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September 30, 2020☐ ☐
Delaware04-3110160
, Billerica,, MA01821 (978) (978) 663-3660 $0.01 par value per share
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Large accelerated filer |
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Non-accelerated filer |
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| Emerging growth company | ☐ |
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The☒
Class | Outstanding at May 3, 2021 | |
Common Stock, $0.01 par value per share | 151,521,114 shares |
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September 30, December 31, 2020 2019 ASSETS Current assets: Cash and cash equivalents $ 567.1 $ 678.3 Short-term investments 50.0 6.6 Accounts receivable, net 329.9 362.2 Inventories 695.9 577.2 Other current assets 183.2 172.0 Total current assets 1,826.1 1,796.3 Property, plant and equipment, net 354.6 306.1 Goodwill 312.8 293.0 Operating lease assets 60.7 65.6 Intangibles, net and other long-term assets 325.2 310.5 Total assets $ 2,879.4 $ 2,771.5 LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 1.7 $ 0.5 Accounts payable 113.9 118.4 Customer advances 154.6 137.9 Other current liabilities 413.0 388.8 Total current liabilities 683.2 645.6 Long-term debt 828.2 812.8 Operating lease liabilities 42.1 47.0 Other long-term liabilities 363.2 327.9 Commitments and contingencies (Note 12) Redeemable noncontrolling interest — 21.1 Shareholders' equity: Preferred stock, $0.01 par value 5,000,000 shares authorized, NaN issued or outstanding — — Common stock, $0.01 par value 260,000,000 shares authorized, 173,872,664 and 173,502,375 shares issued and 153,184,527 and 154,155,798 shares outstanding at September 30, 2020 and December 31, 2019, respectively 1.7 1.7 Treasury stock, at cost, 20,688,137 and 19,346,577 shares at September 30, 2020 and December 31, 2019, respectively (598.8) (543.8) Accumulated other comprehensive income (5.2) (25.5) Other shareholders' equity 1,554.4 1,474.4 Total shareholders' equity attributable to Bruker Corporation 952.1 906.8 Noncontrolling interest in consolidated subsidiaries 10.6 10.3 Total shareholders' equity 962.7 917.1 Total liabilities and shareholders' equity $ 2,879.4 $ 2,771.5
2021
2020 $ 696.8 $ 681.8 50.0 50.0 326.0 335.3 700.7 692.3 172.7 165.6 1,946.2 1,925.0 384.1 395.5 313.3 320.4 213.4 229.1 177.9 179.0 $ 3,034.9 $ 3,049.0 $ 108.4 $ 2.2 152.3 134.6 182.2 189.2 500.6 465.9 943.5 791.9 715.8 842.3 393.9 440.5 0 0 0 0 1.7 1.7 (699.8 ) (667.0 ) (12.1 ) 3.7 1,677.9 1,622.8 967.7 961.2 14.0 13.1 981.7 974.3 $ 3,034.9 $ 3,049.0
(LOSS) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Product revenue $ 419.6 $ 440.6 $ 1,111.6 $ 1,235.3 Service revenue 90.0 78.8 244.3 234.8 Other revenue 1.8 1.7 4.1 2.6 Total revenue 511.4 521.1 1,360.0 1,472.7 Cost of product revenue 210.3 220.4 584.1 627.9 Cost of service revenue 52.6 46.5 148.4 145.3 Cost of other revenue 0.2 0.3 0.7 0.5 Total cost of revenue 263.1 267.2 733.2 773.7 Gross profit 248.3 253.9 626.8 699.0 Operating expenses: Selling, general and administrative 114.6 125.3 338.2 369.9 Research and development 48.3 46.1 140.9 141.0 Other charges (gain), net 4.2 (5.3) 12.2 4.9 Total operating expenses 167.1 166.1 491.3 515.8 Operating income 81.2 87.8 135.5 183.2 Interest and other income (expense), net (5.9) (4.6) (15.4) (14.0) Income before income taxes and noncontrolling interest in consolidated subsidiaries 75.3 83.2 120.1 169.2 Income tax provision 20.0 21.7 30.0 40.0 Consolidated net income 55.3 61.5 90.1 129.2 Net income attributable to noncontrolling interests in consolidated subsidiaries 1.0 0.2 1.2 0.6 Net income attributable to Bruker Corporation $ 54.3 $ 61.3 $ 88.9 $ 128.6 Net income per common share attributable to Bruker Corporation shareholders: Basic $ 0.35 $ 0.40 $ 0.58 $ 0.83 Diluted $ 0.35 $ 0.39 $ 0.57 $ 0.82 Weighted average common shares outstanding: Basic 153.2 154.2 153.7 155.7 Diluted 154.3 155.6 154.8 157.0 Comprehensive income $ 64.0 $ 26.1 $ 110.1 $ 92.0 Less: Comprehensive income attributable to noncontrolling interests 1.4 0.2 1.5 1.0 Less: Comprehensive income (loss) attributable to redeemable noncontrolling interest — (1.2) (0.5) (1.8) Comprehensive income attributable to Bruker Corporation $ 62.6 $ 27.1 $ 109.1 $ 92.8 $ 458.6 $ 345.0 94.1 78.2 2.0 0.8 554.7 424.0 220.9 180.5 54.8 51.1 0.3 0.1 276.0 231.7 278.7 192.3 131.8 121.2 54.8 48.5 3.0 6.2 189.6 175.9 89.1 16.4 (3.8 ) (2.9 ) 85.3 13.5 27.5 2.9 57.8 10.6 1.1 0.1 $ 56.7 $ 10.5 $ 0.37 $ 0.07 $ 0.37 $ 0.07 151.8 154.2 153.2 155.4 $ 41.6 $ 12.1 0.9 (0.1 ) — (0.5 ) $ 40.7 $ 12.7
Total Shareholders' Accumulated Equity Noncontrolling Redeemable Treasury Additional Other Attributable to Interests in Total Noncontrolling Common Stock Treasury Stock Paid-In Retained Comprehensive Bruker Consolidated Shareholders' Interest Common Shares Amount Shares Amount Capital Earnings Income (Loss) Corporation Subsidiaries Equity Balance at December 31, 2019 $ 21.1 154,155,798 $ 1.7 19,346,577 $ (543.8) $ 199.7 $ 1,274.7 $ (25.5) $ 906.8 $ 10.3 $ 917.1 Stock options exercised — 30,182 — — — 0.7 — — 0.7 — 0.7 Restricted stock units vested — 40,516 — — — (0.1) — — (0.1) — (0.1) Stock based compensation — — — — — 3.0 — — 3.0 — 3.0 Cash dividends paid to common stockholders ($0.04 per share) — — — — — — (6.2) — (6.2) (1.2) (7.4) Acquisition of redeemable noncontrolling interest (20.6) — — — — — (1.3) — (1.3) — (1.3) Consolidated net income — — — — — — 10.5 — 10.5 0.1 10.6 Other comprehensive income (loss) (0.5) — — — — — — 2.2 2.2 (0.2) 2.0 Balance at March 31, 2020 $ — 154,226,496 $ 1.7 19,346,577 $ (543.8) $ 203.3 $ 1,277.7 $ (23.3) $ 915.6 $ 9.0 $ 924.6 Stock options exercised — 61,968 — — — 1.3 — — 1.3 — 1.3 Restricted stock units vested — 3,510 — — — (0.1) — — (0.1) — (0.1) Stock based compensation — — — — — 2.8 — — 2.8 — 2.8 Shares Repurchased — (1,214,282) — 1,214,282 (50.0) — — — (50.0) — (50.0) Cash dividends paid to common stockholders ($0.04 per share) — — — — — — (6.1) — (6.1) — (6.1) Consolidated net income — — — — — — 24.1 — 24.1 0.1 24.2 Other comprehensive income — — — — — — — 9.8 9.8 0.1 9.9 Balance at June 30, 2020 $ — 153,077,692 $ 1.7 20,560,859 $ (593.8) $ 207.3 $ 1,295.7 $ (13.5) $ 897.4 $ 9.2 $ 906.6 Stock options exercised — 25,461 — — — 0.5 — — 0.5 — 0.5 Restricted stock units vested — 208,652 — — — (1.2) — — (1.2) — (1.2) Stock based compensation — — — — — 4.1 — — 4.1 — 4.1 Shares Repurchased — (127,278) — 127,278 (5.0) — — — (5.0) — (5.0) Cash dividends paid to common stockholders ($0.04 per share) — — — — — — (6.3) — (6.3) — (6.3) Consolidated net income — — — — — — 54.3 — 54.3 1.0 55.3 Other comprehensive income — — — — — — — 8.3 8.3 0.4 8.7 Balance at September 30, 2020 $ — 153,184,527 $ 1.7 20,688,137 $ (598.8) $ 210.7 $ 1,343.7 $ (5.2) $ 952.1 $ 10.6 $ 962.7
Noncontrolling
Interest
Shares
Stock
Amount
Shares
Stock
Amount
Capital
Earnings
Other
Comprehensive
Income (Loss)
Shareholders’
Equity
Attributable to
Bruker
Corporation
Interests in
Consolidated
Subsidiaries
Shareholders’
Equity
2019 $ 21.1 154,155,798 $ 1.7 19,346,577 $ (543.8 ) $ 199.7 $ 1,274.7 $ (25.5 ) $ 906.8 $ 10.3 $ 917.1
exercised 30,182 — 0.7 0.7 0.7
units vested 40,516 — (0.1 ) (0.1 ) (0.1 ) 3.0 3.0 3.0
to common
stockholders
($0.04 per — (6.2 ) (6.2 ) (1.2 ) (7.4 )
20% interest in
Hain LifeScience
GmbH (20.6 ) (1.3 ) (1.3 ) (1.3 ) 10.5 10.5 0.1 10.6
comprehensive
income (loss) (0.5 ) 2.2 2.2 (0.2 ) 2.0
March 31, 2020 $ — 154,226,496 $ 1.7 19,346,577 $ (543.8 ) $ 203.3 $ 1,277.7 $ (23.3 ) $ 915.6 $ 9.0 $ 924.6
December 31,
2020 151,987,081 $ 1.7 22,058,529 $ (667.0 ) $ 216.3 $ 1,406.5 $ 3.7 $ 961.2 $ 13.1 $ 974.3
exercised 65,312 — 1.2 1.2 1.2
units vested 21,821 — (0.1 ) (0.1 ) (0.1 )
compensation 3.4 3.4 3.4 (530,729 ) 530,729 (32.8 ) (32.8 ) (32.8 )
to common
stockholders
($0.04 per share) (6.1 ) (6.1 ) (6.1 ) 56.7 56.7 1.1 57.8
comprehensive
income (loss) (15.8 ) (15.8 ) (0.2 ) (16.0 )
March 31, 2021 151,543,485 $ 1.7 22,589,258 $ (699.8 ) $ 220.8 $ 1,457.1 $ (12.1 ) $ 967.7 $ 14.0 $ 981.7
Total Shareholders' Accumulated Equity Noncontrolling Redeemable Treasury Additional Other Attributable to Interests in Total Noncontrolling Common Stock Treasury Stock Paid-In Retained Comprehensive Bruker Consolidated Shareholders' Interest Common Shares Amount Shares Amount Capital Earnings Income (Loss) Corporation Subsidiaries Equity Balance at December 31, 2018 $ 22.6 156,609,340 $ 1.7 16,024,880 $ (401.5) $ 176.9 $ 1,102.5 $ 17.0 $ 896.6 $ 8.5 $ 905.1 Stock options exercised — 167,177 — — — 3.1 — — 3.1 — 3.1 Restricted stock units vested — 35,072 — — — — — — — — — Stock based compensation — — — — — 2.7 — — 2.7 — 2.7 Shares issued for acquisition — 3,087 — (3,087) — — — — — — — Cash dividends paid to common stockholders ($0.04 per share) — — — — — — (6.3) — (6.3) — (6.3) Consolidated net income (loss) (0.2) — — — — — 30.8 — 30.8 0.1 30.9 Other comprehensive income(loss) (0.4) — — — — — — (13.7) (13.7) (0.2) (13.9) Balance at March 31, 2019 $ 22.0 156,814,676 $ 1.7 16,021,793 $ (401.5) $ 182.7 $ 1,127.0 $ 3.3 $ 913.2 $ 8.4 $ 921.6 Stock options exercised — 145,606 — — — 2.7 — — 2.7 — 2.7 Restricted stock units vested — 2,344 — — — — — — — — — Stock based compensation — — — — — 2.6 — — 2.6 — 2.6 Shares repurchased — (2,300,635) — 2,300,635 (100.0) — — — (100.0) — (100.0) Cash dividends paid to common stockholders ($0.04 per share) — — — — — — (6.3) — (6.3) — (6.3) Consolidated net income (loss) (0.3) — — — — — 36.5 — 36.5 0.8 37.3 Other comprehensive income (loss) 0.3 — — — — — — 12.1 12.1 0.1 12.2 Balance at June 30, 2019 $ 22.0 154,661,991 $ 1.7 18,322,428 $ (501.5) $ 188.0 $ 1,157.2 $ 15.4 $ 860.8 $ 9.3 $ 870.1 Stock options exercised — 152,918 — — — 3.1 — — 3.1 — 3.1 Restricted stock units vested — 155,024 — — — (0.8) — — (0.8) — (0.8) Stock based compensation — — — — — 3.5 — — 3.5 — 3.5 Shares repurchased — (1,022,469) — 1,022,469 (42.3) — — — (42.3) — (42.3) Treasury stock acquired — (1,680) — 1,680 — — — — — — — Cash dividends paid to common stockholders ($0.04 per share) — — — — — — (6.2) — (6.2) — (6.2) Consolidated net income (loss) (0.2) — — — — — 61.3 — 61.3 0.4 61.7 Other comprehensive income (loss) (0.9) — — — — — — (34.2) (34.2) (0.2) (34.4) Balance at September 30, 2019 $ 20.9 153,945,784 $ 1.7 19,346,577 $ (543.8) $ 193.8 $ 1,212.3 $ (18.8) $ 845.2 $ 9.5 $ 854.7 Nine Months Ended September 30, 2020 2019 Cash flows from operating activities: Consolidated net income $ 90.1 $ 129.2 Adjustments to reconcile consolidated net income to cash flows from operating activities: Depreciation and amortization 58.7 57.3 Stock-based compensation expense 10.9 10.1 Deferred income taxes 0.5 (0.5) Other non-cash expenses, net 25.5 1.7 Changes in operating assets and liabilities, net of acquisitions and divestitures: Accounts receivable 36.9 (8.0) Inventories (109.7) (80.9) Accounts payable and accrued expenses (15.3) 10.3 Income taxes payable, net (9.1) (6.4) Deferred revenue 20.1 9.7 Customer advances 32.4 (9.1) Other changes in operating assets and liabilities, net (11.8) (36.2) Net cash provided by operating activities 129.2 77.2 Cash flows from investing activities: Purchases of short-term investments (100.0) (6.4) Maturities of short-term investments 56.1 — Cash paid for acquisitions, net of cash acquired (58.8) (79.0) Purchases of property, plant and equipment (68.4) (44.8) Proceeds from sales of property, plant and equipment 0.1 11.0 Net proceeds from cross currency swap agreements 7.1 — Net cash used in investing activities (163.9) (119.2) Cash flows from financing activities: Repayments of 2012 Note Purchase Agreement — (15.0) Repayments of revolving lines of credit (305.1) (50.5) Proceeds from revolving lines of credit 297.5 250.6 Repayment of other debt (0.4) (4.8) Proceeds of other debt — 0.4 Payment of deferred financing costs (0.1) — Proceeds from issuance of common stock, net 1.1 8.1 Payment of contingent consideration (6.2) (5.6) Repurchase of common stock (54.4) (142.3) Payment of dividends (18.5) (18.8) Cash payments to noncontrolling interest (1.2) — Net cash (used in) provided by financing activities (87.3) 22.1 Effect of exchange rate changes on cash, cash equivalents and restricted cash 10.7 (6.4) Net change in cash, cash equivalents and restricted cash (111.3) (26.3) Cash, cash equivalents and restricted cash at beginning of period 681.9 326.3 Cash, cash equivalents and restricted cash at end of period $ 570.6 $ 300.0 Supplemental disclosure of cash flow information Restricted cash period beginning balance $ 3.6 $ 3.9 Restricted cash period ending balance $ 3.5 $ 3.7UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY - (Continued)(in millions, except per share data)The accompanying notes are an integral part of these financial statements.4 $ 57.8 $ 10.6 22.3 19.0 3.8 3.3 4.9 1.1 4.9 11.7 0.8 29.5 (41.6 ) (61.0 ) 35.5 19.1 10.1 (15.0 ) 14.1 20.6 2.5 16.5 (17.1 ) (20.4 ) 98.0 35.0 — (50.0 ) (4.0 ) (22.0 ) (24.7 ) (30.5 ) 1.2 — 3.5 1.9 (24.0 ) (100.6 ) — 197.5 (0.4 ) (0.3 ) 0.3 1.2 1.1 0.6 (0.4 ) (0.3 ) (6.1 ) (6.2 ) (32.6 ) — — (1.2 ) (38.1 ) 191.3 (21.0 ) (8.7 ) 14.9 117.0 685.5 681.9 $ 700.4 $ 798.9 $ 3.7 $ 3.6 $ 3.6 $ 3.4 5
At September 30, 20201.Description of Business and spark optical emission spectroscopy systems.systems; chip cytometry products and services for targeted spatial proteomics, multi-omic services, and products and services for spatial genomics research. Customers of the BSI NANO Segment include academic institutions, governmental customers, nanotechnology companies, semiconductor companies, raw material manufacturers, industrial companies, biotechnology and pharmaceutical companies and other businesses involved in materials research and life science research analysis."big science"“big science” research. The segment focuses on metallic low temperature superconductors for use in magnetic resonance imaging, nuclear magnetic resonance, fusion energy research and other applications.September 30, 2020March 31, 2021 and December 31, 2019,2020, and for the three and nine months ended September 30,March 31, 2021 and 2020, and 2019, have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for Quarterly Reports on Form6September 30, 2020,March 31, 2021, the Company'sCompany’s significant accounting policies and estimates, which are detailed in the Company'sCompany’s Annual Report on Form2019,2020, have not changed.
