Table of Contents

** **

 

** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C.20549**

 

**Form 10-Q**

 
| **x** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT of 1934** |
|-------|--------------------------------------------------------------------------------------------------------|

 

**    Forthe quarterly period ended June 30, 2008**

 
| **o** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT of 1934** |
|-------|----------------------------------------------------------------------------------------------------------|

 

**Commission File Number 000-30833**

 

**BRUKERCORPORATION**

(Exact name ofregistrant as specified in its charter)

 

| **Delaware**                                                    | ** ** | **04-3110160**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |       | (I.R.S. Employer  Identification No.) |

 

**40 Manning Road, Billerica, MA 01821**(Address ofprincipal executive offices) (Zip Code)

** **

Registrant’s telephone number, including areacode: **(978) 663-3660**

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.  Yes x     No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer or a smaller reporting company. Seethe definitions of “accelerated filer, large accelerated filer, smallerreporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

| Large  accelerated filer o |   | Accelerated filer x     |
|---------------------------------|--------|------------------------------|
|                            |   |                         |
| Non-accelerated  filer o   |   | Smaller reporting  company o |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). Yes o No x

 

As ofAugust 5, 2008, there were 163,626,252 shares of the Registrant’s commonstock outstanding.

 

 

 

----

Table of Contents

 

**BRUKERCORPORATION**

 

**QuarterlyReport on Form 10-Q**

**Forthe Quarter Ended June 30, 2008**

 

**Index**

 
| ** **       | ** ** | ** **                                                                                                                 | **Page** |
|------------------|------------|----------------------------------------------------------------------------------------------------------------------------|----------|
| **Part I**  | ** ** | **FINANCIAL INFORMATION**                                                                                                  | 1        |
| Item 1:          |       | Unaudited Condensed  Consolidated Financial Statements                                                                     | 1        |
|             |       | Unaudited Condensed  Consolidated Balance Sheets as of June 30, 2008 and December 31,  2007                      | 1        |
|             |       | Unaudited Condensed Consolidated  Statements of Operations for the three and six months ended June 30,  2008 and 2007 | 2        |
|             |       | Unaudited Condensed  Consolidated Statements of Cash Flows for the six months ended June 30,  2008 and 2007           | 3        |
|             |       | Notes to  Unaudited Condensed Consolidated Financial Statements                                                            | 4        |
| Item 2:          |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                | 16       |
| Item 3:          |       | Quantitative  and Qualitative Disclosures About Market Risk                                                                | 32       |
| Item 4:          |       | Controls and  Procedures                                                                                                   | 33       |
| **Part II** | ** ** | **OTHER INFORMATION**                                                                                                      | 35       |
| Item 1:          |       | Legal Proceedings                                                                                                          | 35       |
| Item 1A:         |       | Risk Factors                                                                                                               | 35       |
| Item 2:          |       | Unregistered  Sales of Equity Securities and Use of Proceeds                                                               | 36       |
| Item 3:          |       | Defaults  Upon Senior Securities                                                                                           | 36       |
| Item 4:          |       | Submission  of Matters to a Vote of Security Holders                                                                       | 36       |
| Item 5:          |       | Other Information                                                                                                          | 36       |
| Item 6:          |       | Exhibits                                                                                                                   | 37       |
|             |       | Signatures                                                                                                                 | 38       |

 

----

Tableof Contents

 
| **PART I**   | **FINANCIAL  INFORMATION**                                 |
|--------------|------------------------------------------------------------|
|         |                                                       |
| **ITEM  1.** | **UNAUDITED  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS** |

 

**BRUKERCORPORATION**

**UNAUDITED CONDENSED CONSOLIDATEDBALANCE SHEETS**

**(inthousands, except share and per share data)**

** **
| ** **                                                                                                                                                                                                | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                | ** ** | **2008**          | ** ** | **2007**              | ** ** |
|                                                                                                                                                                                                      |       |              |       |                  |       |
| **ASSETS**                                                                                                                                                                                                |       |              |       |                  |       |
| Current assets:                                                                                                                                                                                           |       |              |       |                  |       |
| Cash and cash  equivalents                                                                                                                                                                                |       | $                 | 125,399    |                  | $          | 332,368 |   |
| Short term  investments and restricted cash                                                                                                                                                               |       | 6,391             |       | 12,186                |       |
| Accounts  receivable, net                                                                                                                                                                                 |       | 164,236           |       | 185,217               |       |
| Inventories                                                                                                                                                                                               |       | 487,503           |       | 447,688               |       |
| Other current  assets                                                                                                                                                                                     |       | 75,697            |       | 57,238                |       |
| Total current  assets                                                                                                                                                                                     |       | 859,226           |       | 1,034,697             |       |
| Property, plant  and equipment, net                                                                                                                                                                       |       | 236,321           |       | 207,588               |       |
| Intangibles and  other assets                                                                                                                                                                             |       | 75,895            |       | 69,346                |       |
| Total assets                                                                                                                                                                                              |       | $                 | 1,171,442  |                  | $          | 1,311,631 |   |
|                                                                                                                                                                                                      |       |              |       |                  |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                                                                                                            |       |              |       |                  |       |
| Current  liabilities:                                                                                                                                                                                     |       |              |       |                  |       |
| Short-term  borrowings                                                                                                                                                                                    |       | $                 | 66,431     |                  | $          | 35,591 |   |
| Accounts payable                                                                                                                                                                                          |       | 54,288            |       | 52,293                |       |
| Customer  advances                                                                                                                                                                                        |       | 220,254           |       | 233,466               |       |
| Other current  liabilities                                                                                                                                                                                |       | 235,455           |       | 239,841               |       |
| Total current  liabilities                                                                                                                                                                                |       | 576,428           |       | 561,191               |       |
| Long-term debt                                                                                                                                                                                            |       | 175,719           |       | 8,605                 |       |
| Other long-term  liabilities                                                                                                                                                                              |       | 109,713           |       | 105,445               |       |
| Minority  interest in consolidated subsidiaries                                                                                                                                                           |       | 753               |       | 538                   |       |
| Commitments and  contingencies (Note 16)                                                                                                                                                                  |       |              |       |                  |       |
|                                                                                                                                                                                                      |       |              |       |                  |       |
| Shareholders’  Equity:                                                                                                                                                                               |       |              |       |                  |       |
| Preferred stock,  $0.01 par value, 5,000,000 shares authorized, none issued or outstanding at  June 30, 2008 or December 31, 2007                                                               |       | —            |       | —                |       |
| Common stock,  $0.01 par value, 260,000,000 and 200,000,000 shares authorized, 163,636,184  and 163,251,890 shares issued and outstanding at June 30, 2008 and  December 31, 2007, respectively |       | 1,628             |       | 1,624                 |       |
| Treasury stock,  at cost, 9,359 shares and 0 shares at June 30, 2008 and  December 31, 2007, respectively                                                                                       |       | (109              | )          | —                |       |
| Other  shareholders’ equity                                                                                                                                                                          |       | 307,310           |       | 634,228               |       |
| Total  shareholders’ equity                                                                                                                                                                          |       | 308,829           |       | 635,852               |       |
| Total liabilities  and shareholders’ equity                                                                                                                                                          |       | $                 | 1,171,442  |                  | $          | 1,311,631 |   |

 

The accompanyingnotes are an integral part of these statements.

 

1

----

Table of Contents

 

**BRUKERCORPORATION**

**UNAUDITED CONDENSED CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(inthousands, except per share data)**

** **
| ** **                                                                             | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                             | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                                                             | ** ** | **2008**                         | ** ** | **2007**                       | ** ** | **2008** | ** ** | **2007** | ** ** |
| Product revenue                                                                        |       | $                                | 278,849    |                           | $          | 210,177 |   | $ | 485,884 |   | $ | 391,786 |   |
| Service revenue                                                                        |       | 31,733                           |       | 27,570                         |       | 61,690 |   | 52,757 |   |
| Other revenue                                                                          |       | 883                              |       | 595                            |       | 2,327 |   | 1,335 |   |
| Total revenue                                                                          |       | 311,465                          |       | 238,342                        |       | 549,901 |   | 445,878 |   |
|                                                                                   |       |                             |       |                           |       |   |   |   |   |
| Cost of product  revenue                                                               |       | 161,931                          |       | 120,810                        |       | 266,832 |   | 217,459 |   |
| Cost of service  revenue                                                               |       | 20,896                           |       | 17,617                         |       | 41,302 |   | 33,956 |   |
| Total cost of  revenue                                                                 |       | 182,827                          |       | 138,427                        |       | 308,134 |   | 251,415 |   |
| Gross profit                                                                           |       | 128,638                          |       | 99,915                         |       | 241,767 |   | 194,463 |   |
|                                                                                   |       |                             |       |                           |       |   |   |   |   |
| Operating  expenses:                                                                   |       |                             |       |                           |       |   |   |   |   |
| Sales and  marketing                                                                   |       | 46,151                           |       | 37,029                         |       | 89,544 |   | 72,491 |   |
| General and  administrative                                                            |       | 17,178                           |       | 13,442                         |       | 33,982 |   | 26,855 |   |
| Research and  development                                                              |       | 36,514                           |       | 27,657                         |       | 67,719 |   | 53,621 |   |
| Acquisition  related charges                                                           |       | 360                              |       | —                         |       | 6,153 |   | — |   |
| Total operating  expenses                                                              |       | 100,203                          |       | 78,128                         |       | 197,398 |   | 152,967 |   |
| Operating income                                                                       |       | 28,435                           |       | 21,787                         |       | 44,369 |   | 41,496 |   |
|                                                                                   |       |                             |       |                           |       |   |   |   |   |
| Interest and  other income (expense), net                                              |       | 3,527                            |       | 2,214                          |       | (8,662 | ) | 2,964 |   |
| Income before  income tax provision and minority interest in consolidated subsidiaries |       | 31,962                           |       | 24,001                         |       | 35,707 |   | 44,460 |   |
|                                                                                   |       |                             |       |                           |       |   |   |   |   |
| Income tax  provision                                                                  |       | 10,196                           |       | 6,284                          |       | 14,466 |   | 12,307 |   |
| Income before  minority interest in consolidated subsidiaries                          |       | 21,766                           |       | 17,717                         |       | 21,241 |   | 32,153 |   |
| Minority  interest in consolidated subsidiaries                                        |       | 80                               |       | 60                             |       | 240 |   | 146 |   |
| Net income                                                                             |       | $                                | 21,686     |                           | $          | 17,657 |   | $ | 21,001 |   | $ | 32,007 |   |
| Net income per  common share - basic and diluted                                       |       | $                                | 0.13       |                           | $          | 0.11 |   | $ | 0.13 |   | $ | 0.20 |   |
| Weighted average  common shares outstanding:                                           |       |                             |       |                           |       |   |   |   |   |
| Basic                                                                                  |       | 162,440                          |       | 161,728                        |       | 162,371 |   | 161,050 |   |
| Diluted                                                                                |       | 165,438                          |       | 164,343                        |       | 165,308 |   | 163,731 |   |

 

The accompanyingnotes are an integral part of these statements.

