with varying statutory tax
rates and credits.
The income tax provision for
the nine months ended September 30, 2010 was $31.7 million compared to
$18.5 million for the nine months ended September 30, 2009, representing
effective tax rates of 32.2% and 33.1%, respectively. In the third quarter of
2010, the Company completed a study of its research and development activities
and identified additional U.S. Federal tax credits of approximately $2.8
million. These credits reduced our effective tax rate by approximately 2.8% for
the nine months ended September 30, 2010. There were no discrete items of
a material nature that impacted the effective tax rate for the nine months
ended September 30, 2009.
31
Table of Contents
Net Income Attributable to Noncontrolling Interests
Net income attributable to
noncontrolling interests for the nine months ended September 30, 2010 was $0.7
million compared to $(0.3) million for the comparable period of 2009. Net
income (loss) attributable to noncontrolling interests represents the minority
shareholders proportionate share of the net income (loss) recorded by our
majority-owned indirect subsidiaries.
Net Income Attributable to Bruker Corporation
Our net income for the nine
months ended September 30, 2010 was $66.1 million, or $0.40 per diluted
share, compared to $37.7 million, or $0.23 per diluted share for the comparable
period in 2009.
Segment Results
Revenue
The following table presents
revenue, change in revenue and revenue growth by reportable segment for the
nine months ended September 30, 2010 and 2009 (dollars in millions):
|
|
Nine Months Ended September 30,
|
|
Dollar
|
|
Percentage
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
Change
|
|
Scientific Instruments
|
|
$
|
835.7
|
|
$
|
716.5
|
|
$
|
119.2
|
|
16.6
|
%
|
Energy & Supercon Technologies
|
|
61.2
|
|
36.0
|
|
25.2
|
|
70.0
|
%
|
Eliminations (a)
|
|
(8.1
|
)
|
(4.4
|
)
|
(3.7
|
)
|
|
|
|
|
$
|
888.8
|
|
$
|
748.1
|
|
$
|
140.7
|
|
18.8
|
%
|
(a) Represents product
and service revenue between reportable segments.
Scientific Instruments Segment Revenues
Scientific Instruments
segment revenue increased by $119.2 million, or 16.6%, to $835.7 million for
the nine months ended September 30, 2010, compared to $716.5 million for
the comparable period in 2009. Included in this change in revenue is a decrease
of approximately $2.9 million from the impact of foreign exchange due to the
strengthening of the U.S. Dollar versus the Euro and other foreign currencies
and an increase of approximately $20.8 million attributable to the acquisition
of the chemical analysis business. Excluding the effect of foreign exchange and
the acquisition, revenue increased by $101.3 million, or 14.1%. The increase in
revenue, excluding the effect of foreign exchange and acquisition, reflects an
increase in sales of all of our core technologies, particularly in magnetic
resonance, mass spectrometry and X-ray. The mix of products sold in the
Scientific Instruments segment reflects increased demand from academic,
government and industrial customers. We attribute the increase in spending by
academic and government customers to new product introductions over the last
twelve to eighteen months and stimulus packages implemented by governments of
various countries, including the U.S., Germany, Japan and China. We have also
seen increased demand from our industrial customers as economic conditions have
shown signs of improvement.
System revenue and
aftermarket revenue as a percentage of total Scientific Instruments segment
revenue were as follows during the nine months ended September 30, 2010
and 2009 (dollars in millions):
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
|
|
Revenue
|
|
Percentage of
Segment
Revenue
|
|
Revenue
|
|
Percentage of
Segment
Revenue
|
|
System revenue
|
|
$
|
672.4
|
|
80.5
|
%
|
$
|
565.4
|
|
78.9
|
%
|
Aftermarket revenue
|
|
163.3
|
|
19.5
|
%
|
151.1
|
|
21.1
|
%
|
Total revenue
|
|
$
|
835.7
|
|
100.0
|
%
|
$
|
716.5
|
|
100.0
|
%
|
System revenues in the
Scientific Instruments segment include X-ray systems, optical emission
spectroscopy systems, atomic force microscopy systems, nuclear magnetic
resonance systems, magnetic resonance imaging systems, electron
32
Table of Contents
paramagnetic imaging systems,
mass spectrometry systems, CBRNE detection systems and molecular spectroscopy
systems. Aftermarket revenues in the Scientific Instruments segment include
accessory sales, consumables, training and services.