In December 2019, a novel strain of coronavirus, referred to as COVID-19, surfaced in Wuhan, China. In March 2020, the COVID-19 outbreak was declared a pandemic by the World Health Organization. The virus has spread to over 200 countries and territories and continues to spread globally, including in the United States.
7
The preparation of the unaudited condensed consolidated financial statements requires the Company to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis the Company evaluates estimates, judgments and methodologies. Changes in estimates are recorded in the period in which they become known. The Company bases estimates on historical experience and on various other assumptions that they believeit believes are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of revenues and expenses. The full extent to which the
2. | Recent Accounting Pronouncements |
3. | Revenue |
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Revenue by Group: |
| | | | | |
| | | | | |
Bruker BioSpin |
| $ | 152.1 | | $ | 143.7 |
| $ | 398.1 | | $ | 422.4 |
Bruker CALID |
| | 171.3 | | | 158.2 |
| | 444.5 | | | 446.9 |
Bruker Nano |
| | 147.1 | | | 169.9 |
| | 392.7 | | | 461.7 |
BEST |
| | 43.8 | | | 52.5 |
| | 134.8 | | | 152.2 |
Eliminations |
| | (2.9) | | | (3.2) |
| | (10.1) | | | (10.5) |
Total revenue | | $ | 511.4 | | $ | 521.1 | | $ | 1,360.0 | | $ | 1,472.7 |
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Revenue by End Customer Geography: |
| |
| | | |
| |
| | | |
United States |
| $ | 120.1 | | $ | 135.5 |
| $ | 332.1 | | $ | 379.3 |
Germany |
| | 50.4 | | | 57.7 |
| | 134.9 | | | 150.1 |
Rest of Europe |
| | 142.9 | | | 121.0 |
| | 357.7 | | | 350.0 |
Asia Pacific |
| | 160.0 | | | 158.5 |
| | 433.3 | | | 464.5 |
Other |
| | 38.0 | | | 48.4 |
| | 102.0 | | | 128.8 |
Total revenue | | $ | 511.4 | | $ | 521.1 | | $ | 1,360.0 | | $ | 1,472.7 |
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Revenue by Group: | ||||||||
Bruker BioSpin | $ | 159.4 | $ | 120.9 | ||||
Bruker CALID | 192.4 | 140.5 | ||||||
Bruker Nano | 154.4 | 120.1 | ||||||
BEST | 52.4 | 46.2 | ||||||
Eliminations | (3.9 | ) | (3.7 | ) | ||||
Total revenue | $ | 554.7 | $ | 424.0 | ||||
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Revenue by End Customer Geography: | ||||||||
United States | $ | 119.0 | $ | 109.4 | ||||
Germany | 70.1 | 40.9 | ||||||
Rest of Europe | 149.8 | 104.0 | ||||||
Asia Pacific | 180.5 | 137.2 | ||||||
Other | 35.3 | 32.5 | ||||||
Total revenue | $ | 554.7 | $ | 424.0 | ||||
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Revenue recognized at a point in time |
| $ | 442.2 | | $ | 463.8 |
| $ | 1,174.0 | | $ | 1,310.2 |
Revenue recognized over time | |
| 69.2 | | | 57.3 | |
| 186.0 | | | 162.5 |
Total revenue |
| $ | 511.4 | | $ | 521.1 |
| $ | 1,360.0 | | $ | 1,472.7 |
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Revenue recognized at a point in time | $ | 480.0 | $ | 367.7 | ||||
Revenue recognized over time | 74.7 | 56.3 | ||||||
Total revenue | $ | 554.7 | $ | 424.0 | ||||
8
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets) and deferred revenue, customer deposits and billings in excess of revenue recognized (contract liabilities) on the Company’s unaudited condensed consolidated balance sheets.
respectively
3. Acquisitions
March 31, 2021.
4. | Acquisitions |
9
2020
Canopy Biosciences
On September 10, 2020, Bruker acquired Canopy Biosciences, LLC (“Canopy”) for a purchase price of $24.2 million with
| | | |
Consideration Transferred: |
| | |
Cash paid | | $ | 24.4 |
Contingent consideration | | | 0.5 |
Cash acquired | | | (0.5) |
Working capital adjustment | |
| 0.3 |
Total consideration transferred | | $ | 24.7 |
| | | |
Allocation of Consideration Transferred: | |
|
|
Inventories | | $ | 1.1 |
Accounts receivable | |
| 1.2 |
Other current and non-current assets | |
| 1.0 |
Property, plant and equipment | | | 0.9 |
Operating lease assets | | | 0.3 |
Intangible assets: | |
|
|
Technology | |
| 5.7 |
Customer relationships | |
| 6.1 |
Trade name | |
| 0.7 |
Backlog | |
| 0.3 |
Goodwill | |
| 11.8 |
Deferred taxes, net | |
| (2.0) |
Liabilities assumed | |
| (2.4) |
Total consideration allocated | | $ | 24.7 |
The preliminary fair value allocation included contingent consideration in the amount of $0.5 million, which represented the estimated fair value of future payments to the former shareholders of Canopy based on achieving revenue targets for the calendar years 2021 and 2022. The Company expects to complete the fair value allocation during the measurement period. The amortization period for the intangible assets acquired is ten years for the customer relationships and technology, eight years for the trade name and one year for the backlog intangible asset.
Hain
On October 15, 2018, Bruker acquired an 80% interest in Hain Lifescience GmbH (“Hain”) for a purchase price of Euro 66 million (approximately $76.4 million) with options to acquire the remaining 20%. Hain is an infectious disease specialist with a broad range of molecular diagnostics solutions for the detection of microbial and viral pathogens, as well as for molecular antibiotic resistance testing. Hain is located in Nehren, Germany and was integrated into the BSI Life Science Segment. On January 31, 2020, the Company acquired the remaining 20% interestmade investments in Hain for a purchase price of EUR 20 million (approximately $22.2 million). The carrying value of the noncontrolling interest was accretedbusinesses complementary to the redemption value of EUR 20 million through retained earnings and then reclassified to additional paid in capital.
10
In addition to the acquisitions noted above, in the nine months ended September 30, 2020, the Company completed acquisitions that complemented the Company’s existing product offerings. The following table reflects the consideration transferred and the respective reportable segment for the acquisitions (in millions):
| | | | | | | | | | |
Name of Acquisition |
| Date Acquired |
| Segment |
| Consideration |
| Cash Consideration | ||
SmartTip B.V. | | April 1, 2020 |
| BSI Nano | | $ | 3.1 | | $ | 2.4 |
Integrated Proteomics Applications, Inc. | | August 7, 2020 | | BSI Life Science | | | 3.0 | | | 3.0 |
| | | | | | $ | 6.1 | | $ | 5.4 |
2019
On April 2, 2019, the Company acquired Rave LLC (“Rave”), a privately held company, for a purchase price of $52.2 million with the potential for additional consideration of up to $5.0 million based on revenue and gross margin achievements in 2019 and 2020. Rave develops and manufactures nanomachining and laser photomask repair equipment. Rave was integrated into the BSI NANO Segment. The acquisition of Rave was accounted for under the acquisition method. The components and fair value allocation of the consideration transferred in connection with the acquisition were as follows (dollars in millions):
| | | |
Consideration Transferred: |
| |
|
Cash paid | | $ | 55.8 |
Contingent consideration | |
| 4.4 |
Working capital adjustment | |
| (3.6) |
Total consideration transferred | | $ | 56.6 |
Allocation of Consideration Transferred: | |
|
|
Inventories | | $ | 23.1 |
Accounts receivable | |
| 2.2 |
Other current and non-current assets | |
| 0.8 |
Property, plant and equipment | |
| 2.1 |
Operating lease assets | |
| 1.0 |
Intangible assets: | |
|
|
Technology | |
| 17.9 |
Customer relationships | |
| 15.5 |
Trade name | |
| 1.5 |
Goodwill | |
| 6.4 |
Liabilities assumed | |
| (13.9) |
Total consideration allocated | | $ | 56.6 |
The fair value allocation included contingent consideration in the amount of $4.4 million, which represented the estimated fair value of future payments to the former shareholders of Rave based on achieving revenue and gross margin percentage targets for the period ended April 30, 2020. The Company completed the fair value allocation during 2020. The amortization period for all intangible assets acquired in connection with Rave is ten years.
In addition to the Rave acquisition noted above, in the nine months ended September 30, 2019, the Company completed various other acquisitions that collectively complemented the Company's existing product offerings or added aftermarket and software capabilities to the Company's existing businesses.. The following table reflects the consideration transferred and the respective reporting segment for each of these acquisitionsinvestments (in millions):
| | | | | | | | | | |
Name of Acquisition |
| Date Acquired |
| Segment |
| Consideration |
| Cash Consideration | ||
Arxspan, LLC | | March 4, 2019 |
| BSI Life Science | | $ | 16.6 | | $ | 14.4 |
Ampegon PPT GmbH | | March 7, 2019 |
| BEST | |
| 2.0 | |
| 2.0 |
PMOD Technologies GmbH | | July 1, 2019 | | BSI Life Science | | | 8.9 | | | 7.9 |
| | | | | | $ | 27.5 | | $ | 24.3 |
11
Name | Acquisition / Investment | Date Acquired | Segment | Consideration | Cash Consideration | |||||||||||||||
Glycopath Inc. | Investment | February 18, 2021 | BSI Life Science | $ | 2.0 | $ | 2.0 | |||||||||||||
IonPath Inc | Investment | March 18, 2021 | BSI Life Science | 2.0 | 2.0 | |||||||||||||||
Acuity Spatial Genomics, Inc. | Investment | February 24, 2021 | BSI Nano | 4.5 | 4.5 | |||||||||||||||
$ | 8.5 | $ | 8.5 | |||||||||||||||||
5. | Inventories |
March 31, 2021 | December 31, 2020 | |||||||
Raw materials | $ | 197.1 | $ | 198.8 | ||||
Work-in-process | 253.2 | 245.7 | ||||||
Finished goods | 157.0 | 152.1 | ||||||
Demonstration units | 93.4 | 95.7 | ||||||
Inventories | $ | 700.7 | $ | 692.3 | ||||
6. | Goodwill and Intangible Assets |
Total | ||||
Balance at December 31, 2020 | $ | 320.4 | ||
Current period additions/adjustments | (0.3 | ) | ||
Foreign currency impact | (6.8 | ) | ||
Balance at March 31, 2021 | $ | 313.3 | ||
March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||
Existing technology and related patents | $ | 299.0 | $ | (192.3 | ) | $ | 106.7 | $ | 309.8 | $ | (194.6 | ) | $ | 115.2 | ||||||||||
Customer relationships | 144.4 | (48.0 | ) | 96.4 | 148.3 | (45.4 | ) | 102.9 | ||||||||||||||||
Trade names | 14.8 | (4.7 | ) | 10.1 | 15.2 | (4.4 | ) | 10.8 | ||||||||||||||||
Other | 0.3 | (0.1 | ) | 0.2 | 0.3 | (0.1 | ) | 0.2 | ||||||||||||||||
Intangible assets | $ | 458.5 | $ | (245.1 | ) | $ | 213.4 | $ | 473.6 | $ | (244.5 | ) | $ | 229.1 | ||||||||||
7. | Debt |
March 31, 2021 | December 31, 2020 | |||||||
US Dollar notes under the 2012 Note Purchase Agreement | $ | 205.0 | $ | 205.0 | ||||
CHF notes (in dollars) under the 2019 Note Purchase Agreement | 314.8 | 335.5 | ||||||
US Dollar notes under the 2019 Term Loan | 300.0 | 300.0 | ||||||
Unamortized debt issuance costs | (2.3 | ) | (2.4 | ) | ||||
Capital lease obligations and other loans | 6.7 | 6.4 | ||||||
Total debt | 824.2 | 844.5 | ||||||
Current portion of long-term debt | (108.4 | ) | (2.2 | ) | ||||
Total long-term debt, less current portion | $ | 715.8 | $ | 842.3 | ||||
Weighted Average Interest Rate | Total Amount Committed by Lenders | Outstanding Borrowings | Outstanding Letters of Credit | Total Committed Amounts Available | ||||||||||||||||
2019 Credit Agreement | 1.3 | % | $ | 600.0 | $ | — | $ | 0.2 | $ | 599.8 | ||||||||||
Bank guarantees and working capital line | 0.0 | % | 120.2 | — | 120.2 | — | ||||||||||||||
Total revolving lines of credit | $ | 720.2 | $ | — | $ | 120.4 | $ | 599.8 | ||||||||||||
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Stock options | | $ | 0.6 | | $ | 0.7 | | $ | 1.5 | | $ | 2.1 |
Restricted stock awards | |
| — | |
| 0.1 | |
| — | |
| 0.3 |
Restricted stock units | | | 3.5 | | | 2.7 | | | 8.4 | | | 6.3 |
Total stock-based compensation | | $ | 4.1 | | $ | 3.5 | | $ | 9.9 | | $ | 8.7 |
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Costs of product revenue | | $ | 0.6 | | $ | 0.5 | | $ | 1.5 | | $ | 1.3 |
Selling, general and administrative | |
| 2.9 | |
| 2.5 | |
| 6.9 | |
| 6.1 |
Research and development | | | 0.6 | | | 0.5 | | | 1.5 | | | 1.3 |
Total stock-based compensation | | $ | 4.1 | | $ | 3.5 | | $ | 9.9 | | $ | 8.7 |
In addition to the awards above,income. As a result of entering into these agreements, the Company recorded stock-based compensationhas lowered net interest expense within other charges, net of $0.3by $1.4 million and $0.6$2.6 million induring the three months ended September 30,March 31, 2021 and 2020, and 2019, respectively, and $1.0respectively. The gains (losses) related to hedges of net asset investments in international operations that were recorded within the cumulative translation adjustment section of other comprehensive income were
At September 30, 2020, the Company expects to recognize pre-tax stock-based compensation expense of $2.7 million associated with outstanding stock option awards granted under the Company's stock plans over the weighted average remaining service period of 1.9 years. The Company also expects to recognize additional pre-tax stock-based compensation expense of $25.3 million associated with outstanding restricted stock units granted under the Bruker Corporation 2016 Incentive Compensation Plan over the weighted average remaining service period of 2.6 years.
Stock-based compensation expense is recognized on a straight-line basis over the underlying requisite service period of the stock-based award.
Stock options to purchase the Company's common stock are periodically awarded to executive officers and other employees of the Company subject to a vesting period of three to four years. The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. Assumptions regarding volatility, expected life, dividend yield and risk-free interest rates are required for the Black-Scholes model and are presented in the table below:
| | | | | |
| | Nine months ended | | ||
| | September 30, | | ||
|
| 2020 |
| 2019 |
|
Risk-free interest rates |
| 0.23 | % | 1.55 | % |
Expected life |
| 5.14 | years | 5.33 | years |
Volatility |
| 34 | % | 30 | % |
Expected dividend yield |
| 0.37 | % | 0.38 | % |
12
Stock option activity was as follows:
| | | | | | | | | | |
| | | | | | | Weighted | | | |
| | | | | | | Average | | | |
| | | | Weighted | | Remaining | | Aggregate | ||
| | Shares Subject | | Average | | Contractual | | Intrinsic Value | ||
|
| to Options |
| Option Price |
| Term (Yrs) |
| (in millions) (b) | ||
Outstanding at December 31, 2019 |
| 1,988,696 | | $ | 23.43 | | | | | |
Granted | | 125,794 | | $ | 45.54 | | | | | |
Exercised |
| (117,611) | | $ | 20.91 | | | | | |
Forfeited/Expired |
| (14,302) | | $ | 20.98 | | | | | |
Outstanding at September 30, 2020 |
| 1,982,577 | | $ | 24.96 |
| 4.5 | | $ | 30.5 |
| | | | | | | | | | |
Exercisable at September 30, 2020 |
| 1,518,484 | | $ | 21.88 |
| 4.1 | | $ | 27.3 |
| | | | | | | | | | |
Exercisable and expected to vest at September 30, 2020 (a) |
| 1,938,555 | | $ | 24.56 |
| 4.4 | | $ | 30.5 |
The total intrinsic value of options exercised was $2.2 million and $10.3$10.9 million for the ninethree months ended September 30,March 31, 2021 and 2020, respectively. The Company presents the cross-currency swap periodic settlements in investing activities and 2019, respectively.
