UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT of 1934
|
For
the quarterly period ended March 31, 2008
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT of 1934
|
Commission File Number 000-30833
BRUKER CORPORATION
(Exact name of registrant as specified in
its charter)
Delaware
|
|
04-3110160
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
40 Manning Road, Billerica, MA 01821
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area
code:
(978) 663-3660
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes
x
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of accelerated filer, large accelerated filer, smaller
reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer
o
|
|
Accelerated
filer
x
|
|
|
|
Non-accelerated
filer
o
|
|
Smaller
reporting company
o
|
(Do not check if
a smaller reporting company)
|
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). Yes
o
No
x
As of
May 5, 2008, there were 163,356,556 shares of the Registrants common
stock outstanding.
BRUKER
CORPORATION
Quarterly
Report on Form 10-Q
For
the Quarter Ended March 31, 2008
Index
2
PART I
|
FINANCIAL
INFORMATION
|
ITEM
1.
|
FINANCIAL STATEMENTS
|
BRUKER CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
|
|
March 31,
2008
|
|
December 31,
2007
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
298,263
|
|
$
|
332,368
|
|
Short-term
investments
|
|
23,019
|
|
12,186
|
|
Accounts
receivable, net
|
|
165,081
|
|
185,217
|
|
Inventories
|
|
511,597
|
|
447,688
|
|
Other current
assets
|
|
88,500
|
|
57,238
|
|
Total current
assets
|
|
1,086,460
|
|
1,034,697
|
|
Property, plant
and equipment, net
|
|
231,541
|
|
207,588
|
|
Intangibles and
other assets
|
|
79,428
|
|
69,346
|
|
Total assets
|
|
$
|
1,397,429
|
|
$
|
1,311,631
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Short-term
borrowings
|
|
$
|
253,096
|
|
$
|
35,591
|
|
Accounts payable
|
|
59,210
|
|
52,293
|
|
Customer
advances
|
|
275,241
|
|
233,466
|
|
Other current
liabilities
|
|
244,064
|
|
239,841
|
|
Total current
liabilities
|
|
831,611
|
|
561,191
|
|
|
|
|
|
|
|
Long-term debt
|
|
169,428
|
|
8,605
|
|
Other long-term
liabilities
|
|
106,005
|
|
105,445
|
|
Minority interest
in consolidated subsidiaries
|
|
672
|
|
538
|
|
Commitments and
contingencies (Note 16)
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders
Equity:
|
|
|
|
|
|
Preferred stock,
$0.01 par value, 5,000,000 shares authorized, none issued or outstanding at
March 31, 2008 or December 31, 2007
|
|
|
|
|
|
Common stock,
$0.01 par value, 260,000,000 and 200,000,000 shares authorized, 163,356,556
and 163,251,890 shares issued and outstanding at March 31, 2008 and
December 31, 2007, respectively
|
|
1,626
|
|
1,624
|
|
Treasury stock,
at cost, 8,469 shares and 0 shares at March 31, 2008 and
December 31, 2007, respectively
|
|
(98
|
)
|
|
|
Other shareholders
equity
|
|
288,185
|
|
634,228
|
|
Total
shareholders equity
|
|
289,713
|
|
635,852
|
|
Total
liabilities and shareholders equity
|
|
$
|
1,397,429
|
|
$
|
1,311,631
|
|
The accompanying notes are an integral part of these statements.
3
BRUKER CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
|
|
Three Months Ended
March 31,
|
|
|
|
2008
|
|
2007
|
|
Product revenue
|
|
$
|
207,035
|
|
$
|
181,609
|
|
Service revenue
|
|
29,957
|
|
25,187
|
|
Other revenue
|
|
1,444
|
|
740
|
|
Total revenue
|
|
238,436
|
|
207,536
|
|
|
|
|
|
|
|
Cost of product revenue
|
|
104,901
|
|
96,649
|
|
Cost of service revenue
|
|
20,406
|
|
16,339
|
|
Total cost of
revenue
|
|
125,307
|
|
112,988
|
|
Gross profit
|
|
113,129
|
|
94,548
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
Sales and marketing
|
|
43,393
|
|
35,462
|
|
General and administrative
|
|
16,804
|
|
13,413
|
|
Research and development
|
|
31,205
|
|
25,964
|
|
Acquisition related charges
|
|
5,793
|
|
|
|
Total operating
expenses
|
|
97,195
|
|
74,839
|
|
Operating income
|
|
15,934
|
|
19,709
|
|
|
|
|
|
|
|
Interest and other income (expense), net
|
|
(12,189
|
)
|
750
|
|
Income before income tax provision and minority interest
in consolidated subsidiaries
|
|
3,745
|
|
20,459
|
|
Income tax provision
|
|
4,270
|
|
6,023
|
|
Income (loss) before minority interest in
consolidated subsidiaries
|
|
(525
|
)
|
14,436
|
|
Minority interest in consolidated subsidiaries
|
|
160
|
|
86
|
|
Net income (loss)
|
|
$
|
(685
|
)
|
$
|
14,350
|
|
Net income (loss) per common share - basic and diluted
|
|
$
|
(0.00
|
)
|
$
|
0.09
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
Basic
|
|
162,303
|
|
160,365
|
|
Diluted
|
|
162,303
|
|
162,906
|
|
The accompanying notes are an integral part of these statements.
4
BRUKER CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
Three Months Ended
March 31,
|
|
|
|
2008
|
|
2007
|
|
Operating activities:
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
22,333
|
|
$
|
21,523
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
Purchases of
property and equipment
|
|
(13,402
|
)
|
(4,257
|
)
|
Acquisitions,
net of cash acquired
|
|
(416,828
|
)
|
(1,916
|
)
|
Purchase of
short-term investments
|
|
(366
|
)
|
(116
|
)
|
Redemption of
short-term investments
|
|
742
|
|
|
|
Changes in
restricted cash
|
|
(10,734
|
)
|
(806
|
)
|
Net cash used in investing activities
|
|
(440,588
|
)
|
(7,095
|
)
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
Proceeds from
(repayments of) short-term borrowings, net
|
|
5,554
|
|
(9,999
|
)
|
Proceeds from
(repayments of) long-term debt, net
|
|
353,297
|
|
(2,394
|
)
|
Payments of
deferred financing costs
|
|
(2,916
|
)
|
|
|
Proceeds from
issuance of common stock
|
|
|
|
17,962
|
|
Repurchase of
common stock
|
|
|
|
(6
|
)
|
Net cash provided by financing activities
|
|
355,935
|
|
5,563
|
|
Effect of exchange rate changes on cash
|
|
28,215
|
|
2,633
|
|
Net change in cash and cash equivalents
|
|
(34,105
|
)
|
22,624
|
|
Cash and cash equivalents at beginning of period
|
|
332,368
|
|
311,240
|
|
Cash and cash equivalents at end of period
|
|
$
|
298,263
|
|
$
|
333,864
|
|
The accompanying notes are an integral part of these statements.
5
BRUKER CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1Description of Business
Bruker Corporation and
its wholly-owned subsidiaries (the Company) design, manufacture, service and
market proprietary life science and materials research systems based on its
core technology platforms, including X-ray technologies, magnetic resonance
technologies, mass spectrometry technologies, and optical emission spectroscopy
and infrared and Raman molecular spectroscopy technology. The Company also
sells a broad range of field analytical systems for chemical, biological,
radiological and nuclear (CBRN) detection. The Company maintains major
technical and manufacturing centers in Europe, North America and Japan and
sales offices throughout the world. The Companys diverse customer base
includes pharmaceutical, biotechnology and proteomics companies, academic
institutions, advanced materials and semiconductor industries and government
agencies.
The financial statements
represent the consolidated accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation. The condensed consolidated financial statements as
of and for the three months ended March 31, 2008 and 2007 have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with Article 10
of Regulation S-X. Accordingly, the financial information presented herein does
not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments, considered necessary for a fair
presentation have been included. The results for interim periods are not
necessarily indicative of the results expected for the full year.
On February 26,
2008, the Company completed the acquisition of all of the Bruker BioSpin Group
(Bruker BioSpin). Both the Company and Bruker BioSpin were majority owned by
six affiliated stockholders prior to the acquisition. As a result, the
acquisition of Bruker BioSpin by the Company is considered a business
combination of companies under common control and was accounted for at
historical carrying values at the date of the acquisition. The consolidated
balance sheets, statements of operations, statements of cash flows and notes to
the consolidated financial statements for all periods presented herein have
been restated by combining the historical consolidated financial statements of
the Company with those of Bruker BioSpin.
Following the acquisition
of Bruker BioSpin, management reevaluated the way the Company is managed and
the internal reporting structure, and as a result of that evaluation, will
report its financial results on the basis of the following two reportable
segments:
·
BioScience
. The operations of this segment include
the design, manufacture and distribution of advanced instrumentation and
automated solutions based on X-ray technology and optical emission
spectroscopy, mass spectrometry technology and infrared and Raman molecular
spectroscopy technology. Typical customers of the BioScience segment include pharmaceutical,
biotechnology, proteomics and molecular diagnostic companies, academic
institutions, government agencies, semiconductor companies, chemical, cement,
metals and petroleum companies, raw material manufacturers and food, beverage
and agricultural companies.
·
BioSpin
. The operations of this segment include
the design, as manufacture and distribution of enabling life science tools
based on its core technology, magnetic resonance, as well as the manufacturing
and development of low temperature superconductor (LTS) and high temperature
superconductor (HTS) wires for use in advanced magnet technology and energy
applications. Typical customers of the BioSpin segment include pharmaceutical
and biotechnology companies, academic institutions and government agencies.
2.
Public Offering of Common Stock
On February 12,
2007, the Company and a group of selling stockholders completed a public
offering of 11,960,000 shares of its common stock, of which 2,530,000 were sold
by the Company and 9,430,000 were sold by four selling shareholders, at $7.10
per share, generating net proceeds of approximately $16.9
6
million to the Company
and approximately $63.2 million to the selling stockholders, in the aggregate.
3. Acquisition of Bruker BioSpin
On February 26,
2008, the Company completed the acquisition of all of Bruker BioSpin in
accordance with the terms of various agreements dated as of December 2,
2007. Both the Company and Bruker BioSpin were majority owned by six affiliated
stockholders prior to the acquisition. As a result, the acquisition of Bruker
BioSpin by the Company is considered a business combination of companies under
common control and was accounted for at historical carrying values at the date
of the acquisition. Historical consolidated balance sheets, statements of
operations, statements of cash flows and notes to the consolidated financial
statements have been restated by combining the historical consolidated
financial statements of Bruker Corporation with those of Bruker BioSpin. In
addition, because the transaction is accounted for as an acquisition of
businesses under common control, all one-time transaction costs have been
expensed as incurred, rather than being added to goodwill. With the addition of
Bruker BioSpin, the Company enhanced its position as a leading supplier for
life science and materials research, its distribution in the Americas, Europe
and Asia, and its sales and service infrastructure.
Upon the completion of
this acquisition, the Company paid an aggregate of $914.0 million of
consideration to the shareholders of Bruker BioSpin, which was financed with
57,544,872 shares of unregistered common stock valued at $526.0 million, $351.0
million of cash obtained under a new credit facility, and the balance with cash
on hand. The value of the shares of common stock in connection with the merger
was determined using a trailing average of the closing market prices of the
Companys stock for a period of ten consecutive trading days ending two days
prior to the signing of the various stock purchase agreements.