Energy & Supercon Technologies Segment Revenues
Energy &
Supercon Technologies segment revenue increased by $25.2 million, or 70.0%, to
$61.2 million for the nine months ended September 30, 2010, compared to
$36.0 million for the comparable period in 2009. Included in this change in
revenue $6.8 million attributable to the research instruments business we
acquired from Varian Medical Systems and a decrease of approximately $2.4
million from the impact of foreign exchange due to the strengthening of the
U.S. Dollar versus the Euro and other foreign currencies. Excluding the effect
of the acquisition and foreign exchange, revenue increased by $20.8 million, or
57.8%. The increase in revenue was the result of higher demand for low
temperature superconducting wire.
System
and wire revenue and aftermarket revenue as a percentage of total
Energy & Supercon Technologies segment revenue were as follows during
the nine months ended September 30, 2010 and 2009 (dollars in millions):
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
|
|
Revenue
|
|
Percentage of
Segment
Revenue
|
|
Revenue
|
|
Percentage of
Segment
Revenue
|
|
System and wire revenue
|
|
$
|
58.3
|
|
95.3
|
%
|
$
|
34.4
|
|
95.6
|
%
|
Aftermarket revenue
|
|
2.9
|
|
4.7
|
%
|
1.6
|
|
4.4
|
%
|
Total revenue
|
|
$
|
61.2
|
|
100.0
|
%
|
$
|
36.0
|
|
100.0
|
%
|
System and wire revenues in
the Energy & Supercon Technologies segment include low and high
temperature superconducting wire and electron and ion linear accelerators,
superconducting and normal conducting accelerator cavities, insertion devices,
superconducting fault current limiters, other accelerator components and
specialty superconducting magnets for physics and energy research and a variety
of other scientific applications. Aftermarket revenues in the Energy &
Supercon Technologies segment include services and accessory sales.
Income (Loss) from Operations
The following table presents
income (loss) from operations and operating margins on revenue by reportable
segment for the nine months ended September 30, 2010 and 2009 (dollars in
millions):
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
|
|
Operating
Income (Loss)
|
|
Percentage of
Segment
Revenue
|
|
Operating
Income (Loss)
|
|
Percentage of
Segment
Revenue
|
|
Scientific Instruments
|
|
$
|
108.5
|
|
13.0
|
%
|
$
|
63.4
|
|
8.8
|
%
|
Energy & Supercon Technologies
|
|
(3.0
|
)
|
(4.9
|
)%
|
(4.3
|
)
|
(11.9
|
)%
|
Corporate, eliminations and other (a)
|
|
(1.4
|
)
|
|
|
1.4
|
|
|
|
Total operating income
|
|
$
|
104.1
|
|
11.7
|
%
|
$
|
60.5
|
|
8.1
|
%
|
(a) Represents
corporate costs and eliminations not allocated to the reportable segments.
Scientific Instruments
segment income from operations for the nine months ended September 30,
2010 was $108.5 million, resulting in an operating margin of 13.0%, compared to
income from operations of $63.4 million, resulting in an operating margin of
8.8%, for the comparable period in 2009. Income from operations in the Scientific
Instruments segment improved as a result of the higher revenues described
above, an improvement in gross profit margins and a reduction in operating
expenses as a percentage of revenue.
In the first nine months of
2010, gross profit margin as a percentage of revenue in the Scientific
Instruments segment increased to 47.8% from 45.5% for the comparable period in
2009. Higher gross profit margins resulted primarily from changes in product
mix, specifically an increase in revenues from high-end instrumentation,
including our newly introduced products which were designed to carry higher
gross margins than our previous generations of products, and the weakening of
33
Table of Contents
the Euro, which favorably
impacts our gross profit margins as a majority of our production is performed
in Europe. The increase in revenue also allowed us to better utilize our
production facilities and leverage our fixed production costs. We also reduced
production costs through various cost saving initiatives.
In the first nine months of
2010, selling, general and administrative expenses and research and development
expenses in the Scientific Instruments segment increased to $285.2 million, or
34.1% of segment revenue, from $261.5 million, or 36.5% of segment revenue for
the comparable period in 2009. This increase is a function of incremental
investments in sales and marketing activities and research and development
activities that we believe will generate future growth, as well as increases in
operating expenses related to acquisitions completed in 2010. Changes in
foreign currency exchange rates partially offset the increase in operating
expenses.
