Back to GetFilings.com

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Commission File Number 000-30833

Bruker BioSciences Corporation
(Exact name of registrant as specified in its charter)

        Indicate by checkmark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

        As of August 9, 2004, there were 89,463,924 shares of the Registrant's common stock outstanding.

Bruker BioSciences Corporation
Form 10-Q
For the Quarter Ended June 30, 2004
Index

2

PART I FINANCIAL INFORMATION

ITEM 1: Financial Statements

Bruker BioSciences Corporation

Condensed Consolidated Balance Sheets

(in thousands, except share data)

See the accompanying notes to financial statements.

3

Bruker BioSciences Corporation

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)

See the accompanying notes to financial statements.

4

Bruker BioSciences Corporation

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

See the accompanying notes to financial statements.

5

Bruker BioSciences Corporation

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Description of Business

        Bruker BioSciences Corporation and its wholly-owned subsidiaries (the "Company") design, manufacture, service and market proprietary life science systems based on mass spectrometry core technology platforms and X-ray technology. The Company also sells a broad range of field analytical systems for nuclear, biological and chemical (NBC) detection. The Company maintains major technical centers in Europe, North America and Japan. The Company's diverse customer base includes pharmaceutical, biotechnology and proteomics companies, academic institutions, semiconductor industries and government agencies.

        On July 1, 2003, the Company merged with Bruker AXS Inc. (Bruker AXS), with the Company surviving the merger. The consolidated financial statements and share data for the three and six months ended June 30, 2003 include the retroactive effects of the merger with Bruker AXS. The consolidated financial statements have been restated by combining the historical consolidated financial statements of Bruker BioSciences Corporation with those of Bruker AXS for each of the periods presented. In connection with the merger, the Company formed two operating subsidiaries, Bruker Daltonics Inc. (Bruker Daltonics) and Bruker AXS, into which it transferred substantially all of the respective assets and liabilities, except cash and cash equivalents, which remained with the parent company, Bruker BioSciences Corporation. Bruker Daltonics and Bruker AXS are reportable segments of the Company. Included in the consolidated statements of operations for the three and six months ended June 30, 2003 are charges totaling $3.0 million and $6.2 million, respectively, of investment banking, legal, audit and other fees associated with the merger.

        The financial statements represent the consolidated accounts of Bruker BioSciences Corporation and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements as of and for the three and six months ended June 30, 2004 and 2003 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with Article 10 of Regulation S-X. The December 31, 2003 balance sheet is the balance sheet included in the audited financial statements as shown in the Company's 2003 Annual Report on Form 10-K. Accordingly, the financial information presented herein does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. The results for interim periods are not necessarily indicative of the results to be expected for the full year.

        During the second quarter of 2004, the Company reclassified certain costs within sales and marketing expense to cost of product revenue to conform to the Company's global accounting policy for such costs. For the three months ended June 30, 2004 and 2003, $0.9 million and $0.9 million, respectively, in costs were reclassified. For the six months ended June 30, 2004 and 2003, $2.5 million and $1.5 million, respectively, in costs were reclassified.

        For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2003.

6

2. Public Offering of Common Stock

        On April 28, 2004, the Company and a group of selling stockholders completed a public offering of 17,250,000 shares of its common stock, of which 3,450,000, including 457,200 shares of treasury stock, were sold by the Company and 13,800,000 were sold by four selling stockholders, at $4.50 per share, generating net proceeds of approximately $14.5 million to the Company and approximately $58.2 million to the selling stockholders, in the aggregate.

3. Mergers and Acquisitions

Bruker AXS Inc. Merger

        On April 4, 2003, the Company and Bruker AXS entered into a definitive merger agreement pursuant to which the Company acquired all of the outstanding shares of Bruker AXS. The merger was intended to form a leading tools supplier for life science and materials research, with an emphasis on advancing proteomics. The agreement was signed following the unanimous approval of the Board of Directors of each company as well as the unanimous recommendations of independent Special Committees of both companies' boards.

        On June 27, 2003, the merger was approved by shareholders of both Bruker AXS and the Company and the official closing of the merger occurred on July 1, 2003. Upon closing of the merger, each outstanding share of common stock of Bruker AXS was converted into the right to receive, at the election of the holder, either 0.63 of a share of the Company's common stock or consideration intended to be of substantially equivalent value, payable 75% in the Company's common stock and 25% in cash.

        The merger represents a business combination of companies under common control due to the majority ownership of both companies by five related individuals as an affiliated shareholder group. As a result, the merger, as it relates to the shares owned by these affiliated shareholders (approximately 69%), was accounted for in a manner similar to a pooling-of-interest, or at historical carrying value. The acquisition of the shares of the non-affiliated shareholders (approximately 31%) was accounted for using the purchase method of accounting, or at fair value, in a manner similar to the acquisition of a minority interest. The excess purchase price of the interest not under common control over the fair value of the related net assets was recorded as goodwill.