Under the stock purchase
agreements, $98.8 million of the purchase price was paid into escrow accounts
pending the resolution of indemnification obligations and working capital obligations
of the sellers. The unused portion of the $92.0 million indemnity escrow will
be released to the sellers at the later of (1) the 30
th
day
following the receipt by the Company of combined audited financial statements
of Bruker BioSpin for the fiscal year ended December 31, 2008 or (2) the
resolution of any claim for indemnification of which the sellers have received
notice prior to the conclusion of the 30 day period described in (1) above.
The unused portion of the $6.8 million working capital escrow will be released
to the sellers within 25 business days following the receipt by the Company of
combined audited financial statements of Bruker BioSpin for the fiscal year
ended December 31, 2007.
4. Other Acquisitions
On January 31, 2008,
the Company acquired JUWE Laborgeraete GmbH (JUWE), a privately-held company
located in Viersen, Germany. JUWE develops, manufactures and distributes
advanced combustion analysis systems for various carbon, hydrogen, nitrogen,
oxygen and sulfur elemental applications. JUWEs products are complementary to
the Companys optical emission spectroscopy products. The results of JUWE have
been included in the BioScience segment from the date of acquisition. The
aggregate purchase price of JUWE was $2.7 million, of which $1.2 million was
paid in cash, $1.1 million was funded by the issuance of an aggregate of
111,000 restricted unregistered shares of the Companys common stock, par value
$0.01 per share, to JUWEs shareholders and $0.4 million of net liabilities assumed
by the Company. The Company recorded $2.2 million of goodwill in connection
with the acquisition of JUWE and assigned the goodwill to the BioScience
segment. Proforma financial information reflecting the acquisition of JUWE has
not been presented because the impact on revenues, net income (loss) and net income
(loss) per common share would not have been material.
7
5. Provision for Income Taxes
The income tax provision
for the three months ended March 31, 2008 was $4.3 million compared to an
income tax provision of $6.0 million for the three months ended March 31,
2007, representing effective tax rates of 114.0% and 29.4% respectively. Our
effective tax rate reflects our tax provision for non-U.S. entities only, since
no benefit was recognized for cumulative losses incurred in the U.S. We will
maintain a full valuation allowance for our U.S. net operating losses until
evidence exists where it is more likely than not that the loss carryforward
amounts will be utilized to offset U.S. taxable income. Our tax rate may change
over time as the amount or mix of income and taxes outside the U.S. changes.
Our effective tax rate is calculated using our projected annual pre-tax income
or loss and is affected by research and development tax credits, the expected
level of other tax benefits, the impact of changes to the valuation allowance,
and changes in the mix of our pre-tax income and losses among jurisdictions
with varying statutory tax rates and credits.
In July 2006, the
Financial Accounting Standards Board issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an interpretation of FASB
Statement 109
(FIN No. 48). Among other things, FIN 48
provides guidance to address uncertainty in tax positions and clarifies the
accounting for income taxes by prescribing a minimum recognition threshold
which income tax positions must achieve before being recognized in the
financial statements. In connection with the adoption of FIN No. 48, the
Company recorded a net reduction to retained earnings of $2.0 million as of January 1,
2007. The Company has unrecognized tax benefits of approximately $18.9 million
as of March 31, 2008, of which $8.1 million, if recognized, would result
in a reduction of the Companys effective tax rate. One of the Companys Swiss entities is
currently being audited and the audit is expected to be completed during the
second quarter of 2008. The audit covers tax years 2003-2006 and the Company
cannot reasonably estimate the outcome of this audit. As of March 31,
2008, the Company does not expect any material changes, except for the Swiss
tax audit mentioned previously, to unrecognized tax positions within the next
twelve months.
The Company recognizes
penalties and interest related to unrecognized tax benefits in the provision
for income taxes. As of March 31, 2008, approximately $2.1 million of
accrued interest and penalties related to uncertain tax positions was included
in other current liabilities on our consolidated balance sheet, of which $0.4
million was recorded during the three months ended March 31, 2008.
The tax years 2003 to
2007 are open tax years in our major taxing jurisdictions. The Company files
returns in many foreign and state jurisdictions with varying statutes of
limitations.
6. Stock-Based Compensation
In 2000, the Board of
Directors adopted and the shareholders approved the 2000 Stock Option Plan. The
2000 Stock Option Plan allows a committee of the Board of Directors to grant
incentive stock options, non-qualified stock options, stock appreciation rights
and stock awards (including restricted stock and phantom shares). The committee
has the authority to determine which employees will receive the awards, the
amount of the awards and other terms and conditions of the awards. Awards
granted by the committee
8
typically vest
over a period of three to five years.
In
2003, the Companys shareholders approved an amendment and restatement of the
2000 Stock Option Plan to change the plan name and increase the number of
shares available for issuance by 4,132,000 shares, from 2,188,000 shares to
6,320,000 shares. The name of the amended plan is the Bruker BioSciences
Corporation Amended and Restated 2000 Stock Option Plan. In 2006, the Companys
shareholders approved an amendment and restatement of the Bruker BioSciences
Corporation Amended and Restated 2000 Stock Option Plan to increase the number
of shares available for issuance by 1,680,000 shares, from 6,320,000 shares to
8,000,000 shares. In January 2008, the Companys shareholders approved
another amendment and restatement of the Bruker BioSciences Corporation Amended
and Restated 2000 Stock Option Plan to increase the number of shares available
for issuance by 2,000,000 shares, from 8,000,000 shares to 10,000,000 shares.
As of March 31,
2008, the Companys primary types of share-based compensation were in the form
of issuances of stock options and restricted stock. The Company recorded
stock-based compensation expense for the three months ended March 31, 2008
and 2007, as follows (in thousands):
|
|
Three Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
Stock options
|
|
$
|
528
|
|
$
|
233
|
|
Restricted stock
|
|
143
|
|
161
|
|
Total stock-based compensation, pre-tax
|
|
671
|
|
394
|
|
Tax benefit
|
|
(188
|
)
|
(110
|
)
|
Total stock-based compensation, net of tax
|
|
$
|
483
|
|
$
|
284
|
|
Restricted
shares of the Companys common stock are periodically awarded to executive
officers and certain key employees of the Company subject to a service
restriction which expires ratably over a period of three to five years. The
restricted shares of common stock may not be sold or transferred during the
restriction period. Stock compensation for restricted stock is recorded based
on the stock price on the grant date and charged to expense ratably through the
restriction period. The following table summarizes information about restricted
stock activity during the three months ended March 31, 2008:
|
|
Shares
Subject to
Restriction
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Outstanding at December 31, 2007
|
|
569,402
|
|
$
|
5.74
|
|
Granted
|
|
|
|
|
|
Vested
|
|
(30,030
|
)
|
5.64
|
|
Forfeited
|
|
(4,500
|
)
|
6.15
|
|
Outstanding at March 31, 2008
|
|
534,872
|
|
$
|
5.74
|
|
Unrecognized pretax
expense of $2.1 million related to restricted stock awards is expected to be
recognized over the weighted average remaining service period of 3.1 years for
awards outstanding at March 31, 2008.
Stock options of the
Companys common stock are periodically awarded to executive officers and other
employees of the Company subject to a vesting period which expires ratably over
a period of three to five years. The fair value of each stock option award is
estimated on the date of grant using the Black-Scholes option-pricing model.
Assumptions regarding volatility, expected term, dividend yield and risk-free
interest rate are required for the Black-Scholes model. Volatility and expected
term assumptions are based on the Companys historical experience. The
risk-free interest rate is based on a U.S. treasury note with a maturity
similar to the stock option awards expected life. The assumptions for
volatility, expected
9
life, dividend yield and
risk-free interest rate are presented in the table below:
|
|
Three Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
Risk-free interest rate
|
|
2.71% - 3.54%
|
|
4.52% - 4.81%
|
|
Expected life
|
|
6.5 years
|
|
6.5 years
|
|
Volatility
|
|
72.0%
|
|
82.0%
|
|
Expected dividend yield
|
|
0%
|
|
0%
|
|
All stock options granted
had an exercise price equal to the market value of the underlying common stock
on the date of grant. Stock option activity for the three months ended March
31, 2008 was as follows:
|
|
Shares
Subject to
Options
|
|
Weighted
Average
Option
Price
|
|
Weighted
Average
Remaining
Contractual
Term (Yrs)
|
|
Aggregate
Intrinsic
Value
($s in 000s)
|
|
Outstanding at December 31, 2007
|
|
4,423,712
|
|
$
|
6.87
|
|
|
|
|
|
Granted
|
|
84,000
|
|
11.95
|
|
|
|
|
|
Exercised
|
|
(1,000
|
)
|
7.95
|
|
|
|
|
|
Forfeited
|
|
(33,750
|
)
|
9.27
|
|
|
|
|
|
Outstanding at March 31, 2008
|
|
4,472,962
|
|
$
|
6.94
|
|
4.4
|
|
$
|
38,142
|
|
Exercisable at March 31, 2008
|
|
2,613,317
|
|
$
|
6.72
|
|
4.1
|
|
$
|
23,011
|
|
The following table
summarizes information about stock options outstanding and exercisable at March 31,
2008:
|
|
Options Outstanding
|
|
Options Exercisable
|
|
Range of
Exercise Prices
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Term (Yrs)
|
|
Weighted
Average
Exercise
Price
|
|
Aggregate
Intrinsic
Value
($s in 000s)
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
Aggregate
Intrinsic
Value
($s in 000s)
|
|
$2.12 to $4.00
|
|
681,485
|
|
3.5
|
|
$
|
3.20
|
|
$
|
8,307
|
|
574,332
|
|
$
|
3.17
|
|
$
|
7,016
|
|
$4.01 to $6.00
|
|
1,567,854
|
|
4.2
|
|
5.18
|
|
16,014
|
|
1,088,277
|
|
5.13
|
|
11,159
|
|
$6.01 to $10.00
|
|
1,567,769
|
|
6.8
|
|
7.68
|
|
12,088
|
|
426,312
|
|
6.93
|
|
3,605
|
|
$10.01 to $13.00
|
|
344,354
|
|
4.7
|
|
11.19
|
|
1,446
|
|
212,896
|
|
10.96
|
|
944
|
|
$13.01 and above
|
|
311,500
|
|
3.1
|
|
15.64
|
|
287
|
|
311,500
|
|
15.64
|
|
287
|
|
|
|
4,472,962
|
|
4.4
|
|
$
|
6.94
|
|
$
|
38,142
|
|
2,613,317
|
|
$
|
6.72
|
|
$
|
23,011
|
|
The intrinsic values
above are based on the Companys closing stock price of $15.39 on March 31,
2008. The weighted-average grant-date fair value of options granted during the
three months ended March 31, 2008, was $11.95. Unrecognized pretax expense
of $8.6 million related to stock options is expected to be recognized over the
weighted average remaining service period of 3.6 years for awards outstanding
at March 31, 2008.
