Bruker Corporation — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. Bruker designs and manufactures scientific instruments and superconducting materials and devices. It reports two segments: Scientific Instruments and Energy & Supercon Technologies (BEST).
Financial performance
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Revenue | $1,651.7 million | $1,304.9 million |
| Gross profit / margin | $752.5 million / 45.6% | $604.0 million / 46.3% |
| Operating income / margin | $155.6 million / 9.4% | $155.7 million / 11.9% |
| Net income attributable to Bruker | $92.3 million | $95.4 million |
| Diluted EPS | $0.55 | $0.58 |
| Cash from operating activities | $87.7 million | $156.1 million |
Revenue increased 26.6%; excluding foreign exchange and acquisitions, management reported growth of 9.2%. Foreign exchange contributed approximately $78.9 million and acquisitions approximately $148.5 million. Scientific Instruments revenue was $1,554.1 million, up 26.9% (8.6% excluding currency and acquisitions); BEST revenue was $113.4 million, up 25.3% (19.8% excluding currency). BEST recorded a $4.1 million operating loss; Scientific Instruments operating income was $162.8 million.
Gross margin declined 0.7 percentage points and operating margin declined 2.5 points year over year. Management cited product mix, higher operating expenses, acquisition-related costs, intangible amortization, specialty-magnet rework provisions, foreign exchange, and costs related to acquired-business integration. Adjusted for specified charges, operating margin was 11.9% versus 13.6% in 2010; these are management’s non-GAAP adjustments.
Fourth-quarter unaudited revenue was $475.1 million versus $416.1 million in Q4 2010; operating income was $53.7 million versus $51.6 million, and net income attributable to Bruker was $39.1 million versus $29.3 million.
Liquidity, debt and cash flow
At year-end, cash and cash equivalents were $246.0 million; working capital was $438.3 million; total debt was $303.1 million; and total shareholders’ equity was $624.9 million. Operating cash flow fell to $87.7 million from $156.1 million, principally as growth in receivables and inventory absorbed working capital. Inventory was $576.2 million, including $116.8 million of shipped systems awaiting customer acceptance. Capital expenditures were $54.4 million.
In January 2012, Bruker issued $240 million of senior notes, with maturities from 2017 to 2024 and coupons of 3.16%–4.46%; a portion was used to reduce revolving borrowings. Management said existing cash and credit facilities should support operating and investing needs for at least 12 months. It expected approximately $50 million of capital spending and $13.5 million of interest expense in 2012. The filing provides no formal 2012 revenue or earnings guidance.
Developments, outlook and risks
- Management cited stronger demand across several instrument categories and increased academic, government and industrial customer spending. It planned selective cost-saving measures in 2012 to reduce operating expenses and improve margins.
- System backlog reached $1,086.5 million, up from $910.4 million; approximately 80% was expected to be filled in 2012. The company cautioned that backlog is not a reliable indicator of long-term revenue.
- The Audit Committee investigation found evidence of improper payments benefiting employees or agents of government-owned enterprises in China and Hong Kong, and policy violations by certain Bruker Optics employees. Bruker reported the matter to U.S. and Hong Kong authorities, is cooperating, and recorded $4.3 million of investigation-related professional costs. Potential fines or other sanctions could not be estimated; no provision was recorded.
- The proposed minority IPO of BEST remained uncertain; Bruker wrote off $3.4 million of deferred offering costs. The company also recorded $1.3 million of restructuring charges for consolidating Berlin AFM operations and expected a further $0.7 million of costs in 2012.
- Key risks include foreign-exchange exposure, economic and government research-spending changes, competition and technological obsolescence, acquisitions and integration, dependence on limited-source suppliers, raw-material and helium costs, debt covenants, tax audits, and legal or regulatory proceedings. The company reported compliance with its credit-agreement covenants at year-end.
Investor verification priorities
- Track SEC, DOJ and Hong Kong authority inquiries, potential penalties, and the scope and findings of the broader China operations review.
- Assess whether operating cash flow recovers as receivables and inventory grow, including the conversion of shipped-but-unaccepted systems into recognized revenue.
- Reconcile reported and adjusted margins, and test whether acquisition integration, product mix and restructuring affect 2012 profitability.
- Confirm the use of January 2012 note proceeds, updated debt and interest costs, and ongoing covenant headroom.
- Monitor backlog conversion, BEST’s operating performance and IPO status, and the delivery of planned cost savings and capital spending.