 

2

----

Table of Contents

 

**BRUKERCORPORATION**

**UNAUDITED CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(inthousands)**

** **
| ** **                                                            | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                            | ** ** | **June 30,**              | ** ** |
| ** **                                                            | ** ** | **2008**                       | ** ** | **2007** | ** ** |
| **Operating  activities:**                                            |       |                           |       |   |   |
| Net cash  provided by operating activities                            |       | $                              | 18,103     |   | $ | 16,633 |   |
|                                                                  |       |                           |       |   |   |
| **Investing  activities:**                                            |       |                           |       |   |   |
| Purchases of  property and equipment                                  |       | (27,066                        | )          | (13,023 | ) |
| Acquisitions,  net of cash acquired                                   |       | (2,056                         | )          | (2,468 | ) |
| Payments in connection  with the acquisition of Bruker BioSpin        |       | (5,247                         | )          | — |   |
| Purchase of short-term  investments                                   |       | —                         |       | (273 | ) |
| Proceeds from  sale of short-term investments                         |       | 9,798                          |       | — |   |
| Changes in  restricted cash                                           |       | (3,390                         | )     | 144 |   |
| Net cash used in  investing activities                                |       | (27,961                        | )          | (15,620 | ) |
|                                                                  |       |                           |       |   |   |
| **Financing  activities:**                                            |       |                           |       |   |   |
| Proceeds from  (repayments of) short-term borrowings, net             |       | 15,096                         |       | (9,321 | ) |
| Proceeds from  (repayments of) long-term debt, net                    |       | 178,289                        |       | (5,856 | ) |
| Payments of  deferred financing costs                                 |       | (2,916                         | )          | — |   |
| Proceeds from  issuance of common stock                               |       | 1,534                          |       | 18,417 |   |
| Repurchase of  common stock                                           |       | (109                           | )          | (92 | ) |
| Deemed dividend  in connection with the acquisition of Bruker BioSpin |       | (385,963                       | )          | — |   |
| Cash payments to  shareholders                                        |       | (23,416                        | )          | (37,641 | ) |
| Net cash used in  financing activities                                |       | (217,485                       | )     | (34,493 | ) |
| Effect of  exchange rate changes on cash and cash equivalents         |       | 20,374                         |       | 3,828 |   |
| Net change in  cash and cash equivalents                              |       | (206,969                       | )          | (29,652 | ) |
| Cash and cash  equivalents at beginning of period                     |       | 332,368                        |       | 311,240 |   |
| Cash and cash  equivalents at end of period                           |       | $                              | 125,399    |   | $ | 281,588 |   |

 

The accompanyingnotes are an integral part of these statements.

 

3

----

Table of Contents

 

**BRUKERCORPORATION**

**NOTES TO UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

** **

**1. Description of Business**

** **

Bruker Corporation andits wholly-owned subsidiaries (the “Company”) design, manufacture, service andmarket proprietary life science and materials research systems based on itscore technology platforms, including X-ray technologies, magnetic resonancetechnologies, mass spectrometry technologies, and optical emission spectroscopyand infrared and Raman molecular spectroscopy technology. The Company alsosells a broad range of field analytical systems for chemical, biological,radiological and nuclear (CBRN) detection. The Company maintains major technicaland manufacturing centers in Europe, North America and Japan and sales officesthroughout the world. The Company’s diverse customer base includespharmaceutical, biotechnology and proteomics companies, academic institutions,advanced materials and semiconductor industries and government agencies.

 

The financial statementsrepresent the consolidated accounts of the Company and its wholly-ownedsubsidiaries. All significant intercompany accounts and transactions have beeneliminated in consolidation. The condensed consolidated financial statements asof and for the three and six months ended June 30, 2008 and 2007 have beenprepared in accordance with accounting principles generally accepted in theUnited States (“GAAP”) for interim financial information and pursuant to the rules andregulations of the Securities and Exchange Commission for Quarterly Reports onForm 10-Q and Article 10 of Regulation S-X. Accordingly, the financialinformation presented herein does not include all of the information andfootnotes required by GAAP for complete financial statements. In the opinion ofmanagement, all adjustments, consisting only of normal recurring adjustments,considered necessary for a fair presentation have been included. The resultsfor interim periods are not necessarily indicative of the results expected forthe full year.

 

On February 26,2008, the Company completed the acquisition of all of the Bruker BioSpin Group(“Bruker BioSpin”). Both the Company and Bruker BioSpin were majority owned bysix affiliated stockholders prior to the acquisition. As a result, theacquisition of Bruker BioSpin was considered a combination of companies undercommon control and has been accounted for at historical carrying values at thedate of the acquisition. The consolidated balance sheets, statements ofoperations, statements of cash flows and notes to the consolidated financialstatements for all periods presented herein have been restated by combining thehistorical consolidated financial statements of the Company and Bruker BioSpin.

 

Following the acquisitionof Bruker BioSpin, management reevaluated the way the Company is managed andthe internal reporting structure and, as a result of that evaluation, reportsits financial results on the basis of the following two reportable segments:

 

·                  *BioScience.*The operations of this segment include thedesign, manufacture and distribution of advanced instrumentation and automatedsolutions based on X-ray technology and optical emission spectroscopy, massspectrometry technology and infrared and Raman molecular spectroscopytechnology. Typical customers of the BioScience segment include pharmaceutical,biotechnology, proteomics and molecular diagnostic companies, academicinstitutions, government agencies, semiconductor companies, chemical, cement,metals and petroleum companies, raw material manufacturers and food, beverageand agricultural companies.

 

·                  *BioSpin.*The operations of this segment include the design,manufacture and distribution of enabling life science tools based on its coretechnology, magnetic resonance, as well as the manufacturing and development oflow temperature superconductor (LTS) and high temperature superconductor (HTS)wires for use in advanced magnet technology and energy applications. Typicalcustomers of the BioSpin segment include pharmaceutical and biotechnologycompanies, academic institutions and government agencies.

 

**2.  Acquisition of BrukerBioSpin**

** **

On February 26,2008, the Company completed the acquisition of all of Bruker BioSpin inaccordance with the terms of various agreements dated as of December 2,2007. Both the Company and Bruker BioSpin were majority owned by six affiliatedstockholders prior to the acquisition. As a result, the acquisition of BrukerBioSpin by the Company was considered a combination of companies under commoncontrol and has been accounted for at historical 

 

4

----

Table of Contents

 

carrying values at the date of the acquisition. Historical consolidatedbalance sheets, statements of operations, statements of cash flows and notes tothe consolidated financial statements have been restated by combining thehistorical consolidated financial statements of Bruker Corporation with thoseof Bruker BioSpin. In addition, because the transaction is accounted for acombination of companies under common control, all one-time transaction costshave been expensed as incurred. With the addition of Bruker BioSpin, theCompany enhanced its position as a leading supplier for life science andmaterials research, its distribution in the Americas, Europe and Asia, and itssales and service infrastructure.

 

Upon the completion ofthis acquisition, the Company paid an aggregate of $914.0 million ofconsideration to the shareholders of Bruker BioSpin, which was financed with57,544,872 shares of unregistered common stock valued at $526.0 million, $351.0million of cash obtained under a new credit facility, and the balance with cashon hand. The value of the shares of common stock in connection with the mergerwas determined using a trailing average of the closing market prices of theCompany’s stock for a period of ten consecutive trading days ending two daysprior to the signing of the various stock purchase agreements.

 

Under the stock purchaseagreements, $98.8 million of the purchase price was paid into escrow accountspending the resolution of indemnification obligations and working capitalobligations of the sellers. The unused portion of the $92.0 million indemnityescrow will be released to the sellers at the later of (1) the 30thday following the receipt by the Company of combined audited financialstatements of Bruker BioSpin for the fiscal year ended December 31, 2008or (2) the resolution of any claim for indemnification of which thesellers have received notice prior to the conclusion of the 30 day perioddescribed in (1) above. The $6.8 million working capital escrow wasreleased to the sellers in May 2008 following the receipt by the Companyof combined audited financial statements of Bruker BioSpin for the fiscal yearended December 31, 2007.

 

**3.  Other Acquisitions**

** **

On January 31, 2008,the Company acquired JUWE Laborgeraete GmbH, a privately-held company locatedin Viersen, Germany. JUWE develops, manufactures and distributes advancedcombustion analysis systems for various carbon, hydrogen, nitrogen, oxygen andsulfur elemental applications. JUWE’s products are complementary to the Company’soptical emission spectroscopy products. The results of JUWE have been includedin the BioScience segment from the date of acquisition. The aggregate purchaseprice of JUWE was $2.7 million, of which $1.2 million was paid in cash, $1.1million was funded by the issuance of an aggregate of 111,000 restrictedunregistered shares of the Company’s common stock, par value $0.01 per share,to JUWE’s shareholders and $0.4 million of net liabilities assumed by theCompany. The Company recorded $2.2 million of goodwill in connection with theacquisition of JUWE and assigned the goodwill to the BioScience segment.Proforma financial information reflecting the acquisition of JUWE has not beenpresented because the impact on revenues, net income and net income per commonshare would not have been material.

 

**4.  Provision for IncomeTaxes**

** **

The income tax provisionfor the three months ended June 30, 2008 was $10.2 million compared to anincome tax provision of $6.3 million for the three months ended June 30,2007, representing effective tax rates of 31.9% and 26.2%, respectively. Theincome tax provision for the six months ended June 30, 2008 was $14.5million compared to an income tax provision of $12.3 million for the six monthsended June 30, 2007, representing effective tax rates of 40.5% and 27.7%,respectively.

 

The Company’s effectivetax rate reflects the tax provision for non-U.S. entities only, since no benefitwas recognized for cumulative losses incurred in the U.S. A full valuationallowance will be maintained for U.S. net operating losses until evidenceexists that it is more likely than not that the loss carryforward amounts willbe utilized to offset U.S. taxable income. The Company’s tax rate may changeover time as the amount or mix of income and taxes outside the U.S. changes.The effective tax rate is calculated using projected annual pre-tax income orloss and is affected by research and development tax credits, the expectedlevel of other tax benefits, the impact of changes to the valuation allowance,and changes in the mix of the Company’s pre-tax income and losses amongjurisdictions with varying statutory tax rates and credits.

 

In July 2006, theFinancial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48,

 

5

----

Table of Contents

* *

*Accounting for Uncertainty in Income Taxes — aninterpretation of FASB Statement 109* (“FIN No. 48”). Amongother things, FIN No. 48 provides guidance to address uncertainty in taxpositions and clarifies the accounting for income taxes by prescribing aminimum recognition threshold which income tax positions must achieve beforebeing recognized in the financial statements. In connection with theadoption of FIN No. 48, the Company recorded a net reduction toretained earnings of $2.0 million as of January 1, 2007. The Company hasunrecognized tax benefits of approximately $19.4 million as of June 30,2008, of which $8.8 million, if recognized, would result in a reduction of theCompany’s effective tax rate.  One of the Company’s Swiss entities iscurrently being audited and the audit is expected to be completed during thesecond half of 2008. The audit covers tax years 2003-2006 and the Companycannot reasonably estimate the outcome of this audit. As of June 30, 2008,the Company does not expect any material changes, except for the Swiss taxaudit mentioned previously, to unrecognized tax positions within the nexttwelve months.

 

The Company recognizespenalties and interest related to unrecognized tax benefits in the provisionfor income taxes. As of June 30, 2008, approximately $2.4 million ofaccrued interest and penalties related to uncertain tax positions was includedin other current liabilities on the consolidated balance sheet, of which $0.2million and $0.6 million was recorded during the three and six months ended June 30,2008.

 

The tax years 2003 to2007 are open tax years in the Company’s major taxing jurisdictions. TheCompany files returns in many foreign and state jurisdictions with varyingstatutes of limitations.

 

**5. Stock-Based Compensation**

** **

In 2000, the Board ofDirectors adopted and the shareholders approved the 2000 Stock Option Plan. The2000 Stock Option Plan allows a committee of the Board of Directors to grantincentive stock options, non-qualified stock options, stock appreciation rightsand stock awards (including restricted stock and phantom shares). The committeehas the authority to determine which employees will receive the awards, theamount of the awards and other terms and conditions of the awards. Awardsgranted by the committee typically vest over a period of three to five years.

 

In 2003, the Company’sshareholders approved an amendment and restatement of the 2000 Stock OptionPlan to change the plan name and increase the number of shares available forissuance by 4,132,000 shares, from 2,188,000 shares to 6,320,000 shares. Thename of the amended plan is the Bruker BioSciences Corporation Amended andRestated 2000 Stock Option Plan. In 2006, the Company’s shareholders approvedan amendment and restatement of the Bruker BioSciences Corporation Amended and Restated2000 Stock Option Plan to increase the number of shares available for issuanceby 1,680,000 shares, from 6,320,000 shares to 8,000,000 shares. In January 2008,the Company’s shareholders approved another amendment and restatement of theBruker BioSciences Corporation Amended and Restated 2000 Stock Option Plan toincrease the number of shares available for issuance by 2,000,000 shares, from8,000,000 shares to 10,000,000 shares.