7. Fair Value of Financial
Instruments
In September 2006,
the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS No. 157), which is effective for fiscal years beginning after November 15,
2007. The Company adopted SFAS No. 157 as of January 1, 2008. As
permitted by FASB Staff Position (FSP) No. SFAS 157-2,
Effective Date of FASB Statement No. 157
(FSP No. SFAS
157-2), the Company elected to defer the adoption of SFAS No. 157 for all
non-financial assets and non-financial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a
recurring basis until January 1, 2009. There was no cumulative effect of
adoption related to SFAS No. 157 and the adoption did not have an impact
on the
10
Companys financial
position, results of operations, or cash flows. The Company is studying SFAS No. 157
with respect to non-financial assets and non-financial liabilities falling
under the scope of FSP No. SFAS 157-2 and has not yet determined the
expected impact on the Companys financial position, results of operations, or
cash flows.
SFAS No. 157
establishes a three-level valuation hierarchy for measuring fair value and
expands financial statement disclosures about fair value measurements. The
valuation hierarchy is based upon the transparency of inputs to the valuation
of an asset or liability as of the measurement date. The three levels are
defined as follows:
·
Level 1
: Inputs to the valuation methodology are
quoted prices (unadjusted) for identical assets or liabilities in active
markets.
·
Level 2
: Inputs to the valuation methodology
include quoted prices for similar assets and liabilities in active markets, and
inputs that are observable for the asset or liability, either directly or
indirectly, for substantially the full term of the financial instrument.
·
Level 3
:
Inputs to the valuation methodology are unobservable and significant to
the fair value measurement.
A financial instruments
categorization within the valuation hierarchy is based upon the lowest level of
input that is significant to the fair value measurement. The Company measures
the following financial assets at fair value on a recurring basis. The fair
value of these financial assets was determined using the following inputs at March 31,
2008:
|
|
Total
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
Cash and cash equivalents
|
|
$
|
298,263
|
|
$
|
298,263
|
|
$
|
|
|
$
|
|
|
Short-term investments (1)
|
|
23,019
|
|
23,019
|
|
|
|
|
|
Total assets
recorded at fair value
|
|
$
|
321,282
|
|
$
|
321,282
|
|
$
|
|
|
$
|
|
|
(1)
Short-term investments consist primarily of money
market funds for which the Company determines fair value through quoted market
prices.
In February 2007,
the FASB issued SFAS No. 159,
The Fair Value Option for
Financial Assets and Financial Liabilities Including an amendment of FASB
Statement No. 115
(SFAS No. 159). SFAS No. 159
permits entities to choose to measure many financial instruments and certain
other items at fair value and is effective for fiscal years beginning after November 15,
2007. The Company has elected not to apply the fair value option to any of its
assets and liabilities.
8.
Inventories
Inventories consisted of
the following as of March 31, 2008 and December 31, 2007 (in
thousands):
|
|
March 31,
2008
|
|
December 31,
2007
|
|
Raw materials
|
|
$
|
131,629
|
|
$
|
116,883
|
|
Work-in process
|
|
165,065
|
|
137,959
|
|
Demonstration units
|
|
39,338
|
|
37,195
|
|
Finished goods
|
|
175,565
|
|
155,651
|
|
Total inventories
|
|
$
|
511,597
|
|
$
|
447,688
|
|
11
9.
Goodwill and Other Intangible Assets
The following is a
summary of other intangible assets subject to amortization as of March 31,
2008 and December 31, 2007 (in thousands):
|
|
|
|
March 31, 2008
|
|
December 31, 2007
|
|
|
|
Useful
|
|
Gross
|
|
|
|
Net
|
|
Gross
|
|
|
|
Net
|
|
|
|
Lives
|
|
Carrying
|
|
Accumulated
|
|
Carrying
|
|
Carrying
|
|
Accumulated
|
|
Carrying
|
|
|
|
in Years
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Existing
technology and related patents
|
|
3 to 10
|
|
$
|
14,614
|
|
$
|
(8,919
|
)
|
$
|
5,695
|
|
$
|
13,292
|
|
$
|
(7,937
|
)
|
$
|
5,355
|
|
Customer
relationships
|
|
5
|
|
1,115
|
|
(525
|
)
|
590
|
|
1,115
|
|
(477
|
)
|
638
|
|
Trade names
|
|
5 to 10
|
|
439
|
|
(191
|
)
|
248
|
|
439
|
|
(176
|
)
|
263
|
|
Total
amortizable intangible assets
|
|
|
|
$
|
16,168
|
|
$
|
(9,635
|
)
|
$
|
6,533
|
|
$
|
14,846
|
|
$
|
(8,590
|
)
|
$
|
6,256
|
|
For the three months
ended March 31, 2008 and 2007, the Company recorded amortization expense
of $1.0 million and $0.7 million, respectively, related to other amortizable
intangible assets.
The estimated future
amortization expense related to other amortizable intangible assets is as
follows (in thousands):
For the year ending December 31,
|
|
|
|
2008 (a)
|
|
$
|
1,367
|
|
2009
|
|
1,580
|
|
2010
|
|
1,478
|
|
2011
|
|
915
|
|
2012
|
|
382
|
|
Thereafter
|
|
811
|
|
Total
|
|
$
|
6,533
|
|
(a)
Amount represents estimated amortization
expense for the remaining nine months ended December 31, 2008.
The carrying amount of
goodwill was $43.0 million and $40.8 million as of March 31, 2008 and December 31,
2007, respectively, and is included in the BioScience segment. The Company
performs its annual test for indications of impairment as of December 31st each
year. The Company completed its annual test for impairment as of December 31,
2007 and determined that goodwill was not impaired at that time.
10.
Warranty Costs
The
Company typically provides a one to two-year parts and labor warranty with the
purchase of equipment. The anticipated cost for this warranty is accrued upon
recognition of the sale and is included as a current liability on the balance
sheet. The Company also offers to its customers warranty and service agreements
extending beyond the initial year of warranty for a fee. These fees are
recorded as deferred revenue and amortized into income over the life of the
extended warranty contract.
Changes in the Companys
accrued warranty liability during the three months ended March 31, 2008
were as follows (in thousands):
Warranty accrual at December 31, 2007
|
|
$
|
27,181
|
|
Accruals for warranties issued during the period
|
|
6,235
|
|
Settlements of warranty claims
|
|
(7,377
|
)
|
Foreign currency impact
|
|
1,776
|
|
Warranty accrual at March 31, 2008
|
|
$
|
27,815
|
|
11.
Debt
In connection with the
acquisition of Bruker BioSpin, the Company entered into a credit agreement with
a syndication of lenders, which we refer to as the Credit Agreement, that
provides for a revolving
12
credit line with a
maximum commitment of $230.0 million and a term facility of $150.0 million. The
outstanding principal under the term loan is payable in quarterly installments
through December 2012. Borrowings under the Credit Agreement bear
interest, at the Companys option, at either (i) the higher of the prime
rate or the federal funds rate plus 0.50%, or (ii) adjusted LIBOR, plus
margins ranging from 0.40% to 1.25% and a facility fee ranging from 0.10% to
0.20%. As of March 31, 2008, the weighted average interest rate of
borrowings under the Credit Agreement was approximately 4.1%.
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.
At March 31, 2008,
the Company had outstanding debt totaling $422.5 million consisting of $369.0
million outstanding under the Credit Agreement, $26.7 million outstanding under
other long-term debt arrangements, $23.8 million outstanding under revolving
lines of credit and $3.0 million under capital lease obligations. At December 31,
2007, we had outstanding debt totaling $44.2 million consisting of $28.0
million outstanding under other long-term debt arrangements, $13.2 million
outstanding under other revolving lines of credit and $3.0 million under
capital lease obligations.
Amounts outstanding under
other long-term debt arrangements include both collateralized and
uncollateralized arrangements with various financial institutions in France,
Germany, Japan and a government agency in the United States. The Companys
long-term debt arrangements also consist of fixed and variable interest rates
ranging from 1.8% to 8.0% at March 31, 2008 and December 31, 2007. In
connection with certain of these agreements the Company is required to maintain
certain financial ratios as defined in the agreements. At March 31, 2008, the
Company was not in compliance with one of the covenants required by our
arrangement with a government agency in the United States. The failure to meet
this covenant did not trigger any cross-default provisions in other borrowing
arrangements, including the Credit Agreement. On May 8, 2008, the Company
received a limited waiver from the holder of this debt for the quarterly period
ended March 31, 2008.
The Companys revolving
lines of credit are with various financial institutions in Germany, Japan and
France and have aggregate maximum borrowing amounts of approximately $84.6
million and $145.5 million at March 31, 2008 and December 31, 2007,
respectively. Effective February 26, 2008, the Company terminated a $75.0
million line of credit in the United States and replaced it with the revolving
credit available under the Credit Agreement. With consideration to outstanding
letters of credit, the Company had availability of approximately $50.1 million
and $119.0 million under other revolving lines of credit at March 31, 2008
and December 31, 2007, respectively. The Companys revolving lines of
credit are generally uncollateralized and bear interest at variable rates
ranging from 1.5% to 9.8% at March 31, 2008 and December 31, 2007.
12.
Employee Benefit Plans
The Company has defined
benefit retirement plans that cover substantially all employees of a Bioscience
subsidiary in Germany who were employed as of September 30, 1997, as well
as all employees of the BioSpin subsidiaries located in Switzerland, France,
and Japan and certain employees of a BioSpin subsidiary in Germany. The plans
provide pension benefits based upon final average salary and years of service.
The net periodic pension
benefit cost includes the following components during the three months ended March 31,
2008 and 2007 (in thousands):
13
|
|
2008
|
|
2007
|
|
Components of net periodic benefit cost
|
|
|
|
|
|
Service cost
|
|
$
|
936
|
|
$
|
829
|
|
Interest cost
|
|
953
|
|
748
|
|
Expected return on plan assets
|
|
(1,000
|
)
|
(712
|
)
|
Amortization and actuarial gains and losses
|
|
(2
|
)
|
|
|
Net periodic benefit cost
|
|
$
|
887
|
|
$
|
865
|
|
The Company made
contributions of $0.6 million to its defined benefit plans during the three
months ended March 31, 2008 and estimates contributions of $1.6 million during
the remainder of 2008.
13.
Earnings Per Share
Basic earnings per share
is calculated by dividing net earnings by the weighted-average number of common
shares outstanding during the period.
Restricted stock is not included in the calculation of basic EPS until the
time-based restriction has lapsed. Except where the result would be
anti-dilutive, the diluted earnings per share computation includes the effect
of potential shares, shares which would be issuable upon the exercise of
outstanding stock options or outstanding restricted stock issuable when the
restrictions lapse, reduced by the number of shares which are assumed to be
purchased by the Company from the resulting proceeds at the average market
price during the period.
