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

FORM 10-Q

(Mark One)

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

FOR THE TRANSITION PERIOD FROM                              TO                             

Commission File Number 000-30833

Bruker Daltonics Inc.
(Exact name of registrant as specified in its charter)

15 Fortune Drive
Billerica, MA 01821
(Address of principal executive offices)

(978) 663-3660
(Registrant's telephone number, including area code)

        Check whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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. (1) Yes ý    No o

        As of August 9, 2002 there were 54,898,131 shares of the Registrant's common stock outstanding.

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PART I    FINANCIAL INFORMATION

ITEM 1:    Financial Statements (Unaudited)

Bruker Daltonics Inc.

Consolidated Condensed Balance Sheets

(in thousands, except share and per share amounts)

See accompanying notes.

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Bruker Daltonics Inc.

Consolidated Condensed Statements of Operations

(in thousands, except per share data)

(Unaudited)

See accompanying notes.

4

Bruker Daltonics Inc.

Consolidated Condensed Statements of Cash Flows

(in thousands)

(Unaudited)

See accompanying notes.

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Bruker Daltonics Inc.

Notes to Consolidated Condensed Financial Statements

1.    Description of Business

        Bruker Daltonics Inc. and its wholly-owned subsidiaries (the "Company") design, manufacture and market proprietary life science systems based on mass spectrometry core technology platforms. The Company also sells a broad range of field analytical systems for substance detection and pathogen identification. The Company maintains major technical centers in Europe, North America and Japan. Bruker Daltonics allocates substantial capital and resources to research and development and is party to various collaborations and strategic alliances. The Company's diverse customer base includes pharmaceutical companies, biotechnology companies, proteomics companies, academic institutions and government agencies.

        The financial statements represent the consolidated accounts of Bruker Daltonics Inc., and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated condensed financial statements as of June 30, 2002 and for the three months and six months ended June 30, 2002 and 2001 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months and six months ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002.

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

        The balance sheet at December 31, 2001 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

        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, 2001.

2.    Inventories

        The components of inventories were as follows (in thousands):

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3.    Restructuring Charge

        The Company recorded a restructuring charge for the three months ended June 30, 2002 of approximately $1.5 million primarily related to a workforce reduction of approximately 50 employees. The charge consisted primarily of employee severance, professional fees and outplacement services.

4.    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. 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.

        The following table sets forth the computation of basic and diluted average shares outstanding for the periods indicated (in thousands):

5.    Comprehensive Income (Loss)

        Total comprehensive income, consisting of net income and the change in the accumulated foreign currency translation adjustment, was $1.0 million and $1.4 million for the three months and six months ended June 30, 2002, respectively, and total comprehensive loss was $0.1 million and $1.2 million for the three months and six months ended June 30, 2001, respectively.

6.    Contingencies

        The Company's wholly-owned subsidiary, Bruker Daltonik GmbH, had a $1.8 million and $2.5 million accrued reserve at June 30, 2002 and December 31, 2001, respectively, related both to patent infringement litigation and possible cost overruns, attorneys' fees and liquidated damages associated with an existing contract.

        Since December 31, 1996, the Company has been involved in patent litigation with a competitor, Finnigan, a subsidiary of Thermo Electron Corporation. In August 2001, the Company announced a comprehensive settlement agreement for all of this litigation. The worldwide settlement agreement provides for the dismissal of all pending suits, the waiving of all damages, and a framework of licensing and arbitration for potential future patent disputes between the companies in the field of ion trap mass spectrometry (ITMS). The settlement allows both companies, as well as their distributors, to sell their unmodified ITMS systems effective immediately. As a result, the Company reduced its patent litigation accrual by approximately $0.8 million in the second quarter of 2002, leaving an accrual of $0.1 million.

        During the third quarter of 2001, the Company accrued a $1.5 million reserve related to an existing contract within its substance detection and pathogen identification business. The reserve is for possible cost overruns, attorneys' fees and liquidated damages related to this contract. The Company intends to complete the contract and reach a reasonable settlement with the other party to the contract

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regarding the outstanding issues related to the contract. The Company believes it has an adequate reserve for these possible cost overruns, attorneys' fees and liquidated damages.

        Other lawsuits, claims and proceedings of a nature considered normal to its businesses may be pending from time to time against the Company. The Company believes the outcome of these proceedings, if any, will not have a material impact on the Company's financial position or results of operations.