Restricted stock unit activity was as follows:
| | | | | |
| | | | Weighted | |
| | | | Average Grant | |
| | Shares Subject | | Date | |
|
| to Restriction |
| Value | |
Outstanding at December 31, 2019 | | 865,101 | | $ | 34.73 |
Granted | | 333,081 | | $ | 43.99 |
Vested |
| (283,048) | | $ | 33.42 |
Forfeited | | (48,297) | | $ | 35.68 |
Outstanding at September 30, 2020 |
| 866,837 | | $ | 38.66 |
The total fair value of restricted stock units vested was $12.8 million and $6.6 million for the nine months ended September 30, 2020 and 2019, respectively.
5. Earnings Per Share
Net income per common share attributable to Bruker Corporation shareholders is calculated by dividing net income attributable to Bruker Corporation, adjusted to reflect changesinterest rate swap periodic settlements in operating activities in the redemption valuestatement of the redeemable noncontrolling interest, by the weighted-average number of shares outstanding during the period. The diluted net income per share computation includes the effect of shares which would be issuable upon the exercise of outstanding stock options and the vesting of restricted stock, reduced by the number of shares which are assumed to be purchased by the Company under the treasury stock method. In January 2020, the Company acquired the remaining interest in our redeemable noncontrolling interest. There was 0 redemption value adjustment of the redeemable noncontrolling interest for the three and nine months ended September 30, 2020 or 2019.
13
The following table sets forth the computation of basic and diluted weighted average shares outstanding and net income per common share attributable to Bruker shareholders (dollars in millions, except per share amounts):
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Net income attributable to Bruker Corporation, as reported | | $ | 54.3 | | $ | 61.3 | | $ | 88.9 | | $ | 128.6 |
| | | | | | | | | | | | |
Weighted average shares outstanding: | | | | | | | | | | | | |
Weighted average shares outstanding-basic | |
| 153.2 | |
| 154.2 | |
| 153.7 | |
| 155.7 |
Effect of dilutive securities: | | | | | | | | | | | | |
Stock options and restricted stock awards and units | |
| 1.1 | |
| 1.4 | |
| 1.1 | |
| 1.3 |
Weighted-average number of common shares used in computing diluted net income per common share | |
| 154.3 | |
| 155.6 | |
| 154.8 | |
| 157.0 |
| | | | | | | | | | | | |
Net income per common share attributable to Bruker Corporation shareholders: | | | | | | | | | | | | |
Basic | | $ | 0.35 | | $ | 0.40 | | $ | 0.58 | | $ | 0.83 |
Diluted | | $ | 0.35 | | $ | 0.39 | | $ | 0.57 | | $ | 0.82 |
The following common share equivalents have been excluded from the computation of diluted weighted-average shares outstanding, as their effect would have been anti-dilutive (amounts in millions of shares):
| | | | | | | | |
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
Stock options |
| 0.3 |
| 0.1 |
| 0.1 |
| 0.5 |
Unvested restricted stock units |
| 0.2 |
| — |
| 0.1 |
| — |
6. Fair Value of Financial Instruments
The Company applies the following hierarchy to determine the fair value of financial instruments, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. The levels in the hierarchy are defined as follows:
8. | Fair Value of Financial Instruments |
The valuation techniques that may be used by the Company to determine the fair value of Level 2 and Level 3 financial instruments are the market approach, the income approach and the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value based on current market expectations about those future amounts, including present value techniques, option-pricing models and the excess earnings method. The cost approach is based on the amount that would be required to replace the service capacity of an asset (replacement cost).
14
The following tables set forth the Company'sCompany’s financial instruments that are measured at fair value on a recurring basis and presentspresent them within the fair value hierarchy using the lowest level of input that is significant to the fair value measurement (dollars in millions):
| | | | | | | | | | | | |
| | | | | Quoted Prices |
| Significant | | | | ||
| | | | | in Active | | Other | | Significant | |||
| | | | | Markets | | Observable | | Unobservable | |||
| | | | | Available | | Inputs | | Inputs | |||
September 30, 2020 |
| Total |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Assets: | | | | | | | | | | | | |
Time deposits and money market funds | | $ | 208.3 | | $ | — | | $ | 208.3 | | $ | — |
Interest rate and cross currency swap agreements | | | 9.0 | | | — | | | 9.0 | | | — |
Forward currency contracts | | | 0.3 | | | — | | | 0.3 | | | — |
Embedded derivatives in purchase and delivery contracts | | | 0.4 | | | — | | | 0.4 | | | — |
Fixed price commodity contracts | | | 2.1 | | | — | | | 2.1 | | | — |
Total assets recorded at fair value | | $ | 220.1 | | $ | — | | $ | 220.1 | | $ | — |
| | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | |
Contingent consideration | | $ | 6.2 | | $ | — | | $ | — | | $ | 6.2 |
Hybrid instrument liability | | | 11.7 | | | — | | | — | | | 11.7 |
Interest rate and cross currency swap agreements | | | 38.2 | | | — | | | 38.2 | | | — |
Forward currency contracts | | | 0.2 | | | — | | | 0.2 | | | — |
Total liabilities recorded at fair value | | $ | 56.3 | | $ | — | | $ | 38.4 | | $ | 17.9 |
| | | | | | | | | | | | |
| | | | | Quoted Prices |
| Significant | | | | ||
| | | | | in Active | | Other | | Significant | |||
| | | | | Markets | | Observable | | Unobservable | |||
| | | | | Available | | Inputs | | Inputs | |||
December 31, 2019 |
| Total |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Assets: | | | | | | | | | | | | |
Time deposits and money market funds | | $ | 15.6 | | $ | — | | $ | 15.6 | | $ | — |
Interest rate and cross currency swap agreements | | | 10.1 | | | — | | | 10.1 | | | — |
Forward currency contracts | | | 0.9 | | | — | | | 0.9 | | | — |
Embedded derivatives in purchase and delivery contracts | | | 0.1 | | | — | | | 0.1 | | | — |
Fixed price commodity contracts | | | 0.3 | | | — | | | 0.3 | | | — |
Total assets recorded at fair value | | $ | 27.0 | | $ | — | | $ | 27.0 | | $ | — |
| | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | |
Contingent consideration | | $ | 15.8 | | $ | — | | $ | — | | $ | 15.8 |
Hybrid instrument liability | | | 10.6 | | | — | | | — | | | 10.6 |
Interest rate and cross currency swap agreements | | | 16.9 | | | — | | | 16.9 | | | — |
Forward currency contracts | | | 0.4 | | | — | | | 0.4 | | | — |
Embedded derivatives in purchase and delivery contracts | |
| 0.6 | |
| — | |
| 0.6 | |
| — |
Total liabilities recorded at fair value | | $ | 44.3 | | $ | — | | $ | 17.9 | | $ | 26.4 |
March 31, 2021 | Total | Quoted Prices in Active Markets Available (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
Assets: | ||||||||||||||||
Time deposits and money market funds | $ | 151.1 | $ | — | $ | 151.1 | $ | — | ||||||||
Short-term investments | 50.0 | — | 50.0 | — | ||||||||||||
Interest rate and cross currency swap agreements | 7.1 | — | 7.1 | — | ||||||||||||
Forward currency contracts | 0.1 | — | 0.1 | — | ||||||||||||
Fixed price commodity contracts | 3.8 | — | 3.8 | — | ||||||||||||
Debt securities available for sale | 1.2 | — | — | 1.2 | ||||||||||||
Total assets recorded at fair value | $ | 213.3 | $ | — | $ | 212.1 | $ | 1.2 | ||||||||
Liabilities: | ||||||||||||||||
Contingent consideration | $ | 3.3 | $ | — | $ | — | $ | 3.3 | ||||||||
Hybrid instrument liability | 13.8 | — | — | 13.8 | ||||||||||||
Interest rate and cross currency swap agreements | 33.3 | — | 33.3 | — | ||||||||||||
Embedded derivatives in purchase and delivery contracts | 0.3 | — | 0.3 | — | ||||||||||||
Forward currency contracts | 1.3 | — | 1.3 | — | ||||||||||||
Total liabilities recorded at fair value | $ | 52.0 | $ | — | $ | 34.9 | $ | 17.1 | ||||||||
December 31, 2020 | Total | Quoted Prices in Active Markets Available (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
Assets: | ||||||||||||||||
Time deposits and money market funds | $ | 183.2 | $ | — | $ | 183.2 | $ | — | ||||||||
Short-term investments | 50.0 | — | 50.0 | — | ||||||||||||
Interest rate and cross currency swap agreements | 7.6 | — | 7.6 | — | ||||||||||||
Forward currency contracts | 2.1 | — | 2.1 | — | ||||||||||||
Embedded derivatives in purchase and delivery contracts | 0.1 | — | 0.1 | — | ||||||||||||
Fixed price commodity contracts | 3.1 | — | 3.1 | — | ||||||||||||
Debt securities available for sale | 1.2 | — | — | 1.2 | ||||||||||||
Total assets recorded at fair value | $ | 247.3 | $ | — | $ | 246.1 | $ | 1.2 | ||||||||
Liabilities: | ||||||||||||||||
Contingent consideration | $ | 4.3 | $ | — | $ | — | $ | 4.3 | ||||||||
Hybrid instrument liability | 13.9 | — | — | 13.9 | ||||||||||||
Interest rate and cross currency swap agreements | 61.5 | — | 61.5 | — | ||||||||||||
Forward currency contracts | 0.4 | — | 0.4 | — | ||||||||||||
Total liabilities recorded at fair value | $ | 80.1 | $ | — | $ | 61.9 | $ | 18.2 | ||||||||
15
The Company measures certain assets and liabilities at fair value with changes in fair value recognized in earnings. Fair value treatment may be elected either upon initial recognition of an eligible asset or liability or, for an existing asset or liability, if an event triggers a new basis of accounting. The Company did not elect to remeasure any of its existing financial assets or liabilities and did not elect the fair value option for any financial assets or liabilities which originated during the ninethree months ended September 30, 2020March 31, 2021 or 2019.
2020.
The carrying value of our variable rate debt approximates its fair value at March 31, 2021 and December 31, 2020.
2020.
| | | |
Balance at December 31, 2019 |
| $ | 15.8 |
Current period additions | | | 1.2 |
Current period adjustments | |
| (3.6) |
Current period settlements | |
| (7.4) |
Foreign currency effect | |
| 0.2 |
Balance at September 30, 2020 | | $ | 6.2 |
Balance at December 31, 2020 | $ | 4.3 | ||
Current period adjustments | (0.5 | ) | ||
Current period settlements | (0.4 | ) | ||
Foreign currency effect | (0.1 | ) | ||
Balance at March 31, 2021 | $ | 3.3 | ||
| | | |
Balance at December 31, 2019 |
| $ | 10.6 |
Current period adjustments | | | 1.0 |
Foreign currency effect | | | 0.1 |
Balance at September 30, 2020 | | $ | 11.7 |
16
Balance at December 31, 2020 | $ | 13.9 | ||
Current period adjustments | 0.4 | |||
Foreign currency effect | (0.5 | ) | ||
Balance at March 31, 2021 | $ | 13.8 | ||
7. Inventories
Inventories consisted of the following (dollars in millions):
| | | | | | |
| | September 30, |
| December 31, | ||
|
| 2020 |
| 2019 | ||
Raw materials | | $ | 205.1 | | $ | 188.8 |
Work-in-process | |
| 261.7 | |
| 206.4 |
Finished goods | |
| 139.1 | |
| 104.5 |
Demonstration units | |
| 90.0 | |
| 77.5 |
Inventories | | $ | 695.9 | | $ | 577.2 |
Finished goods include in-transit systems that have been shipped to the Company's customers, but not yet installed and accepted by the customer. As of September 30, 2020
9. | Derivative Instruments and Hedging Activities |
8. Goodwill and Intangible Assets
The following table sets forth the changes in the carrying amount of goodwill (dollars in millions):
| | | | | | | | | | | | |
| | BSI Life | | | | | | | | | | |
| | Science | | BSI NANO | | BEST | | Total | ||||
Balance at December 31, 2019 |
| $ | 84.2 | | $ | 208.5 | | $ | 0.3 | | $ | 293.0 |
Current period additions | | | — | | | 13.3 | | | — | | | 13.3 |
Foreign currency impact | | | 4.4 | | | 2.1 | | | — | | | 6.5 |
Balance at September 30, 2020 | | $ | 88.6 | | $ | 223.9 | | $ | 0.3 | | $ | 312.8 |
As a result of the impact of the COVID-19 pandemic, the Company performed an interim impairment assessment of the goodwill balance as of March 31, 2020, using a combination of both quantitative and qualitative approaches. Based on this interim assessment, the Company concluded the fair values of each of the reporting units were significantly greater than their carrying amounts, and therefore, no impairment is required. The goodwill assessment was based on management's estimates and assumptions, certain of which are dependent on external factors. The Company has performed an assessment as of September 30, 2020 and no further triggering events were identified since March 31, 2020. To the extent actual results differ materially from these estimates, and the risks presented by COVID-19 and the current economic environment persist to negatively affect the Company’s operations in subsequent periods, further interim impairment assessments could be required, which could result in an impairment of goodwill.
The following is a summary of intangible assets, excluding goodwill (dollars in millions):
| | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 | ||||||||||||||
| | Gross | | | | | | | | Gross | | | | | | | ||
| | Carrying | | Accumulated | | Net Carrying | | Carrying | | Accumulated | | Net Carrying | ||||||
|
| Amount |
| Amortization |
| Amount |
| Amount |
| Amortization |
| Amount | ||||||
Existing technology and related patents | | $ | 314.4 | | $ | (198.0) | | $ | 116.4 | | $ | 300.9 | | $ | (182.4) | | $ | 118.5 |
Customer relationships | |
| 144.2 | |
| (40.7) | |
| 103.5 | |
| 134.7 | |
| (30.9) | |
| 103.8 |
Non-compete contracts | |
| — | |
| — | |
| — | | | 1.8 | | | (1.8) | | | — |
Trade names | |
| 14.8 | |
| (3.9) | |
| 10.9 | |
| 13.7 | |
| (2.9) | |
| 10.8 |
Other | | | 0.7 | | | (0.5) | | | 0.2 | | | 5.5 | | | (5.4) | | | 0.1 |
Intangible assets | | $ | 474.1 | | $ | (243.1) | | $ | 231.0 | | $ | 456.6 | | $ | (223.4) | | $ | 233.2 |
For the three months ended September 30, 2020 and 2019, the Company recorded amortization expense of $9.0 million and $9.2 million, respectively, related to intangible assets subject to amortization. For the nine months ended September 30, 2020 and 2019, the Company recorded amortization expense of $26.7 million and $29.2 million, respectively, related to intangible assets subject to amortization.
17
9. Debt
The Company’s debt obligations consisted of the following (dollars in millions):
| | | | | | |
| | September 30, |
| December 31, | ||
|
| 2020 |
| 2019 | ||
US Dollar notes under the 2012 Note Purchase Agreement | | $ | 205.0 | | $ | 205.0 |
CHF notes (in dollars) under the 2019 Note Purchase Agreement | | | 322.1 | | | 306.8 |
US Dollar notes under the 2019 Term Loan | | | 300.0 | | | 300.0 |
Unamortized debt issuance costs | | | (2.5) | | | (2.6) |
Capital lease obligations and other loans | |
| 5.3 | |
| 4.1 |
Total debt | |
| 829.9 | |
| 813.3 |
Current portion of long-term debt | |
| (1.7) | |
| (0.5) |
Total long-term debt, less current portion | | $ | 828.2 | | $ | 812.8 |
The following is a summary of the maximum commitments and the net amounts available to the Company under its credit agreement and other bank working capital lines and guarantees of credit with various financial institutions located primarily in Germany and Switzerland that are unsecured and typically due upon demand at September 30, 2020 (dollars in millions):
| | | | | | | | | | | | | | | | | |
|
| Weighted |
| Total Amount |
| Total Amount | | | |
| Outstanding |
| Total Committed | ||||
| | Average | | Committed by | | Uncommitted by | | Outstanding | | Letters of | | and Uncommitted | |||||
|
| Interest Rate |
| Lenders |
| Lenders |
| Borrowings |
| Credit |
| Amounts Available | |||||
2019 Credit Agreement |
| 1.3 | % | $ | 600.0 | | $ | — | | $ | — | | $ | 0.2 | | $ | 599.8 |
Bank guarantees and working capital line |
| 0.0 | % |
| 141.6 | |
| 115.4 | |
| — | |
| 141.6 | |
| 115.4 |
Total revolving lines of credit | | | | $ | 741.6 | | $ | 115.4 | | $ | — | | $ | 141.8 | | $ | 715.2 |
As of September 30, 2020, the Company was in compliance with the financial covenants of all debt agreements.