 

As of June 30, 2008,the Company’s primary types of share-based compensation were in the form ofissuances of stock options and restricted stock. The Company recordedstock-based compensation expense for the three and six months ended June 30,2008 and 2007, as follows (in thousands):

 
| ** **                                  | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                  | ** ** | **2008**                                            | ** ** | **2007**                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Stock options                               |       | $                                                   | 973        |                                              | $          | 241 |   | $ | 1,501 |   | $ | 474 |   |
| Restricted stock                            |       | 142                                                 |       | 162                                               |       | 285 |   | 323 |   |
| Total  stock-based compensation, pre-tax    |       | 1,115                                               |       | 403                                               |       | 1,786 |   | 797 |   |
| Tax benefit                                 |       | (167                                                | )          | (113                                              | )          | (355 | ) | (223 | ) |
| Total  stock-based compensation, net of tax |       | $                                                   | 948        |                                              | $          | 290 |   | $ | 1,431 |   | $ | 574 |   |

 

Restricted shares of theCompany’s common stock are periodically awarded to executive officers andcertain key employees of the Company subject to a service restriction whichexpires ratably over a period of three to five years. The restricted shares ofcommon stock may not be sold or transferred during the restriction period.Stock 

 

6

----

Table of Contents

 

compensation for restricted stock is recorded based on the stock priceon the grant date and charged to expense ratably through the restrictionperiod. The following table summarizes information about restricted stockactivity during the six months ended June 30, 2008:

 
| ** **                             | ** ** | ** **          | ** ** | **Weighted**        | ** ** |
|----------------------------------------|------------|---------------------|------------|---------------------|------------|
| ** **                             | ** ** | **Shares**          | ** ** | **Average**         | ** ** |
| ** **                             | ** ** | **Subject to** | ** ** | **Grant Date** | ** ** |
| ** **                             | ** ** | **Restriction**     | ** ** | **Fair Value** | ** ** |
| Outstanding at  December 31, 2007 |       | 569,402             |       | $                   | 5.74       |   |
| Granted                                |       | —              |       | —              |       |
| Vested                                 |       | (31,370             | )          | 5.70                |       |
| Forfeited                              |       | (5,670              | )          | 6.56                |       |
| Outstanding at  June 30, 2008     |       | 532,362             |       | $                   | 5.68       |   |

 

Unrecognized pretaxexpense of $1.9 million related to restricted stock awards is expected to berecognized over the weighted average remaining service period of 2.9 years forawards outstanding at June 30, 2008.

 

Stock options of theCompany’s common stock are periodically awarded to executive officers and otheremployees of the Company subject to a vesting period which expires ratably overa period of three to five years. The fair value of each stock option award isestimated on the date of grant using the Black-Scholes option-pricing model.Assumptions regarding volatility, expected term, dividend yield and risk-freeinterest rate are required for the Black-Scholes model. Volatility and expectedterm assumptions are based on the Company’s historical experience. Therisk-free interest rate is based on a U.S. treasury note with a maturitysimilar to the stock option award’s expected life. The assumptions forvolatility, expected life, dividend yield and risk-free interest rate arepresented in the table below:

 
| ** **               | ** ** | **2008**     | ** ** | **2007**     | ** ** |
|--------------------------|------------|--------------|------------|--------------|------------|
| Risk-free  interest rate |       | 2.71% - 3.95 | %          | 3.48% - 5.21 | %          |
| Expected life            |       | 6.5 years    |       | 6.5 years    |       |
| Volatility               |       | 72.0         | %          | 82.0         | %          |
| Expected  dividend yield |       | 0            | %          | 0            | %          |

 

All stock options grantedhad an exercise price equal to the market value of the underlying common stockon the date of grant. Stock option activity for the six months ended June 30,2008 was as follows:

 
| ** **                             | ** ** | ** **          | ** ** | **Weighted**       | ** ** | **Weighted**                  | ** ** | ** **                             | ** ** |
|----------------------------------------|------------|---------------------|------------|--------------------|------------|-------------------------------|------------|----------------------------------------|------------|
| ** **                             | ** ** | ** **          | ** ** | **Average**        | ** ** | **Average**                   | ** ** | **Aggregate**                          | ** ** |
| ** **                             | ** ** | **Shares**          | ** ** | **Option**         | ** ** | **Remaining**                 | ** ** | **Intrinsic**                          | ** ** |
| ** **                             | ** ** | **Subject to** | ** ** | **Price Per** | ** ** | **Contractual**               | ** ** | **Value**                              | ** ** |
| ** **                             | ** ** | **Options**         | ** ** | **Share**          | ** ** | **Term (in years)** | ** ** | **($’s in 000’s)** | ** ** |
| Outstanding at  December 31, 2007 |       | 4,423,712           |       | $                  | 6.87       |                          |       |                                   |       |   |
| Granted                                |       | 1,621,500           |       | 12.09              |       |                          |       |                                   |       |
| Exercised                              |       | (272,096            | )          | 5.22               |       |                          |       |                                   |       |
| Forfeited                              |       | (106,298            | )          | 9.18               |       |                          |       |                                   |       |
| Outstanding at  June 30, 2008     |       | 5,666,818           |       | $                  | 8.39       |                          | 4.7        |                                   | $          | 26,107 |   |
| Exercisable at  June 30, 2008     |       | 2,341,186           |       | $                  | 6.75       |                          | 3.8        |                                   | $          | 15,081 |   |

 

The following tablesummarizes information about stock options outstanding and exercisable at June 30,2008:

 

7

----

Table of Contents

 
| ** **               | ** ** | **Options Outstanding** | ** ** | **Options Exercisable**  | ** ** |
|--------------------------|------------|------------------------------|------------|-------------------------------|------------|
| ** **               | ** ** | ** **                   | ** ** | **Weighted**                  | ** ** | **Weighted** | ** ** | ** ** | ** ** | ** ** | ** ** | **Weighted** | ** ** | **Weighted** | ** ** | ** ** | ** ** |
| ** **               | ** ** | ** **                   | ** ** | **Average**                   | ** ** | **Average** | ** ** | **Aggregate** | ** ** | ** ** | ** ** | **Average** | ** ** | **Average** | ** ** | **Aggregate** | ** ** |
| ** **               | ** ** | ** **                   | ** ** | **Remaining**                 | ** ** | **Option** | ** ** | **Intrinsic** | ** ** | ** ** | ** ** | **Remaining** | ** ** | **Option** | ** ** | **Intrinsic** | ** ** |
| **Range of**        | ** ** | **Number**                   | ** ** | **Contractual**               | ** ** | **Price Per** | ** ** | **Value** | ** ** | **Number** | ** ** | **Contractual** | ** ** | **Price Per** | ** ** | **Value** | ** ** |
| **Exercise Prices** | ** ** | **Outstanding**              | ** ** | **Term (in years)** | ** ** | **Share** | ** ** | **($’s in 000’s)** | ** ** | **Exercisable** | ** ** | **Term (in years)** | ** ** | **Share** | ** ** | **($’s in 000’s)** | ** ** |
| $ 2.12 to $4.00     |       | 619,340                      |       | 3.3                           |       | $ | 3.18 |   | $ | 5,988 |   | 561,140 |   | 3.2 |   | $ | 3.05 |   | $ | 5,428 |   |
| $ 4.01 to $6.00     |       | 1,355,804                    |       | 4.0                           |       | 5.14 |   | 10,452 |   | 887,139 |   | 4.0 |   | 5.07 |   | 6,904 |   |
| $ 6.01 to $10.00    |       | 1,532,280                    |       | 6.6                           |       | 7.68 |   | 7,918 |   | 396,471 |   | 5.6 |   | 6.89 |   | 2,363 |   |
| $ 10.01 to  $13.00  |       | 1,759,894                    |       | 7.6                           |       | 11.86 |   | 1,749 |   | 204,436 |   | 3.9 |   | 10.96 |   | 386 |   |
| $ 13.01 and  above  |       | 399,500                      |       | 2.9                           |       | 14.98 |   | — |   | 292,000 |   | 2.8 |   | 15.62 |   | — |   |
|                     |       | 5,666,818                    |       | 4.7                           |       | $ | 8.39 |   | $ | 26,107 |   | 2,341,186 |   |   |   | $ | 6.75 |   | $ | 15,081 |   |

 

The intrinsic valuesabove are based on the Company’s closing stock price of $12.85 on June 30,2008. The weighted-average grant-date fair value of options granted during thesix months ended June 30, 2008 was $12.09. Unrecognized pretax expense of$20.4 million related to stock options is expected to be recognized over theweighted average remaining service period of 3.8 years for awards outstandingat June 30, 2008.

 

**6. Fair Value of FinancialInstruments**

** **

In September 2006,the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 157,*Fair Value Measurements* (“SFAS No. 157”),which is effective for fiscal years beginning after November 15, 2007. TheCompany adopted SFAS No. 157 as of January 1, 2008. As permitted byFASB Staff Position (“FSP”) No. SFAS 157-2,*EffectiveDate of FASB Statement No. 157* (“FSP No. SFAS 157-2”), theCompany elected to defer the adoption of SFAS No. 157 for all non-financialassets and non-financial liabilities, except those that are recognized ordisclosed at fair value in the financial statements on a recurring basis until January 1,2009. There was no cumulative effect of adoption related to SFAS No. 157and the adoption did not have an impact on the Company’s financial position,results of operations, or cash flows. The Company is studying SFAS No. 157with respect to non-financial assets and non-financial liabilities fallingunder the scope of FSP No. SFAS 157-2 and has not yet determined theexpected impact on the Company’s financial position, results of operations, orcash flows.

 

SFAS No. 157establishes a three-level valuation hierarchy for measuring fair value andexpands financial statement disclosures about fair value measurements. Thevaluation hierarchy is based upon the transparency of inputs to the valuationof an asset or liability as of the measurement date. The three levels aredefined as follows:

 

*Level 1*:Inputs to the valuation methodology are quoted prices (unadjusted) foridentical assets or liabilities in active markets.

 

*Level 2*:Inputs to the valuation methodology include quoted prices for similar assetsand liabilities in active markets, and inputs that are observable for the assetor liability, either directly or indirectly, for substantially the full term ofthe financial instrument.

 

*Level 3*: Inputs to the valuation methodology are unobservable and significant to thefair value measurement.

 

A financial instrument’scategorization within the valuation hierarchy is based upon the lowest level ofinput that is significant to the fair value measurement. The Company measuresthe following financial assets at fair value on a recurring basis. The fairvalue of these financial assets was determined using the following inputs at June 30,2008 (in thousands):

 

8

----

Table of Contents

 
| ** **                                  | ** ** | **Total** | ** ** | **Quoted Prices in **

**Active Markets for **

**Identical Assets **

**(Level 1)** | ** ** | **Significant Other **

**Observable Inputs **

**(Level 2)** | ** ** | **Significant **

**Unobservable Inputs **

**(Level 3)** | ** ** |
|---------------------------------------------|------------|-----------|------------|-----------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| Assets:                                     |       |      |       |                                                                                                                              |       |                                                                                   |       |                                                                          |       |
|                                        |       |      |       |                                                                                                                              |       |                                                                                   |       |                                                                          |       |
| Cash and cash  equivalents                  |       | $         | 125,399    |                                                                                                                              | $          | 125,399                                                                                |       | $                                                                             | —     |   | $ | — |   |
| Short term  investments and restricted cash |       | 6,391     |       | 6,391                                                                                                                             |       | —                                                                                 |       | —                                                                        |       |
| Interest rate  swaps                        |       | 875       |       | —                                                                                                                            |       | 875                                                                                    |       | —                                                                        |       |
| Total assets  recorded at fair value        |       | $         | 132,665    |                                                                                                                              | $          | 131,790                                                                                |       | $                                                                             | 875        |   | $ | — |   |
|                                        |       |      |       |                                                                                                                              |       |                                                                                   |       |                                                                          |       |
| Liabilities:                                |       |      |       |                                                                                                                              |       |                                                                                   |       |                                                                          |       |
|                                        |       |      |       |                                                                                                                              |       |                                                                                   |       |                                                                          |       |
| Interest rate  swaps                        |       | $         | 77         |                                                                                                                              | $          | —                                                                                 |       | $                                                                             | 77         |   | $ | — |   |
| Total liabilities  recorded at fair value   |       | $         | 77         |                                                                                                                              | $          | —                                                                                 |       | $                                                                             | 77         |   | $ | — |   |

 

In February 2007,the FASB issued SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities Including an amendment of FASBStatement No. 115* (“SFAS No. 159”). SFAS No. 159 permitsentities to choose to measure many financial instruments and certain otheritems at fair value and is effective for fiscal years beginning after November 15,2007. The Company has elected not to apply the fair value option to any of itsassets and liabilities.