The following table sets
forth the computation of basic and diluted average shares outstanding for the
three months ended March 31, 2008 and 2007 (in thousands):
|
|
2008
|
|
2007
|
|
Net income (loss), as reported
|
|
$
|
(685
|
)
|
$
|
14,350
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
Weighted average
shares outstanding - basic
|
|
162,303
|
|
160,365
|
|
Effect of
dilutive securities:
|
|
|
|
|
|
Stock options
and restricted stock
|
|
|
|
2,541
|
|
Weighted average
shares outstanding - diluted
|
|
162,303
|
|
162,906
|
|
Net income (loss) per share - basic and diluted
|
|
$
|
(0.00
|
)
|
$
|
0.09
|
|
As a result of the net
loss for the three months ended March 31, 2008, all outstanding stock
options and unvested shares of restricted stock, totaling 5,007,834 shares,
were excluded from the computation of diluted earnings per share because their
effect was anti-dilutive. Stock options to purchase 546,000 shares were
excluded from the computation of diluted earnings per share in the three months
ended March 31, 2007, because the exercise price of the stock options
exceeded the average market price of the Companys common stock and, as a
result, would have had an anti-dilutive effect.
14.
Interest and Other Income (Expense), Net
The components of
interest and other income (expense), net, were as follows for the three months
ended March 31, 2008 and 2007 (in thousands):
14
|
|
2008
|
|
2007
|
|
Interest income
|
|
$
|
2,492
|
|
$
|
1,868
|
|
Interest expense
|
|
(2,694
|
)
|
(620
|
)
|
Exchange losses on foreign currency transactions
|
|
(12,219
|
)
|
(711
|
)
|
Other
|
|
232
|
|
213
|
|
Interest and other income (expense), net
|
|
$
|
(12,189
|
)
|
$
|
750
|
|
15.
Comprehensive Income
Comprehensive
income refers to revenues, expenses, gains and losses that under accounting
principles generally accepted in the United States of America are included in
other comprehensive income, but excluded from net income as these amounts are
recorded directly as an adjustment to shareholders equity, net of tax.
The following is a summary of comprehensive income for the three months ended March 31,
2008 and 2007 (in thousands):
|
|
2008
|
|
2007
|
|
Net income (loss)
|
|
$
|
(685
|
)
|
$
|
14,350
|
|
Foreign currency translation adjustments
|
|
39,112
|
|
5,066
|
|
Unrealized gains on available for sales securities
|
|
759
|
|
645
|
|
Pension liability adjustments
|
|
(508
|
)
|
(48
|
)
|
Total comprehensive income
|
|
$
|
38,678
|
|
$
|
20,013
|
|
16.
Commitments and Contingencies
Lawsuits,
claims and proceedings of a nature considered normal to its businesses may be
pending from time to time against the Company. The Company believes the outcome
of these proceedings, if any, will not have a material impact on the Companys
financial position or results of operations.
17.
Letters of Credit and Guarantees
As of March 31,
2008 and December 31, 2007, the Company had letters of credit and bank
guarantees of $62.8 million and $67.7 million, respectively, for its
customer advances. Certain of these letters of credit and bank guarantees
affect the availability of the Companys lines of credit.
18.
Business Segment Information
SFAS No. 131,
Disclosures about Segments of an Enterprise and
Related Information
, establishes standards for reporting information
about operating segments in annual financial statements of public business
enterprises. It also establishes standards for related disclosures about
products and service, geographic areas and major customers. The Company
evaluated its business activities that are regularly reviewed by the Chief
Executive Officer and for which discrete financial information is available. As
a result of this evaluation, the Company determined that there are two
reportable segments:
·
BioScience
. This reportable segment consists of
three operating segments that have been combined into one reportable segment
namely Bruker AXS, Bruker Daltonics and Bruker Optics. The operations of this
segment include the design, manufacture and distribution of advanced
instrumentation and automated solutions based on X-ray technology and optical
emission spectroscopy, mass spectrometry technology and infrared and Raman
molecular spectroscopy technology. Typical customers of the BioScience segment
include pharmaceutical, biotechnology, proteomics and molecular diagnostic
companies, academic institutions, government agencies, semiconductor companies,
chemical, cement, metals and petroleum companies, raw material manufacturers
and food, beverage and agricultural companies.
15
·
BioSpin
. The operations of this segment include
the design, manufacture and distribution of enabling life science tools based
on its core technology, magnetic resonance, as well as the manufacturing and
development of low temperature superconductor (LTS) and high temperature
superconductor (HTS) wires for use in advanced magnet technology and in energy
applications. Typical customers of the BioSpin segment include pharmaceutical
and biotechnology companies, academic institutions and government agencies.
Selected business segment
information for the three months ended March 31, 2008 and 2007 is
presented below (in thousands):
|
|
Revenue
|
|
Operating income (loss)
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
BioScience
|
|
$
|
142,629
|
|
$
|
112,753
|
|
$
|
11,749
|
|
$
|
8,943
|
|
BioSpin
|
|
112,118
|
|
107,647
|
|
10,061
|
|
15,231
|
|
Corporate, eliminations and other (a)
|
|
(16,311
|
)
|
(12,864
|
)
|
(5,876
|
)
|
(4,465
|
)
|
Total
|
|
$
|
238,436
|
|
$
|
207,536
|
|
$
|
15,934
|
|
$
|
19,709
|
|
(a)
Represents revenue transactions between
segments which are eliminated in consolidation and corporate costs not
allocated to the reportable segements.
Total assets by segment
as of March 31, 2008 and December 31, 2007 are as follows (in thousands):
|
|
March 31, 2008
|
|
December 31, 2007
|
|
BioScience
|
|
$
|
688,231
|
|
$
|
584,902
|
|
BioSpin
|
|
1,088,689
|
|
782,627
|
|
Corporate
|
|
385,926
|
|
314,988
|
|
Eliminations
|
|
(765,417
|
)
|
(370,886
|
)
|
|
|
$
|
1,397,429
|
|
$
|
1,311,631
|
|
19.
Recent Accounting Pronouncements
In December 2007,
the FASB issued SFAS No. 141(R),
Business Combinations
(SFAS No. 141(R)). This statement will significantly change the
accounting for business combinations. Under SFAS No. 141(R), an acquiring
entity will be required to recognize all of the assets acquired and liabilities
assumed in a transaction at the acquisition date fair value with certain
limited exceptions. In addition, SFAS No. 141(R) will change the
accounting treatment for acquisition costs, in-process research and
development, restructuring costs associated with business combinations and
changes in deferred tax asset valuation allowances and income tax uncertainties
after the acquisition date. SFAS No. 141(R) also includes a
significant number of new disclosure requirements. Early adoption of SFAS No. 141(R) is
prohibited and the Company will be required to apply SFAS No. 141(R) to
acquisitions that occur on or after January 1, 2009.
In December 2007,
the FASB issued SFAS No. 160,
Noncontrolling Interests
in Consolidated Financial Statements An Amendment of ARB No. 51
(SFAS No. 160). This statement establishes new accounting and reporting
standards for the minority interest in a subsidiary and the deconsolidation of
a subsidiary. SFAS No. 160 is effective as of the beginning of fiscal 2009
and early adoption is prohibited. The Company has not yet assessed the effect,
if any, that adoption of SFAS No. 160 will have on its results of
operations and financial position.
In March 2008, the FASB
issued SFAS No. 161,
Disclosures about
Derivative Instruments and Hedging Activities
an amendment
of
FASB Statement No. 133
(SFAS No.
161). SFAS No. 161 requires enhanced disclosures about an entitys derivative
and hedging activities and, thereby, improves the transparency of financial
reporting. SFAS No. 161 is effective for fiscal years beginning on or after
November 15, 2008. The Company is currently evaluating the impact that the
adoption of SFAS No. 161 will have on its financial position, results of
operations and cash flows.
16
ITEM
2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
|
The
following discussion of our financial condition and results of operations
should be read in conjunction with our interim condensed consolidated financial
statements and the notes to those statements included in Part 1, Item 1 of
this Quarterly Report on Form 10-Q, and in conjunction with the
consolidated financial statements contained in our Annual Report on Form 10-K
for the year ended December 31, 2007.
Statements
contained in Managements Discussion and Analysis of Financial Condition and
Results of Operations which express that we
believe, anticipate, plan, expect, seek, estimate,
or should, as well as other statements which are not historical fact, are
forward-looking statements within the meaning of the Private Securities
Litigation Act of 1995. Actual events or results may differ materially from
those set forth in forward-looking statements. Certain factors that might cause
such a difference are discussed in Factors Affecting Our Business, Operating
Results and Financial Condition set forth in our Annual Report on Form 10-K
for the year ended December 31, 2007.
OVERVIEW
The following Managements
Discussion and Analysis of Financial Condition and Results of Operations, or
MD&A, describes the principal factors affecting the results of our
operations, financial condition and changes in financial condition, as well as
our critical accounting policies and estimates. Our MD&A is organized as
follows:
·
Executive overview.
This section provides a general
description and history of our business, a brief discussion of our reportable
segments, significant recent developments in our business and other
opportunities, challenges and risks that may impact our business in the future.
·
Critical accounting policies.
This section discusses the accounting
estimates that are considered important to our financial condition and results
of operations and require us to exercise subjective or complex judgments in
their application.
·
Results of operations.
This section provides our analysis of
the significant line items on our consolidated statement of operations for the
three months ended March 31, 2008 compared to the three months ended March 31,
2007.
·
Liquidity and capital resources.
This section provides an analysis of our
liquidity and cash flow and a discussion of our outstanding debt and
commitments.
·
Recent accounting pronouncements.
This section provides information about
new accounting standards that have been issued but for which adoption is not
yet required.
EXECUTIVE OVERVIEW
Business
Bruker Corporation and
its wholly-owned subsidiaries design, manufacture, market and service
proprietary life science and materials research systems based on our core
technology platforms, including X-ray technologies, magnetic resonance
technologies, mass spectrometry technologies,
optical emission spectroscopy and infrared and Raman molecular spectroscopy
technologies. We also manufacture and distribute a broad range of field
analytical systems for chemical, biological, radiological and nuclear, or CBRN,
detection. We maintain major technical and manufacturing centers in Europe,
North America and Japan and we have sales offices located throughout the world.
Our corporate headquarters are located in Billerica, Massachusetts.
Our business strategy is
to capitalize on our ability to innovate and generate rapid revenue growth,
both organically and through acquisitions. Our revenue growth strategy,
combined with anticipated improvements to our gross profit margins and
increased leverage on our research and development, sales and marketing and
distribution investments and general and administrative expenses, are expected
to enhance our operating margins and improve our earnings in the future.
17
On February 26,
2008, the Company completed its acquisition of Bruker BioSpin. Both the Company
and Bruker BioSpin were majority owned by six affiliated stockholders prior to
the acquisition. As a result, the acquisition of Bruker BioSpin by the Company
is considered a business combination of companies under common control, and has
been accounted for at historical carrying values. Historical consolidated
balance sheets, statements of operations, statements of cash flows and notes to
the consolidated financial statements have been restated by combining the
historical consolidated financial statements of Bruker Corporation with those
of Bruker BioSpin. In addition, because the transaction is accounted for as an
acquisition of businesses under common control, all one-time transaction costs
have been expensed as incurred, rather than being added to goodwill.
With the addition of
Bruker BioSpin, we enhanced our position as a leading supplier for life science
and materials research. The technologies of Bruker BioSpin are particularly
complementary to our accurate-mass electrospray time-of-flight mass
spectrometers and our single-crystal diffraction X-ray spectrometers and are
expected to create revenue synergies and provide opportunities to supply
customers with equipment packages that have a broader range of applications and
value. We believe the addition of Bruker BioSpin will also enhance our
distribution in the Americas, Europe and Asia and our sales and service
infrastructure, all of which should provide us with revenue growth
opportunities and accelerate our drive to improve our margins, net income and
operating cash flows.