Energy & Supercon
Technologies segment loss from operations for the nine months ended September 30,
2010 was $3.0 million, resulting in an operating margin of (4.9)%, compared to
a loss from operations of $4.3 million, resulting in an operating margin of
(11.9)%, for the comparable period in 2009. The loss from operations in the
first nine months of 2009 included a bargain purchase gain of $2.1 million
recorded in connection with the acquisition of the research instruments
business from Varian Medical Systems, offset, in part, by $0.8 million of
transaction costs incurred in connection with the acquisition of the research
instruments business and $0.7 million of impairment charges associated with
certain fixed assets used in the production of certain superconducting wire.
Excluding the effects of these net credits, the loss from operations in the
first nine months of 2009 was $4.9 million, resulting in an operating margin of
(13.6)%. The improvement in operating loss, excluding the net credit described
above is a function of higher revenues and the resulting improvement in gross
margins.
LIQUIDITY
AND CAPITAL RESOURCES
We currently anticipate that
our existing cash and credit facilities will be sufficient to support our
operating and investing needs for at least the next twelve months, but this
depends on our profitability and our ability to manage working capital
requirements. Our future cash requirements will also be affected by
acquisitions that we may make in the future. Historically, we have financed our
growth through cash flow generation and a combination of debt financings and
issuances of common stock. In the future, there are no assurances that
additional financing alternatives will be available to us if required, or if
available, will be obtained on terms favorable to us.
During the nine months ended
September 30, 2010, net cash provided by operating activities was $62.7
million, resulting primarily from $90.3 million of consolidated net income
adjusted for non-cash items and $(27.6) million of net changes in working
capital. During the nine months ended September 30, 2009, net cash
provided by operating activities was $67.3 million, resulting primarily from $54.7
million of net income adjusted for non-cash items and $12.6 million of net
changes in working capital. The increase in profitability did not generate
improvements in cash flow because of an increase in working capital. The
increase in working capital was primarily a function higher inventory balances
that are required to support our anticipated fourth quarter revenues. We
anticipate an improvement in working capital in the fourth quarter, resulting
primarily from decreases in inventory balances.
During the nine months ended
September 30, 2010, net cash used by investing activities was
$58.3 million, compared to net cash used by investing activities of
$10.5 million during the nine months ended September 30, 2009. Cash
used by investing activities during the nine months ended September 30,
2010 was attributable to $37.8 million used for acquisitions and $20.5 million
of capital expenditures. Cash used by investing activities during the nine
months ended September 30, 2009 was attributable primarily to
$8.9 million of capital expenditures and $1.6 million used for
acquisitions. Capital expenditures during the nine months ended September 30,
2010 were at a level consistent with our planned capital spending of $20.0
million to $30.0 million in 2010.
During the nine months ended
September 30, 2010, net cash used by financing activities was
$14.5 million, compared to net cash used by financing activities of
$71.7 million during the nine months ended September 30, 2009. Cash
used by financing activities during the nine months ended September 30,
2010 and September 30, 2009 was primarily attributable to
$16.3 million and $71.6 million, respectively, of net debt repayments
under various long-term and short-term arrangements.
At September 30, 2010,
we had outstanding debt totaling $121.4 million consisting of $116.3 million
outstanding under the term loan component of the Credit Agreement and
$5.1 million under capital lease obligations. At December 31, 2009,
we
34
Table of Contents
had outstanding debt
totaling $137.7 million consisting of $131.3 million outstanding under the term
loan component of the Credit Agreement, $0.3 million outstanding under other
long-term debt arrangements, $0.1 million outstanding under other revolving
lines of credit and $6.0 million under capital lease obligations.
In February 2008, we
entered into a credit agreement with a syndication of lenders, which we refer
to as the Credit Agreement. The Credit Agreement provides a revolving credit
line with a maximum commitment of $230.0 million and a term loan facility of
$150.0 million. The outstanding principal and interest under the term loan is
payable in quarterly installments through December 2012. Borrowings under
the Credit Agreement bear interest, at our option, at either (i) the
higher of the prime rate or the federal funds rate plus 0.50%, or (ii) adjusted
LIBOR, plus margins ranging from 0.40% to 1.25% and a facility fee ranging from
0.10% to 0.20%. As of September 30, 2010, the weighted average interest
rate of borrowings under the term facility of the Credit Agreement was
approximately 2.7%.