        The fair value of the consideration paid for the acquisition of the minority interest was approximately $38.1 million, including cash of $5.4 million, common stock valued at $28.5 million, stock options valued at $3.0 million and merger transaction costs of $1.2 million. The value of the 9.66 million shares of common stock issued to non-affiliated shareholders in connection with the merger was determined using the closing market price of Bruker Daltonics' stock on the date the terms of the merger were agreed to and announced. The fair value of each stock option issued was determined using the Black-Scholes option-pricing model.

7

        The Company engaged a third party valuation firm to independently appraise the fair value of certain assets acquired. The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of acquisition of the minority interest (dollars in thousands):

        The purchase price for the 31% minority interest acquired has been allocated to the net assets acquired on a pro rata basis in accordance with Financial Accounting Standards Board (FASB) Statement No. 141, "Business Combinations." Accordingly, intangible assets acquired were allocated as follows: $1.5 million to existing technology and related patents which have an estimated weighted-average useful life of four years, $0.3 million to customer relationships which have a weighted-average useful life of five years and $0.3 million to trade names which have a weighted-average useful life of ten years. In addition, $2.5 million of acquired intangible assets was assigned to in-process research and development projects that were written off at the date of acquisition in accordance with FASB Interpretation No. 4, "Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method."

        The projects that qualify as acquired in-process research and development projects represent those that have not yet reached technology feasibility and for which no future alternative uses existed. The value assigned to the in-process research and development projects was determined using a discounted probable future cash flow analysis. Financial assumptions used to estimate the future cash flows were based on pricing, margins and expense levels from those historically realized by Bruker AXS. A discount rate of 45% was utilized to discount the net cash flows generated from the acquired in-process research and development. The estimates used in valuing the acquired in-process research and development were based upon assumptions believed to be reasonable but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. As of June 30, 2004, these projects were substantially complete.

8

        The $10.7 million of goodwill acquired from Bruker AXS in connection with the merger was assigned to the Company's Bruker AXS subsidiary, a reportable operating segment, and will not be deductible for tax purposes since the merger was a tax-free merger.

        In conjunction with the merger, the Company formulated a plan to consolidate production and exit certain activities in its life science X-ray business. The production capacity for the life science X-ray systems produced at the Bruker Nonius facility in Delft, Netherlands, has been outsourced or absorbed within other facilities throughout the Company. As a result of these restructuring activities, upon closing of the merger the Company recorded approximately $2.2 million in purchase accounting liabilities and reserves. Approximately, $1.5 million, or 69%, of the purchase accounting liabilities and reserves were charged to operations and the remaining $0.7 million, or 31%, was included in the allocation of the purchase price as goodwill. The purchase accounting liabilities and reserves included $0.8 million of severance costs for approximately 19 employees, $1.0 million as a reserve for inventory that will no longer be used in production, and $0.4 million of costs to upgrade X-ray systems that will no longer be produced and other miscellaneous restructuring costs.

        Charges against the purchase accounting liabilities and reserves recorded in connection with these activities during the six months ended June 30, 2004 were as follows (in thousands):

        In addition, upon closing the merger the Company wrote-off the remaining balance of goodwill of $1.5 million and trade names and trademarks of $0.2 million associated with the Bruker Nonius entity. Approximately, $1.2 million, or 69%, of the write-off of goodwill and trade names and trademarks was charged to operations upon closing of the merger and the remaining $0.5 million, or 31%, was included in the allocation of the purchase price as goodwill.

Baltic Scientific Instruments Ltd. Acquisition

        On April 2, 2003, Bruker AXS acquired 51% of the outstanding common shares of Baltic Scientific Instruments Ltd. ("BSI"), a Riga, Latvia-based company. BSI focuses on solid state X-ray detector technology for materials research and elemental composition and was a supplier to Bruker AXS since 2001. The BSI acquisition provided the Company with the opportunity to explore additional research and development projects. The aggregate purchase price for BSI was approximately $0.3 million and was funded with cash on hand for total assets acquired of $0.9 million and total liabilities assumed of $0.6 million. In May 2003, BSI issued additional shares to Bruker AXS which increased the Company's

9

ownership to 75.5%. BSI's minority shareholders did not receive additional shares in May 2003. The results of BSI have been included in the Bruker AXS segment from the date of acquisition.

        Pro forma information to reflect the BSI acquisition has not been presented as the impact on net sales and net loss and net loss per common share would not have been material.