Following the acquisition
of Bruker BioSpin, management reevaluated the way the Company is managed and
the internal reporting structure and, as a result of that evaluation, will
report its results based on the following reportable segments:
·
BioScience
. The operations of this segment include
the design, manufacture and distribution of advanced instrumentation and
automated solutions based on X-ray technology, OES-spark technology, mass
spectrometry technology and infrared and Raman molecular spectroscopy
technology. Typical customers of the BioScience segment include pharmaceutical,
biotechnology, proteomics and molecular diagnostic companies, academic
institutions, government agencies, semiconductor companies, chemical, cement,
metals and petroleum companies, raw material manufacturers and food, beverage and
agricultural companies.
·
BioSpin
. The operations of this segment include
the design, manufacture and distribution of enabling life science tools based
on its core technology, magnetic resonance, as well as the manufacturing and
development of low temperature superconductor (LTS) and high temperature
superconductor (HTS) wires for use in advanced magnet technology and in energy
applications. Typical customers of the BioSpin segment include pharmaceutical
and biotechnology companies, academic institutions and government agencies.
Financial Overview
For
the three months ended March 31, 2008, our revenue increased by $30.9
million, or 14.9%, to $238.4 million, compared to $207.5 million for the
comparable period in 2007.
Included in this change in revenue is approximately $20.6 million from
the impact of foreign exchange. Excluding the effect of foreign exchange,
revenue increased by $10.3 million, or
5.0%. The increase in revenue excluding the effect of foreign exchange
is attributable primarily to higher sales
in the BioScience segment, offset partially by lower sales from the BioSpin
segment.
I
ncome from
operations for the three months ended March 31,
2008 was $15.9 million, resulting in an operating margin of 6.7%, compared to income
from operations of $19.7 million,
resulting in an operating margin of 9.5%, for the comparable period of 2007.
The decrease in income from operations resulted from higher operating
expenses and $5.8 million of charges related to the acquisition of Bruker
BioSpin offset partially by higher revenues and improved gross profit margins.
The acquisition-related costs incurred in the first quarter of 2008 were
expensed as incurred, rather than being added to goodwill, because the
acquisition of Bruker BioSpin was accounted for as an acquisition of businesses
under common control.
18
For the three months
ended March 31, 2008, the Company incurred pre-tax foreign exchange losses
of $12.2 million. These foreign exchange losses were driven primarily by the remeasurement
of certain foreign currency denominated assets, principally cash, inter-company
receivables and a short-term inter-company loan into the functional currency of
the affected entities. The losses resulted from the continued weakening of the
U.S. Dollar, as well as from an unexpected strengthening of the Swiss Franc
relative to both the U.S. Dollar and the Euro by approximately 11% and 3%,
respectively, during the five weeks between the closing of the Bruker BioSpin
acquisition and the end of the first quarter of 2008.
We also incurred
approximately $1.4 million of interest expense on acquisition-related debt
during the period from February 26, 2008 to March 31, 2008. There was
no acquisition-related interest expense during the three months ended March 31,
2007. In an effort to reduce interest expense in future periods, we repaid
approximately $55.0 million of this debt in April 2008 and an additional
$90.0 million in May 2008. Additionally, in April 2008, we entered
into an interest rate swap with an initial notional amount of $90.0 million
that will hedge a portion of our $150.0 million variable-rate term loan and fix
the interest rate on the hedged portion of the debt at a rate of approximately
3.8%.
Our net
loss for the three months ended March 31,
2008, was $(0.7) million, or $(0.00) per diluted share, compared to net income
of $14.4 million, or $0.09 per diluted
share, for the comparable period of 2007.
CRITICAL ACCOUNTING POLICIES
The discussion and
analysis of our financial condition and results of operations is based upon our
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires that we make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. On an ongoing basis, management evaluates its estimates and judgments,
including those related to revenue recognition, allowance for doubtful
accounts, inventories, goodwill, long-lived assets, warranty costs and income
taxes. We base our estimates and judgments on historical experience, current
market and economic conditions, industry trends and other assumptions that we
believe are reasonable and form the basis for making judgments about the
carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results could differ from these estimates.
We believe the following
critical accounting policies to be both those most important to the portrayal
of our financial condition and those that require the most subjective judgment.
Revenue
recognition.
We
recognize revenue from system sales when persuasive evidence of an arrangement
exists, the price is fixed or determinable, title and risk of loss has been
transferred to the customer and collectibility of the resulting receivable is
reasonably assured. Title and risk of loss is generally transferred to the
customer upon receipt of a signed customer acceptance form for a system that
has been shipped, installed, and for which the customer has been trained. As a
result, the timing of customer acceptance or readiness could cause our reported
revenues to differ materially from expectations. When products are sold through
an independent distributor or a strategic distribution partner, which assumes
responsibility for installation, we recognize the system sale when the product
has been shipped and title and risk of loss have been transferred. Our
distributors do not have price protection rights or rights of return; however,
our products are typically warranted to be free from defect for a period of one
to two-years. Revenue is deferred until cash is received when a significant
portion of the fee is due over one year after delivery, installation and
acceptance of a system. For arrangements with multiple elements, we recognize
revenue for each element based on the fair value of the element, provided all
other criteria for revenue recognition have been met. The fair value for each
element provided in multiple element arrangements is typically determined by
referencing historical pricing policies when the element is sold separately.
Changes in our ability to establish the fair value for each element in multiple
element arrangements could affect the timing of revenue recognition. Revenue
from accessories and parts is recognized upon shipment and service revenue is
recognized as the services are performed. Grant revenue is recognized when we
complete the services required under the grant.
Warranty
costs.
We
normally provide a one to two-year parts and labor warranty with the purchase
of
19
equipment. The
anticipated cost for this warranty is accrued upon recognition of the sale and
is included as a current liability on the balance sheet. Although our
facilities undergo quality assurance and testing procedures throughout the
production process, our warranty obligation is affected by product failure
rates, material usage and service delivery costs incurred in correcting a
product failure. Although our actual warranty costs have historically been
consistent with expectations, to the extent warranty claim activity or costs
associated with servicing those claims differ from our estimates, revisions to
the warranty accrual may be required.
Inventories.
Inventories are stated at the lower of
cost or market, with costs determined by the first-in, first-out method for a
majority of subsidiaries and by average-cost for one international location. We
maintain an allowance for excess and obsolete inventory to reflect the expected
non-saleable or non-refundable inventory based on an evaluation of slow moving
products. If ultimate usage or demand varies significantly from expected usage
or demand, additional write-downs may be required, resulting in a charge to
operations.
Goodwill,
other intangible assets and other long-lived assets.
We evaluate whether goodwill is impaired
annually and when events occur or circumstances change that would more likely
than not reduce the fair value of a reporting unit below its carrying amount.
Fair value is determined using market comparables for similar businesses or
forecasts of discounted future cash flows. We also review other intangible
assets and other long-lived assets when indication of potential impairment
exists, such as a significant reduction in cash flows associated with the
assets. Should the fair value of our long-lived assets decline because of
reduced operating performance, market declines, or other indicators of
impairment, a charge to operations for impairment may be necessary.
Allowance
for doubtful accounts.
We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to pay amounts due. If the
financial condition of our customers were to deteriorate, reducing their
ability to make payments, additional allowances would be required, resulting in
a charge to operations.
Income
taxes.
We
estimate the degree to which tax assets and loss carryforwards will result in a
benefit based on expected profitability by tax jurisdiction, and provide a
valuation allowance for tax assets and loss carryforwards that we believe will
more likely than not go unused. If it becomes more likely than not that a tax
asset or loss carryforward will be used for which a reserve has been provided,
we reverse the related valuation allowance. If our actual future taxable income
by tax jurisdiction differ from estimates, additional allowances or reversals
of reserves may be necessary.
RESULTS OF OPERATIONS
Three Months Ended March 31,
2008 Compared to the Three Months Ended March 31, 2007
Consolidated
Results
The following table
presents our results for the three months ended March 31, 2008 and 2007
(dollars in thousands):
20
|
|
Three Months Ended
March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(in thousands, except per share data)
|
|
Product revenue
|
|
$
|
207,035
|
|
$
|
181,609
|
|
Service revenue
|
|
29,957
|
|
25,187
|
|
Other revenue
|
|
1,444
|
|
740
|
|
Total revenue
|
|
238,436
|
|
207,536
|
|
|
|
|
|
|
|
Cost of product revenue
|
|
104,901
|
|
96,649
|
|
Cost of service revenue
|
|
20,406
|
|
16,339
|
|
Total cost of
revenue
|
|
125,307
|
|
112,988
|
|
Gross profit
|
|
113,129
|
|
94,548
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
Sales and marketing
|
|
43,393
|
|
35,462
|
|
General and administrative
|
|
16,804
|
|
13,413
|
|
Research and development
|
|
31,205
|
|
25,964
|
|
Acquisition related charges
|
|
5,793
|
|
|
|
Total operating
expenses
|
|
97,195
|
|
74,839
|
|
Operating income
|
|
15,934
|
|
19,709
|
|
|
|
|
|
|
|
Interest and other income (expense), net
|
|
(12,189
|
)
|
750
|
|
Income before income tax provision and minority interest
in consolidated subsidiaries
|
|
3,745
|
|
20,459
|
|
Income tax provision
|
|
4,270
|
|
6,023
|
|
Income (loss) before minority interest in
consolidated subsidiaries
|
|
(525
|
)
|
14,436
|
|
Minority interest in consolidated subsidiaries
|
|
160
|
|
86
|
|
Net income (loss)
|
|
$
|
(685
|
)
|
$
|
14,350
|
|
Net income (loss) per common share - basic and
diluted
|
|
$
|
(0.00
|
)
|
$
|
0.09
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
Basic
|
|
162,303
|
|
160,365
|
|
Diluted
|
|
162,303
|
|
162,906
|
|
Revenue
Our
revenue increased by $30.9 million, or 14.9%, to $238.4 million for the three
months ended March 31, 2008, compared to $207.5 million for the comparable
period in 2007. Included in this change in revenue is approximately $20.6
million from the impact of foreign exchange. Excluding the effect of foreign
exchange, revenue increased by 5.0%. The increase in revenue excluding the
effect of foreign exchange is attributable to an increase in revenues from the
BioScience segment, principally from system revenues, offset partially by lower
revenues from the BioSpin segment.
Cost
of Revenue
Our
cost of product and service revenue for the three months ended March 31,
2008, was $125.3 million, resulting in a gross profit margin of 47.4%, compared
to cost of product and service revenue of $113.0 million, resulting in a gross
profit margin of 45.6% for the comparable period of 2007. The increase in gross
profit margin as a percentage of revenues is attributable primarily to product
mix and improved utilization as a result of higher revenues and ongoing
initiatives targeted at improving gross margins. The increase in our gross
profit margin as a percentage of revenues was partially offset by the continued
weakening of the U.S. Dollar coupled with the fact that the majority of the our
manufacturing is done in Europe.