        As of June 30, 2002, the Company had purchase commitments of approximately $6.0 million for the expansion of an existing facility in Germany and the construction of a new facility in the United States.

7.    New Accounting Pronouncements

        Effective January 1, 2002, the Company adopted the provisions of Financial Accounting Standards Board Statement Number ("FAS") 142 "Goodwill and Other Intangible Assets," FAS 144 "Accounting for the Impairment or Disposal of Long-lived Assets" and the remaining provisions of FAS 141 "Business Combinations." The adoption of these statements did not have a significant impact on the Company's financial statements.

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ITEM 2:    Management's Discussion and Analysis of Financial Condition and Results of Operations

        The following discussion of our financial condition and results of operations should be read in conjunction with our interim condensed consolidated financial statements and the notes to those statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and in conjunction with the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2001.

        Statements in this Management's Discussion and Analysis of Financial Condition and Results of Operations which express that we "believe", "anticipate", "expect" or "plan to" as well as other statements which are not historical fact, are forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. Actual events or results may differ materially as a result of the risks and uncertainties described herein and elsewhere, including but not limited to, those factors discussed in "Factors Affecting Our Business, Operating Results and Financial Condition" set forth in our Annual Report on Form 10-K for the year ended December 31, 2001.

Results of Operations

Three Months Ended June 30, 2002 Compared to the Three Months Ended June 30, 2001

        Product Revenue.    Total product revenue for the three months ended June 30, 2002 increased $5.6 million, or 25.2%, to $27.9 million compared to $22.3 million for the same period in 2001. The increase is related to continuing growth of all our life science product lines, with a stronger emphasis on our MALDI-TOF product line.

        Other Revenue.    Other revenue for the three months ended June 30, 2002 increased $21,000, or 700.0%, to $24,000 compared to $3,000 for the same period in 2001. The change is due to the timing of receipts from various projects for early-stage research and development, which are currently funded by grants from the German government.

        Cost of Product Revenue.    Cost of product revenue for the three months ended June 30, 2002 increased $3.6 million, or 34.4%, to $14.0 million compared to $10.4 million for the same period in 2001. The cost of product revenue as a percentage of product revenue was 50.3% in 2002 as compared to 46.8% for the same period in 2001. The increase in overall cost of product revenue is due to an increase in product sales, and during the quarter, we increased our inventory reserve by approximately $0.7 million as a result of refining our reserve methodology for slow-moving and excess inventory levels.

        Selling, General and Administrative.    Selling, general and administrative expenses for the three months ended June 30, 2002 increased $1.0 million, or 15.0%, to $7.6 million compared to $6.6 million for the same period in 2001. Selling, general and administrative expenses as a percentage of product revenues were 27.3% in 2002 and 29.8% for the same period in 2001. The dollar increase relates to the overall general increase in revenues. The decline as a percentage of product revenues is related to being able to better leverage our general and administrative expenses against the increase in product revenues.

        Research and Development.    Research and development expenses for the three months ended June 30, 2002 increased $473,000, or 10.2%, to $5.1 million compared to $4.6 million for the same period in 2001. As a percentage of product revenues, research and development expenses were 18.3% in 2002 compared to 20.8% for the same period in 2001. The dollar increase relates to the timing of certain new development projects that will become a part of our existing product line in the future.

        Patent Litigation Credit.    Patent litigation credit relates to a reversal of a previous litigation reserve established in prior years. As a result of the settlement associated with this litigation, the reserve was reduced by $0.8 million during this quarter.

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        Restructuring Charge.    We recorded a restructuring charge for the three months ended June 30, 2002 of approximately $1.5 million primarily related to a workforce reduction of approximately 50 employees. The charge consisted primarily of employee severance, professional fees and outplacement services.

        Interest and Other (Expense) Income, Net.    Interest and other (expense) income, net for the three months ended June 30, 2002 was $(4.6) million, compared to $798,000 for the same period in 2001. The difference relates to a $4.4 million charge the Company incurred during the three months ended June 30, 2002 relating to the write-down of our investments in certain proteomics content companies.

Six Months Ended June 30, 2002 Compared to the Six Months Ended June 30, 2001

        Product Revenue.    Total product revenue for the six months ended June 30, 2002 increased $9.5 million, or 21.7%, to $53.6 million compared to $44.0 million for the same period in 2001. The increase is related to continuing growth of all our life science product lines, with a stronger emphasis on our MALDI-TOF product line.