As of September 30, 2020, the Company has entered into several cross-currency and interest rate swap agreements with a notional value of $150.0 million of U.S. to Swiss Franc and a notional value of $355.0 million of U.S. to Euro to hedge the variability in the movement of foreign currency exchange rates on portions of our Euro and Swiss Franc denominated net asset investments. These agreements qualify for hedge accounting and accordingly the change in fair value of the derivative are recorded in other comprehensive income as part of foreign currency translation adjustments and remain in accumulated comprehensive income (loss) attributable to Bruker Corporation in shareholders' equity until the sale or substantial liquidation of the foreign operation. The difference between the interest rate received and paid under the interest rate and cross-currency swap agreements is recorded in interest and other income (expenses) in the consolidated statements of income and comprehensive income. As a result of entering into these agreements, the Company has lowered net interest expense by $1.4 million and $5.8 million during the three and nine months ended September 30, 2020, respectively. The gains (losses) related to hedges of net asset investments in international operations that were recorded within the cumulative translational adjustment section of other comprehensive income were $(22.1) million and $(22.4) million during the three and nine months ended September 30, 2020, respectively. The Company did not have any cross-currency and interest rate swap agreements for the nine months ended September 30, 2019. The Company presents the cross-currency swap periodic settlements in investing activities and the interest rate swap periodic settlements in operating activities in the statement of cash flows.
10. Derivative Instruments and Hedging Activities
Interest Rate Risks
The Company’s exposure to interest rate risk relates primarily to outstanding variable rate debt and adverse movements in the related market rates. Typically, the most significant component of the Company’s interest rate risk relates to amounts outstanding under the 2019 Credit Agreement and the 2019 Term Loan.
18
Commodity Price Risk Management
The Company has arrangements with certain customers under which it has a firm commitment to deliver copper based superconductor wire at a fixed price. In order to minimize the volatility that fluctuations in the price of copper have on the Company’s sales of these commodities, the Company enters into commodity hedge contracts. At September 30, 2020 and December 31, 2019, the Company had fixed price commodity contracts with notional amounts aggregating $10.2$5.8 million and $5.6$8.8 million, respectively. As commodity contracts settle, gains (losses) as a result of changes in fair values are adjusted to the contracts with the customers through revenues.
The Company generates a substantial portion of its revenues and expenses in international markets, principally Germany, other countries in the European Union and Switzerland, 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. The Company periodically enters into forward currency contracts in order to minimize the volatility that fluctuations in currency translation have on its monetary transactions. Under these arrangements, the Company typically agrees to purchase a fixed amount of a foreign currency in exchange for a fixed amount of U.S. Dollars or other currencies on specified dates with maturities of less than twelve months, with some agreements extending to longer periods. These transactions do not qualify for hedge accounting and, accordingly, the instrument is recorded at fair value with the corresponding gains and losses recorded in the consolidated statements of income and comprehensive income.
| | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 | ||||||||
| | Notional | | | | | Notional | | | | ||
| | Amount in U.S. | | | | | Amount in U.S. | | | |||
|
| Dollars |
| Fair Value |
| Dollars |
| Fair Value | ||||
Forward Currency Contracts (1): | | | | | | | | | | | | |
Assets | | $ | 50.2 | | $ | 0.3 | | $ | 66.7 | | $ | 0.9 |
Liabilities | | | 35.4 | | | (0.2) | | | 7.7 | | | (0.4) |
| | | | | | | | | | | | |
Cross-Currency and Interest Rate Swap Agreements (2): | | | | | | | | | | | | |
Liabilities | | | 505.0 | | | (29.2) | | | 505.0 | | | (6.8) |
| | $ | 590.6 | | $ | (29.1) | | $ | 579.4 | | $ | (6.3) |
March 31, 2021 | December 31, 2020 | |||||||||||||||
Notional Amount in U.S. Dollars | Fair Value | Notional Amount in U.S. Dollars | Fair Value | |||||||||||||
Forward Currency Contracts (1): | ||||||||||||||||
Assets | $ | 10.0 | $ | 0.1 | $ | 175.8 | $ | 2.1 | ||||||||
Liabilities | 121.3 | (1.3 | ) | 102.5 | (0.4 | ) | ||||||||||
Cross-Currency and Interest Rate Swap Agreements (2): | ||||||||||||||||
Liabilities | 505.0 | (26.2 | ) | 505.0 | (53.9 | ) | ||||||||||
$ | 636.3 | $ | (27.4 | ) | $ | 783.3 | $ | (52.2 | ) | |||||||
(1) | Derivatives not designated as accounting hedges. |
(2) | Derivatives designated as accounting hedges. |
19
| | | | | | |
|
| September 30, 2020 |
| December 31, 2019 | ||
Derivatives designated as hedging instruments |
| |
|
| |
|
Interest rate cross-currency swap agreements |
| |
|
| |
|
Other current assets |
| $ | 9.0 |
| $ | 10.1 |
Other current liabilities |
| | (4.3) |
| | — |
Other long-term liabilities |
| | (33.9) |
| | (16.9) |
Total derivatives designated as hedging instruments |
| | (29.2) |
| | (6.8) |
| | | | | | |
Derivatives not designated as hedging instruments |
| |
|
| |
|
Forward currency contracts |
| |
|
| |
|
Other current assets | | $ | 0.3 | | $ | 0.9 |
Other current liabilities | |
| (0.2) | |
| (0.4) |
Embedded derivatives in purchase and delivery contracts | |
| | |
|
|
Other current assets | |
| 0.4 | |
| 0.1 |
Other current liabilities | |
| — | |
| (0.6) |
Fixed price commodity contracts | |
| | |
|
|
Other current assets | |
| 2.1 | |
| 0.3 |
Total derivatives not designated as hedging instruments | |
| 2.6 | |
| 0.3 |
| | | | | | |
Total derivatives | | $ | (26.6) | | $ | (6.5) |
March 31, 2021 | December 31, 2020 | |||||||
Derivatives designated as hedging instruments | ||||||||
Interest rate cross-currency swap agreements | ||||||||
Other current assets | $ | 7.1 | $ | 7.6 | ||||
Other current liabilities | (9.3 | ) | (4.3 | ) | ||||
Other long-term liabilities | (24.0 | ) | (57.2 | ) | ||||
Total derivatives designated as hedging instruments | (26.2 | ) | (53.9 | ) | ||||
Derivatives not designated as hedging instruments | ||||||||
Forward currency contracts | ||||||||
Other current assets | $ | 0.1 | $ | 2.1 | ||||
Other current liabilities | (1.3 | ) | (0.4 | ) | ||||
Embedded derivatives in purchase and delivery contracts | ||||||||
Other current assets | — | 0.1 | ||||||
Other current liabilities | (0.3 | ) | — | |||||
Fixed price commodity contracts | ||||||||
Other current assets | 3.8 | 3.1 | ||||||
Total derivatives not designated as hedging instruments | 2.3 | 4.9 | ||||||
Total derivatives | $ | (23.9 | ) | $ | (49.0 | ) | ||
| | | | | | | | | | | | | | |
|
| |
| Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
|
| Financial Statement Classification |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Derivatives not designated as hedging instruments | | | | | | | | | | | | | | |
Forward currency contracts |
| Interest and other income (expense), net | | $ | (0.2) | | $ | (1.0) | | $ | (0.4) | | $ | 1.3 |
Embedded derivatives in purchase and delivery contracts | | Interest and other income (expense), net | | | (0.1) | | | (0.1) | | | 0.8 | | | — |
Total | | | | $ | (0.3) | | $ | (1.1) | | $ | 0.4 | | $ | 1.3 |
Derivatives designated as Cash Flow hedging instruments | | | | | | | | | | | | | | |
Interest rate cross-currency swap agreements | | | | | | | | | | | | | | |
Interest incurred | | Interest and other income (expense), net | | $ | (1.1) | | $ | — | | $ | (1.9) | | $ | — |
Unrealized losses on contracts | | Accumulated other comprehensive income | | | (0.2) | | | — | | | (22.1) | | | — |
Total | | | | $ | (1.3) | | $ | — | | $ | (24.0) | | $ | — |
Derivatives designated as Net Investment hedging instruments | | | | | | | | | | | | | | |
Interest rate cross-currency swap agreements | | | | | | | | | | | | | | |
Interest earned | | Interest and other income (expense), net | | $ | 2.5 | | $ | — | | $ | 7.7 | | $ | — |
Unrealized losses on contracts | | Accumulated other comprehensive income | | | (21.9) | | | — | | | (0.3) | | | — |
Total | | | | $ | (19.4) | | $ | — | | $ | 7.4 | | $ | — |
20
Three Months Ended March 31, | ||||||||||
Financial Statement Classification | 2021 | 2020 | ||||||||
Derivatives not designated as hedging instruments | ||||||||||
Forward currency contracts | Interest and other income (expense), net | $ | (5.0 | ) | $ | (0.5 | ) | |||
Embedded derivatives in purchase and delivery contracts | Interest and other income (expense), net | (0.4 | ) | 0.6 | ||||||
$ | (5.4 | ) | $ | 0.1 | ||||||
Derivatives designated as Cash Flow hedging instruments | ||||||||||
Interest rate cross-currency swap agreements | ||||||||||
Interest incurred | Interest and other income (expense), net | $ | (1.1 | ) | $ | — | ||||
Unrealized gains (losses) on contracts | Accumulated other comprehensive income | 9.9 | (19.0 | ) | ||||||
$ | 8.8 | $ | (19.0 | ) | ||||||
Derivatives designated as Net Investment hedging instruments | ||||||||||
Interest rate cross-currency swap agreements | ||||||||||
Interest earned | Interest and other income (expense), net | $ | 2.5 | $ | 2.6 | |||||
Unrealized gains on contracts | Accumulated other comprehensive income | 17.8 | 29.9 | |||||||
$ | 20.3 | $ | 32.5 | |||||||
10. | Provision for Income Taxes |
11. Provision for Income Taxes
The increase in our effective tax rate was primarily due to the jurisdictional mix and the impact of unfavorable discrete items in the period.
March 31, 2021.
12. Commitments
11. | Earnings Per Share |
diluted weighted average shares outstanding and net income per common share attributable to Bruker shareholders (dollars in millions, except per share amounts):
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Net income attributable to Bruker Corporation, as reported | $ | 56.7 | $ | 10.5 | ||||
Weighted average shares outstanding: | ||||||||
Weighted average shares outstanding-basic | 151.8 | 154.2 | ||||||
Effect of dilutive securities: | ||||||||
Stock options and restricted stock awards and units | 1.4 | 1.2 | ||||||
153.2 | 155.4 | |||||||
Net income per common share attributable to Bruker Corporation shareholders: | ||||||||
Basic | $ | 0.37 | $ | 0.07 | ||||
Diluted | $ | 0.37 | $ | 0.07 | ||||
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Stock options | — | 0.1 | ||||||
Unvested restricted stock units | — | — |
12. | Shareholders’ Equity |
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Consolidated net income | $ | 57.8 | $ | 10.6 | ||||
Foreign currency translation adjustments | (19.5 | ) | (13.0 | ) | ||||
Pension liability adjustments, net of tax | 3.3 | 14.5 | ||||||
Net comprehensive income | 41.6 | 12.1 | ||||||
Less: Comprehensive income (loss) attributable to noncontrolling interests | 0.9 | (0.1 | ) | |||||
Less: Comprehensive income (loss) attributable to redeemable noncontrolling interest | — | (0.5 | ) | |||||
Comprehensive income attributable to Bruker Corporation | $ | 40.7 | $ | 12.7 | ||||
Foreign Currency Translation | Pension Liability Adjustment | Accumulated Other Comprehensive Income (Loss) | ||||||||||
Balance at December 31, 2020 | $ | 49.4 | $ | (45.7 | ) | $ | 3.7 | |||||
Other comprehensive income (loss) before reclassifications | (19.1 | ) | 2.6 | (16.5 | ) | |||||||
Realized loss on amounts reclassified from other comprehensive income (loss), net of tax | — | 0.7 | 0.7 | |||||||||
Net current period other comprehensive income (loss) | (19.1 | ) | 3.3 | (15.8 | ) | |||||||
Balance at March 31, 2021 | $ | 30.3 | $ | (42.4 | ) | $ | (12.1 | ) | ||||
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Costs of product revenue | $ | 0.5 | $ | 0.5 | ||||
Selling, general and administrative | 2.4 | 2.0 | ||||||
Research and development | 0.5 | 0.5 | ||||||
Total stock-based compensation | $ | 3.4 | $ | 3.0 | ||||
13. | Other Charges, Net |
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Information technology transformation costs | $ | 0.7 | $ | 0.9 | ||||
Professional fees incurred in connection with investigation matters | 0.1 | 3.4 | ||||||
Restructuring charges | 1.3 | 1.5 | ||||||
Acquisition-related charges | 0.9 | (1.1 | ) | |||||
Long-lived asset impairments | — | 1.2 | ||||||
Other | — | 0.3 | ||||||
Other charges, net | $ | 3.0 | $ | 6.2 | ||||
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Cost of revenues | $ | 1.1 | $ | 0.8 | ||||
Other charges, net | 1.3 | 1.5 | ||||||
$ | 2.4 | $ | 2.3 | |||||
Total | Severance | Exit Costs | Provisions for Excess Inventory | |||||||||||||
Balance at December 31, 2020 | $ | 9.8 | $ | 7.6 | $ | 0.8 | $ | 1.4 | ||||||||
Restructuring charges | 2.4 | 2.2 | 0.2 | — | ||||||||||||
Cash payments | (5.2 | ) | (4.7 | ) | (0.5 | ) | — | |||||||||
Other, non-cash adjustments and foreign currency effect | (0.1 | ) | — | — | (0.1 | ) | ||||||||||
Balance at March 31, 2021 | $ | 6.9 | $ | 5.1 | $ | 0.5 | $ | 1.3 | ||||||||
14. | Commitments and Contingencies |
Letters of Credit and Guarantees
At September 30, 2020 and December 31, 2019, the Company had bank guarantees of $141.8 million and $143.2 million, respectively, related primarily to customer advances. These arrangements guarantee the refund of advance payments received from customers in the event that the merchandise is not delivered or warranty obligations are not fulfilled in compliance with the terms of the contract. These guarantees affect the availability of the Company’s lines of credit.
21
Litigation and Related Contingencies
claim
materially impact the Company’s results of operations
Governmental Investigations
The Company is subject to regulation by national, state and local government agencies in the United States and other countries in which it operates. From time to time, the Company is the subject of governmental investigations often involving regulatory, marketing and other business practices. These governmental investigations may result in the commencement of civil and criminal proceedings, fines, penalties and administrative remedies which could have a material adverse effect on the Company’s financial position, results of operations and/or liquidity.
In August 2018, the Korea Fair Trade Commission (KFTC) informed the Company that it was conducting an investigation into the public tender bidding activities of a number of life science instrument companies operating in Korea, including Bruker Korea Co., Ltd (Bruker Korea). The Company cooperated fully with the KFTC and on June 16, 2019, the KFTC announced its decision to impose a fine of approximately $20,000 on Bruker Korea and declined to impose any criminal liability against Bruker Korea in connection with this matter. As a result of the KFTC’s decision, the Korea Public Procurement Service (PPS) imposed a three month suspension on Bruker Korea’s ability to bid for or conduct sales to Korean government entities which ended on March 27, 2020. Sales to Korean government entities were less than 3% of the Company’s revenue for the year ended December 31, 2019.
In late August 2019, the KFTC informed the Company that it was conducting a separate investigation into the public tender bidding activities of a number of life science instrument companies operating in Korea, including five public tenders involving Bruker Korea during 2015. The Company cooperated fully with the KFTC and on July 8, 2020, the KFTC announced its decision to impose a fine of approximately $11,000 on Bruker Korea and declined to impose any criminal liability against Bruker Korea in connection with this matter. The PPS has not announced a hearing date for any possible suspension in connection with this matter.