4. Inventories

        The following is a summary of inventories by major category (in thousands):

5. Goodwill and Other Intangible Assets

        The following is a summary of other intangible assets subject to amortization as of June 30, 2004 and December 31, 2003 (in thousands):

        For the three and six months ended June 30, 2004, the Company recorded amortization expense of approximately $0.1 million and $0.2 million, respectively, related to other amortizable intangible assets. For the three and six months ended June 30, 2003, no amortization expense was recorded as these assets relate to the merger with Bruker AXS (Note 3) which closed on July 1, 2003.

10

        The estimated future amortization expense related to other amortizable intangible assets is as follows (in thousands):

(a)

Amount represents estimated amortization expense for the remaining six months ending December 31, 2004.

        The carrying amount of goodwill as of June 30, 2004 and December 31, 2003 was $10.7 million and is included in the Bruker AXS segment.

6. Warranty Costs

        The Company typically provides a one-year parts and labor warranty with the purchase of equipment. The anticipated cost for this one-year warranty is accrued upon recognition of the sale and is included as a current liability on the balance sheet. The Company also offers to its customer's warranty and service agreements extending beyond the initial year of warranty for a fee. These fees are recorded as deferred revenue and amortized into income over the life of the extended warranty contract.

        Changes in the Company's accrued warranty liability during the six months ended June 30, 2004 were as follows (in thousands):

7. Provision for Income Taxes

        For the three and six months ended June 30, 2004, the Company recorded an income tax benefit of $1.6 million and $0.6 million, respectively, compared with an income tax benefit of $0.6 million for the three months ended June 30, 2003 and an income tax expense of $0.3 million for the six months ended June 30, 2003. In the U.S., any income tax provision or benefit is currently recorded as an adjustment to the valuation allowance until sufficient positive evidence exists to support the reversal of

11

the valuation allowance which was established in the third quarter of 2003. Prior to the third quarter of 2003, the Company had recorded income tax benefits for pre-tax losses in the U.S.

        During the second quarter of 2004, the Company completed the transfer of certain proprietary technologies, equipment and inventories between the Bruker Daltonics German and Swiss subsidiaries, resulting in an income tax benefit of approximately $1.1 million. The income tax benefit resulted from the release of a valuation allowance previously established in the Bruker Daltonics Swiss subsidiary, and the effect on deferred tax assets for the different statutory income tax rates between Germany and Switzerland.

8. Restructuring Charges

Bruker BioSciences 2003 Restructuring Plan

        See Note 3 "Mergers and Acquisitions" for a description of the Company's restructuring activities undertaken as a result of the merger with Bruker AXS.

Bruker AXS 2002 Restructuring Plan

        In September 2002, Bruker AXS implemented a restructuring program focused on reducing costs and improving productivity by eliminating redundant positions, streamlining production and initiating cost reduction programs in several operating areas. As a result, the Company recorded a restructuring charge of approximately $1.8 million ($1.1 million, net of tax) in the third quarter of 2002. During the six months ended June 30, 2004, there were no payments under the restructuring program. As of June 30, 2004, the remaining restructuring accrual balance of approximately $0.5 million relates to severance benefits of certain of the Company's terminated German employees, which due to the impact of certain regulatory requirements, will not be fully paid until 2008.

9. Employee Benefit Plans

        The Company has a defined benefit retirement plan that covers substantially all employees of the Bruker AXS German subsidiary who were employed on September 30, 1997. The plan provides pension benefits based upon final average salary and years of service.

        The net periodic pension benefit cost includes the following components during the three and six months ended June 30, 2004 and 2003 (in thousands):

12

        To date, the Company has not funded the defined benefit plan and is not required to make contributions during the remainder of 2004.

10. Stock Compensation Arrangements

        The Company measures compensation expense for its stock-based employee compensation plans using the intrinsic value method in accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and FASB Interpretation No. 44, "Accounting for Certain Transactions involving Stock Compensation." The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure", an amendment of FASB Statement No. 123 (SFAS 148). Had compensation expense for the Company's stock option plans been determined based on the fair value at the grant date, consistent with the methodology prescribed by SFAS 148, the Company's net loss and net loss per common share for the three and six months ended June 30, 2004 and 2003 would have approximated the following pro forma amounts (in thousands, except per share data):

        The fair value of each stock option included in the preceding pro forma amounts was estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:

11. Earnings Per Share

        Basic earnings per share is calculated by dividing net earnings by the weighted-average number of common shares outstanding during the period. Except where the result would be antidilutive, the diluted earnings per share computation includes the effect of shares which would be issuable upon the exercise of outstanding stock options, reduced by the number of shares which are assumed to be purchased by the Company from the resulting proceeds at the average market price during the period.

13