Bruker Corporation — Q2 2012 Form 10-Q
Reporting period: Three and six months ended June 30, 2012. Unaudited interim results; dollar amounts in millions except per-share data.
Business context
Bruker designs, manufactures and services scientific instruments and superconducting materials and systems. It reports two segments: Scientific Instruments and Energy & Supercon Technologies. The quarter included the March 2012 acquisition of SkyScan, whose results are included in Scientific Instruments.
Financial results
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Revenue | $420.7 | $401.2 | $826.3 | $758.2 |
| Gross profit / margin | $188.2 / 44.7% | $183.6 / 45.8% | $378.6 / 45.8% | $345.4 / 45.6% |
| Operating income / margin | $22.1 / 5.3% | $38.7 / 9.6% | $56.5 / 6.8% | $64.4 / 8.5% |
| Net income attributable to Bruker | $9.9 | $22.1 | $25.0 | $33.4 |
| Diluted EPS | $0.06 | $0.13 | $0.15 | $0.20 |
Revenue rose 4.9% in Q2 and 9.0% year to date as reported. Excluding foreign exchange and recent acquisitions, management reported growth of 10.4% and 12.0%, respectively. Q2 Scientific Instruments revenue was $397.0, while Energy & Supercon revenue was $26.0. For the first six months, segment revenue was $775.1 and $56.0, respectively.
Q2 gross margin declined year over year; excluding specified acquisition, inventory and restructuring charges, it was 46.3% versus 47.9%. The comparable adjusted six-month margins were 47.2% versus 47.7%. Management cited pricing pressure, product mix and higher production costs in chemical analysis. SG&A and R&D together increased to $162.5 in Q2 from $142.5, and to $315.1 for six months from $276.5. Lower operating income and earnings reflected higher operating costs, including non-recurring items, and Q2 margin pressure. The six-month effective tax rate was 45.9%, up from 36.1%, primarily due to unbenefitted losses in certain jurisdictions.
Cash flow, debt and liquidity
- Six-month operating cash flow was $41.9, compared with cash used of $25.6 in 2011. Management attributed the 2012 result partly to collections, offset by inventory growth and other working-capital uses.
- Investing cash outflow was $50.4, including $21.7 for acquisitions and $30.4 of property, plant and equipment purchases ($28.7 net of asset-sale proceeds).
- Financing cash inflow was $17.5. Bruker issued $240.0 of senior notes, while repaying $196.5 net under revolving credit lines and $26.3 of other debt.
- Cash and equivalents were $240.3 at June 30, 2012, versus $246.0 at year-end 2011. Total debt was $320.9, up from $303.1; approximate net debt was $80.6. The company reported $287.3 of total revolving availability, including letters of credit.
- Management said existing cash and credit facilities were expected to support operating and investing needs for at least the next 12 months. Bruker was in compliance with debt covenants at June 30.
Changes, outlook and key risks
- Reported Q2 revenue growth was dampened by an estimated $28.7 foreign-exchange impact; six-month revenue was reduced by an estimated $33.5. Foreign currency translation reduced Q2 comprehensive income to a loss of $23.5, despite positive net income.
- Management noted demand softened late in Q2, particularly in Europe, alongside weaker global industrial and applied markets and sequential slowing in semiconductor and data-storage metrology. It said the persistence and revenue impact of these conditions were uncertain. No specific numerical full-year guidance is provided in the filing text.
- The Audit Committee’s investigation into alleged improper payments involving Bruker Optics operations in China and Hong Kong was completed in Q1. It found evidence of improper benefits to employees or agents of government-owned enterprises and policy violations. The company reported remediation and continued cooperation with the SEC, DOJ and Hong Kong authorities; potential penalties or sanctions cannot be estimated, and no provision was recorded.
- Tax authorities were auditing Swiss tax years 2003–2006 and significant German subsidiaries’ tax years 2003–2008. Bruker disclosed $35.6 of unrecognized tax benefits and accrued interest and penalties of $5.8.
- Other notable items included $4.7 of first-half professional fees for the FCPA investigation, $1.1 of factory-relocation costs and $1.2 of SkyScan acquisition costs. First-half inventory write-downs to net realizable value were $14.1.
- Other exposures include foreign-exchange movements, variable-rate debt, copper and niobium input costs, inventory obsolescence and customer acceptance timing. The company reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether demand weakness in Europe, industrial markets and metrology persisted after quarter-end and affected orders or revenue.
- How much reported growth and margins depend on foreign exchange, acquisitions, product mix and management’s non-GAAP adjustments.
- Progress and potential financial consequences of the China/Hong Kong compliance inquiries, including any enforcement actions or sanctions.
- Debt maturities, covenant headroom, revolver availability and the use of cash held by foreign subsidiaries.
- Results of the Swiss and German tax audits and any change in uncertain tax positions or valuation allowances.