As of September 30, 2020 and December 31, 2019, no material accruals have been recorded for potential contingencies related to these matters.
22
15. | Business Segment Information |
13. Shareholders’ Equity
Share Repurchase Program
In May 2019, the Company’s Board of Directors approved a stock repurchase plan (the Repurchase Program) authorizing repurchases of common stock in the amount of up to $300.0 million from time to time, in amounts, at prices, and at such times as management deems appropriate, subject to market conditions, legal requirements and other considerations. The Company repurchased a total of 127,278 shares at an aggregate cost of $5.0 million in the three months ended September 30, 2020 and a total of 1,341,560 shares at an aggregate cost of $55.0 million in the nine months ended September 30, 2020. The Company repurchased a total of 1,022,469 shares at an aggregate cost of $42.3 million in the three months ended September 30, 2019 and a total of 3,323,104 shares at an aggregate cost of $142.3 million in the nine months ended September 30, 2019. Any future repurchases will be funded from cash on hand, future cash flows from operations and available borrowings under the revolving credit facility. The remaining authorization as of October 30, 2020 is $97.7 million and this Repurchase Program expires on May 13, 2021.
Cash Dividends on Shares of Common Stock
On February 22, 2016, the Company announced the establishment of a dividend policy and the declaration by its Board of Directors of an initial quarterly cash dividend in the amount of $0.04 per share of the Company's issued and outstanding common stock. Under the dividend policy, the Company will target a cash dividend to the Company's shareholders in the amount of $0.16 per share per annum, payable in equal quarterly installments.
Subsequent dividend declarations and the establishment of record and payment dates for such future dividend payments, if any, are subject to the Board of Directors' continuing determination that the dividend policy is in the best interests of the Company's shareholders. The dividend policy may be suspended or cancelled at the discretion of the Board of Directors at any time.
Accumulated Other Comprehensive Income (Loss)
Comprehensive income refers to revenues, expenses, gains and losses that under U.S. GAAP are included in other comprehensive income (loss) but excluded from net income as these amounts are recorded directly as an adjustment to shareholders’ equity, net of tax. The Company’s other comprehensive income (loss) is composed primarily of foreign currency translation adjustments and changes in the funded status of defined benefit pension plans. The following is a summary of comprehensive income (dollars in millions):
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Consolidated net income | | $ | 55.3 | | $ | 61.5 | | $ | 90.1 | | $ | 129.2 |
Foreign currency translation adjustments | |
| 8.6 | |
| (36.5) | |
| 5.1 | |
| (38.9) |
Pension liability adjustments, net of tax | |
| 0.1 | |
| 1.1 | |
| 14.9 | |
| 1.7 |
Net comprehensive income | |
| 64.0 | |
| 26.1 | |
| 110.1 | |
| 92.0 |
Less: Comprehensive income attributable to noncontrolling interests | |
| 1.4 | |
| 0.2 | |
| 1.5 | |
| 1.0 |
Less: Comprehensive income (loss) attributable to redeemable noncontrolling interest | | | — | | | (1.2) | | | (0.5) | | | (1.8) |
Comprehensive income attributable to Bruker Corporation | | $ | 62.6 | | $ | 27.1 | | $ | 109.1 | | $ | 92.8 |
The following is a summary of the components of accumulated other comprehensive income, net of tax (dollars in millions):
| | | | | | | | | |
|
| | |
| | |
| Accumulated | |
| | Foreign | | Pension | | Other | |||
| | Currency | | Liability | | Comprehensive | |||
|
| Translation |
| Adjustment |
| Income | |||
Balance at December 31, 2019 | | $ | 27.4 | | $ | (52.9) | | $ | (25.5) |
Other comprehensive income (loss) before reclassifications | | | 5.4 | | | 11.7 | | | 17.1 |
Amounts reclassified from other comprehensive income (loss), net of tax | | | — | | | 3.2 | | | 3.2 |
Net current period other comprehensive income (loss) | | | 5.4 | | | 14.9 | | | 20.3 |
Balance at September 30, 2020 | | $ | 32.8 | | $ | (38.0) | | $ | (5.2) |
23
14. Other Charges (Gain), Net
The components of other charges (gain), net were as follows (dollars in millions):
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Information technology transformation costs | | $ | 0.5 | | $ | 0.8 | | $ | 1.8 | | $ | 2.8 |
Professional fees incurred in connection with investigation matters | | | 0.3 | | | — | | | 4.8 | | | — |
Restructuring charges | |
| 1.7 | |
| (7.4) | |
| 4.4 | |
| (5.5) |
Acquisition-related charges | | | 0.9 | | | 0.9 | | | (1.0) | | | 5.9 |
Long-lived asset impairments | | | 0.7 | | | — | | | 1.9 | | | — |
Other | |
| 0.1 | |
| 0.4 | |
| 0.3 | |
| 1.7 |
Other charges(gain), net | | $ | 4.2 | | $ | (5.3) | | $ | 12.2 | | $ | 4.9 |
Restructuring Initiatives
Restructuring charges include charges for various programs that were recorded in the accompanying unaudited condensed consolidated statements of income and comprehensive income. The following table sets forth the restructuring charges (dollars in millions):
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Cost of revenues |
| $ | 0.2 |
| $ | 0.6 | | $ | 1.3 |
| $ | 4.1 |
Other charges, net |
| | 1.7 |
| | (7.4) | | | 4.4 |
| | (5.5) |
Total | | $ | 1.9 | | $ | (6.8) | | $ | 5.7 | | $ | (1.4) |
In the three and nine months ended September 30, 2019, the restructuring charges included a gain of $7.8 million related to the sale of a building in Leipzig, Germany.
The following table sets forth the changes in restructuring reserves (dollars in millions):
| | | | | | | | | | | | |
| | | | | | | | | | | Provisions | |
| | | | | | | | | | | for Excess | |
|
| Total |
| Severance |
| Exit Costs |
| Inventory | ||||
Balance at December 31, 2019 | | $ | 4.6 | | $ | 2.2 | | $ | 0.1 | | $ | 2.3 |
Restructuring charges | |
| 5.7 | |
| 4.0 | |
| 1.5 | |
| 0.2 |
Cash payments | |
| (5.7) | |
| (4.1) | |
| (1.6) | |
| — |
Other, non-cash adjustments and foreign currency effect | | | (1.0) | | | (0.4) | | | 0.5 | | | (1.1) |
Balance at September 30, 2020 | | $ | 3.6 | | $ | 1.7 | | $ | 0.5 | | $ | 1.4 |
15. Business Segment Information
The Company has 3 reportable segments, BSI Life Science, BSI NANO and BEST, as discussed in Note 1 to the unaudited condensed consolidated financial statements.
24
Revenue and operating income by reportable segment are presented below (dollars in millions):
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Revenue: | | | | | | | | | | | | |
BSI Life Science | | $ | 323.4 | | $ | 301.9 | | $ | 842.6 | | $ | 869.3 |
BSI NANO | | | 147.1 | | | 169.9 | | | 392.7 | | | 461.7 |
BEST | |
| 43.8 | |
| 52.5 | |
| 134.8 | |
| 152.2 |
Eliminations (a) | |
| (2.9) | |
| (3.2) | |
| (10.1) | |
| (10.5) |
Total revenue | | $ | 511.4 | | $ | 521.1 | | $ | 1,360.0 | | $ | 1,472.7 |
| | | | | | | | | | | | |
Operating Income (loss) | | | | | | | | | | | | |
BSI Life Science | | $ | 80.6 | | $ | 75.7 | | $ | 158.7 | | $ | 178.9 |
BSI NANO | | | 12.2 | | | 18.3 | | | 9.3 | | | 27.1 |
BEST | |
| 1.2 | |
| 3.6 | |
| 5.1 | |
| 9.9 |
Corporate, eliminations and other (b) | |
| (12.8) | |
| (9.8) | |
| (37.6) | |
| (32.7) |
Total operating income | | $ | 81.2 | | $ | 87.8 | | $ | 135.5 | | $ | 183.2 |
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Revenue: | ||||||||
BSI Life Science | $ | 351.8 | $ | 261.4 | ||||
BSI NANO | 154.4 | 120.1 | ||||||
BEST | 52.4 | 46.2 | ||||||
Eliminations (a) | (3.9 | ) | (3.7 | ) | ||||
Total revenue | $ | 554.7 | $ | 424.0 | ||||
Operating Income (loss) | ||||||||
BSI Life Science | $ | 88.9 | $ | 39.5 | ||||
BSI NANO | 12.3 | (8.0 | ) | |||||
BEST | 4.1 | 1.7 | ||||||
Corporate, eliminations and other (b) | (16.2 | ) | (16.8 | ) | ||||
Total operating income | $ | 89.1 | $ | 16.4 | ||||
(a) | Represents product and service revenue between reportable segments. |
(b) | Represents corporate costs and eliminations not allocated to the reportable segments. |
��
| | | | | | |
|
| September 30, |
| December 31, | ||
|
| 2020 |
| 2019 | ||
Assets: | | | | | | |
BSI Life Science, BSI NANO & Corporate | | $ | 2,808.9 | | $ | 2,711.6 |
BEST | |
| 76.5 | |
| 64.6 |
Eliminations and other (a) | |
| (6.0) | |
| (4.7) |
Total assets | | $ | 2,879.4 | | $ | 2,771.5 |
March 31, 2021 | December 31, 2020 | |||||||
Assets: | ||||||||
BSI Life Science, BSI NANO & Corporate | $ | 2,947.8 | $ | 2,964.5 | ||||
BEST | 92.3 | 88.7 | ||||||
Eliminations and other (a) | (5.2 | ) | (4.2 | ) | ||||
Total assets | $ | 3,034.9 | $ | 3,049.0 | ||||
(a) | Assets not allocated to the reportable segments and eliminations of intercompany transactions. |
16. Recent Accounting Pronouncements
In March 2020, the FASB issued Accounting Standards Updates (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"), which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. These transactions include: contract modifications, hedging relationships, and sale or transfer of debt securities classified as held-to-maturity. Entities may apply the provisions of the new standard as of the beginning of the reporting period when the election is made (i.e. as early as the first quarter 2020). Unlike other topics, the provisions of this update are only available until December 31, 2022, when the reference rate replacement activity is expected to have completed. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures and has yet to elect an adoption date.
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In January 2020, the FASB issued ASU 2020-01- Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force), which clarifies the interaction of the accounting for certain equity securities, equity method investments, and certain forward contracts and purchased options. The guidance clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying measurement principles for certain equity securities immediately before applying or discontinuing the equity method. The Company adopted this guidance using a prospective method. The assessment of the adoption of this ASU is in process and is not expected to have a material impact on the Company’s consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The guidance simplifies the accounting for income taxes by removing certain exceptions within the current guidance including the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. The amendment also improves consistent application by clarifying and amending existing guidance related to aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step up in the tax basis of goodwill. This guidance is effective for annual and interim periods beginning after December 15, 2020 and early adoption is permitted. The assessment of the adoption of this ASU is in process and is not expected to have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements of fair value measurements, including the consideration of costs and benefits. This ASU is effective for the Company in fiscal years beginning after December 15, 2019. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The new standard simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test. This ASU will be applied prospectively and is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13 - Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The guidance modifies the recognition of credit losses related to financial assets, such as debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, and other financial assets that have the contractual right to receive cash. Current guidance requires the recognition of a credit loss when it is considered probable that a loss event has occurred. The new guidance requires the measurement of expected credit losses to be based upon relevant information, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the asset. As such, expected credit losses may be recognized sooner under the new guidance due to the broader range of information that will be required to determine credit loss estimates. The new guidance also amends the current other- than-temporary impairment model used for debt securities classified as available-for-sale. When the fair value of an available- for-sale debt security is below its amortized cost, the new guidance requires the total unrealized loss to be bifurcated into its credit and non-credit components. Any expected credit losses or subsequent recoveries will be recognized in earnings and any changes not considered credit related will continue to be recognized within other comprehensive income (loss). This guidance is effective for annual and interim periods beginning after December 15, 2019. The Company adopted this new standard on January 1, 2020 using a modified retrospective method for all financial assets measured at amortized cost. The new standard impacts the Company's accounts receivables and off balance sheet credit exposures. The new standard did not have an impact on the Company’s results of operations and cash flows.
17. Subsequent Events
Due to the impact of the novel coronavirus, COVID-19, on certain of Bruker’s business and its customers, the Company continues to maintain certain temporary cost control measures in place through the fourth quarter of 2020. These temporary measures principally include short-time work for certain of the Company’s European operations.
26
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2020.
27
OVERVIEW
We are a developer, manufacturer and distributor of high-performance scientific instruments and analytical and diagnostic solutions that enable our customers to explore life and materials at microscopic, molecular and cellular levels. Our corporate headquarters are located in Billerica, Massachusetts. We maintain major technical and manufacturing centers in Europe, Asia and North America and Southeast Asia, and we have sales offices located throughout the world. Bruker is organized into three reportable segments: the BSI Life Science Segment (comprised of the Bruker BioSpin Group and the Bruker CALID Group), the BSI NANO Segment and the Bruker Energy & Supercon Technologies (BEST) Segment.
Revenue for the nine months ended September 30, 2020 decreased by $112.7 million, or 7.7%, to $1,360.0 million, compared to $1,472.7 million for the comparable period in 2019. Included in revenue was an increase of approximately $7.9 million from acquisitions and an increase of $2.0 million from foreign currency translation. Excluding the effects of foreign currency translation and our recent acquisitions, our organic revenue, a non-GAAP measure, decreased by $122.6 million, or 8.3%. The decline in revenue was primarily related to the impact of the COVID-19 pandemic on our customers’ as well as certain of our operations and lower globalhigh performance life science tools, scientific instruments and superconductor demand due to the ongoing pandemic.
diagnostic solutions.
Our gross profit decreased to 46.1% during the nine months ended September 30, 2020 compared to 47.5% for the nine months ended September 30, 2019. The decrease in grossoperating margin was a result of lowerhigher revenue, volume, operating leverage and reduced productivity due to disruptionscontributions from the COVID-19 pandemic and economic slowdown, partially offset by certain cost reduction measures.
Our operating income for the three months ended September 30, 2020 was $81.2 million, resulting in an operatinghigher margin of 15.9%, compared to operating income of $87.8 million, and an operating margin of 16.8%, for the three months ended September 30, 2019. Included in operating income were various charges for amortization of acquisition-related intangible assets and other acquisition-related costs and restructuring costs totaling $13.7 million and $7.7 million for the three months ended September 30, 2020 and 2019, respectively. Excluding these charges, our non-GAAP operating margin for the three months ended September 30, 2020 and 2019 was 18.6% and 18.3%, respectively. The decrease in GAAP operating margin was due to lower revenue and gross margins associated with weaker instruments and superconductor demand during the COVID-19 pandemic and related economic slowdown, partially offset by cost control and cost reduction measures. The increase in non-GAAP operating margin was due to cost control and cost reduction measures, which reduced our operating expenses in the third quarter of 2020, as compared to the third quarter of 2019.
Our operating income for the nine months ended September 30, 2020 was $135.5 million, resulting in an operating margin of 10.0%, compared to operating income of $183.2 million, and an operating margin of 12.4%, for the nine months ended September 30, 2019. Included in operating income were various charges for amortization of acquisition-related intangible assets and other acquisition-related costs and restructuring costs totaling $40.6 million and $48.3 million for the nine months ended September 30, 2020 and 2019, respectively. Excluding these charges, our non-GAAP operating margin for the nine months ended September 30, 2020 and 2019 was 12.9% and 15.7%, respectively. The decrease in GAAP and non-GAAP operating margin was due to lower revenue and gross margins during the COVID-19 pandemic and related economic slowdown, partially offset by cost control and cost reduction measures.
products.