Borrowings under the Credit
Agreement are secured by the pledge to the banks of 100% of the capital stock
of each of our wholly-owned domestic subsidiaries and 65% of the capital stock
of certain of our wholly-owned direct or indirect foreign subsidiaries. The
Credit Agreement also requires that we maintain certain financial ratios
related to maximum leverage and minimum interest coverage, as defined in the
Credit Agreement. Specifically, our leverage ratio cannot exceed 3.0 and our
interest coverage ratio cannot be less than 3.0. In addition to the financial
ratios, the Credit Agreement restricts, among other things, our ability to do
the following: make certain payments; incur additional debt; incur certain
liens; make certain investments, including derivative agreements; merge,
consolidate, sell or transfer all or substantially all of our assets; and enter
into certain transactions with affiliates. Our failure to comply with any of
these restrictions or covenants may result in an event of default under the
applicable debt instrument, which could permit acceleration of the debt under
that instrument and require us to prepay that debt before its scheduled due
date. As of September 30, 2010, the latest measurement date, we were in
compliance with the covenants of the Credit Agreement.
In addition to revolving
loans under the Credit Agreement, we have other revolving loans with various
financial institutions located primarily in Germany, Switzerland and France.
The following is a summary of the maximum commitments and net amounts available
to the Company under revolving loans as of September 30, 2010 (in
millions):
|
|
Weighted
Average
Interest Rate
|
|
Total Amount
Committed by
Lenders
|
|
Outstanding
Borrowings
|
|
Outstanding
Letters of
Credit
|
|
Total Amount
Available
|
|
Credit Agreement
|
|
|
%
|
$
|
230.0
|
|
$
|
|
|
$
|
1.5
|
|
$
|
228.5
|
|
Other revolving loans
|
|
|
%
|
112.6
|
|
|
|
90.9
|
|
21.7
|
|
Total revolving loans
|
|
|
|
$
|
342.6
|
|
$
|
|
|
$
|
92.4
|
|
$
|
250.2
|
|
On October 1, 2010, we
borrowed
$170.0
million under
the revolving loan component of the Credit Agreement to finance our acquisition
and the working capital requirements of the nano surfaces business. The
borrowing under the Credit Agreement reduced the total amount available to us
from our lenders. The Company is considering various long-term financing alternatives
to replace the short-term borrowing under the Credit Agreement.
As of September 30,
2010, we had approximately $3.5 million of net operating loss carryforwards
available to reduce future U.S. taxable income. However, these losses are
severely limited in terms of their use. The Company also has approximately
$49.0 million of German Trade Tax net operating losses that are carried forward
indefinitely and U.S. tax credits of approximately $2.5 million available to
offset future tax liabilities that expire at various dates. U.S. tax credits,
after the filing of the 2009 U.S. Federal tax return in September 2010,
include foreign tax credits of $0.6 million expiring in various years through
2020 and state research and development tax credits of $1.8 million expiring at
various dates through 2024 and other credits of $0.1 million. 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,
2010 (in millions):
35
Table of Contents
Contractual Obligations
|
|
Total
|
|
Less than 1
Year
|
|
1-3 Years
|
|
4-5 Years
|
|
More than 5
Years
|
|
Long-term debt, including current portion
|
|
$
|
121.4
|
|
$
|
27.1
|
|
$
|
92.3
|
|
$
|
1.3
|
|
$
|
0.7
|
|
Derivative liabilities
|
|
7.0
|
|
5.5
|
|
1.5
|
|
|
|
|
|
Uncertain tax contingencies
|
|
25.6
|
|
|
|
25.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 1, 2010,
the
$170.0
million we
borrowed under the Credit Agreement is due in less than one year but we have
the ability to extend the maturity through February 2013.
Uncertain tax contingencies
are positions taken or expected to be taken on an income tax return that may
result in additional payments to tax authorities. The total amount of uncertain
tax contingencies is included in the 1-3 Years column as we are not able to
reasonably estimate the timing of potential future payments. If a tax authority
agrees with the tax position taken or expected to be taken or the applicable
statute of limitations expires, then additional payments will not be necessary.