        Other Revenue.    Other revenue for the six months ended June 30, 2002 decreased $36,000, or 21.3%, to $133,000 compared to $169,000 for the same period in 2001. The change is due to the timing of receipts from various projects for early-stage research and development, which are currently funded by grants from the German government.

        Cost of Product Revenue.    Cost of product revenue for the six months ended June 30, 2002 increased $5.2 million, or 25.1%, to $26.1 million compared to $20.9 million for the same period in 2001. The cost of product revenue as a percentage of product revenue was 48.7% in 2002 as compared to 47.4% for the same period in 2001. The increase in overall cost of product revenue is due to an increase in product sales. During the second quarter of 2002, we increased our inventory reserve by approximately $0.7 million as a result of refining our reserve methodology for slow-moving, excess inventory levels.

        Selling, General and Administrative.    Selling, general and administrative expenses for the six months ended June 30, 2002 increased $2.7 million, or 20.9%, to $15.5 million compared to $12.8 million for the same period in 2001. Selling, general and administrative expenses as a percentage of product revenues were 28.9% in 2002 and 29.1% for the same period in 2001. The dollar increase relates to the overall general increase in revenues. The decline as a percentage of product revenues is related to being able to better leverage our general and administrative expenses against the increase in product revenues.

        Research and Development.    Research and development expenses for the six months ended June 30, 2002 increased $338,000, or 3.6%, to $9.6 million compared to $9.3 million for the same period in 2001. As a percentage of product revenues, research and development expenses were 18.0% in 2002 compared to 21.1% for the same period in 2001. The dollar increase relates to the timing of certain new development projects that will become a part of our existing product line in the future.

        Patent Litigation Credit.    Patent litigation credit relates to a reversal of a previous litigation reserve established in prior years. As a result of the settlement associated with this litigation, the reserve was reduced by $0.8 million during the second quarter.

        Restructuring Charge.    We recorded a restructuring charge for the three months ended June 30, 2002 of approximately $1.5 million primarily related to a workforce reduction of approximately 50 employees. The charge consisted primarily of employee severance, professional fees and outplacement services.

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        Interest and Other (Expense) Income, Net.    Interest and other (expense) income, net for the six months ended June 30, 2002 was $(4.4) million, compared to $1.7 million for the same period in 2001. The difference relates to a $4.4 million charge the Company incurred during the three months ending June 30, 2002 relating to the write-down of our investments in certain proteomics content companies. In addition, this difference also relates to our interest income, which declined as a result of the lower interest earned on our short-term investments during 2002.

Liquidity and Capital Resources

        Presently, we anticipate that our existing capital resources will meet our operating and investing needs through at least the end of 2002. Historically, we have financed our growth through a combination of cash provided from operations, debt financing and issuance of common stock. During the six months ended June 30, 2002, net cash used in operating activities was $7.2 million, which represents a decrease in net cash used in operating activities as compared to the same period in 2001, and is primarily a result of more efficient management of our current assets and liabilities.

        We used $10.2 million of cash during the six months ended June 30, 2002 for capital expenditures, which was principally related to expenditures for the expansion of our existing facility in Germany and the construction of a new production facility in the United States. The Company expects that capital expenditures related to the new facilities in 2002 will be approximately $12.0 million and total capital expenditures for the year will be approximately $17.0 million. Such capital expenditures are being made principally to improve productivity and expand manufacturing capacity. We expect to continue to make capital investments focused on enhancing the efficiency of our operations and supporting our growth.

        In October 2001, we entered into a revolving line of credit with Citizens Bank in the United States in the amount of $2.5 million. This line, which is secured by portions of our inventory, receivables and equipment in the United States, may be used to support working capital and expired on July 31, 2002. We also maintain revolving lines of credit of approximately $6.7 million with German banks. As of June 30, 2002, there was approximately $6.2 million outstanding on these lines. Our German lines of credit are unsecured. During 2001 and 2002, we entered into three revolving lines of credit for approximately $3.0 million with a Japanese bank. As of June 30, 2002, there was approximately $1.7 million outstanding on the lines. These lines of credit are unsecured.

        We have three long-term notes payable with outstanding balances aggregating $12.7 million as of June 30, 2002. One note ($5.4 million), with an interest rate of 5.10%, is payable in full in 2003. The other two notes ($7.3 million in the aggregate) have an interest rate of 4.65% and are payable in full in 2008. Interest is due monthly, and all obligations are collateralized by the land and buildings of Bruker Daltonik GmbH.