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Net cash provided by operating activities | $ | 98.0 | $ | 35.0 | ||||
Less: purchases of property, plant and equipment | (24.7 | ) | (30.5 | ) | ||||
Free Cash Flow | $ | 73.3 | $ | 4.5 | ||||
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Gross profit | $ | 278.7 | $ | 192.3 | ||||
Restructuring costs | 1.1 | �� | 0.8 | |||||
Purchased intangible amortization | 4.5 | 4.9 | ||||||
Other costs | — | 0.1 | ||||||
Non-GAAP gross profit | $ | 284.3 | $ | 198.1 | ||||
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Operating income | $ | 89.1 | $ | 16.4 | ||||
Restructuring costs | 2.4 | 2.3 | ||||||
Acquisition-related costs | 0.9 | (1.1 | ) | |||||
Purchased intangible amortization | 9.0 | 8.7 | ||||||
Other costs | 0.8 | 5.9 | ||||||
Non-GAAP operating income | $ | 102.2 | $ | 32.2 | ||||
Three Months Ended March 31, | ||||||||||||||||
2021 | 2020 | Dollar Change | Percentage Change | |||||||||||||
Product revenue | $ | 458.6 | $ | 345.0 | $ | 113.6 | 32.9 | % | ||||||||
Service revenue | 94.1 | 78.2 | 15.9 | 20.3 | % | |||||||||||
Other revenue | 2.0 | 0.8 | 1.2 | 150.0 | % | |||||||||||
Total revenue | 554.7 | 424.0 | 130.7 | 30.8 | % | |||||||||||
Cost of product revenue | 220.9 | 180.5 | 40.4 | 22.4 | % | |||||||||||
Cost of service revenue | 54.8 | 51.1 | 3.7 | 7.2 | % | |||||||||||
Cost of other revenue | 0.3 | 0.1 | 0.2 | 200.0 | % | |||||||||||
Total cost of revenue | 276.0 | 231.7 | 44.3 | 19.1 | % | |||||||||||
Gross profit | 278.7 | 192.3 | 86.4 | 44.9 | % | |||||||||||
Operating expenses: | ||||||||||||||||
Selling, general and administrative | 131.8 | 121.2 | 10.6 | 8.7 | % | |||||||||||
Research and development | 54.8 | 48.5 | 6.3 | 13.0 | % | |||||||||||
Other charges, net | 3.0 | 6.2 | (3.2 | ) | (51.6 | )% | ||||||||||
Total operating expenses | 189.6 | 175.9 | 13.7 | 7.8 | % | |||||||||||
Operating income | 89.1 | 16.4 | 72.7 | 443.3 | % | |||||||||||
Interest and other income (expense), net | (3.8 | ) | (2.9 | ) | (0.9 | ) | 31.0 | % | ||||||||
Income before income taxes and noncontrolling interest in consolidated subsidiaries | 85.3 | 13.5 | 71.8 | 531.9 | % | |||||||||||
Income tax provision | 27.5 | 2.9 | 24.6 | 848.3 | % | |||||||||||
Consolidated net income | 57.8 | 10.6 | 47.2 | 445.3 | % | |||||||||||
Net income (loss) attributable to noncontrolling interests in consolidated subsidiaries | 1.1 | 0.1 | 1.0 | 1,000.0 | % | |||||||||||
Net income attributable to Bruker Corporation | $ | 56.7 | $ | 10.5 | $ | 46.2 | 440.0 | % | ||||||||
Net income per common share attributable to Bruker Corporation shareholders: | ||||||||||||||||
Basic | $ | 0.37 | $ | 0.07 | $ | 0.30 | 428.6 | % | ||||||||
Diluted | $ | 0.37 | $ | 0.07 | $ | 0.30 | 428.6 | % | ||||||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic | 151.8 | 154.2 | ||||||||||||||
Diluted | 153.2 | 155.4 |
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Diluted earnings perminority shareholders’ proportionate share forof the three months ended September 30, 2020 were $0.35, a decrease of $0.04 comparednet income recorded by our majority-owned subsidiaries.
Three Months Ended March 31, | Percentage | |||||||||||||||
2021 | 2020 | Dollar Change | Change | |||||||||||||
BSI Life Science | $ | 351.8 | $ | 261.4 | $ | 90.4 | 34.6 | % | ||||||||
BSI NANO | 154.4 | 120.1 | 34.3 | 28.6 | % | |||||||||||
BEST | 52.4 | 46.2 | 6.2 | 13.4 | % | |||||||||||
Eliminations (a) | (3.9 | ) | (3.7 | ) | (0.2 | ) | ||||||||||
$ | 554.7 | $ | 424.0 | $ | 130.7 | 30.8 | % | |||||||||
(a) | Represents product and service revenue between reportable segments. |
Three Months Ended March 31, | ||||||||||||||||
2021 | 2020 | |||||||||||||||
Percentage of | Percentage of | |||||||||||||||
Operating | Segment | Operating | Segment | |||||||||||||
Income | Revenue | Income | Revenue | |||||||||||||
BSI Life Science | $ | 88.9 | 25.3 | % | $ | 39.5 | 15.1 | % | ||||||||
BSI NANO | 12.3 | 8.0 | % | (8.0 | ) | (6.7 | %) | |||||||||
BEST | 4.1 | 7.8 | % | 1.7 | 3.7 | % | ||||||||||
Corporate, eliminations and other (a) | (16.2 | ) | (16.8 | ) | ||||||||||||
Total operating income | $ | 89.1 | 16.1 | % | $ | 16.4 | 3.9 | % | ||||||||
(a) | Represents corporate costs and eliminations not allocated to the reportable segments. |
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Net cash provided by operating activities | $ | 98.0 | $ | 35.0 | ||||
Net cash used in investing activities | (24.0 | ) | (100.6 | ) | ||||
Net cash (used in) provided by financing activities | (38.1 | ) | 191.3 | |||||
Effect of exchange rates on cash and cash equivalents | (21.0 | ) | (8.7 | ) | ||||
Total increase (decrease) in cash and cash equivalents | $ | 14.9 | $ | 117.0 | ||||
Operating cash flow forliabilities, net of acquisitions and divestitures of $10.7 million.
| | | | | | |
| | Nine Months Ended September 30, | ||||
|
| 2020 |
| 2019 | ||
Net cash provided by operating activities | | $ | 129.2 | | $ | 77.2 |
Less: purchases of property, plant and equipment | | | (68.4) | |
| (44.8) |
Free Cash Flow | | $ | 60.8 | | $ | 32.4 |
Purchasesprimarily for net purchases of property, plant and equipment includedof $24.7 million, cash paid for acquisitions, net of cash acquired of $4.0 million, offset by $3.5 million from proceeds of cross currency swap agreements.
trade taxes that are carried forward indefinitely and $13.1 million of other foreign net operating losses that are expected to expire at various times beginning in 2021. We also had U.S. state research and development tax credits of $7.1 million. Utilization of these credits and state net operating losses may be subject to annual limitations due to the ownership percentage change limitations provided by the Internal Revenue Code Section 382 of 1986, as amended (the “Code”), and similar state provisions. In the event of a deemed change in control under Code Section 382, an annual limitation on the utilization of net operating losses and credits may result in the expiration of all or a portion of the net operating loss and credit carryforwards.
We can experience quarter-to-quarter fluctuations in our operating results as a result of various factors, some of which are outside our control, such as:
29
Several of these factors have in the past affected the amount and timing of revenue recognized on sales of our products and receipt of related payments and will continue to do so in the future. Accordingly, our operating results in any particular quarter may not necessarily be an indication of any future quarter’s operating performance. The COVID-19 pandemic continues to present a challenging operating environment and we remain focused on four key priorities: the health and safety of our employees, customers and partners; maintaining business continuity and service levels for our customers; executing prudent temporary cost reductions; and delivering enabling research and diagnostic products to help fight the pandemic, and to support other essential priorities of our society.
Health and safety of our valued employees, customers and partners
While Bruker's businesses are essential, we have implemented strict social distancing, enhanced cleaning protocols and other preventative measures, such as temperature scanners and company-issued face coverings, in our major facilities. While many of our office colleagues are working remotely, we are placing enhanced focus on our service organization and factory employees for whom work from home is not feasible. Where customer sites are accessible and open, our field service organizations operate under social distancing protocols to ensure the safety of customer sites, when our employees need to be on site.
We may experience decreased work efficiency and productivity as a result of the increased number of employees working from home. In addition, with this remote working model where employees are increasingly accessing our systems through VPN or internet connections, we may be subject to increased security risks, including the risks of cyberattacks or data breaches. Additionally, if any of our key leaders contract the virus and are unable to perform their duties for a period of time as the result of illness, our business, results of operations or financial condition could be adversely affected.
Maintaining business continuity and service levels to our customers
Ensuring our ability to supply our enabling technologies and solutions and maintaining high service levels for our customers is another top priority for Bruker. In late March and during parts of April, several of our manufacturing sites underwent temporary controlled shutdowns or were operating at reduced capacity to implement new safety protocols, comply with local rules, and manage cost and inventory levels. These sites have ramped back up with expanding capacity and productivity levels. However, with a “second wave” of the virus being experienced in Europe and North America, we may need to consider further temporary controlled shut downs or reduced capacity measures. In addition, we are continuing capital investments in production facilities for efficiencies and expansion and our supply chain remains resilient. We carry higher inventory levels to address supply chain risks related to the pandemic. We do not currently anticipate being supply or capacity limited in the fourth quarter of 2020, provided that the emerging “second wave” of COVID-19 in Europe and North America will not lead to renewed broad-based government mandated lockdowns or a significant deterioration in operating conditions.
Executing prudent temporary cost reductions
Due to the impact of COVID-19, on our business and the global economy, we implemented temporary cost control and cost reduction measures. These temporary measures included short-time work for many of our European operations, temporary tiered salary reductions for our board of directors, global leadership team and workforce, one to two week closures of select manufacturing locations, selective product manufacturing reductions, a hiring freeze, and curtailment of non-strategic discretionary spending. At the same time, we looked to minimize the disruption for our employees and preserve our ability to ramp up again with our highly trained and loyal work force. While pursuing cost savings throughout the business, we have maintained our important investments in key strategic initiatives. Many of the cost reduction measures have been relaxed and our revenue has recovered. We expect such cost control and cost reduction measures to have a more limited impact on the three month period ended December 31, 2020 as compared to the impact we experienced in the three months ended September 30, 2020 and June 30, 2020.
Delivering enabling research and diagnostic products to help fight the pandemic and to support other essential priorities of our society
Bruker is providing critical technologies and solutions to help combat the COVID-19 crisis, most notably our Microbiology and infectious disease diagnostics portfolio, to which we have added a SARS-COV-2 PCR test, and our nuclear magnetic resonance and mass spectrometry systems which are used in critical disease, therapeutic and vaccine research.
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The COVID-19 global pandemic has driven volatility and uncertainty in global markets and has affected our operations significantly. We are actively working to manage the impact of COVID-19 on our operations; however, the full extent to which the COVID-19 pandemic will impact our business, directly or indirectly, cannot accurately be predicted at this time. To date, the COVID-19 pandemic has affected productivity at our manufacturing facilities and has caused disruptions and delays in certain of our shipments to customers who have closed facilities during the pandemic. We continue to monitor the impact of these delays on our business and respond accordingly. For additional information on the various risks posed by the COVID-19 pandemic, refer to Item 1A. Risk Factors included in this report.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
This discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. 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; stock-based compensation expense; restructuring and other related charges; income taxes, including the recoverability of deferred tax assets; allowances for doubtful accounts; inventory reductions for excess and obsolete inventories; estimated fair values of long-lived assets used to measure the recoverability of long-lived assets; intangible assets and goodwill; expected future cash flows used to measure the recoverability of intangible assets and long-lived assets; warranty costs; derivative financial instruments; and contingent liabilities. We base our estimates and judgments on our 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 and estimates to be both those most important to the portrayal of our financial position and results of operations and those that require the most estimation and subjective judgment:
For a further discussion of our critical accounting policies, please refer to our Annual Report on Form 10-K for the year ended December 31, 2019.
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RESULTS OF OPERATIONS
Three Months Ended September 30, 2020 compared to the Three Months Ended September 30, 2019
Consolidated Results
The following table presents our results (in millions, except per share data):
| | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | | | | | | ||||
| | | | | | | | | | Percentage | | ||
|
| 2020 |
| 2019 | | Dollar Change | | Change | | ||||
Product revenue | | $ | 419.6 | | $ | 440.6 | | $ | (21.0) | | | (4.8) | % |
Service revenue | |
| 90.0 | |
| 78.8 | | | 11.2 | | | 14.2 | % |
Other revenue | |
| 1.8 | |
| 1.7 | | | 0.1 | | | 5.9 | % |
Total revenue | |
| 511.4 | |
| 521.1 | | | (9.7) | | | (1.9) | % |
| | | | | | | | | | | | | |
Cost of product revenue | |
| 210.3 | |
| 220.4 | | | (10.1) | | | (4.6) | % |
Cost of service revenue | |
| 52.6 | |
| 46.5 | | | 6.1 | | | 13.1 | % |
Cost of other revenue | |
| 0.2 | |
| 0.3 | | | (0.1) | | | (33.3) | % |
Total cost of revenue | |
| 263.1 | |
| 267.2 | | | (4.1) | | | (1.5) | % |
Gross profit | |
| 248.3 | |
| 253.9 | | | (5.6) | | | (2.2) | % |
| | | | | | | | | | | | | |
Operating expenses: | |
| | |
| | | | | | | | |
Selling, general and administrative | |
| 114.6 | |
| 125.3 | | | (10.7) | | | (8.5) | % |
Research and development | |
| 48.3 | |
| 46.1 | | | 2.2 | | | 4.8 | % |
Other charges(gain), net | |
| 4.2 | |
| (5.3) | | | 9.5 | | | 179.2 | % |
Total operating expenses | |
| 167.1 | |
| 166.1 | | | 1.0 | | | 0.6 | % |
Operating income | |
| 81.2 | |
| 87.8 | | | (6.6) | | | (7.5) | % |
| | | | | | | | | | | | | |
Interest and other income (expense), net | |
| (5.9) | |
| (4.6) | | | (1.3) | | | (28.3) | % |
Income before income taxes and noncontrolling interest in consolidated subsidiaries | |
| 75.3 | |
| 83.2 | | | (7.9) | | | (9.5) | % |
Income tax provision | |
| 20.0 | |
| 21.7 | | | (1.7) | | | (7.8) | % |
Consolidated net income | |
| 55.3 | |
| 61.5 | | | (6.2) | | | (10.1) | % |
Net income attributable to noncontrolling interests in consolidated subsidiaries | |
| 1.0 | |
| 0.2 | | | 0.8 | | | 400.0 | % |
Net income attributable to Bruker Corporation | | $ | 54.3 | | $ | 61.3 | | $ | (7.0) | | | (11.4) | % |
| | | | | | | | | | | | | |
Net income per common share attributable to Bruker Corporation shareholders: | |
|
| |
|
| | | | | | | |
Basic | | $ | 0.35 | | $ | 0.40 | | $ | (0.05) | | | (12.5) | % |
Diluted | | $ | 0.35 | | $ | 0.39 | | $ | (0.04) | | | (10.3) | % |
| | | | | | | | | | | | | |
Weighted average common shares outstanding: | |
| | |
| | | | | | | | |
Basic | |
| 153.2 | |
| 154.2 | | | | | | | |
Diluted | |
| 154.3 | |
| 155.6 | | | | | | | |
Revenue
The decline in revenue was primarily related to weaker instrument demand by academic and industrial customers and reduced demand for BEST superconductors during the COVID-19 pandemic and economic slowdown.
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Gross Profit
The decrease in gross profit was a result of lower volume and reduced productivity at the BSI Nano and BEST segments, partially offset by improvements in the BSI Life Science Segment and our cost control and cost reduction measures.
Selling, General and Administrative
Our selling, general and administrative expenses for the three months ended September 30, 2020 decreased to 22.4% of total revenue, as compared to 24.0% of total revenue for the comparable period in 2019. The decrease in expense and as a percentage of total revenue is a result of the cost control and cost reduction measures due to the ongoing impact of the COVID-19 pandemic in the three months ended September 30, 2020.
Research and Development
Our research and development expenses for the three months ended September 30, 2020 increased to 9.4% of total revenue, from 8.8% of total revenue, for the comparable period in 2019. The increase as a percentage of revenue is a result of comparable research and development spend in comparison to lower revenues in the three months ended September 30, 2020, as compared to the same period in 2019.
Other Charges (Gain), Net
Other charges (gain), net for the three months ended September 30, 2020 consisted primarily of $1.7 million of restructuring costs related to closing of facilities and implementing outsourcing and other restructuring initiatives, $0.9 million of acquisition-related charges, $0.7 million related to long-lived asset impairments, $0.5 million of costs associated with our global information technology (IT) transformation initiative and $0.3 million of professional fees incurred in connection with investigation matters. The IT transformation initiative is a multi-year project aimed at updating and integrating our global enterprise resource planning and human resource information systems.
Other charges (gain), net for the three months ended September 30, 2019 consisted of a gain of $(7.4) million of restructuring costs related to closing facilities and implementing outsourcing and other restructuring initiatives, $0.4 million related to professional fees, $0.8 million of costs associated with our global information technology (IT) transformation initiative and $0.9 million of acquisition-related charges related to acquisitions completed in 2019 and 2018. The restructuring charges in the three months ended September 30, 2019 included a gain of $7.8 million related to the sale of a building in Leipzig, Germany.
Operating Income
The decrease in operating income was mainly due to lower revenue and gross margin associated with weaker instrument and superconductor demand during the COVID-19 pandemic and economic slowdown, partially offset by cost control and cost reductions measures.