21
Sales
and Marketing
Our
sales and marketing expense for the three months ended March 31, 2008
increased to $43.4 million, or 18.3% of product and service revenue, from $35.5
million, or 17.1% of product and service revenue, for the comparable period of
2007. The increase in sales and marketing expense is attributable to our
continuing investment in direct sales, inside sales product specialists and
application resources. We also incurred higher commission expenses on higher revenues
generated through third-party distributors.
General
and Adminstrative
Our
general and
administrative expense for the three
months ended March 31, 2008 increased to $16.8 million, or 7.1% of product
and service revenue, from $13.4 million, or 6.5% of product and service
revenue, for the comparable period of 2007. The increase is attributable to
additional headcount, primarily in the BioSpin segment, and was a necessary
part of Bruker BioSpin becoming a part of a publicly-traded company.
Research and Development
Our
research and
development expense for the three
months ended March 31, 2008 increased to $31.2 million, or 13.2% of
product and service revenue, from $26.0 million, or 12.6% of product and
service revenue, for the comparable period of 2007. The increase in research
and development expenses is attributable primarily to changes in foreign
currency exchange rates, primarily the Euro, as a majority of our research and
development is performed in Europe.
Acquisition Related Charges
On December 3, 2007,
we announced that we had entered into a definitive agreement to acquire all of
the stock of Bruker BioSpin. The acquisition of Bruker BioSpin was approved by
our shareholders on February 25, 2008 and was completed on February 26,
2008. The acquisition represented a business combination of companies under
common control due to a majority of ownership of both Bruker Corporation and
Bruker BioSpin by the same individuals and, as a result, transaction costs are
expensed as incurred rather than being included in a purchase price allocation.
During the three months ended March 31, 2008, the Company incurred and
expensed acquisition-related charges totaling $5.8 million, which consisted of
investment banking fees, legal fees and accounting fees. The Company does not
expect to incur any additional acquisition-related charges in connection with
the acquisition of Bruker BioSpin.
Interest and Other Income (Expense), Net
Interest
and other income (expense), net during the three months ended March 31,
2008, was $(12.2) million, compared to $0.8 million during the three months
ended March 31, 2007.
During
the three months ended March 31, 2008, the major component within interest
and other income (expense), net, were losses on foreign currency transactions
of $12.2 million.
These
foreign exchange losses were driven primarily by the remeasurement of certain
foreign currency denominated assets, principally cash, inter-company
receivables and a short-term inter-company loan into the functional currency of
the affected entities. The losses resulted from the continued weakening of the
U.S. Dollar, as well as from an unexpected strengthening of the Swiss Franc
relative to both the U.S. Dollar and the Euro by approximately 11% and 3%,
respectively, during the five weeks between the closing of the Bruker BioSpin
acquisition and the end of the first quarter of 2008.
During
the three months ended March 31, 2007, the major components within
interest and other income (expense), net, were net interest income of $1.2
million offset partially by losses on foreign currency transactions of $0.7
million.
Provision for Income Taxes
Our effective tax rate
reflects our tax provision for non-U.S. entities only, since no benefit was
22
recognized for losses
incurred in the U.S. We will maintain a full valuation allowance for our U.S.
net operating losses until evidence exists that it is more likely than not that
the loss carryforward amounts will be utilized to offset U.S. taxable income.
Our tax rate may change over time as the amount and mix of income and taxes
outside the U.S. changes. The effective tax rate is calculated using our
projected annual pre-tax income or loss and is affected by research and
development tax credits, the expected level of other tax benefits, and the
impact of changes to the valuation allowance, as well as changes in the mix of
our pre-tax income and losses among jurisdictions with varying statutory tax
rates and credits.
The
income tax provision for the three months ended March 31, 2008, was $4.3
million compared to an income tax provision of $6.0 million for the three
months ended March 31, 2007, representing effective tax rates of 114.0%
and 29.4%, respectively. The effective tax rate for the three months ended March 31,
2008 is a result of the acquisition-related charges that did not result in any
tax benefit and the foreign exchange losses that resulted in only modest tax
benefits. The acquisition costs did not generate tax benefits for us because
they were incurred primarily in the U.S. and the foreign exchange losses did
not generate significant tax benefits because they occurred in foreign
locations with relatively low tax rates.
Minority Interest in Consolidated Subsidiaries
Minority
interest in consolidated subsidiaries for the three months ended March 31,
2008, was $0.2 million compared to $0.1 million for the comparable period of
2007. The minority interest in subsidiaries represents the minority
shareholders proportionate share of net income of those subsidiaries for the
three months ended March 31, 2008 and 2007. The minority interest relates
to our two majority-owned indirect subsidiaries, InCoaTec GmbH and Bruker
Baltic Ltd.
Net Income (Loss)
Our net income (loss)
for the three months ended March 31,
2008, was $(0.7) million, or $(0.00) per diluted share, compared to $14.4
million, or $0.09 per diluted share, for the comparable period of 2007. Despite
the increase in revenue and improvement in gross margin described above, our
net income decreased as a result of higher operating expenses, including $5.8
million of
acquisition related charges, and foreign exchange losses during the three
months ended March 31, 2008.
Segment
Results
Revenue
The following table
presents revenue, change in revenue and revenue growth by reportable segment
for the three months ended March 31, 2008 and 2007 (dollars in thousands):
|
|
2008
|
|
2007
|
|
$ Change
|
|
Percentage Change
|
|
BioScience
|
|
$
|
142,629
|
|
$
|
112,753
|
|
$
|
29,876
|
|
26.5
|
%
|
BioSpin
|
|
112,118
|
|
107,647
|
|
4,471
|
|
4.2
|
%
|
Eliminations (a)
|
|
(16,311
|
)
|
(12,864
|
)
|
(3,447
|
)
|
|
|
Total Revenue
|
|
$
|
238,436
|
|
$
|
207,536
|
|
$
|
30,900
|
|
14.9
|
%
|
(a)
Represents product and service revenue
between reportable segments.
BioScience
Segment Revenues
BioScience
segment revenue increased by $29.9 million, or 26.5%, to $142.6 million for the
three months ended March 31, 2008, compared to $112.8 million for the
comparable period in 2007. Included in this change in revenue is approximately
$10.0 million from the impact of foreign exchange. Excluding the effect of
foreign exchange, revenue increased by 17.6%. The increase in revenue excluding
the effect of foreign exchange is attributable to increases in system revenues
across the various product lines. Revenues in the three months ended March 31,
2007 include $1.5 million of molecular spectroscopy revenue that was recognized
from our order with the Chinese State Food and Drug Administration. The order
from the Chinese State Food and Drug Administration was completed during 2007
and we did not recognize any
23
additional
system revenue from this order during the three months ended March 31,
2008.
System
revenue, other system revenue and aftermarket revenue as a percentage of total
BioScience segment revenue were as follows during the three months ended March 31,
2008 and 2007 (dollars in thousands):
|
|
2008
|
|
2007
|
|
|
|
Revenue
|
|
Percentage
of
Segment Revenue
|
|
Revenue
|
|
Percentage
of
Segment Revenue
|
|
System Revenue
|
|
$
|
104,074
|
|
73.0
|
%
|
$
|
80,818
|
|
71.7
|
%
|
Other System Revenue
|
|
9,492
|
|
6.7
|
%
|
6,226
|
|
5.5
|
%
|
Aftermarket Revenue
|
|
29,063
|
|
20.3
|
%
|
25,709
|
|
22.8
|
%
|
Total Revenue
|
|
$
|
142,629
|
|
100.0
|
%
|
$
|
112,753
|
|
100.0
|
%
|
System
revenues in the BioScience segment include X-ray systems, mass spectrometry
systems, CBRN detection systems and molecular spectroscopy systems. Other
system revenues in the BioScience segment relate primarily to the distribution
of products not manufactured by the BioScience segment. Aftermarket revenues in
the BioScience segment include accessory sales, consumables, training and
services.
BioSpin
Segment Revenues
BioSpin
segment revenue increased by $4.5 million, or 4.2%, to $112.1 million for the
three months ended March 31, 2008, compared to $107.6 for the comparable
period in 2007. Included in this change in revenue is approximately $10.6
million from the impact of foreign exchange. Excluding the effect of foreign
exchange, revenue decreased by 5.7%. The decrease in revenue excluding the
effect of foreign exchange is attributable to lower sales of high field
analytical systems offset partially by higher aftermarket revenues.
System
and wire revenue, other system revenue and aftermarket revenue as a percentage
of total BioSpin segment revenue were as follows during the three months ended March 31,
2008 and 2007 (dollars in thousands):
|
|
2008
|
|
2007
|
|
|
|
Revenue
|
|
Percentage of
Segment Revenue
|
|
Revenue
|
|
Percentage of
Segment Revenue
|
|
System and Wire Revenue
|
|
$
|
78,818
|
|
70.3
|
%
|
$
|
81,947
|
|
76.1
|
%
|
Other System Revenue
|
|
5,000
|
|
4.5
|
%
|
1,900
|
|
1.8
|
%
|
Aftermarket Revenue
|
|
28,300
|
|
25.2
|
%
|
23,800
|
|
22.1
|
%
|
Total Revenue
|
|
$
|
112,118
|
|
100.0
|
%
|
$
|
107,647
|
|
100.0
|
%
|
System
and wire revenues in the BioSpin segment include Nuclear Magnetic Resonance
systems, Magnetic Resonance Imaging systems, Electron Paramagnetic Resonance
systems, Minispec systems, power supplies and our LTS and HTS wire business. Other
system revenues in the BioSpin segment relate primarily to the distribution of
products not manufactured by Bruker BioSpin. Aftermarket revenues in the
BioSpin segment include accessory sales, consumables, training and services.
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 March 31, 2008 and 2007 (dollars
in thousands):
24
|
|
2008
|
|
2007
|
|
|
|
Operating
Income (Loss)
|
|
Operating
Margin
|
|
Operating
Income (Loss)
|
|
Operating
Margin
|
|
BioScience
|
|
$
|
11,749
|
|
8.2
|
%
|
$
|
8,943
|
|
7.9
|
%
|
BioSpin
|
|
10,061
|
|
9.0
|
%
|
15,231
|
|
14.1
|
%
|
Corporate, Eliminations and Other
|
|
(5,876
|
)
|
|
|
(4,465
|
)
|
|
|
Total Operating Income
|
|
$
|
15,934
|
|
6.7
|
%
|
$
|
19,709
|
|
9.5
|
%
|
BioScience
segment
income from
operations for the three months ended March 31,
2008, was $11.7 million, resulting in an operating margin of 8.2%, compared to income
from operations of $8.9 million,
resulting in an operating margin of 7.9%, for the comparable period of 2007.
The increase in operating margin is the result of higher revenues and improved
gross margins offset partially by higher operating expenses. The improvement in
gross margins is attributable primarily to product mix and improved utilization
as a result of higher revenues and ongoing initiatives targeted at improving
gross margins. The increase in operating expenses related primarily to selling
and marketing and research and development costs. Selling and marketing
expenses increased as a result of our continuing investment in direct sales,
inside sales product specialists and application resources. The increases in operating
expenses, particularly research and
development, were impacted by changes in foreign currency exchange rates,
primarily the Euro, as a majority of our research and development is performed
in Europe.
BioSpin
segment
income from
operations for the three months ended March 31,
2008, was $10.1 million, resulting in an operating margin of 9.0%, compared to income
from operations of $15.2 million,
resulting in an operating margin of 14.1%, for the comparable period of 2007.