        Our future capital uses and requirements depend on numerous factors, including our success in selling our existing products, our progress in research and development, our ability to introduce and sell new products, our sales and marketing expenses, our need to expand production capacity, costs associated with possible acquisitions, expenses associated with unforeseen litigation, regulatory changes, competition and technological developments in the market.

Inflation

        We do not believe inflation has had a material impact on our business or operating results during the periods presented.

Impact of Foreign Currencies

        We sell our products in many countries, and a substantial portion of our sales and a portion of our costs and expenses are denominated in foreign currencies, especially in Euro. Historically, our realized

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foreign exchange gains and losses have not been material. Accordingly, we have not hedged our foreign currency position in the past. However, as we expand our sales internationally, we plan to evaluate our currency risks, and we may enter into foreign exchange contracts from time to time to mitigate foreign currency exposure.

ITEM 3:    Quantitative and Qualitative Disclosures About Market Risk

        Part of the information called for by this item is provided under the caption "Liquidity and Capital Resources" and "Impact of Foreign Currencies" under Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations.

        The Company does not use derivative financial instruments for trading or speculative purposes. However, the Company regularly invests excess cash in overnight repurchase agreements and interest-bearing investment-grade securities that we hold for the duration of the term of the respective instrument, and which are subject to changes in short-term interest rates. The Company believes that the market risk arising from holding these financial instruments is minimal.

        The Company's exposure to market risks associated with changes in interest rates relates primarily to the increase or decrease in the amount of interest income earned on its investment portfolio, given that the Company's long-term debt has a fixed rate. The Company ensures the safety and preservation of invested funds by limiting default, market and reinvestment risks. The Company mitigates default risk by investing in investment grade securities. A hypothetical 100 basis point adverse move in interest rates along the entire interest rate yield curve would not materially affect the fair value of the Company's interest sensitive financial instruments at June 30, 2002. Declines in interest rates will over time, however, reduce the Company's interest income.

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PART II    OTHER INFORMATION

ITEM 1:    Legal Proceedings

General

        The Company may, from time to time, be involved in legal proceedings in the ordinary course of business. The Company is not currently involved in any pending legal proceedings that, either individually or taken as a whole, could materially harm our business, prospects, results of operations or financial condition. No such arbitrations or lawsuits have been threatened.

ITEM 2:    Changes in Securities and Use of Proceeds

        On August 3, 2000, the Securities and Exchange Commission declared effective our registration statement on Form S-1 (No. 333-34820) pursuant to which we offered and sold 9,200,000 shares of our common stock. We have used a portion of the net proceeds of the offering to fund our continuing research and development activities and for working capital and other general corporate purposes. Additionally, we have used approximately $7.0 million of the net proceeds to pay off a portion of our outstanding bank debt.

ITEM 3:    Defaults Upon Senior Securities

        None.

ITEM 4:    Submission of Matters to a Vote of Security Holders

        The Company's Annual Meeting of Stockholders was held on May 8, 2002. The following three proposals were presented and voted upon at the Annual Meeting:

1.

a proposal to elect three Class II directors to hold office until the 2005 Annual Meeting of Stockholders;

2.

a proposal to amend the Bruker Daltonics Inc. 2000 Stock Option Plan to limit yearly option grants such that no employee shall be granted, during any calendar year, options to purchase more than 100,000 shares of common stock; and

3.

a proposal to ratify the selection of Ernst & Young LLP as independent certified public auditors of the Company for fiscal 2002.

        All director nominees were elected as follows:

        The term of office of Frank H. Laukien, Dieter Koch, William A. Linton and M. Christopher Canavan, Jr. as directors continued after the meeting.

        The amendment to the Bruker Daltonics Inc. 2000 Stock Option Plan was approved as follows:

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        The ratification of the selection of Ernst & Young LLP as auditors for 2002 was approved as follows:

ITEM 5:    Other Information

        None.

ITEM 6:    Exhibits and Reports on Form 8-K

(a)

Exhibits.

None.

(b)

Current Reports on Form 8-K.

We did not file any reports on Form 8-K during the quarter ended June 30, 2002.

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Pursuant to Section 1350 of Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned hereby certifies, to the best of his knowledge, that this report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in this report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

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