 

**7.  Inventories**

** **

Inventories consisted ofthe following as of June 30, 2008 and December 31, 2007 (inthousands):

 
| ** **           | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|----------------------|------------|-------------------|------------|-----------------------|------------|
| ** **           | ** ** | **2008**          | ** ** | **2007**              | ** ** |
| ** **           | ** ** | ** **        | ** ** | ** **            | ** ** |
| Raw materials        |       | $                 | 132,222    |                  | $          | 116,883 |   |
| Work-in process      |       | 170,707           |       | 137,959               |       |
| Demonstration  units |       | 40,552            |       | 37,195                |       |
| Finished goods       |       | 144,022           |       | 155,651               |       |
|                 |       |              |       |                  |       |
| Total  inventories   |       | $                 | 487,503    |                  | $          | 447,688 |   |

 

**8.  Goodwill and OtherIntangible Assets**

** **

The following is asummary of other intangible assets subject to amortization as of June 30,2008 and December 31, 2007 (in thousands):

 
| ** **                               | ** ** | ** **        | ** ** | **June 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|------------------------------------------|------------|-------------------|------------|-----------------------------|------------|---------------------------------|------------|
| ** **                               | ** ** | **Useful**        | ** ** | **Gross**                   | ** ** | ** **                      | ** ** | **Net** | ** ** | **Gross** | ** ** | ** ** | ** ** | **Net** | ** ** |
| ** **                               | ** ** | **Lives**         | ** ** | **Carrying**                | ** ** | **Accumulated**                 | ** ** | **Carrying** | ** ** | **Carrying** | ** ** | **Accumulated** | ** ** | **Carrying** | ** ** |
| ** **                               | ** ** | **in Years** | ** ** | **Amount**                  | ** ** | **Amortization**                | ** ** | **Amount** | ** ** | **Amount** | ** ** | **Amortization** | ** ** | **Amount** | ** ** |
| Existing  technology and related patents |       | 3 to 10           |       | $                           | 14,582     |                            | $          | (9,153 | ) | $ | 5,429 |   | $ | 13,292 |   | $ | (7,937 | ) | $ | 5,355 |   |
| Customer  relationships                  |       | 5                 |       | 1,115                       |       | (573                            | )          | 542 |   | 1,115 |   | (477 | ) | 638 |   |
| Trade names                              |       | 5 to 10           |       | 439                         |       | (206                            | )          | 233 |   | 439 |   | (176 | ) | 263 |   |
| Total  amortizable intangible assets     |       |              |       | $                           | 16,136     |                            | $          | (9,932 | ) | $ | 6,204 |   | $ | 14,846 |   | $ | (8,590 | ) | $ | 6,256 |   |

 

For the three monthsended June 30, 2008 and 2007, the Company recorded amortization expense of$0.3 million and $0.7 million, respectively, related to other amortizableintangible assets. For the six months ended June 30, 2008 and 2007, theCompany recorded amortization expense of $1.3 million and $1.4 million,respectively, related to other amortizable intangible assets.

 

9

----

Table of Contents

 

The estimated futureamortization expense related to other amortizable intangible assets is asfollows (in thousands):

 
| **For the  year ending December 31,** |   |   |   |
|--------------------------------------------|--------|--------|--------|
| 2008 (a)                                   |   | $      | 828    |   |
| 2009                                       |   | 1,734  |   |
| 2010                                       |   | 1,470  |   |
| 2011                                       |   | 920    |   |
| 2012                                       |   | 386    |   |
| Thereafter                                 |   | 866    |   |
|                                       |   |   |   |
| Total                                      |   | $      | 6,204  |   |

 

----

|   | (a) Amount represents estimated amortization expense for the  remaining six months ended December 31, 2008.  |
|--------|-----------------------------------------------------------------------------------------------------------------------------|

 

The carrying amount ofgoodwill was $43.0 million and $40.8 million as of June 30, 2008 and December 31,2007, respectively, and is included in the BioScience segment. The Companyperforms its annual test for indications of impairment as of December 31st eachyear. The Company completed its annual test for impairment as of December 31,2007 and determined that goodwill was not impaired at that time. The Companyhas not identified any indicators of impairment as of June 30, 2008.

 

**9.  Warranty Costs**

 

The Company typicallyprovides a one to two year parts and labor warranty with the purchase ofequipment. The anticipated cost for this warranty is accrued upon recognitionof the sale and is included as a current liability on the balance sheet. TheCompany also offers to its customers warranty and service agreements extendingbeyond the initial year of warranty for a fee. These fees are recorded asdeferred revenue and amortized into income over the life of the extendedwarranty contract.

 

Changes in the Company’saccrued warranty liability during the six months ended June 30, 2008 wereas follows (in thousands):

 
| Warranty accrual  at December 31, 2007       |   | $       | 27,181 |   |
|---------------------------------------------------|--------|---------|--------|--------|
| Accruals for  warranties issued during the period |   | 15,392  |   |
| Settlements of  warranty claims                   |   | (16,035 | )      |
| Foreign currency  impact                          |   | 2,520   |   |
|                                              |   |    |   |
| Warranty accrual  at June 30, 2008           |   | $       | 29,058 |   |

 

**10.  Debt**

 

In connection with theacquisition of Bruker BioSpin, the Company entered into a credit agreement witha syndication of lenders, which is referred to as the Credit Agreement, and providesfor a revolving credit line with a maximum commitment of $230.0 million and aterm facility of $150.0 million. The outstanding principal under the term loanis payable in quarterly installments through December 2012. Borrowingsunder the Credit Agreement bear interest, at the Company’s option, at either (i) thehigher of the prime rate or the federal funds rate plus 0.50%, or (ii) adjustedLIBOR, plus margins ranging from 0.40% to 1.25% and a facility fee ranging from0.10% to 0.20%. As of June 30, 2008, the weighted average interest rate ofborrowings under the Credit Agreement was approximately 4.0%.

 

Borrowings under theCredit Agreement are secured by the pledge to the banks of 100% of the capitalstock of each of the Company’s wholly-owned domestic subsidiaries and 65% ofthe capital stock of certain of the Company’s direct or indirect wholly-ownedforeign subsidiaries. The Credit Agreement also requires the Company tomaintain certain financial ratios related to leverage and interest coverage asdefined in the Credit Agreement. In addition to the 

 

10

----

Table of Contents

 

financial ratios, theCredit Agreement restricts, among other things, the Company’s ability to do thefollowing: make certain payments; incur additional debt; incur certain liens;make certain investments, including derivative agreements; merge, consolidate,sell or transfer all or substantially all of the Company’s assets; and enterinto certain transactions with affiliates.

 

At June 30, 2008,the Company had outstanding debt totaling $242.2 million consisting of $194.3million outstanding under the Credit Agreement, $33.6 million outstanding underother long-term debt arrangements, $11.2 million outstanding under revolvinglines of credit and $3.1 million under capital lease obligations. At December 31,2007, the Company had outstanding debt totaling $44.2 million consisting of$28.0 million outstanding under other long-term debt arrangements, $13.2million outstanding under other revolving lines of credit and $3.0 millionunder capital lease obligations.

 

Amounts outstanding underother long-term debt arrangements include both collateralized and uncollateralizedarrangements with various financial institutions in France, Germany, Japan anda government agency in the United States. The Company’s long-term debtarrangements also consist of fixed and variable interest rates ranging from1.8% to 8.0% at June 30, 2008 and December 31, 2007. In connectionwith certain of these agreements the Company is required to maintain certainfinancial ratios as defined in the agreements. At June 30, 2008, theCompany was not in compliance with one of the covenants required by itsarrangement with a government agency in the United States. The failure to meetthis covenant did not trigger any cross-default provisions in other borrowingarrangements, including the Credit Agreement. On July 28, 2008, theCompany received a limited waiver from the holder of this debt for thequarterly period ended June 30, 2008 and agreement from the holder of thedebt to modify the covenant for the remainder of 2008.

 

The Company’s revolvinglines of credit are with various financial institutions in Germany,Switzerland, Japan and France and have aggregate maximum borrowing amounts ofapproximately $90.0 million and $145.5 million at June 30, 2008 and December 31,2007, respectively. Effective February 26, 2008, the Company terminated a$75.0 million line of credit in the United States and replaced it with therevolving credit available under the Credit Agreement. With consideration tooutstanding letters of credit, the Company had availability of approximately$65.5 million and $119.0 million under other revolving lines of credit at June 30,2008 and December 31, 2007, respectively. The Company’s revolving lines ofcredit are generally uncollateralized and bear interest at variable ratesranging from 1.5% to 9.8% at June 30, 2008 and December 31, 2007.

 

**11.  Derivative Instrumentsand Hedging Activities**

 

The Company accounts forderivative financial instruments in accordance with SFAS No. 133, *Accounting for Derivative Instruments and Hedging Activities*,(“SFAS No. 133”), as amended. In April 2008, the Company entered intoan interest rate swap arrangement to manage its exposure to interest ratemovements and the related effect on its variable rate debt. Under this interestrate swap arrangement, the Company will pay a fixed rate of 3.8% and receive a variablerate based on three month LIBOR. The initial notional amount of this interestrate swap is $90.0 million and will amortize in proportion to the term debtcomponent of the Credit Agreement through December 2012. At June 30,2008, the notional amount of this interest rate swap was $88.9 million. TheCompany has concluded that this swap has met the criteria to qualify as aneffective hedge of the variability of cash flows of the interest payments andwill account for the hedge as a cash flow hedge under SFAS No. 133.Accordingly, the Company has reflected all changes in the fair value of thisinterest rate swap in accumulated other comprehensive income, a component ofshareholders’ equity. As of June 30, 2008, the Company has recorded a gainof $0.2 million, net of tax, related to the fair value of the interest rateswap.

 

**12.  Employee Benefit Plans**

 

The Company has definedbenefit retirement plans that cover substantially all employees of a BioSciencesubsidiary in Germany who were employed as of September 30, 1997, as wellas all employees of the BioSpin subsidiaries located in Switzerland, France,and Japan and certain employees of a BioSpin subsidiary in Germany. The plansprovide pension benefits based upon final average salary and years of service.

 

The net periodic pensionbenefit cost includes the following components during the three and six monthsended June 30, 2008 and 2007 (in thousands):

 

11

----

Table of Contents

 
| ** **                                   | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                   | ** ** | **2008**                                            | ** ** | **2007**                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Components  of net periodic benefit cost** |       |                                                |       |                                              |       |   |   |   |   |
| Service cost                                 |       | $                                                   | 1,159      |                                              | $          | 932 |   | $ | 2,095 |   | $ | 1,761 |   |
| Interest cost                                |       | 1,168                                               |       | 749                                               |       | 2,121 |   | 1,497 |   |
| Expected return  on plan assets              |       | (1,034                                              | )          | (705                                              | )          | (2,034 | ) | (1,417 | ) |
| Amortization and  actuarial gains and losses |       | (6                                                  | )          | —                                            |       | (8 | ) | — |   |
|                                         |       |                                                |       |                                              |       |   |   |   |   |
| Net periodic  benefit cost                   |       | $                                                   | 1,287      |                                              | $          | 976 |   | $ | 2,174 |   | $ | 1,841 |   |

 

The Company made contributionsof $1.3 million to its defined benefit plans during the six months ended June 30,2008 and estimates contributions of $1.1 million during the remainder of 2008.

 

**13.  Earnings Per Share**

 

Basic earnings per shareis calculated by dividing net earnings by the weighted-average number of commonshares outstanding during the period.  Restricted stock is not included inthe calculation of basic EPS until the time-based restriction has lapsed.Except where the result would be anti-dilutive, the diluted earnings per sharecomputation includes the effect of potential shares, shares which would beissuable upon the exercise of outstanding stock options or outstandingrestricted stock issuable when the restrictions lapse, reduced by the number ofshares which are assumed to be purchased by the Company from the resultingproceeds at the average market price during the period.

