Business context and reporting period
Bruker Corporation designs and manufactures scientific instruments and related products for life-science, materials-analysis, industrial, academic and government customers. Its reporting segments are Bruker Scientific Instruments (BSI), approximately 93% of 2013 revenue, and Energy & Supercon Technologies (BEST). This 10-K covers the fiscal year ended December 31, 2013; fourth-quarter figures are unaudited.
Financial performance
Amounts are in millions of U.S. dollars except per-share data.
| Metric | FY 2013 | FY 2012 | Change |
|---|---|---|---|
| Revenue | $1,839.4 | $1,791.4 | +2.7% |
| Gross profit / margin | $805.2 / 43.8% | $829.4 / 46.3% | Margin down 2.5 points |
| Operating income / margin | $148.2 / 8.1% | $156.0 / 8.7% | Income down 5.0% |
| Net income attributable to Bruker | $80.1 | $77.5 | +3.4% |
| Diluted EPS | $0.48 | $0.46 | +$0.02 |
| Cash from operating activities | $145.0 | $133.1 | +$11.9 |
| Cash and cash equivalents at year-end | $438.7 | $310.6 | +$128.1 |
| Total debt at year-end | $355.0 | $337.2 | +$17.8 |
Fourth-quarter 2013 revenue was $552.1, gross profit $235.9, operating income $61.0 and net income attributable to Bruker $35.2; diluted EPS was $0.21. Fourth-quarter 2012 figures were $517.3, $241.7, $39.2, $12.8 and $0.08, respectively.
BSI revenue was $1,709.5, up 2.6% reported and 3.4% excluding foreign exchange and acquisitions/divestitures. BEST revenue was $147.4, up 8.2% reported and 4.8% excluding foreign exchange. BSI operating income was $138.9, versus $140.8; BEST operating income was $9.5, versus $12.8.
Material changes versus the prior comparable period
- Revenue growth was modest and uneven. Demand improved in academic markets, particularly Europe and Asia, and sales of NMR, MALDI Biotyper and FTMS products increased. Weakness in industrial and microelectronics markets, especially in Asia, weighed on MAT Group X-ray and atomic force microscopy sales.
- Gross margin declined. Bruker cited currency effects, lower volume and pricing in MAT, restructuring costs, and reduced BEST license revenue, which had carried no associated cost of revenue. Excluding specified acquisition-related and restructuring costs, gross margin was 45.3% in 2013 versus 47.5% in 2012.
- Operating expenses were lower: SG&A and R&D together fell to $628.4 from $635.7, reflecting reduced discretionary spending and lower R&D material costs. Reported operating income nevertheless declined; excluding specified charges, operating margin was 11.2% versus 12.2%.
- Net income increased despite lower operating income, helped by a lower effective tax rate of 34.3% versus 43.5%. The prior-year rate was affected by nondeductible impairment charges.
- Backlog fell to approximately $921 from $1,035 at year-end 2012; management expected to fill about 82% of the 2013 year-end backlog during 2014.
Cash, debt and liquidity
- Operating cash flow was $145.0; investing activities used $60.0, including $50.3 of capital expenditures and $11.6 for acquisitions. Financing activities provided $26.5. Cash increased to $438.7.
- Working capital was $783.3, compared with $627.9. Current assets were $1,431.9 and current liabilities $648.6 at year-end.
- Debt totaled $355.0, consisting chiefly of $240.0 in senior notes and $112.5 drawn on the revolving facility. Available revolving credit was $180.7. The company reported compliance with debt covenants.
- $419.8, or 95.7% of cash, was held by foreign subsidiaries. Bruker said it did not currently foresee a need to repatriate foreign earnings and intended to reinvest them abroad; repatriation could create additional U.S. tax.
- Management said cash and credit facilities were expected to support operating and investing needs for at least the next 12 months.
Outlook, risks and unusual items
- For 2014, management expected capital spending below $50 and approximately $14 of interest expense. It expected $15–$20 of expense from restructuring and outsourcing initiatives implemented or beginning in 2013–2014; a separate note estimates approximately $4–$5 of additional 2014 charges related to the cited initiatives.
- Management was pursuing cost control and selective savings to improve margins, but did not provide revenue or earnings guidance. It cautioned that recent end-market conditions may not continue. Fourth-quarter revenue has historically been stronger than earlier quarters.
- 2013 included $25.3 of restructuring costs, including $18.2 reported in other charges and $7.1 in cost of revenue; other charges also included $6.1 of China investigation-related professional fees. The 2012 period included a $23.8 asset impairment; no impairment was recorded in 2013.
- The internal investigation found evidence of improper payments benefiting employees or agents of government-owned enterprises in China and Hong Kong. SEC, DOJ and Hong Kong authority inquiries remained unresolved; the company could not estimate possible losses and recorded no provision. Potential penalties or other adverse outcomes could materially affect future results.
- Three patent/agreement disputes were settled, with amounts recorded in fourth-quarter 2013 and described as immaterial. The auditor issued an unqualified opinion on the financial statements and internal controls; management also concluded controls were effective.
- Key risks include foreign-exchange exposure, reduced customer or government research spending, pricing and competitive pressure, product acceptance and technology changes, supplier concentration and raw-material/helium availability, acquisition integration, debt covenants, tax uncertainties and product liability.
Most important facts for investors to verify
- Whether margin recovery is achievable after the 2013 decline, particularly in BSI and BEST, and how much of adjusted performance depends on excluding recurring restructuring and acquisition-related costs.
- Whether backlog conversion, end-market demand and the 2014 restructuring program support growth and deliver the expected savings.
- Developments in the FCPA-related government inquiries, potential sanctions and any future financial-statement provision.
- Cash availability in the United States, foreign-cash repatriation tax implications, and the timing and refinancing of debt obligations, including the 2016 revolving facility maturity.
- Whether foreign-exchange movements, supplier constraints and concentrated sourcing affect revenue, costs, acceptance timing or gross margins.