RECENT
ACCOUNTING PRONOUNCEMENTS
In September 2009, the
Emerging Issues Task Force, or EITF, reached consensus on FASB Accounting
Standards Update 2009-14,
Software (Topic
985)Certain Revenue Arrangements That Include Software Elements
.
FASB Accounting Standards Updates 2009-14 changes the accounting model for
revenue arrangements that include both tangible products and software elements.
Under this guidance, tangible products containing software components and
non-software components that function together to deliver the tangible products
essential functionality are excluded from the software revenue guidance in
Subtopic No. 985-605,
Software-Revenue
Recognition.
In addition, hardware components of a tangible product
containing software components are always excluded from the software revenue
guidance. FASB Accounting Standards Updates 2009-14 is effective prospectively
for revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. However, early adoption is permitted.
We are currently assessing the impact that this update will have on our results
of operations and financial position and when we will adopt these requirements.
In September 2009, the
EITF reached consensus on FASB Accounting Standards Update 2009-13,
Revenue Recognition (Topic 605)Multiple-Deliverable
Revenue Arrangements
. FASB Accounting Standards Update 2009-13
addresses the accounting for multiple-deliverable arrangements to enable
vendors to account for products or services separately rather than as a
combined unit. Specifically, this guidance amends the criteria in Subtopic
No. 605-25,
Revenue
Recognition-Multiple-Element Arrangements,
for separating
consideration in multiple-deliverable arrangements. This guidance establishes a
selling price hierarchy for determining the selling price of a deliverable,
which is based on: (a) vendor-specific objective evidence;
(b) third-party evidence; or (c) estimates. This guidance also
eliminates the residual method of allocation and requires that arrangement
consideration be allocated at the inception of the arrangement to all
deliverables using the relative selling price method. In addition, this
guidance significantly expands required disclosures related to a vendors
multiple-deliverable revenue arrangements. FASB Accounting Standards Update
2009-13 is effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010,
however, early adoption is permitted. We are currently assessing the impact
that this update will have on our results of operations and financial position
and when we will adopt these requirements.
ITEM 3.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are 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 exposes our operations to the risk 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.
36
Table of Contents
Our net foreign exchange
losses, net were $2.0 million and $0.2 million for the nine months ended September 30,
2010 and 2009, respectively. From time to time, we enter into foreign currency
contracts in order to minimize the volatility that fluctuations in exchange rates
have on our cash flows related to purchases and sales denominated in foreign
currencies. We will continue to evaluate our currency risks and in the future
may utilize foreign currency contracts more frequently as part of a
transactional hedging program.
Impact of Interest Rates
We may invest excess cash in
short-term investments that are subject to changes in interest rates. We
believe that the market risk arising from holding these financial instruments
is minimal.
Our exposure related to
adverse movements in interest rates is derived primarily from outstanding
floating rate debt instruments that are indexed to short-term market rates. Our
objective in managing our exposure to interest rates is to decrease the
volatility that changes in interest rates might have on our earnings and cash
flows. To achieve this objective we have entered into interest rate swaps. In
April 2008, we entered into an interest rate swap arrangement to pay a
fixed rate of approximately 3.8% and receive a variable rate based on three
month LIBOR through December 31, 2012. The initial notional amount of this
interest swap was $90.0 million and amortizes in proportion to the term
debt component of our Credit Agreement. At September 30, 2010, the
outstanding notional amount of this swap was $69.8 million. We have determined
that this swap is an effective hedge of the variability of cash flows of the
interest payments. At September 30, 2010, a 10% increase or decrease in
the average cost of our outstanding 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,
2010. 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, 2010, 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, 2010 that materially affected, or are reasonably
likely to affect, our internal control over financial reporting.
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, 2009 and our Quarterly Report on Form 10-Q
for the quarters ended March 31, 2010 and June 30, 2010.
As previously reported,
Roenalytic GmbH, previously known as Roentgenanalytik Appartebau GmbH (RAA),
filed a civil proceeding in Germany against a Bruker AXS subsidiary and one
employee and raised criminal allegations against certain employees of the same
Bruker AXS subsidiary in connection with alleged improper use of certain
intellectual property of RAA and libel. RAA has filed for insolvency and a
preliminary receiver was appointed by the German court in August 2010. The
civil proceeding was adjourned by the German court in August 2010, pending
further actions by the court-appointed receiver. The criminal charges against
the Bruker AXS employees were dismissed by the German court in August 2010
and the criminal matter is now closed.