 

The following table setsforth the computation of basic and diluted average shares outstanding for thethree and six months ended June 30, 2008 and 2007 (in thousands, exceptper share data):

 
| ** **                                     | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                     | ** ** | **2008**                                            | ** ** | **2007**                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net income, as  reported                       |       | $                                                   | 21,686     |                                              | $          | 17,657 |   | $ | 21,001 |   | $ | 32,007 |   |
|                                           |       |                                                |       |                                              |       |   |   |   |   |
| **Weighted  average shares outstanding:**      |       |                                                |       |                                              |       |   |   |   |   |
| Weighted average  shares outstanding - basic   |       | 162,440                                             |       | 161,728                                           |       | 162,371 |   | 161,050 |   |
| Effect of  dilutive securities:                |       |                                                |       |                                              |       |   |   |   |   |
| Stock options  and restricted stock            |       | 2,998                                               |       | 2,615                                             |       | 2,937 |   | 2,681 |   |
| Weighted average  shares outstanding - diluted |       | 165,438                                             |       | 164,343                                           |       | 165,308 |   | 163,731 |   |
|                                           |       |                                                |       |                                              |       |   |   |   |   |
| Net income per  share - basic and diluted      |       | $                                                   | 0.13       |                                              | $          | 0.11 |   | $ | 0.13 |   | $ | 0.20 |   |

 

Stock options to purchaseapproximately 360,000 shares and 530,000 shares were excluded from the computationof diluted earnings per share in the three months ended June 30, 2008 and2007 respectively, and approximately 330,000 shares and 530,000 shares wereexcluded from the computation of diluted earnings per share in the six monthsended June 30, 2008 and 2007, respectively, because the exercise price ofthe stock options exceeded the average market price of the Company’s commonstock and, as a result, would have had an anti-dilutive effect.

 

**14. Interest and Other Income(Expense), Net**

 

The components of interestand other income (expense), net, were as follows for the three and six monthsended June 30, 2008 and 2007 (in thousands):

 

12

----

Table of Contents

 
| ** **                                                | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                | ** ** | **2008**                                            | ** ** | **2007**                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Interest income                                           |       | $                                                   | 1,930      |                                              | $          | 2,620 |   | $ | 3,617 |   | $ | 4,488 |   |
| Interest expense                                          |       | (3,817                                              | )          | (830                                              | )          | (5,676 | ) | (1,450 | ) |
| Exchange gains  (losses) on foreign currency transactions |       | 3,263                                               |       | 1,164                                             |       | (8,956 | ) | 453 |   |
| Other                                                     |       | 2,151                                               |       | (740                                              | )          | 2,353 |   | (527 | ) |
| Interest and  other income (expense), net                 |       | $                                                   | 3,527      |                                              | $          | 2,214 |   | $ | (8,662 | ) | $ | 2,964 |   |

 

**15. Comprehensive Income**

 

Comprehensive incomerefers to revenues, expenses, gains and losses that under GAAP are included inother comprehensive income, but excluded from net income as these amounts arerecorded directly as an adjustment to shareholders’ equity, net of tax. Thefollowing is a summary of comprehensive income for the three and six monthsended June 30, 2008 and 2007 (in thousands):

 
| ** **                                                                               | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                               | ** ** | **2008**                                            | ** ** | **2007**                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net income                                                                               |       | $                                                   | 21,686     |                                              | $          | 17,657 |   | $ | 21,001 |   | $ | 32,007 |   |
| Foreign currency  translation adjustments                                                |       | (3,841                                              | )          | 2,360                                             |       | 35,182 |   | 7,426 |   |
| Unrealized gains  on interest rate swap                                                  |       | 222                                                 |       | —                                            |       | 222 |   | — |   |
| Unrealized gains  (losses) on available for sales securities:                            |       |                                                |       |                                              |       |   |   |   |   |
| Unrealized  holding gains (losses) arising during the period                             |       | (234                                                | )          | 53                                                |       | (71 | ) | 698 |   |
| Less reclassification  adjustments for gains included in the determination of net income |       | (1,335                                              | )          | —                                            |       | (1,335 | ) | — |   |
| Pension  liability adjustments                                                           |       | 115                                                 |       | 69                                                |       | (393 | ) | 21 |   |
| Total  comprehensive income                                                              |       | $                                                   | 16,613     |                                              | $          | 20,139 |   | $ | 54,606 |   | $ | 40,152 |   |

 

**16. Commitments and Contingencies**

 

Lawsuits, claims andproceedings of a nature considered normal to its businesses may be pending fromtime to time against the Company. The Company believes the outcome of theseproceedings, if any, will not have a material impact on the Company’s financialposition or results of operations.

 

**17. Letters of Credit andGuarantees**

 

As of June 30, 2008and December 31, 2007, the Company had letters of credit and bankguarantees of $55.8 million and $67.7 million, respectively, for its customeradvances. Certain of these letters of credit and bank guarantees affect theavailability of the Company’s lines of credit.

 

**18. Business Segment Information**

 

SFAS No. 131, *Disclosures about Segments of an Enterprise and Related Information*,establishes standards for reporting information about operating segments inannual financial statements of public business enterprises. It also establishesstandards for related disclosures about products and service, geographic areasand major customers. Operating segments are identified as components of anenterprise for which separate discrete financial information is available forevaluation by the chief operating decision maker for the purpose of allocatingresources and assessing performance.

 

In February 2008,the Company completed its acquisition of Bruker BioSpin and, as a result,management reevaluated the way the Company is managed and its internalreporting structure. The Company determined that it had four operatingsegments, representing each of its four divisions; Bruker AXS, BrukerDaltonics, Bruker Optics and 

 

13

----

Table of Contents

 

Bruker BioSpin. BrukerAXS is in the business of manufacturing and distributing advanced X-ray andOES-spark instrumentation used in non-destructive molecular and elementalanalysis. Bruker Daltonics is in the business of manufacturing and distributingmass spectrometry instruments that can be integrated and used along with otheranalytical instruments. Bruker Optics is in the business of manufacturing anddistributing research, analytical and process analysis instruments andsolutions based on infrared and Raman molecular spectroscopy technologies. BrukerBioSpin is in the business of manufacturing and distributing enabling lifescience tools based on magnetic resonance technology, as well as thedevelopment and manufacturing of low temperature superconductor and hightemperature superconductor wires for use in advanced magnet technology andenergy applications.

 

The Company has combinedthe Bruker AXS, Bruker Daltonics and Bruker Optics operating segments into theBioScience reporting segment because each has similar economic characteristics,product processes and services, types and classes of customers, methods ofdistribution and regulatory environments. All historical segment numbers havebeen restated to conform to this change in reportable segments.

 

Selected business segmentinformation for the three and six months ended June 30, 2008 and 2007 ispresented below (in thousands):

 
| ** **                             | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                             | ** ** | **2008**                                            | ** ** | **2007**                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                   |       |                                                |       |                                              |       |   |   |   |   |
| **Revenue:**                           |       |                                                |       |                                              |       |   |   |   |   |
| BioScience                             |       | $                                                   | 160,593    |                                              | $          | 124,203 |   | $ | 303,222 |   | $ | 236,956 |   |
| BioSpin                                |       | 163,770                                             |       | 125,764                                           |       | 275,888 |   | 233,411 |   |
| Corporate,  eliminations and other (a) |       | (12,898                                             | )          | (11,625                                           | )          | (29,209 | ) | (24,489 | ) |
| Total                                  |       | $                                                   | 311,465    |                                              | $          | 238,342 |   | $ | 549,901 |   | $ | 445,878 |   |
|                                   |       |                                                |       |                                              |       |   |   |   |   |
| **Operating  income:**                 |       |                                                |       |                                              |       |   |   |   |   |
| BioScience                             |       | $                                                   | 6,727      |                                              | $          | 8,124 |   | $ | 18,476 |   | $ | 17,067 |   |
| BioSpin                                |       | 26,471                                              |       | 15,965                                            |       | 36,532 |   | 31,196 |   |
| Corporate,  eliminations and other (a) |       | (4,763                                              | )          | (2,302                                            | )          | (10,639 | ) | (6,767 | ) |
| Total                                  |       | $                                                   | 28,435     |                                              | $          | 21,787 |   | $ | 44,369 |   | $ | 41,496 |   |

 

----

|   | (a) | Represents revenue transactions between segments  which are eliminated in consolidation and corporate costs not allocated to  the reportable segments. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------|

 

Total assets by segmentas of June 30, 2008 and December 31, 2007 are as follows (inthousands):

 
| ** **   | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|--------------|------------|-------------------|------------|-----------------------|------------|
| ** **   | ** ** | **2008**          | ** ** | **2007**              | ** ** |
| BioScience   |       | $                 | 650,009    |                  | $          | 584,902 |   |
| BioSpin      |       | 912,389           |       | 782,627               |       |
| Corporate    |       | 383,733           |       | 314,988               |       |
| Eliminations |       | (774,689          | )          | (370,886              | )          |
| Total        |       | $                 | 1,171,442  |                  | $          | 1,311,631 |   |

 

**19. Recent AccountingPronouncements**

 

In December 2007,the FASB issued SFAS No. 141(R), *Business Combinations*(“SFASNo. 141(R)”). This statement will significantly change the accounting forbusiness combinations. Under SFAS No. 141(R), an acquiring entity will berequired to recognize all of the assets acquired and liabilities assumed in atransaction at the acquisition date fair value with certain limited exceptions.In addition, SFAS No. 141(R) will change the accounting treatment foracquisition costs, in-process research and development, restructuring costsassociated with business combinations and 

 

14

----

Table of Contents

 

changes in deferred taxasset valuation allowances and income tax uncertainties after the acquisitiondate. SFAS No. 141(R) also includes a significant number of newdisclosure requirements. Early adoption of SFAS No. 141(R) isprohibited and the Company will be required to apply SFAS No. 141(R) toacquisitions that occur on or after January 1, 2009.

 

In December 2007,the FASB issued SFAS No. 160, *Noncontrolling Interestsin Consolidated Financial Statements — An Amendment of ARB No. 51*(“SFASNo. 160”). This statement establishes new accounting and reportingstandards for the minority interest in a subsidiary and the deconsolidation ofa subsidiary. SFAS No. 160 is effective as of the beginning of fiscal 2009and early adoption is prohibited. The Company has not yet assessed the effect,if any, that adoption of SFAS No. 160 will have on its results ofoperations and financial position.

 

In March 2008, theFASB issued SFAS No. 161, *Disclosures aboutDerivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133*(“SFAS No. 161”). SFAS No. 161 requires enhanceddisclosures about an entity’s derivative and hedging activities and, thereby,improves the transparency of financial reporting. SFAS No. 161 iseffective for fiscal years beginning on or after November 15, 2008. TheCompany is currently evaluating the impact that the adoption of SFAS No. 161will have on its financial position, results of operations and cash flows.

 

15

----

Table of Contents

 
| **ITEM 2.** | ** ** | **MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |
|-------------|------------|-------------------------------------------------------------------------------------------------|

 

The following discussionof our financial condition and results of operations should be read inconjunction with our interim condensed consolidated financial statements andthe notes to those statements included in Part 1, Item 1 of this QuarterlyReport on Form 10-Q, and in conjunction with the consolidated financialstatements contained in our Annual Report on Form 10-K for the year ended December 31,2007.

 

Statements contained inManagement’s Discussion and Analysis of Financial Condition and Results ofOperations which express that we “believe,” “anticipate,” “plan,” “expect,” “seek,”“estimate,” or “should,” as well as other statements which are not historicalfact, are forward-looking statements within the meaning of the PrivateSecurities Litigation Act of 1995. Actual events or results may differmaterially from those set forth in forward-looking statements. Certain factorsthat might cause such a difference are discussed in “Factors Affecting OurBusiness, Operating Results and Financial Condition” set forth in our AnnualReport on Form 10-K for the year ended December 31, 2007.

 

**OVERVIEW**

 

The following Management’sDiscussion and Analysis of Financial Condition and Results of Operations, orMD&A, describes the principal factors affecting the results of ouroperations, financial condition and changes in financial condition, as well asour critical accounting policies and estimates. Our MD&A is organized asfollows:

 

·                  *Executive overview*. This section provides a generaldescription and history of our business, a brief discussion of our reportablesegments, significant recent developments in our business and otheropportunities, challenges and risks that may impact our business in the future.