Interest and Other Income (Expense), Net
During the three months ended September 30, 2020, the primary components within interest and other income (expense), net were net interest expense of $3.9 million, realized and unrealized losses on foreign currency denominated transactions of $1.8 million and $0.2 million related to other expenses. During the three months ended September 30, 2019, the primary components within interest and other income (expense), net were net interest expense of $4.7 million, realized and unrealized gains on foreign currency denominated transactions of $(0.7) million and $0.6 million related to pension plan expenses.
Income Tax Provision
The 2020 and 2019 effective tax rates were estimated using projected annual pre-tax income on a jurisdictional basis. Expected tax benefits, including tax credits and incentives, the impact of changes to valuation allowances and the effect of jurisdictional differences in statutory tax rates were also considered in the calculation.
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The effective tax rates for the three months ended September 30, 2020 and 2019 were 26.6% and 26.1%, respectively. The increase in our effective tax rate was primarily due to the jurisdictional profit mix and the impact of a discrete tax item in the three months ended September 30, 2019 that did not occur in the same period in 2020.
Net Income Attributable to Noncontrolling Interests
The net income attributable to noncontrolling interests represented the minority shareholders' proportionate share of the net income recorded by our majority-owned subsidiaries. In January 2020, we acquired the remaining interest in our redeemable noncontrolling interest.
Net Income Attributable to Bruker Corporation
The decrease in net income and earnings per diluted share was primarily driven by lower revenues associated weaker instrument demand by academic and industrial customers, reduced BEST superconductor demand during the COVID-19 pandemic and economic slowdown, and reduced gross and operating margins, partially offset by our cost control and cost reduction measures.
Reportable Segment Revenue
The following table presents revenue, change in revenue and revenue growth by reportable segment (dollars in millions):
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | | | | Percentage |
| ||||
|
| 2020 |
| 2019 |
| Dollar Change |
| Change |
| |||
BSI Life Science | | $ | 323.4 | | $ | 301.9 | | $ | 21.5 |
| 7.1 | % |
BSI NANO | | | 147.1 | | | 169.9 | | | (22.8) | | (13.4) | % |
BEST | |
| 43.8 | |
| 52.5 | |
| (8.7) |
| (16.6) | % |
Eliminations (a) | |
| (2.9) | |
| (3.2) | |
| 0.3 |
| | |
Total revenue | | $ | 511.4 | | $ | 521.1 | | $ | (9.7) |
| (1.9) | % |
For financial reporting purposes, we aggregate the Bruker BioSpin Group and Bruker CALID Group as the BSI Life Science Segment. This aggregation reflects the similar economic characteristics, production processes, customer services provided, types and classes of customers, methods of distribution and regulatory environments.
The increase in revenue for the BSI Life Science Segment was due to increased volume related to our Microbiology and infectious disease diagnostics portfolio, to which we have added a SARS-COV-2 PCR test, higher revenue for certain of our mass spectrometry systems and growth in our biopharma and aftermarket offerings, partially offset by continued weaker demand in our academic, industrial and applied markets due to the pandemic and economic slowdown. The decline in revenue for the BSI NANO Segment was due primarily to weaker academic, industrial and industrial research demand due to the pandemic and economic slowdown. The decline in revenue for the BEST Segment was primarily due to reduced superconductor demand during the three months ended September 30, 2020.
34
Operating Income
The following table presents operating income and operating margins on revenue by reportable segment (dollars in millions):
| | | | | | | | | | | |
| | Three Months Ended September 30, |
| ||||||||
| | 2020 | | 2019 |
| ||||||
|
| | |
| Percentage of |
| | |
| Percentage of |
|
| | Operating | | Segment | | Operating | | Segment |
| ||
| | Income | | Revenue | | Income | | Revenue |
| ||
BSI Life Science | | $ | 80.6 |
| 24.9 | % | $ | 75.7 |
| 25.1 | % |
BSI NANO | | | 12.2 | | 8.3 | % | | 18.3 | | 10.8 | % |
BEST | |
| 1.2 |
| 2.7 | % |
| 3.6 |
| 6.9 | % |
Corporate, eliminations and other (a) | |
| (12.8) |
| | |
| (9.8) |
|
| |
Total operating income | | $ | 81.2 |
| 15.9 | % | $ | 87.8 |
| 16.8 | % |
The slight decline in operating margin in the BSI Life Science Segment in the third quarter of 2020, as compared to the same period in 2019, was due to higher revenue from increased volume related to our Microbiology and infectious disease diagnostics portfolio, to which we have added a SARS-COV-2 PCR test, partially offset by certain growth initiative investments. The operating margin decrease for the BSI Nano Segment was due to lower revenue and reduced productivity, given the COVID-19 pandemic and economic slowdown, partially offset by cost control and cost reduction measures. The decline in the operating margin for the BEST segment was primarily due to lower revenue and reduced productivity, given the COVID-19 pandemic.
Nine Months Ended September 30, 2020 compared to the Nine Months Ended September 30, 2019
35
Consolidated Results
The following table presents our results (in millions, except per share data):
| | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Dollar | | Percentage |
| |||||
|
| 2020 |
| 2019 |
| Change |
| Change |
| |||
Product revenue | | $ | 1,111.6 | | $ | 1,235.3 | | | (123.7) |
| (10.0) | % |
Service revenue | |
| 244.3 | |
| 234.8 | |
| 9.5 |
| 4.0 | % |
Other revenue | |
| 4.1 | |
| 2.6 | |
| 1.5 |
| 57.7 | % |
Total revenue | |
| 1,360.0 | |
| 1,472.7 | |
| (112.7) |
| (7.7) | % |
| | | | | | | | | | | | |
Cost of product revenue | |
| 584.1 | |
| 627.9 | |
| (43.8) |
| (7.0) | % |
Cost of service revenue | |
| 148.4 | |
| 145.3 | |
| 3.1 |
| 2.1 | % |
Cost of other revenue | |
| 0.7 | |
| 0.5 | |
| 0.2 |
| 40.0 | % |
Total cost of revenue | |
| 733.2 | |
| 773.7 | |
| (40.5) |
| (5.2) | % |
Gross profit | |
| 626.8 | |
| 699.0 | |
| (72.2) |
| (10.3) | % |
| | | | | | | | | | | | |
Operating expenses: | |
|
| |
|
| |
|
|
|
| |
Selling, general and administrative | |
| 338.2 | |
| 369.9 | |
| (31.7) |
| (8.6) | % |
Research and development | |
| 140.9 | |
| 141.0 | |
| (0.1) |
| (0.1) | % |
Other charges (gain), net | |
| 12.2 | |
| 4.9 | |
| 7.3 |
| 149.0 | % |
Total operating expenses | |
| 491.3 | |
| 515.8 | |
| (24.5) |
| (4.7) | % |
Operating income | |
| 135.5 | |
| 183.2 | |
| (47.7) |
| (26.0) | % |
| | | | | | | | | | | | |
Interest and other income (expense), net | |
| (15.4) | |
| (14.0) | |
| (1.4) |
| 10.0 | % |
Income before income taxes and noncontrolling interest in consolidated subsidiaries | |
| 120.1 | |
| 169.2 | |
| (49.1) |
| (29.0) | % |
Income tax provision | |
| 30.0 | |
| 40.0 | |
| (10.0) |
| (25.0) | % |
Consolidated net income | |
| 90.1 | |
| 129.2 | |
| (39.1) |
| (30.3) | % |
Net income attributable to noncontrolling interests in consolidated subsidiaries | |
| 1.2 | |
| 0.6 | |
| 0.6 |
| 100.0 | % |
Net income attributable to Bruker Corporation | | $ | 88.9 | | $ | 128.6 | | | (39.7) |
| (30.9) | % |
| | | | | | | | | | | | |
Net income per common share attributable to Bruker Corporation shareholders: | |
|
| |
|
| |
|
|
|
| |
Basic | | $ | 0.58 | | $ | 0.83 | | | (0.25) |
| (30.1) | % |
Diluted | | $ | 0.57 | | $ | 0.82 | | | (0.25) |
| (30.5) | % |
| | | | | | | | | | | | |
Weighted average common shares outstanding: | |
|
| |
|
| |
|
|
|
| |
Basic | |
| 153.7 | |
| 155.7 | |
|
|
|
| |
Diluted | |
| 154.8 | |
| 157.0 | |
|
|
|
| |
Revenue
The decline in revenue was primarily related to the impact of the COVID-19 pandemic on our customers as well as certain of our operations and lower global instrumentation and superconductor demand due to the pandemic.
Gross Profit
The decrease in gross profit was a result of lower volume and reduced productivity, given the impact of the ongoing pandemic and economic slowdown, partially offset by cost control and cost reduction measures.
36
Selling, General and Administrative
Our selling, general and administrative expenses for the nine months ended September 30, 2020 decreased to 24.9% of total revenue from 25.1% of total revenue, for the comparable period in 2019. The decrease as a percentage of total revenue is a result of the cost control and cost reduction measures implemented during the COVID-19 pandemic in the nine months ended September 30, 2020.
Research and Development
Our research and development expenses for the nine months ended September 30, 2020 increased to 10.4% of total revenue from 9.6% of total revenue, for the comparable period in 2019. The increase as a percentage of revenue is a result of comparable research and development spend, as we continued to fund certain growth investments, in comparison to lower revenues in the nine months ended September 30, 2020.
Other Charges (Gain), Net
Other charges (gain), net recorded for the nine months ended September 30, 2020 consisted primarily of $4.8 million of professional fees incurred in connection with investigation matters, $4.4 million of restructuring costs related to closing of facilities and implementing outsourcing and other restructuring initiatives, $1.9 million related to long-lived asset impairments and $1.8 million of costs associated with our global information technology (IT) transformation initiative offset by $(1.0) million of acquisition-related charges related to previous acquisitions. The IT transformation initiative is a multi-year project aimed at updating and integrating our global enterprise resource planning and human resource information systems.
Other charges (gain), net recorded for the nine months ended September 30, 2019 consisted of a gain of $(5.5) million of restructuring costs related to closing facilities and implementing outsourcing and other restructuring initiatives, $5.9 million of acquisition-related charges related to acquisitions completed in 2019 and 2018, $2.8 million of costs associated with our global IT transformation initiative and $1.7 million related to other fees. The restructuring charges in the nine months ended September 30, 2019 included a gain of $7.8 million related to the sale of a building in Leipzig, Germany.
Operating Income
The decrease in operating income was due to lower revenue and gross profit during the COVID-19 pandemic and related economic slowdown, partially offset by cost control and cost reduction measures.
Interest and Other Income (Expense), Net
During the nine months ended September 30, 2020, the primary components within interest and other income (expense), net were net interest expense of $8.6 million, realized and unrealized losses on foreign currency denominated transactions of $5.0 million, $1.9 million related to pension plan expenses and $0.1 million related to other income. During the nine months ended September 30, 2019, the primary components within interest and other income (expense), net were net interest expense of $11.5 million, realized and unrealized losses on foreign currency denominated transactions of $0.8 million, $1.8 million related to pension plan expenses and $0.1 million related to other income.
Income Tax Provision
The 2020 and 2019 effective tax rates were estimated using projected annual pre-tax income on a jurisdictional basis. Expected tax benefits, including tax credits and incentives, the impact of changes to valuation allowances and the effect of jurisdictional differences in statutory tax rates were also considered in the calculation.
The effective tax rates for the nine months ended September 30, 2020 and 2019 were 25.0% and 23.6%, respectively. The increase in our effective tax rate was primarily due to jurisdictional profit mix and the impact of a discrete tax item in the nine month period ended September 30, 2019. There was no similar item in the same period in 2020.
37
Net Income Attributable to Noncontrolling Interests
The net income attributable to noncontrolling interests represented the minority shareholders' proportionate share of the net income recorded by our majority-owned subsidiaries. In January 2020, we acquired the remaining interest in our redeemable noncontrolling interest.
Net Income Attributable to Bruker Corporation
The decrease in net income and earnings per diluted share was primarily driven by the decline in revenue, gross profit and operating profit as a result of reduced demand during the COVID-19 pandemic and economic slowdown.
Reportable Segment Revenue
The following table presents revenue, change in revenue and revenue growth by reportable segment (dollars in millions):
| | | | | | | | | | | | |
| | Nine Months Ended September 30, | | | | | Percentage |
| ||||
|
| 2020 |
| 2019 |
| Dollar Change |
| Change |
| |||
BSI Life Science | | $ | 842.6 | | $ | 869.3 | | $ | (26.7) |
| (3.1) | % |
BSI NANO | |
| 392.7 | |
| 461.7 | |
| (69.0) |
| (14.9) | % |
BEST | |
| 134.8 | |
| 152.2 | |
| (17.4) |
| (11.4) | % |
Eliminations (a) | |
| (10.1) | |
| (10.5) | |
| 0.4 |
| | |
| | $ | 1,360.0 | | $ | 1,472.7 | | $ | (112.7) |
| (7.7) | % |
For financial reporting purposes, we aggregate the Bruker BioSpin Group and Bruker CALID Group as the BSI Life Science Segment. This aggregation reflects the similar economic characteristics, production processes, customer services provided, types and classes of customers, methods of distribution and regulatory environments.
The decline in revenue for the BSI Life Science Segment was due to the COVID-19 pandemic, on our customers as well as certain of our operations and lower instrument demand during the pandemic and economic slowdown. The decline in revenues for the BSI NANO Segment was due primarily to the impact of the COVID-19 pandemic on our customers as well as certain of our operations and reduced academic, industrial and industrial research demand during the pandemic and economic slowdown. The decline in revenue for the BEST Segment was due to lower superconductor demand during the nine months ended September 30, 2020.
Operating Income
The following table presents operating income and operating margins on revenue by reportable segment (dollars in millions):
| | | | | | | | | | | |
| | Nine Months Ended September 30, |
| ||||||||
| | 2020 | | 2019 |
| ||||||
|
| Percentage of |
| Percentage of |
|
| |
|
|
| |
| | Operating | | Segment | | Operating | | Segment |
| ||
| | Income | | Revenue | | Income | | Revenue |
| ||
BSI Life Science | | $ | 158.7 |
| 18.8 | % | $ | 178.9 |
| 20.6 | % |
BSI NANO | |
| 9.3 |
| 2.4 | % |
| 27.1 |
| 5.9 | % |
BEST | |
| 5.1 |
| 3.8 | % |
| 9.9 |
| 6.5 | % |
Corporate, eliminations and other (a) | |
| (37.6) |
| | |
| (32.7) |
| | |
Total operating income | | $ | 135.5 |
| 10.0 | % | $ | 183.2 |
| 12.4 | % |
The operating margin declines in the BSI Life Science and BSI NANO segments were due to lower revenue and gross profit, partially offset by cost control and cost reduction measures. The decline in the operating margin for the BEST segment was due to lower revenue, unfavorable mix and charges related to planned restructuring actions, partially offset by reduced operating expenses.
38
LIQUIDITY AND CAPITAL RESOURCES
We 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. Our future cash requirements could be affected by acquisitions that we may complete, repurchases of our common stock, or the payment of dividends in the future. In addition, our ability to access capital and maintain liquidity may be impacted by the volatile market conditions caused by the COVID-19 pandemic. Historically, we have financed our growth and liquidity needs through cash flow generation and a combination of debt financings and issuances of common stock. In the future, there are no assurances that we will continue to generate cash flow from operations or that additional financing alternatives will be available to us, if required, or if available, will be obtained on terms favorable to us.
During the nine months ended September 30, 2020, net cash provided by operating activities was $129.2 million, resulting from consolidated net income adjusted for non-cash items of $185.7 million, offset by a change in operating assets and liabilities, net of acquisitions and divestitures of $56.5 million. The increase in operating assets and liabilities, net of acquisitions and divestitures for the nine months ended September 30, 2020 was primarily caused by an increase in cash received from customers offset by purchases of inventory for orders in 2020. During the nine months ended September 30, 2019, net cash provided by operating activities was $77.2 million, resulting from consolidated net income adjusted for non-cash items of $197.8 million, offset by an increase in operating assets and liabilities, net of acquisitions and divestitures of $120.6 million. The increase in operating assets and liabilities, net of acquisitions and divestitures for the nine months ended September 30, 2019 was primarily caused by an increase in inventory for orders in 2019.
During the nine months ended September 30, 2020, net cash used in investing activities was $163.9 million, compared to net cash used in investing activities of $119.2 million during the nine months ended September 30, 2019. Cash used in investing activities during the nine months ended September 30, 2020 was primarily attributed to cash paid for purchases of property, plant and equipment of $68.4 million, cash paid for acquisitions of $58.8 million, purchases of short-term investments of $100.0 million offset by $7.1 million of net proceeds from our cross-currency swap agreements and $56.1 million of maturities in short-term investments. Cash used in investing activities during the nine months ended September 30, 2019 was primarily attributed to cash paid for acquisitions of $79.0 million, net purchases of property, plant and equipment of $33.8 million and purchases of short-term investments of $6.4 million.