The decrease in operating margin is the result of lower revenues combined with
higher operating expenses. The increase in operating expenses related primarily
to selling and marketing and general and administrative costs. Selling and
marketing expenses increased primarily from commission expenses that resulted
from higher revenues generated through third-party distributors. The increase
in general and administrative expenses is attributable to additional headcount
and was a necessary part of Bruker BioSpin becoming a part of a publicly-traded
company.
LIQUIDITY AND CAPITAL RESOURCES
We currently anticipate
that our existing cash and credit facilities will be sufficient to support our
operating and investing needs for at least the next twelve months, but this
depends on our profitability and our ability to manage working capital
requirements. Our future cash requirements will also be affected by
acquisitions that we may consider. Historically, we have financed our growth
through a combination of debt financings and issuances of common stock. In the
future, there can be no assurances that additional financing alternatives will
be available to us if required, or if available, will be obtained on terms
favorable to us.
During the three months
ended March 31, 2008, net cash provided by operating activities was $22.3
million compared to net cash provided by operating activities of $21.5 million
during the three months ended March 31, 2007. The change in cash from
operating activities during the three months ended March 31, 2008 is
attributable primarily to changes in working capital balances. The change in cash
from operating activities during the three months ended March 31, 2007 is
attributable to the results from operations and changes in working capital
balances.
During the three months ended
March 31, 2008, net cash used by investing activities was $440.6 million,
compared to net cash used by investing activities of $7.1 million during the
three months ended March 31, 2007. Cash used by investing activities
during the three months ended March 31, 2008 was attributable primarily to
$416.8 million used for acquisitions, primarily Bruker BioSpin, and $13.4
million of capital expenditures. Cash used by investing activities during the
three months ended March 31, 2007 was attributable primarily to $4.3
million in capital expenditures and $1.9 million for acquisitions, including
$1.3 million in contingent consideration for acquisitions that occurred prior
to 2007.
During the three months
ended March 31, 2008, net cash provided by financing activities was $355.9
million, compared to net cash provided by financing activities of $5.6 million
during the three months ended March 31, 2007. Cash provided by financing
activities during the three months ended March 31,
25
2008 was attributable
primarily to approximately $358.9 million of borrowings under long-term and
short-term debt arrangements. Cash provided by financing activities during the
three months ended March 31, 2007 was attributable primarily to $18.0
million in net proceeds from the public offering of common stock offset partially by $12.4 million in net
repayments of long-term and short-term borrowings.
On February 26,
2008, the Company completed its acquisition of Bruker BioSpin for $914.0
million. The acquisition of Bruker BioSpin was financed with 57,544,872 shares
of unregistered common stock valued at $526.0 million based on the trailing 10
day trading average closing price of $9.14 per share as of two days prior to
the signing of the transaction agreements, $351.0 million of cash obtained
under new credit facilities and the balance with cash on hand. The Credit
Agreement with a syndication of lenders provides for a revolving credit line
with a maximum commitment of $230.0 million and a term loan facility of $150.0
million. The outstanding principal under the term loan is payable in quarterly
installments through December 2012. Borrowings under the Credit Agreement
bear interest, at the Companys option, at either (i) the higher of the prime
rate or the federal funds rate plus 0.50%, or (ii) adjusted LIBOR, plus
margins ranging from 0.40% to 1.25% and a facility fee ranging from 0.10% to
0.20%. As of March 31, 2008, the weighted-average interest rate of borrowings
under the Credit Agreement was approximately 4.1%.
Borrowings under the
Credit Agreement are secured by the pledge to the banks of 100% of the capital
stock of each of the Companys wholly-owned domestic subsidiaries and 65% of
the capital stock of certain of the Companys wholly-owned direct or indirect
foreign subsidiaries. The Credit Agreement also requires the Company to
maintain certain financial ratios related to maximum leverage and minimum
interest coverage, as defined in the Credit Agreement. In addition to the
financial ratios, the Credit Agreement restricts, among other things, the
Companys ability to do the following: make certain payments; incur additional
debt; incur certain liens; make certain investments, including derivative
agreements; merge, consolidate, sell or transfer all or substantially all of
the Companys assets; and enter into certain transactions with affiliates.
At March 31, 2008,
we had outstanding debt totaling $422.5 million consisting of $369.0 million
outstanding under the Credit Agreement, including $150.0 million drawn on a
term loan and $219.0 million under revolving loans, $26.7 million outstanding
under other long-term debt arrangements, $23.8 million outstanding under other
revolving lines of credit and $3.0 million under capital lease obligations. We
repaid approximately $55.0 million of the outstanding revolving loans under the
Credit Agreement in April 2008 and an additional $90.0 million of
revolving loans in May 2008. At December 31, 2007, we had outstanding
debt totaling $44.2 million consisting of $28.0 million outstanding under other
long-term debt arrangements, $13.2 million outstanding under other revolving
lines of credit and $3.0 million under capital lease obligations.
Amounts outstanding under
other long-term debt arrangements include both collateralized and
uncollateralized arrangements with various financial institutions in Germany,
Japan and a government agency in the United States. These debt arrangements
consist of fixed and variable interest rates ranging from 1.8% to 8.0% at March 31,
2008. In connection with certain of these agreements we are required to
maintain certain financial ratios as defined in the agreements. At March 31,
2008, we were not in compliance with one of the covenants required by our
arrangement with the government agency in the United States. The failure to
meet this covenant did not trigger any cross-default provisions in other
borrowing arrangements, including the Credit Agreement. On May 8, 2008, we
received a limited waiver from the holder of the debt for the quarterly period
ended March 31, 2008.
Amounts outstanding under
other revolving lines of credit are with various financial institutions in
Germany, Japan and France and have aggregate maximum borrowing amounts of
approximately $84.6 million at March 31, 2008. With consideration to
outstanding letters of credit, we had availability of approximately $50.1
million under other revolving lines of credit at March 31, 2008. Our
revolving lines of credit are generally uncollateralized and bear interest at variable
rates ranging from 1.5% to 9.8% at March 31, 2008. Effective February 26,
2008, we terminated a $75.0 million line of credit in the United States and
replaced it with the revolving credit available under the Credit Agreement.
The following table summarizes
maturities for our significant financial obligations as of March 31, 2008
(in thousands):
26
Contractual Obligations
|
|
Total
|
|
Less than
1 year
|
|
1-3
Years
|
|
4-5
Years
|
|
More than
5 years
|
|
Short-term borrowings
|
|
$
|
23,831
|
|
$
|
23,831
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Long-term debt,
including current portion
|
|
395,691
|
|
228,455
|
|
59,780
|
|
107,176
|
|
280
|
|
Capital lease
obligations
|
|
3,002
|
|
810
|
|
1,194
|
|
597
|
|
401
|
|
Uncertain tax contingencies
|
|
18,941
|
|
|
|
18,941
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
441,465
|
|
$
|
253,096
|
|
$
|
79,915
|
|
$
|
107,773
|
|
$
|
681
|
|
As of March 31,
2008, we have approximately $21.4 million of net operating loss carryforwards
available to reduce future U.S. taxable income. These losses have various
expiration dates through 2027. The Company also has U.S. tax credits of
approximately $11.1 million available to offset future tax liabilities that
expire at various dates. These credits include foreign tax credits of $8.0
million expiring in various years through 2017 and research and
development tax credits of $3.1 million expiring through 2025. These operating
losses and tax credit carryforwards may be subject to limitations under
provisions of the Internal Revenue Code.
Uncertain tax
contingencies are positions taken or expected to be taken on an income tax
return that may result in additional payments to tax authorities. The amount in
the preceding table includes interest and penalties accrued related to these
positions as of March 31, 2008. The total amount of uncertain tax
contingencies is included in the 1-3 Years column as the Company is not able
to reasonably estimate the timing of potential future payments. If a tax
authority agrees with the tax position taken or expected to be taken or the
applicable statute of limitations expires, then additional payments will not be
necessary.
NEW ACCOUNTING PRONOUNCEMENTS
In December 2007,
the FASB issued SFAS No. 141(R),
Business Combinations
(SFAS No. 141(R)). This statement will significantly change the
accounting for business combinations. Under SFAS No. 141(R), an acquiring
entity will be required to recognize all of the assets acquired and liabilities
assumed in a transaction at the acquisition date fair value with certain
limited exceptions. In addition, SFAS No. 141(R) will change the
accounting treatment for acquisition costs, in-process research and
development, restructuring costs associated with business combinations and
changes in deferred tax asset valuation allowances and income tax uncertainties
after the acquisition date. SFAS No. 141(R) also includes a
significant number of new disclosure requirements. Early adoption of SFAS No. 141(R) is
prohibited and the Company will be required to apply SFAS No. 141(R) to
acquisitions that occur on or after January 1, 2009.
In December 2007,
the FASB issued SFAS No. 160,
Noncontrolling Interests
in Consolidated Financial Statements An Amendment of ARB No. 51
(SFAS No. 160). This statement establishes new accounting and reporting
standards for the minority interest in a subsidiary and the deconsolidation of
a subsidiary. SFAS No. 160 is effective as of the beginning of fiscal 2009
and early adoption is prohibited. The Company has not yet assessed the effect,
if any, that adoption of SFAS No. 160 will have on its results of
operations and financial position.
In March 2008, the FASB
issued SFAS No. 161,
Disclosures about
Derivative Instruments and Hedging Activities
an amendment
of
FASB Statement No. 133
(SFAS No.
161). SFAS No. 161 requires enhanced disclosures about an entitys derivative
and hedging activities and, thereby, improves the transparency of financial
reporting. SFAS No. 161 is effective for fiscal years beginning on or after
November 15, 2008. The Company is currently evaluating the impact that the
adoption of SFAS No. 161 will have on its financial position, results of
operations and cash flows.
ITEM
3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
We are potentially
exposed to market risks associated with changes in foreign exchange rates and
interest rates. We selectively use financial instruments to reduce these risks.
All transactions related to risk management techniques are authorized and
executed pursuant to our policies and procedures. Analytical techniques used to
manage and monitor foreign exchange and interest rate risk include market
valuations and sensitivity analysis.
Impact of Foreign Currencies
The Company generates a
substantial portion of its revenues in international markets, principally
Europe and Japan, which subjects its operations to the exposure of exchange
rate fluctuations. The impact of currency exchange rate movement can be
positive or negative in any period. 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
27
foreign currency is
exchanged for U.S. Dollars, it will require more of the foreign currency to
equal a specified amount of U.S. Dollars than before the rate increase. In such
cases, if we price our products in the foreign currency, we will receive less
in U.S. Dollars than we did before the rate increase went into effect. If we
price our products in U.S. Dollars and competitors price their products in
local currency, an increase in the relative strength of the U.S. Dollar could
result in our prices not being competitive in a market where business is
transacted in the local currency.
Our foreign exchange
losses, net were $12.2 million and $0.7 million for the three months
ended March 31, 2008 and 2007, respectively. As we continue to expand
internationally we will continue to evaluate our currency risks and may utilize
foreign exchange contracts more frequently in order to mitigate our foreign
currency exposures. From time to time, we have entered into foreign currency
contracts in order to minimize the volatility that fluctuations in exchange
rates will have on the Companys cash flows related to purchases and sales
denominated in foreign currencies. At March 31, 2008, there were no
outstanding forward currency contracts.