 

·                  *Critical accounting policies*. This section discusses the accountingestimates that are considered important to our financial condition and resultsof operations and require us to exercise subjective or complex judgments in theirapplication.

 

·                  *Results of operations*. This section provides our analysis ofthe significant line items on our consolidated statement of operations for thethree and six months ended June 30, 2008 compared to the three and sixmonths ended June 30, 2007.

 

·                  *Liquidity and capital resources*. This section provides an analysis ofour liquidity and cash flow and a discussion of our outstanding debt andcommitments.

 

·                  *Recent accounting pronouncements*. This section provides information aboutnew accounting standards that have been issued but for which adoption is notyet required.

 

**EXECUTIVE OVERVIEW**

 

**Business**

 

Bruker Corporation andits wholly-owned subsidiaries design, manufacture, market and serviceproprietary life science and materials research systems based on our coretechnology platforms, including X-ray technologies, magnetic resonancetechnologies, mass spectrometry technologies, optical emission spectroscopy andinfrared and Raman molecular spectroscopy technologies. We also manufacture anddistribute a broad range of field analytical systems for chemical, biological,radiological and nuclear, or CBRN, detection. We maintain major technical andmanufacturing centers in Europe, North America and Japan and we have salesoffices located throughout the world. Our corporate headquarters are located inBillerica, Massachusetts.

 

Our business strategy isto capitalize on our ability to innovate and generate rapid revenue growth,both organically and through acquisitions. Our revenue growth strategy,combined with anticipated improvements to our 

 

16

----

Table of Contents

 

gross profit margins andincreased leverage on our research and development, sales and marketing anddistribution investments and general and administrative expenses, are expectedto enhance our operating margins and improve our earnings in the future.

 

On February 26,2008, the Company completed its acquisition of Bruker BioSpin. Both the Companyand Bruker BioSpin were majority owned by six affiliated stockholders prior tothe acquisition. As a result, the acquisition of Bruker BioSpin by the Companyis considered a combination of companies under common control, and has been accountedfor at historical carrying values. Historical consolidated balance sheets,statements of operations, statements of cash flows and notes to theconsolidated financial statements have been restated by combining thehistorical consolidated financial statements of Bruker Corporation with thoseof Bruker BioSpin. In addition, because the transaction is accounted for as anacquisition of businesses under common control, all one-time transaction costshave been expensed as incurred.

 

With the addition of BrukerBioSpin, we enhanced our position as a leading supplier of life science andmaterials research systems. The technologies of Bruker BioSpin are particularlycomplementary to our accurate-mass electrospray time-of-flight massspectrometers and our single-crystal diffraction X-ray spectrometers and areexpected to create revenue synergies and provide opportunities to supplycustomers with equipment packages that have a broader range of applications andvalue. We believe the addition of Bruker BioSpin will also enhance ourdistribution in the Americas, Europe and Asia and our sales and serviceinfrastructure, all of which should provide us with revenue growthopportunities and accelerate our drive to improve our margins, net income andoperating cash flows.

 

Following the acquisitionof Bruker BioSpin, management reevaluated the way the Company is managed andthe internal reporting structure and, as a result of that evaluation,determined that it has four operating segments, representing each of its four divisions;Bruker AXS, Bruker Daltonics, Bruker Optics and Bruker BioSpin. Bruker AXS isin the business of manufacturing and distributing advanced X-ray and OES-sparkinstrumentation used in non-destructive molecular and elemental analysis.Bruker Daltonics is in the business of manufacturing and distributing massspectrometry instruments that can be integrated and used along with otheranalytical instruments. Bruker Optics is in the business of manufacturing anddistributing research, analytical and process analysis instruments andsolutions based on infrared and Raman molecular spectroscopy technologies.Bruker BioSpin is in the business of manufacturing and distributing enablinglife science tools based on magnetic resonance technology, as well as the developmentand manufacturing of low temperature superconductor and high temperaturesuperconductor wires for use in advanced magnet technology and energyapplications.

 

We have combined theBruker AXS, Bruker Daltonics and Bruker Optics operating segments into theBioScience reporting segment because each has similar economic characteristics,product processes and services, types and classes of customers, methods ofdistribution and regulatory environments. Management reports its results basedon the following reportable segments:

 

·                  *BioScience*. The operations of this segment includethe design, manufacture and distribution of advanced instrumentation andautomated solutions based on X-ray technology, OES-spark technology, massspectrometry technology and infrared and Raman molecular spectroscopytechnology. Typical customers of the BioScience segment include pharmaceutical,biotechnology, proteomics and molecular diagnostic companies, academicinstitutions, government agencies, semiconductor companies, chemical, cement,metals and petroleum companies, raw material manufacturers and food, beverageand agricultural companies.

 

·                  *BioSpin*. The operations of this segment includethe design, manufacture and distribution of enabling life science tools basedon its core technology, magnetic resonance, as well as the manufacturing anddevelopment of low temperature superconductor (LTS) and high temperaturesuperconductor (HTS) wires for use in advanced magnet technology and in energyapplications. Typical customers of the BioSpin segment include pharmaceuticaland biotechnology companies, academic institutions and government agencies.

 

**Financial Overview**

 

For the three monthsended June 30, 2008, our revenue increased by $73.1 million, or 30.7%, to$311.5 million, compared to $238.3 million for the comparable period in 2007.Included in this change in revenue is approximately 

 

17

----

Table of Contents

 

$26.9 million from theimpact of foreign exchange. Excluding the effect of foreign exchange, revenueincreased by $46.2 million, or 19.4%. The increase in revenue, excluding theeffect of foreign exchange, is attributable to increases in system andaftermarket revenues in the BioScience segment and system and wire revenues inthe BioSpin segment.

 

For the six months ended June 30,2008, our revenue increased by $104.0 million, or 23.3%, to $549.9 million,compared to $445.9 million for the comparable period in 2007. Included in thischange in revenue is approximately $47.5 million from the impact of foreignexchange. Excluding the effect of foreign exchange, revenue increased by $56.5million, or 12.7%. The increase in revenue, excluding the effect of foreignexchange, is attributable to increases in system and aftermarket revenues inthe BioScience segment and system and wire revenues in the BioSpin segment.

 

Income from operationsfor the three months ended June 30, 2008 was $28.4 million, resulting inan operating margin of 9.1%, compared to income from operations of $21.8million, resulting in an operating margin of 9.1%, for the comparable period of2007. The increase in income from operations was driven by the increase inrevenue described above offset, in part, by lower gross profit margins andincreases in operating expenses. The decrease in gross profit margins and increasein costs is, in part, attributable to changes in foreign currency exchangerates, primarily the Euro, as a majority of our production and research anddevelopment is performed in Europe. However, increases in headcount, materialcosts and other operating expenses also contributed to the increase in expensesfor the three months ended June 30, 2008.

 

Income from operationsfor the six months ended June 30, 2008 was $44.4 million, resulting in anoperating margin of 8.1%, compared to income from operations of $41.5 million,resulting in an operating margin of 9.3%, for the comparable period of 2007.Income from operations for the six months ended June 30, 2008 includes$6.2 million of charges related to the acquisition of Bruker BioSpin. Theincrease in income from operations was driven by the increase in revenuedescribed above offset, in part, by increases in operating expenses. Theincrease in costs is, in part, attributable to changes in foreign currencyexchange rates, primarily the Euro, as a majority of our production andresearch and development is performed in Europe. However, increases inheadcount, material costs and other operating expenses also contributed to theincrease in expenses for the six months ended June 30, 2008. In the secondhalf of 2008 we intend to refocus efforts on gross margin improvement programsand implement various cost saving programs, including a partial hiring freeze,with the goal of improving operating margins.

 

During the six monthsended June 30, 2008, we recorded net losses on foreign currencytransactions of $(9.0) million compared to net gains of $0.5 million for thecomparable period of 2007. Foreign exchange losses of $12.2 million wereincurred in the first three months of 2008 and were driven by the re-measurementof certain foreign currency denominated assets, principally cash, inter-companyreceivables and a short-term inter-company loan into the functional currency ofthe affected entities. The losses in the first quarter of 2008 resulted fromthe continued weakening of the U.S. Dollar and the Euro by approximately 11%and 3%, respectively, during the five weeks between the closing of the BrukerBioSpin acquisition and the end of the first quarter of 2008. In the secondquarter of 2008 we recorded gains on foreign currency transactions of $3.2million that were the result of more timely settlement of inter-companybalances and a reduction of certain foreign currency denominated assets,principally cash. We believe that the actions we took in the second quarter of2008 will reduce the impact that foreign currency gains and losses will have onour results in the second half of 2008.

 

We incurred approximately$4.5 million of interest expense on acquisition-related debt during the six monthsended June 30, 2008, of which approximately $3.1 million was incurred inthe second quarter of 2008. There was no acquisition-related debt outstandingduring three and six months ended June 30, 2007. In an effort to reduceinterest expense in future periods, we repaid approximately $158.4 million ofacquisition-related debt in April and May 2008. Additionally, in April 2008,we entered into an interest rate swap with an initial notional amount of $90.0million that will hedge a portion of our $150.0 million variable-rate term loanand fix the interest rate on the hedged portion of the debt at a rate of 3.8%.

 

Our net income for thethree months ended June 30, 2008, was $21.7 million, or $0.13 per dilutedshare, compared to net income of $17.7 million, or $0.11 per diluted share, forthe comparable period of 2007.

 

Our net income for thesix months ended June 30, 2008, was $21.0 million, or $0.13 per dilutedshare, compared to net income of $32.0 million, or $0.20 per diluted share, forthe comparable period of 2007.

 

18

----

Tableof Contents

 

**CRITICAL ACCOUNTING POLICIES**

 

The discussion and analysis of our financial conditionand results of operations is based upon our consolidated financial statements,which have been prepared in accordance with accounting principles generallyaccepted in the United States of America. The preparation of these financialstatements requires that we make estimates and assumptions that affect thereported amounts of assets and liabilities and the disclosure of contingentassets and liabilities at the date of the financial statements and reportedamounts of revenues and expenses during the reporting period. On an ongoingbasis, management evaluates its estimates and judgments, including thoserelated to revenue recognition, allowance for doubtful accounts, inventories,goodwill, long-lived assets, warranty costs and income taxes. We base ourestimates and judgments on historical experience, current market and economicconditions, industry trends and other assumptions that we believe arereasonable and form the basis for making judgments about the carrying value ofassets and liabilities that are not readily apparent from other sources. Actualresults could differ from these estimates.

 

We believe the following critical accounting policiesto be both those most important to the portrayal of our financial condition andthose that require the most subjective judgment.

 

*Revenue recognition*.We recognize revenue from system sales when persuasive evidence of anarrangement exists, the price is fixed or determinable, title and risk of losshas been transferred to the customer and collectibility of the resultingreceivable is reasonably assured. Title and risk of loss is generally transferredto the customer upon receipt of a signed customer acceptance form for a systemthat has been shipped, installed, and for which the customer has been trained.As a result, the timing of customer acceptance or readiness could cause ourreported revenues to differ materially from expectations. When products aresold through an independent distributor or a strategic distribution partner,which assumes responsibility for installation, we recognize the system salewhen the product has been shipped and title and risk of loss have beentransferred. Our distributors do not have price protection rights or rights ofreturn; however, our products are typically warranted to be free from defectfor a period of one to two-years. Revenue is deferred until cash is receivedwhen a significant portion of the fee is due over one year after delivery,installation and acceptance of a system. For arrangements with multipleelements, we recognize revenue for each element based on the fair value of theelement, provided all other criteria for revenue recognition have been met. Thefair value for each element provided in multiple element arrangements istypically determined by referencing historical pricing policies when theelement is sold separately. Changes in our ability to establish the fair valuefor each element in multiple element arrangements could affect the timing ofrevenue recognition. Revenue from accessories and parts is recognized uponshipment and service revenue is recognized as the services are performed. Grantrevenue is recognized when we complete the services required under the grant.