During the nine months ended September 30, 2020, net cash used in financing activities was $87.3 million, compared to net cash provided by financing activities of $22.1 million during the nine months ended September 30, 2019. Net cash used in financing activities during the nine months ended September 30, 2020 was primarily attributable to $54.4 million of repurchases of common stock under our repurchase program, $18.5 million for the payment of dividends, $7.6 million in net payments of borrowings under the 2019 Revolving Credit Agreement and $6.2 million payment of contingent consideration. Net cash provided by financing activities during the nine months ended September 30, 2019 was primarily attributable to $250.6 million in proceeds from borrowings under the 2015 Credit Agreement and $8.1 million of proceeds from the issuance of common stock, net. This was offset by $142.3 million of repurchases of common stock under our repurchase program, $50.5 million of repayment under the 2015 Credit Agreement, $15.0 million of repayments under the 2012 Note Purchase Agreement, $18.8 million used for the payment of dividends, $5.6 million of payments of contingent considerations related to recent acquisitions and $4.8 million of repayments of other debt.
On December 11, 2019, we entered into (1) a new revolving credit agreement to establish a new revolving credit facility in the aggregate principal amount of $600 million; (2) a term loan agreement to establish a new term loan facility in the aggregate principal amount of $300 million; and (3) a note purchase agreement to issue and sell CHF 297 million aggregate principal amount of 1.01% senior notes due December 11, 2029. Floating interest rates under the term loan were simultaneously fixed through cross-currency and interest rate swap agreements into Euro ($150 million) and Swiss Franc ($150 million) rates carrying average effective interest rates of 0.94% and hedge our net investment in our Euro and Swiss Franc denominated net assets. The new revolving credit agreement replaced our $500 million five-year revolving credit agreement established on October 27, 2015, that was terminated on December 11, 2019. In addition, we designated our CHF 297 million senior notes as a hedge in our net investment in our Swiss Franc denominated net assets. Proceeds from this financing were used to repay the outstanding borrowings under our prior 2015 revolving credit facility and we intend to use the remaining proceeds for general corporate purposes and to support corporate strategic objectives. During December 2019, we entered into U.S. Dollar to Euro cross-currency swaps on our existing 2012 private placement notes of $105 million 4.31% Series 2012A Senior Notes, Tranche C, due January 18, 2022, and the existing $100 million 4.46% Series 2012A Senior Notes, Tranche D, due January 18, 2024, resulting in an average effective interest rate of 2.25% on these instruments. The cross-currency swaps hedge our net investment in our Euro denominated net assets.
39
As of September 30, 2020, we have entered into several cross-currency and interest rate swap agreements with a notional value of $150.0 million of U.S. Dollar to Swiss Franc and a notional value of $355.0 million of U.S. Dollar to Euro to hedge the variability in the movement of foreign currency exchange rates on portions of our Euro and Swiss Franc denominated net asset investments. As a result of entering into these interest rate and cross currency swap agreements, we reduced our interest expense by $1.4 million and $5.8 million for the three and nine months ended September 30, 2020, respectively. We anticipate these swap agreements will lower net interest expense in future years.
In May 2019, our Board of Directors approved the Repurchase Program which authorizes the repurchase of our common stock in the amount of up to $300.0 million from time to time, in amounts, at prices, and at such times as management deems appropriate, subject to market conditions, legal requirements and other considerations. We repurchased a total of 127,278 shares at an aggregate cost of $5.0 million in the three months ended September 30, 2020 and a total of 1,341,560 shares at an aggregate cost of $55.0 million in the nine months ended September 30, 2020. We repurchased a total of 1,022,469 shares at an aggregate cost of $42.3 million in the three months ended September 30, 2019 and a total of 3,323,104 shares at an aggregate cost of $142.3 million in the nine months ended September 30, 2019. The remaining authorization as of October 30, 2020 is $97.7 million and this Repurchase Program expires on May 13, 2021. We intend to fund any additional repurchases from cash on hand, future cash flows from operations and available borrowings under our revolving credit facility. The repurchased shares are reflected within Treasury stock in the accompanying consolidated balance sheet at September 30, 2020.
Cash, cash equivalents and short-term investments at September 30, 2020 and December 31, 2019 totaled $617.1 million and $684.9 million, respectively, of which $356.0 million and $301.1 million, respectively, related to cash, cash equivalents and short-term investments held outside of the U.S. in our foreign subsidiaries, most significantly in the Switzerland, the Netherlands and Hong Kong.
At December 31, 2019 and in accordance with the 2017 Tax Cuts and Jobs Act (the “2017 Tax Act”), we recorded state and foreign withholding taxes, as well as subsequent foreign currency translations on these withholding taxes as they are an obligation of the parent company, on the cash and liquid assets portion of the unremitted earnings and profits (E&P) of foreign subsidiaries expected to be repatriated from our foreign subsidiaries to the United States. We continue to be indefinitely reinvested in the amount of $477.0 million of non-cash E&P that is subject to the 2017 Tax Act deemed repatriation. If this E&P is ultimately distributed to the United States in the form of dividends or otherwise we would likely be subject to additional withholding tax. We will continue to evaluate our assertions on the cumulative historical outside basis differences in our foreign subsidiaries as of December 31, 2019. The amount of unrecognized deferred withholding taxes on the undistributed E&P was $58.0 million at December 31, 2019.
As of September 30, 2020, we had approximately $38.8 million of net operating loss carryforwards available to reduce state taxable income that are expected to expire at various times beginning in 2020; approximately $82.6 million of net operating losses available to reduce German federal income and trade taxes that are carried forward indefinitely and $17.6 million of other foreign net operating losses that are expected to expire at various times beginning in 2021. We also had U.S. state research and development tax credits of $7.7 million. Utilization of these credits and state net operating losses may be subject to annual limitations due to the ownership percentage change limitations provided by the Internal Revenue Code Section 382 and similar state provisions. In the event of a deemed change in control under Internal Revenue Code Section 382, an annual limitation on the utilization of net operating losses and credits may result in the expiration of all or a portion of the net operating loss and credit carryforwards.
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. 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.
40
We had the following debt outstanding (dollars in millions):
March 31, 2021 | December 31, 2020 | |||||||
US Dollar notes under the 2012 Note Purchase Agreement | $ | 205.0 | $ | 205.0 | ||||
CHF notes (in dollars) under the 2019 Note Purchase Agreement | 314.8 | 335.5 | ||||||
US Dollar notes under the 2019 Term Loan | 300.0 | 300.0 | ||||||
Unamortized debt issuance costs | (2.3 | ) | (2.4 | ) | ||||
Capital lease obligations and other loans | 6.7 | 6.4 | ||||||
Total debt | 824.2 | 844.5 | ||||||
Current portion of long-term debt | (108.4 | ) | (2.2 | ) | ||||
Total long-term debt, less current portion | $ | 715.8 | $ | 842.3 | ||||
| | | | | | |
|
| September 30, 2020 |
| December 31, 2019 | ||
US Dollar notes under the 2012 Note Purchase Agreement | | $ | 205.0 | | $ | 205.0 |
CHF notes (in dollars) under the 2019 Note Purchase Agreement | |
| 322.1 | |
| 306.8 |
US Dollar notes under the 2019 Term Loan | |
| 300.0 | |
| 300.0 |
Unamortized debt issuance costs | |
| (2.5) | |
| (2.6) |
Capital lease obligations and other loans | |
| 5.3 | |
| 4.1 |
Total debt | |
| 829.9 | |
| 813.3 |
Current portion of long-term debt | |
| (1.7) | |
| (0.5) |
Total long-term debt, less current portion | | $ | 828.2 | | $ | 812.8 |
| | | | | | | | | | | | | | | | | |
|
| Weighted |
| Total Amount |
| Total Amount | | | |
| Outstanding |
| Total Committed | ||||
| | Average | | Committed | | UnCommitted | | Outstanding | | Letters of | | and Uncommitted | |||||
|
| Interest Rate |
| by Lenders |
| by Lenders | | Borrowings |
| Credit |
| Amounts Available | |||||
2019 Credit Agreement |
| 1.3 | % | $ | 600.0 |
| $ | — | | $ | — |
| $ | 0.2 |
| $ | 599.8 |
Other lines of credit |
| 0.0 | % | | 141.6 | | | 115.4 | | | — | | | 141.6 | | | 115.4 |
Total revolving lines of credit | | |
| $ | 741.6 |
| $ | 115.4 | | $ | — |
| $ | 141.8 |
| $ | 715.2 |
Weighted Average Interest Rate | Total Amount Committed by Lenders | Outstanding Borrowings | Outstanding Letters of Credit | Total Committed Amounts Available | ||||||||||||||||
2019 Credit Agreement | 1.3 | % | $ | 600.0 | $ | — | $ | 0.2 | $ | 599.8 | ||||||||||
Bank guarantees and working capital line | 0.0 | % | 120.2 | — | 120.2 | — | ||||||||||||||
Total revolving lines of credit | $ | 720.2 | $ | — | $ | 120.4 | $ | 599.8 | ||||||||||||
As of September 30, 2020, there are no material changes to our contractual obligations from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
|
|
Impact of analyses.
Currency Risk
41
For sales not denominated in U.S. Dollars,dollars, if there is an increase in the rate at which a foreign currency is exchanged for U.S. Dollars,dollars, it will require more of the foreign currency to equal a specified amount of U.S. Dollarsdollars than before the rate increase. In such cases, if we price our products in the foreign currency, we will receive less in U.S. Dollarsdollars than we would have received before the rate increase went into effect. If we price our products in U.S. Dollarsdollars and competitors price their products in local currency, an increase in the relative strength of the U.S. Dollardollar could result in our prices not being competitive in a market where business is transacted in the local currency. For example, if the U.S. Dollardollar strengthened against the Japanese Yen, our Japanese-based competitors would have a greater pricing advantage over us.
March 31, 2021 and 2020, respectively.
income.
Impact of
Rate Risk
42
Impact of Commodity Prices
We are exposed to certain commodity risks associated with prices for various raw materials. The prices of copper and certain other raw materials, particularly niobium tin,
Risk
ITEM 4. | CONTROLS AND PROCEDURES |
Other than as discussed below under the heading "Remediation Plans", there has
Material Weaknesses
During the audit of our consolidated financial statements as of and for the year ended December 31, 2019, we identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses identified were as follows:
We did not design and maintain an effective control environment commensurate with our financial reporting requirements. Specifically, we lacked a sufficient complement of personnel in our corporate tax department and a U.S. subsidiary with an appropriate level of tax and accounting knowledge, training and experience to appropriately analyze, record and disclose tax and accounting matters timely and accurately. This material weakness contributed to the following additional material weaknesses:
ITEM 1. |
43
These control deficiencies could result in a misstatement of the interim or annual financial statements that would result in a material misstatement to our annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, our management determined that these control deficiencies constitute material weaknesses.
Remediation Plans
As part of our routine efforts to maintain adequate and effective internal control over financial reporting, we initiated and implemented measures designed to improve our financial statement closing process and enhance certain internal controls processes and procedures. As indicated below, a number of these initiatives relate directly to strengthening our control over accounting for income taxes and revenue transactions and address specific control deficiencies which contributed to the material weaknesses. As a result of these efforts, as of the date of this filing we believe we have made progress toward remediating the underlying causes of the material weaknesses. Specifically, we have undertaken the following steps in 2020 to remediate the deficiencies underlying this material weakness:
We are committed to maintaining a strong internal control environment and believe that these remediation efforts represent significant improvements in our control environment. The identified material weaknesses in internal control will not be considered fully remediated until the internal controls over these areas have been in operation for a sufficient period of time for our management to conclude that the material weaknesses have been fully remediated. We will continue our efforts to test the new controls in order to make this final determination.
PART IIOTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
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In addition, we are subject to regulation by national, state and local government agencies in the United States and other countries in which we operate. From time to time, we are the subject of governmental investigations often involving regulatory, marketing and other business practices. These governmental investigations may result in the commencement of civil and criminal proceedings, fines, penalties and administrative remedies which could have a material adverse effect on our financial position, results of operations and/or liquidity.
In August 2018, the Korea Fair Trade Commission (KFTC) informed the Company that it was conducting an investigation into the public tender bidding activities of a number of life science instrument companies operating in Korea, including Bruker Korea Co., Ltd (Bruker Korea). The Company cooperated fully with the KFTC and on June 16, 2019, the KFTC announced its decision to impose a fine of approximately $20,000 on Bruker Korea and declined to impose any criminal liability against Bruker Korea in connection with this matter. As a result of the KFTC’s decision, the Korea Public Procurement Service (PPS) imposed a three month suspension on Bruker Korea’s ability to bid for or conduct sales to Korean government entities which ended on March 27, 2020. Sales to Korean government entities were less than 3% of the Company’s revenue for the year ended December 31, 2019.
In late August 2019, the KFTC informed us that it was conducting a separate investigation into the public tender bidding activities of a number of life science instrument companies operating in Korea, including five public tenders involving Bruker Korea during 2015. We cooperated fully with the KFTC and on July 8, 2020, the KFTC announced its decision to impose a fine of approximately $11,000 on Bruker Korea and declined to impose any criminal liability against Bruker Korea in connection with this matter. The PPS has not announced a hearing date for any possible suspension in connection with this matter.
ITEM 1A.RISK FACTORS
ITEM IA. | RISK FACTORS |
In December 2019, a novel strain of coronavirus, referred to as COVID-19, surfaced in Wuhan, China. In March 2020, the COVID-19 outbreak was declared a pandemic by the World Health Organization. The virus has spread to over 200 countries and territories and continues to spread globally, including in the United States.
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Impacts to our business includeincluded temporary closures in 2020 of many of our government and university customers and our suppliers, disruptions or restrictions on our employees’ and customers’ ability to travel, and delays in product installations or shipments to and from affected countries. In an effort to halt the outbreak of
We continuecontinuing to monitor and assess the effects of the
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ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information about purchases made by or on behalf of the Company or any “affiliated purchaser,” as defined in Rule
| | | | | | | | | | |
| | | | | | | | | Maximum Number | |
| | | | | | | Total Number of | | (or Approximate Dollar | |
| | | | | | | Shares Purchased as | | Value) of Shares that | |
| | | | | | | Part of Publicly | | May Yet Be Purchased | |
| | Total Number of Shares | | Average Price Paid | | Announced Plans or | | Under the Plans | ||
Period |
| Purchased |
| per Share |
| Programs |
| or Programs (2) | ||
July 1 - July 31, 2020 |
| — | | $ | — |
| — | | $ | 107,695,532 |
August 1 - August 31, 2020 |
| — | | $ | — |
| — | | $ | 107,695,532 |
September 1 - September 30, 2020(1) |
| 127,278 | | $ | 39.28 |
| 127,278 | | $ | 102,695,547 |
|
| 127,278 | | $ | 39.28 |
| 127,278 | | $ | 102,695,547 |
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (2) | ||||||||||||
January 1 - January 31, 2021 | 85,773 | $ | 58.29 | 85,773 | $ | 29,453,135 | ||||||||||
February 1 - February 28, 2021 | 390,783 | $ | 62.55 | 390,783 | $ | 5,009,816 | ||||||||||
March 1 - March 31, 2021 | 54,173 | $ | 59.76 | 54,173 | $ | 1,691,717 | ||||||||||
530,729 | $ | 61.73 | 530,729 | $ | 1,691,717 | |||||||||||
(1) | The Company purchased shares of common stock in accordance with its share repurchase program approved by the Board of Directors and announced on May 10, 2019. The shares were purchased on the open market at prevailing prices. |
(2) | The Repurchase Program two-year period. We completed the share purchase program in April 2021, after reaching the maximum cumulative spend. The Repurchase Program |
ITEM 6. |
EXHIBITS |
Exhibit No. | Description | ||
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| Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
|
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31.2* | Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
|
| ||
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 | ||
|
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101.INS* | Inline XBRL Instance Document | ||
|
|
| |
101.SCH* |
| Inline XBRL Taxonomy Extension Schema Document | |
|
|
| |
101.CAL* |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
|
|
| |
101.DEF* |
| Inline XBRL Taxonomy Extension Definition Linkbase Document | |
|
|
| |
101.LAB* |
| Inline XBRL Taxonomy Extension Label Linkbase Document | |
|
|
| |
101.PRE* |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
|
|
| |
104* |
| The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended |
* | Filed or furnished herewith. |
* Filed herewith.
**Furnished herewith.
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Date: BRUKER CORPORATIONBRUKER CORPORATION Date: November 6, 2020May 7, 2021By:By: Frank H. Laukien, Ph.D. November 6, 2020By:By: Gerald N. Herman 48