37
Table of Contents
In the third quarter of
2010, the Company, on behalf of itself and its affiliates, entered into
settlement discussions with The Research Foundation of the State University of
New York (SUNY) with respect to the previously reported patent infringement
action brought by SUNY against the Company, Bruker BioSpin GmbH, Bruker BioSpin
Corporation and an unrelated third party. In October 2010, the Company
reached an agreement in principle to settle all claims and counterclaims
involving the Company and its affiliates asserted in the SUNY matter, with
neither party admitting liability. The settlement is subject to the execution
of definitive documentation. In connection with the anticipated settlement, the
Company recorded an accrual to recognize its expected loss exposure during the
third quarter of 2010.
As previously reported, in
November 2008 a former employee of Bruker Corporation filed a complaint
with the Massachusetts Commission Against Discrimination (MCAD) alleging age
discrimination. Following a conciliation conference held on November 1,
2010, the matter has been resolved.
ITEM 1A.
RISK
FACTORS
In addition to the other
information set forth in this report, you should carefully consider the factors
discussed in Part I, Item 1A. Risk Factors in our Annual Report on
Form 10-K for the year ended December 31, 2009, which could
materially affect our business, financial condition or future results. The
risks described in this report and in our Annual Report on Form 10-K are
not the only risks facing our Company. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial also may
materially adversely affect our business, financial condition and/or operating
results.
Except as set forth below,
there have been no material changes to the risk factors previously disclosed in
our Annual Report on Form 10-K for the fiscal year ended December 31,
2009.
Our previously announced
proposed initial public offering of Bruker Energy & Supercon
Technologies, Inc. (BEST) common stock may not be completed and, if it
is completed, may lead to additional volatility in our stock price.
We have announced that we
intend to sell a minority ownership position in our wholly-owned subsidiary,
BEST, via an initial public offering, or IPO. BEST has filed an initial
registration statement to register such portion of its shares, as well as
shares that we may include in the IPO as a selling stockholder. We may not
complete the IPO, in which event we will have incurred significant expenses,
which we will be unable to recover, and for which we will not receive any
benefit. Additionally, our strategic objectives for the IPO, including
improving visibility into BESTs performance and growth relative to the market
and strengthening BESTs access to financing for its growth initiatives, are
based on the completion of the IPO. If we do not complete the IPO, we will need
to pursue alternative means of accomplishing these strategic objectives.
If the IPO is completed,
BEST would be a new public company in which we are the majority shareholder. We
are unable to predict what the market price of our common stock would be after
the IPO. We cannot assure you that the IPO, if completed, will produce any increase
for our shareholders in the market value of their holdings in our company. In
addition, the market price of our common stock could be volatile for several
months after the IPO and may continue to be more volatile than our common stock
would have been if a transaction had not occurred.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.
[REMOVED AND RESERVED]
ITEM 5.
OTHER INFORMATION
None.
ITEM 6.
EXHIBITS
38
Table of Contents
Exhibit
No.
|
|
Description
|
2.1
|
|
Stock Purchase Agreement
among Veeco Instruments Inc., Veeco Metrology Inc. and Bruker Corporation,
dated as of August 15, 2010 (filed as Exhibit 2.1 to the Current
Report on Form 8-K of Bruker Corporation filed on October 7, 2010
and incorporated herein by reference).
|
31.1
|
|
Certification by Chief
Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002(1)
|
31.2
|
|
Certification by Chief
Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002(1)
|
32.1
|
|
Certification by Chief
Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002(2)
|
(1)
Filed herewith.
(2)
Furnished herewith.
39
Table of Contents
SIGNATURES
Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
BRUKER CORPORATION
|
|
|
|
Date: November 8,
2010
|
By:
|
/s/ FRANK H. LAUKIEN,
PH.D.
|
|
|
Frank
H. Laukien, Ph.D.
|
|
|
President, Chief Executive
Officer and Chairman
|
|
|
(Principal Executive
Officer)
|
|
|
|
Date: November 8,
2010
|
By:
|
/s/ BRIAN P. MONAHAN
|
|
|
Brian P. Monahan
|
|
|
Chief Financial Officer
|
|
|
(Principal Financial
Officer)
|
40
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