 

*Warranty costs*.We normally provide a one to two-year parts and labor warranty with thepurchase of equipment. The anticipated cost for this warranty is accrued uponrecognition of the sale and is included as a current liability on the balancesheet. Although our facilities undergo quality assurance and testing proceduresthroughout the production process, our warranty obligation is affected byproduct failure rates, material usage and service delivery costs incurred incorrecting a product failure. Although our actual warranty costs havehistorically been consistent with expectations, to the extent warranty claimactivity or costs associated with servicing those claims differ from ourestimates, revisions to the warranty accrual may be required.

 

*Inventories*.Inventories are stated at the lower of cost or market, with costs determined bythe first-in, first-out method for a majority of subsidiaries and by averagecost for one international location. We maintain an allowance for excess andobsolete inventory to reflect the expected non-saleable or non-refundableinventory based on an evaluation of slow moving products. If ultimate usage ordemand varies significantly from expected usage or demand, additionalwrite-downs may be required, resulting in a charge to operations.

 

*Goodwill, other intangible assetsand other long-lived assets*. We evaluate whether goodwill isimpaired annually and when events occur or circumstances change that would morelikely than not reduce the fair value of a reporting unit below its carryingamount. Fair value is determined using market comparables for similarbusinesses or forecasts of discounted future cash flows. We also review otherintangible assets and other long-lived assets when indication of potentialimpairment exists, such as a significant reduction in cash flows associatedwith the assets. Should the fair value of our long-lived assets decline becauseof reduced operating performance, market declines, or other indicators ofimpairment, a charge to operations for impairment may be necessary.

 

19

----

Tableof Contents

 

*Allowance for doubtful accounts*.We maintain allowances for doubtful accounts for estimated losses resultingfrom the inability of our customers to pay amounts due. If the financialcondition of our customers were to deteriorate, reducing their ability to makepayments, additional allowances would be required, resulting in a charge tooperations.

 

*Income taxes*.We estimate the degree to which tax assets and loss carryforwards will resultin a benefit based on expected profitability by tax jurisdiction, and provide avaluation allowance for tax assets and loss carryforwards that we believe willmore likely than not go unused. If it becomes more likely than not that a taxasset or loss carryforward will be used for which a reserve has been provided,we reverse the related valuation allowance. If our actual future taxable incomeby tax jurisdiction differs from estimates, additional allowances or reversalsof reserves may be necessary.

 

**RESULTS OF OPERATIONS**

 

***Three Months Ended June 30, 2008 Compared to the Three MonthsEnded June 30, 2007***

 

***ConsolidatedResults***

 

The following table presents our results for the threemonths ended June 30, 2008 and 2007 (dollars in thousands):

 

20

----

Tableof Contents

 
| ** **                                                                             | ** ** | **Three Months Ended**                                   | ** ** |
|----------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                                             | ** ** | **June 30,**                                                  | ** ** |
| ** **                                                                             | ** ** | **2008**                                                           | ** ** | **2007** | ** ** |
| ** **                                                                             | ** ** | **(In thousands, except per share data)** | ** ** |
| Product revenue                                                                        |       | $                                                                  | 278,849    |   | $ | 210,177 |   |
| Service revenue                                                                        |       | 31,733                                                             |       | 27,570 |   |
| Other revenue                                                                          |       | 883                                                                |       | 595 |   |
| Total revenue                                                                          |       | 311,465                                                            |       | 238,342 |   |
|                                                                                   |       |                                                               |       |   |   |
| Cost of product  revenue                                                               |       | 161,931                                                            |       | 120,810 |   |
| Cost of service  revenue                                                               |       | 20,896                                                             |       | 17,617 |   |
| Total cost of  revenue                                                                 |       | 182,827                                                            |       | 138,427 |   |
| Gross profit                                                                           |       | 128,638                                                            |       | 99,915 |   |
|                                                                                   |       |                                                               |       |   |   |
| Operating  expenses:                                                                   |       |                                                               |       |   |   |
| Sales and marketing                                                                    |       | 46,151                                                             |       | 37,029 |   |
| General and  administrative                                                            |       | 17,178                                                             |       | 13,442 |   |
| Research and  development                                                              |       | 36,514                                                             |       | 27,657 |   |
| Acquisition  related charges                                                           |       | 360                                                                |       | — |   |
| Total operating  expenses                                                              |       | 100,203                                                            |       | 78,128 |   |
| Operating income                                                                       |       | 28,435                                                             |       | 21,787 |   |
|                                                                                   |       |                                                               |       |   |   |
| Interest and  other income (expense), net                                              |       | 3,527                                                              |       | 2,214 |   |
| Income before  income tax provision and minority interest in consolidated subsidiaries |       | 31,962                                                             |       | 24,001 |   |
|                                                                                   |       |                                                               |       |   |   |
| Income tax  provision                                                                  |       | 10,196                                                             |       | 6,284 |   |
| Income before  minority interest in consolidated subsidiaries                          |       | 21,766                                                             |       | 17,717 |   |
| Minority  interest in consolidated subsidiaries                                        |       | 80                                                                 |       | 60 |   |
| Net income                                                                             |       | $                                                                  | 21,686     |   | $ | 17,657 |   |
| Net income per  common share - basic and diluted                                       |       | $                                                                  | 0.13       |   | $ | 0.11 |   |
| Weighted average  common shares outstanding:                                           |       |                                                               |       |   |   |
| Basic                                                                                  |       | 162,440                                                            |       | 161,728 |   |
| Diluted                                                                                |       | 165,438                                                            |       | 164,343 |   |

 

***Revenue***

 

Our revenue increased by $73.1 million, or 30.7%, to$311.5 million for the three months ended June 30, 2008, compared to$238.3 million for the comparable period in 2007. Included in this change inrevenue is approximately $26.9 million from the impact of foreign exchange.Excluding the effect of foreign exchange, revenue increased by 19.4%. Theincrease in revenue, excluding the effect of foreign exchange, is attributableto increases in system and aftermarket revenues in the BioScience segment andsystem and wire revenues in the BioSpin segment.

 

***Costof Revenue***

 

Our cost of product and service revenue for the threemonths ended June 30, 2008, was $182.8 million, resulting in a grossprofit margin of 41.3%, compared to cost of product and service revenue of$138.4 million, resulting in a gross profit margin of 41.9% for the comparableperiod of 2007. Cost of revenue for the three months ended June 30, 2008and 2007 includes charges of approximately $2.1 million and $1.5 million,respectively, to write down certain inventories to the lower of cost or market.The decrease in gross profit margins is 

 

21

----

Tableof Contents

 

attributable primarily to changes in foreign currency exchange rates,primarily the Euro, as a majority of our production is performed in Europe.Additionally, the mix of products sold and pricing pressure in certain marketsand certain product lines contributed to the decrease in gross profit margins.

 

***Salesand Marketing***

 

Our sales and marketing expense for the three monthsended June 30, 2008 increased to $46.2 million, or 14.9% of product andservice revenue, from $37.0 million, or 15.6% of product and service revenue,for the comparable period of 2007. The increase in sales and marketing expenseis attributable to higher commissions and other selling expenses associatedwith the increase in revenue. Additionally, increases in headcount resultingfrom our continued investment in direct sales, inside sales, productspecialists and application resources have contributed to an increase in salesand marketing expense.

 

***Generaland Administrative***

 

Our general and administrative expense for the threemonths ended June 30, 2008 increased to $17.2 million, or 5.5% of productand service revenue, from $13.4 million, or 5.7% of product and servicerevenue, for the comparable period of 2007. The increase is attributable toadditional headcount, primarily in the BioSpin segment, and was related toBruker BioSpin becoming part of a publicly-traded company.

 

***Researchand Development***

 

Our research and development expense for the threemonths ended June 30, 2008 increased to $36.5 million, or 11.8% of productand service revenue, from $27.7 million, or 11.6% of product and servicerevenue, for the comparable period of 2007. The increase in research anddevelopment expenses is attributable primarily to changes in foreign currency exchangerates, primarily the Euro, as a majority of our research and development isperformed in Europe. We also incurred higher material costs associated with newproduct development.

 

***Acquisition-RelatedCharges***

 

On December 3, 2007, we announced that we hadentered into a definitive agreement to acquire all of the stock of BrukerBioSpin. The acquisition of Bruker BioSpin was approved by our shareholders on February 25,2008 and was completed on February 26, 2008. The acquisition represented acombination of companies under common control due to a majority of ownership ofboth Bruker Corporation and Bruker BioSpin by the same individuals and, as aresult, transaction costs are expensed as incurred. During the three monthsended June 30, 2008, the Company incurred and expensed acquisition-relatedcharges totaling $0.4 million, which consisted primarily of legal fees.

 

***Interestand Other Income (Expense), Net***

 

Interest and other income (expense), net during thethree months ended June 30, 2008, was $3.5 million, compared to $2.2million during the three months ended June 30, 2007.

 

During the three months ended June 30, 2008, themajor component within interest and other income (expense), net, was gains onforeign currency transactions of $3.3 million. These gains offset some of theforeign exchange losses recorded in the first quarter of 2007 and werepartially the result of more timely settlement of inter-company balances and areduction of foreign currency denominated assets, principally cash.

 

During the three months ended June 30, 2007, themajor components within interest and other income (expense), net, were netinterest income of $1.8 million and gains on foreign currency transactions of$1.2 million.

 

***Provisionfor Income Taxes***

 

Our effective tax rate reflects our tax provision fornon-U.S. entities only, since no benefit was recognized for losses incurred inthe U.S. We will maintain a full valuation allowance for our U.S. net operatinglosses until evidence exists that it is more likely than not that the losscarryforward amounts will be utilized to offset U.S. taxable income. 

 

22

----

Tableof Contents

 

Our tax rate may change over time as the amount and mix of income andtaxes outside the U.S. changes. The effective tax rate is calculated using ourprojected annual pre-tax income or loss and is affected by research anddevelopment tax credits, the expected level of other tax benefits, and theimpact of changes to the valuation allowance, as well as changes in the mix ofour pre-tax income and losses among jurisdictions with varying statutory taxrates and credits.

 

The income tax provision for the three months ended June 30,2008, was $10.2 million compared to an income tax provision of $6.3 million forthe three months ended June 30, 2007, representing effective tax rates of31.9% and 26.2%, respectively.

 

***MinorityInterest in Consolidated Subsidiaries***

 

Minority interest in consolidated subsidiaries for thethree months ended June 30, 2008 and 2007 was $0.1 million. The minorityinterest in subsidiaries represents the minority shareholders’ proportionateshare of net income of those subsidiaries for the three months ended June 30,2008 and 2007. The minority interest relates to our two majority-owned indirectsubsidiaries, InCoaTec GmbH and Bruker Baltic Ltd.

 

***NetIncome***

 

Our net income for the three months ended June 30,2008, was $21.7 million, or $0.13 per diluted share, compared to net income of$17.7 million, or $0.11 per diluted share, for the comparable period of 2007.

 

***SegmentResults***

 

***Revenue***

 

The following table presents revenue, change inrevenue and revenue growth by reportable segment for the three months ended June 30,2008 and 2007 (dollars in thousands):

 
| ** **       | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | **Percentage** | ** ** |
|------------------|------------|------------|------------|------------|------------|-------------------|------------|----------------|------------|
| ** **       | ** ** | **2008**   | ** ** | **2007**   | ** ** | **$ Change** | ** ** | **Change**     | ** ** |
| BioScience       |       | $          | 160,593    |       | $          | 124,203           |       | 36,390         |       | 29.3 | % |
| BioSpin          |       | 163,770    |       | 125,764    |       | 38,006            |       | 30.2           | %          |
| Eliminations (a) |       | (12,898    | )          | (11,625    | )          | (1,273            | )          |           |       |
|             |       |       |       |       |       |              |       |           |       |
| Total Revenue    |       | $          | 311,465    |       | $          | 238,342           |       | 73,123         |       | 30.7 | % |

 

----

(a) Represents product and service revenue between reportablesegments.   