Impact of Interest Rates
We regularly invest
excess cash in overnight repurchase agreements and interest-bearing
investment-grade securities that we hold for the duration of the term of the
respective instrument and that are subject to changes in short-term interest
rates. We believe that the market risk arising from holding these financial
instruments is minimal.
Our exposure related to
adverse movements in interest rates is derived primarily from outstanding
floating rate debt instruments that are indexed to short-term market rates. Our
objective in managing our exposure to interest rates is to decrease the
volatility that changes in interest rates might have on our earnings and cash
flows. To achieve this objective we entered into interest rate swaps and cross
currency rate swaps in order to minimize the volatility that changes in
interest rates might have on earnings and cash flows.
In April 2008, we
entered into an interest rate swap arrangement to pay a fixed rate of
approximately 3.8% and receive a variable rate based on three month LIBOR
through December 31, 2012. The initial notional amount of this interest
rate swap is $90.0 million and will amortize in proportion to the term debt
component of the Credit Agreement. We have determined that this swap is an
effective hedge of the variability of cash flows of the interest payments
under SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities
(SFAS
No. 133).
In addition, in 2002 we
entered into a cross currency interest rate swap arrangement under which the
Company receives semiannual interest payments in Euros based on a variable
interest rate equal to the six-month EURIBOR rate in exchange for semiannual
payments in Swiss francs at a fixed rate of 4.97% through December 2011.
The notional amount of this interest rate swap arrangement was 5.0 million at March 31,
2008. In 1999, the Company entered into an interest rate swap arrangement to
pay a 4.60% fixed rate of interest and receive a variable rate of interest
based on the Securities Industry and Financial Markets Municipal Swap Index
through December 2013. The notional amount of this interest rate swap
arrangement was $1.5 million at March 31, 2008. We have determined that
these swaps are not effective in offsetting the change in interest cash flows
being hedged as defined by SFAS No. 133.
A 10% increase or
decrease in the average cost of our variable rate debt would not result in a
material change in pre-tax interest expense.
Inflation
We do not believe
inflation had a material impact on our business or operating results during any
of the periods presented.
ITEM
4.
|
CONTROLS AND PROCEDURES
|
We have established
disclosure controls and procedures that are designed to ensure that material
information relating to us, including our consolidated subsidiaries, is made
known to our Chief Executive Officer (principal executive officer) and Chief
Financial Officer (principal financial officer) by others
28
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
March 31, 2008. Based on this evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures
were effective as of March 31, 2008, to ensure that the information
required to be disclosed by us in the reports that we file or submit under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and forms.
There were no changes in
our internal control over financial reporting that occurred during the quarter
ended March 31, 2008 that materially affected, or are reasonably likely to
affect, our internal control over financial reporting.
29
PART II
|
OTHER
INFORMATION
|
ITEM
1.
|
LEGAL PROCEEDINGS
|
Except as set forth
below, there have been no material changes to the legal proceedings disclosed
in Part I, Item 3. Legal Proceedings in our Annual Report on Form 10-K
for the year ended December 31, 2007.
Our subsidiary Bruker
Daltonics is party to an Agreement with Isis Pharmaceuticals, Inc. regarding
the manufacture and sale of certain systems sold by Isis which incorporate mass
spectrometers from Bruker Daltonics. The
parties are currently in a dispute regarding the performance of each party
under the Agreement. Pursuant to the
Agreements dispute resolution mechanism, the parties have scheduled a
mediation with a third party mediator during May 2008 in an attempt to resolve
the disputes. If the mediation does not
resolve the dispute, it is possible litigation between the parties will follow.
In
addition to the other information set forth in this report, you should
carefully consider the factors discussed in Part I, Item 1A. Risk Factors
in our Annual Report on Form 10-K for the year ended December 31,
2007, 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
disclosed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K
for the fiscal year ended December 31, 2007.
Our
reported financial results may be adversely affected by fluctuations in
currency exchange rates.
Our exposure to currency exchange rate fluctuations
results primarily from the currency translation exposure associated with the
preparation of our consolidated financial statements and from the transaction
exposure associated with transactions of our subsidiaries that are denominated
in a currency other than the respective subsidiarys functional currency. While
our financial results are reported in U.S. Dollars, the financial statements of
many of our subsidiaries outside the United States are prepared using the local
currency as the functional currency. During consolidation, these results are
translated into U.S. Dollars by applying appropriate exchange rates. As a
result, fluctuations in the exchange rate of the U.S. Dollar relative to the
local currencies in which our foreign subsidiaries report therefore could cause
significant fluctuations in our reported results. Moreover, as exchange rates
vary, revenue and other operating results may differ materially from our
expectations.
Additionally, to the extent monetary assets and
liabilities, including debt, are held in a different currency than the
reporting subsidiarys functional currency, fluctuations in currency exchange
rates may have a significant impact on our reported financial results, and may
lead to increased earnings volatility. We may record significant gains or
losses related to both the translation of cash and cash equivalents held by our
subsidiaries into local currencies and the revaluation of inter-company
receivables and loan balances.
ITEM
2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE
OF PROCEEDS
|
Except as reported in
Item 3.02 of the Companys Current Report on Form 8-K dated February 21,
2008 filed with the Commission on February 27, 2008, there were no
unregistered sales of equity securities during the three months ended March 31,
2008.
ITEM
3.
|
DEFAULTS UPON SENIOR SECURITIES
|
None.
ITEM
4.
|
SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
(a)
|
|
A special meeting of stockholders of the
Company was held on February 25, 2008.
|
|
|
|
|
|
|
|
(c)
|
|
Proxies representing 97,645,412 shares were
received. Total shares outstanding as of the record date were 105,670,237.
The matters voted upon and the results of the voting at the Special Meeting
are set forth below:
|
|
|
|
|
|
|
|
(i)
|
|
To approve the
acquisition of all of the outstanding stock of Bruker BioSpin Inc.:
|
|
|
|
|
|
|
|
|
|
Vote
of the stockholders of the Company who are unaffiliated with the Laukien
stockholders:
|
|
|
|
|
|
|
|
|
|
Votes
for
|
|
39,941,066
|
|
|
Votes
against
|
|
47,639
|
|
|
Votes
abstaining
|
|
24,853
|
|
|
Broker
non-votes
|
|
2,609,696
|
|
|
|
|
|
|
|
Vote
of all of the stockholders:
|
|
|
|
|
|
|
|
|
|
Votes
for
|
|
94,963,224
|
|
|
Votes
against
|
|
47,639
|
|
|
Votes
abstaining
|
|
24,853
|
|
|
|
|
|
(ii)
|
|
To approve the
acquisition of all of the outstanding share capital
of Bruker Physik GmbH and Techneon AG:
|
|
|
|
|
|
|
|
|
|
Vote
of the stockholders of the Company who are unaffiliated with the Laukien
stockholders:
|
|
|
|
|
|
|
|
|
|
Votes
for
|
|
39,943,956
|
30
|
|
Votes
against
|
|
64,424
|
|
|
Votes
abstaining
|
|
5,178
|
|
|
Broker
non-votes
|
|
2,609,696
|
|
|
|
|
|
|
|
Vote
of all of the stockholders:
|
|
|
|
|
|
|
|
|
|
Votes
for
|
|
94,966,114
|
|
|
Votes
against
|
|
64,424
|
|
|
Votes
abstaining
|
|
5,178
|
|
|
|
|
|
(iii)
|
|
To approve the acquisition through reverse
triangular merger of all of the outstanding share capital of Bruker BioSpin
Invest AG and the issuance of shares of the Companys common stock in
connection with the acquisition of Bruker BioSpin Invest AG:
|
|
|
|
|
|
|
|
|
|
Vote
of the stockholders of the Company who are unaffiliated with the Laukien
stockholders:
|
|
|
|
|
|
|
|
|
|
Votes
for
|
|
39,940,656
|
|
|
Votes
against
|
|
65,874
|
|
|
Votes
abstaining
|
|
7,028
|
|
|
Broker
non-votes
|
|
2,609,696
|
|
|
|
|
|
|
|
Vote
of all of the stockholders:
|
|
|
|
|
|
|
|
|
|
Votes
for
|
|
94,962,814
|
|
|
Votes
against
|
|
65,874
|
|
|
Votes
abstaining
|
|
7,028
|
|
|
|
|
|
(iv)
|
|
To approve the amendment
of the Companys certificate of
incorporation to increase the number of shares of common stock authorized for
issuance from 200,000,000 to 260,000,000:
|
|
|
|
|
|
|
|
|
|
Votes
for
|
|
97,292,205
|
|
|
Votes
against
|
|
161,610
|
|
|
Votes
abstaining
|
|
191,597
|
|
|
|
|
|
(v)
|
|
To approve the amendment of
the Companys amended and restated
stock option plan to increase the number of shares of common stock for which
options and restricted stock may be granted under the plan from 8,000,000 to
10,000,000:
|
|
|
|
|
|
|
|
|
|
Votes
for
|
|
88,652,676
|
|
|
Votes
against
|
|
6,355,696
|
|
|
Votes
abstaining
|
|
27,344
|
|
|
Broker
non-votes
|
|
2,609,696
|
|
|
|
|
|
(vi)
|
|
To approve the amendment of the Companys
certificate of incorporation to change the name from Bruker BioSciences Corporation
to Bruker Corporation:
|
|
|
|
|
|
|
|
|
|
Votes
for
|
|
97,541,708
|
|
|
Votes
against
|
|
77,399
|
|
|
Votes
abstaining
|
|
26,305
|
|
|
|
|
|
(vii)
|
|
To elect Dirk D. Laukien, Ph.D. as a
Class II director to hold office until the 2008 Annual Meeting, and to
elect Tony W. Keller, Ph.D. as a Class III director to hold office until
the 2009 Annual Meeting:
|
|
|
|
|
|
|
|
|
|
(i) Dirk
D. Laukien, Ph.D. as Class II director
|
|
|
|
|
Votes
for
|
|
83,150,604
|
|
|
Votes
withheld
|
|
14,494,808
|
|
|
|
|
|
|
|
(ii) Tony
W. Keller, Ph.D. as Class III director
|
|
|
|
|
Votes
for
|
|
83,154,501
|
|
|
Votes
withheld
|
|
14,490,911
|
Except as set forth above, there were no shares
abstaining and no broker non-voting shares cast.
31
ITEM
5.
|
OTHER INFORMATION
|
None.
Exhibit No.
|
|
Description
|
31.1
|
|
Certification by Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 (1)
|
31.2
|
|
Certification by Chief Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 (1)
|
32.1
|
|
Certification by Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (2)
|
(1)
Filed herewith.
(2)
Furnished herewith.
32
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: May 12, 2008
|
|
By:
|
/s/ FRANK
H. LAUKIEN, PH.D.
|
|
|
|
|
Frank H. Laukien, Ph.D
.
President, Chief Executive Officer and Chairman
(Principal Executive Officer)
|
|
Date: May 12, 2008
|
|
By:
|
/s/ WILLIAM
J. KNIGHT
|
|
|
|
|
William J.
Knight
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
33
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