 

***BioScienceSegment Revenues***

 

BioScience segment revenue increased by $36.4 million,or 29.3%, to $160.6 million for the three months ended June 30, 2008,compared to $124.2 million for the comparable period in 2007. Included in thischange in revenue is approximately $11.5 million from the impact of foreignexchange. Excluding the effect of foreign exchange, revenue increased by 20.0%.The increase in revenue, excluding the effect of foreign exchange, isattributable to increases in system revenues across several of the productlines, in particular X-ray systems, molecular spectroscopy systems and chemicaldetections systems, as well as higher aftermarket revenue. Revenue in the threemonths ended June 30, 2007 includes $2.6 million of molecular spectroscopyrevenue that was recognized from our order with the Chinese State Food and DrugAdministration. The order from the Chinese State Food and Drug Administrationwas completed during 2007 and we did not recognize any system revenue from thisorder during the three months ended June 30, 2008.

 

System revenue, other system revenue and aftermarketrevenue as a percentage of total BioScience segment revenue were as followsduring the three months ended June 30, 2008 and 2007 (dollars inthousands):

 

23

----

Tableof Contents

 
| ** **            | ** ** | **2008**    | ** ** | **2007**                 | ** ** |
|-----------------------|------------|-------------|------------|--------------------------|------------|
| ** **            | ** ** | ** **  | ** ** | **Percentage of**   | ** ** | ** ** | ** ** | **Percentage of** | ** ** |
| ** **            | ** ** | **Revenue** | ** ** | **Segment Revenue** | ** ** | **Revenue** | ** ** | **Segment Revenue** | ** ** |
| System Revenue        |       | $           | 117,720    |                     | 73.3       | % | $ | 93,564 |   | 75.3 | % |
| Other System  Revenue |       | 12,487      |       | 7.8                      | %          | 9,223 |   | 7.4 | % |
| Aftermarket  Revenue  |       | 30,386      |       | 18.9                     | %          | 21,416 |   | 17.3 | % |
|                  |       |        |       |                     |       |   |   |   |   |
| Total Revenue         |       | $           | 160,593    |                     | 100.0      | % | $ | 124,203 |   | 100.0 | % |

 

System revenues in the BioScience segment includeX-ray systems, mass spectrometry systems, CBRN detection systems and molecularspectroscopy systems. Other system revenues in the BioScience segment relateprimarily to the distribution of products not manufactured by the BioSciencesegment. Aftermarket revenues in the BioScience segment include accessorysales, consumables, training and services.

 

***BioSpinSegment Revenues***

 

BioSpin segment revenue increased by $38.0 million, or30.2%, to $163.8 million for the three months ended June 30, 2008,compared to $125.8 million for the comparable period in 2007. Included in thischange in revenue is approximately $15.4 million from the impact of foreignexchange. Excluding the effect of foreign exchange, revenue increased by 18.0%.The increase in revenue, excluding the effect of foreign exchange, isattributable to increases in magnetic resonance system revenues, offset partiallyby lower aftermarket revenue.

 

System and wire revenue, other system revenue andaftermarket revenue as a percentage of total BioSpin segment revenue were asfollows during the three months ended June 30, 2008 and 2007 (dollars inthousands):

 
| ** **               | ** ** | **2008**    | ** ** | **2007**                 | ** ** |
|--------------------------|------------|-------------|------------|--------------------------|------------|
| ** **               | ** ** | ** **  | ** ** | **Percentage of**   | ** ** | ** ** | ** ** | **Percentage of** | ** ** |
| ** **               | ** ** | **Revenue** | ** ** | **Segment Revenue** | ** ** | **Revenue** | ** ** | **Segment Revenue** | ** ** |
| System and Wire  Revenue |       | $           | 134,227    |                     | 82.0       | % | $ | 94,653 |   | 75.3 | % |
| Other System  Revenue    |       | 7,135       |       | 4.3                      | %          | 2,534 |   | 2.0 | % |
| Aftermarket  Revenue     |       | 22,408      |       | 13.7                     | %          | 28,577 |   | 22.7 | % |
|                     |       |        |       |                     |       |   |   |   |   |
| Total Revenue            |       | $           | 163,770    |                     | 100.0      | % | $ | 125,764 |   | 100.0 | % |

 

System and wire revenues in the BioSpin segmentinclude nuclear magnetic resonance systems, magnetic resonance imaging systems,electron paramagnetic resonance systems, Minispec systems, power supplies andour LTS and HTS wire business. Other system revenues in the BioSpin segmentrelate primarily to the distribution of products not manufactured by theBioSpin segment. Aftermarket revenues in the BioSpin segment include accessorysales, consumables, training and services.

 

***Incomefrom Operations***

 

The following table presents income from operationsand operating margins on revenue by reportable segment for the three monthsended June 30, 2008 and 2007 (dollars in thousands):

 
| ** **                             | ** ** | **2008**      | ** ** | **2007**      | ** ** |
|----------------------------------------|------------|---------------|------------|---------------|------------|
| ** **                             | ** ** | **Operating** | ** ** | **Operating** | ** ** | **Operating** | ** ** | **Operating** | ** ** |
| ** **                             | ** ** | **Income**    | ** ** | **Margin**    | ** ** | **Income** | ** ** | **Margin** | ** ** |
| BioScience                             |       | $             | 6,727      |          | 4.2        | % | $ | 8,124 |   | 6.5 | % |
| BioSpin                                |       | 26,471        |       | 16.2          | %          | 15,965 |   | 12.7 | % |
| Corporate,  Eliminations and Other (a) |       | (4,763        | )          |          |       | (2,302 | ) |   |   |
|                                   |       |          |       |          |       |   |   |   |   |
| Total Operating  Income                |       | $             | 28,435     |          | 9.1        | % | $ | 21,787 |   | 9.1 | % |

 

----

(a) Representscorporate costs not allocated to the reportablesegments.    

 

BioScience segment income from operations for thethree months ended June 30, 2008, was $6.7 million, 

 

24

----

Tableof Contents

 

resulting in an operating margin of 4.2%, compared to income fromoperations of $8.1 million, resulting in an operating margin of 6.5%, for thecomparable period of 2007. The decrease in income from operations was driven bylower gross profit margins and increases in operating expenses offset partiallyby an increase in revenue. The increase in costs is, in part, attributable tochanges in foreign currency exchange rates, primarily the Euro, as a majorityof our production and research and development is performed in Europe. However,increases in headcount, primarily in sales and marketing, and research anddevelopment material costs also contributed to the increase in expenses for thethree months ended June 30, 2008.

 

BioSpin segment income from operations for the threemonths ended June 30, 2008, was $26.5 million, resulting in an operatingmargin of 16.2%, compared to income from operations of $16.0 million, resultingin an operating margin of 12.7%, for the comparable period of 2007. Theincrease in income from operations was attributable primarily to an increase inrevenue and higher gross profit margins offset partially by higher operatingexpenses. The increase in gross profit margins is the result of improvedutilization driven by higher revenues. The increase in costs relates primarilyto research and development expenses and is associated with changes in foreigncurrency exchange rates and higher material costs and salaries associated withnew product development.

 

***Six Months Ended June 30, 2008 Compared to the Six Months Ended June 30,2007***

 

***ConsolidatedResults***

 

The following table presents our results for the six monthsended June 30, 2008 and 2007 (dollars in thousands):

 

25

----

Tableof Contents

 
| ** **                                                                             | ** ** | **Six Months Ended**                                     | ** ** |
|----------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                                             | ** ** | **June 30,**                                                  | ** ** |
| ** **                                                                             | ** ** | **2008**                                                           | ** ** | **2007** | ** ** |
| ** **                                                                             | ** ** | **(In thousands, except per share data)** | ** ** |
| Product revenue                                                                        |       | $                                                                  | 485,884    |   | $ | 391,786 |   |
| Service revenue                                                                        |       | 61,690                                                             |       | 52,757 |   |
| Other revenue                                                                          |       | 2,327                                                              |       | 1,335 |   |
| Total revenue                                                                          |       | 549,901                                                            |       | 445,878 |   |
|                                                                                   |       |                                                               |       |   |   |
| Cost of product  revenue                                                               |       | 266,832                                                            |       | 217,459 |   |
| Cost of service  revenue                                                               |       | 41,302                                                             |       | 33,956 |   |
| Total cost of  revenue                                                                 |       | 308,134                                                            |       | 251,415 |   |
| Gross profit                                                                           |       | 241,767                                                            |       | 194,463 |   |
|                                                                                   |       |                                                               |       |   |   |
| Operating  expenses:                                                                   |       |                                                               |       |   |   |
| Sales and  marketing                                                                   |       | 89,544                                                             |       | 72,491 |   |
| General and  administrative                                                            |       | 33,982                                                             |       | 26,855 |   |
| Research and  development                                                              |       | 67,719                                                             |       | 53,621 |   |
| Acquisition  related charges                                                           |       | 6,153                                                              |       | — |   |
| Total operating  expenses                                                              |       | 197,398                                                            |       | 152,967 |   |
| Operating income                                                                       |       | 44,369                                                             |       | 41,496 |   |
|                                                                                   |       |                                                               |       |   |   |
| Interest and  other income (expense), net                                              |       | (8,662                                                             | )          | 2,964 |   |
| Income before  income tax provision and minority interest in consolidated subsidiaries |       | 35,707                                                             |       | 44,460 |   |
|                                                                                   |       |                                                               |       |   |   |
| Income tax  provision                                                                  |       | 14,466                                                             |       | 12,307 |   |
| Income before  minority interest in consolidated subsidiaries                          |       | 21,241                                                             |       | 32,153 |   |
| Minority  interest in consolidated subsidiaries                                        |       | 240                                                                |       | 146 |   |
| Net income                                                                             |       | $                                                                  | 21,001     |   | $ | 32,007 |   |
| Net income per  common share - basic and diluted                                       |       | $                                                                  | 0.13       |   | $ | 0.20 |   |
| Weighted average  common shares outstanding:                                           |       |                                                               |       |   |   |
| Basic                                                                                  |       | 162,371                                                            |       | 161,050 |   |
| Diluted                                                                                |       | 165,308                                                            |       | 163,731 |   |

 

***Revenue***

 

Our revenue increased by $104.0 million, or 23.3%, to$549.9 million for the six months ended June 30, 2008, compared to $445.9million for the comparable period in 2007. Included in this change in revenueis approximately $47.5 million from the impact of foreign exchange. Excludingthe effect of foreign exchange, revenue increased by 12.7%. The increase inrevenue, excluding the effect of foreign exchange, is attributable to increasesin system and aftermarket revenues in the BioScience segment and system andwire revenues in the BioSpin segment.

 

***Costof Revenue***

 

Our cost of product and service revenue for the sixmonths ended June 30, 2008, was $308.1 million, resulting in a grossprofit margin of 44.0%, compared to cost of product and service revenue of$251.4 million, resulting in a gross profit margin of 43.6% for the comparableperiod of 2007. The increase in gross profit margins as a percentage of revenueis attributable primarily to product mix and improved utilization resultingfrom higher revenues. The increase in gross profit margins was partially offsetby the continued weakening of the U.S. Dollar coupled with the fact that mostof our manufacturing is done in Europe.

 

***Salesand Marketing***

 

Our sales and marketing expense for the six monthsended June 30, 2008 increased to $89.5 million, or 16.4% of 

 

26

----

Tableof Contents

 

product and service revenue, from $72.5 million, or 16.3% of productand service revenue, for the comparable period of 2007. The increase in salesand marketing expense is attributable to higher commission expenses associatedwith the increase in revenue. Additionally, increases in headcount resultingfrom our continued investment in direct sales, inside sales, productspecialists and application resources have contributed to an increase in salesand marketing expense.

 

***Generaland Administrative***

 

Our general and administrative expense for the sixmonths ended June 30, 2008 increased to $34.0 million, or 6.2% of productand service revenue, from $26.9 million, or 6.0% of product and servicerevenue, for the comparable period of 2007. The increase is attributable toadditional headcount, primarily in the BioSpin segment, and was related to BrukerBioSpin becoming part of a publicly-traded company.

 

***Researchand Development***

 

Our research and development expense for the sixmonths ended June 30, 2008 increased to $67.7 million, or 12.4% of productand service revenue, from $53.6 million, or 12.1% of product and servicerevenue, for the comparable period of 2007. The increase in research anddevelopment expenses is attributable primarily to changes in foreign currencyexchange rates, primarily the Euro, as a majority of our research and developmentis performed in Europe. We also incurred higher material costs associated withnew product development.

 

***AcquisitionRelated Charges***

 

On December 3, 2007, we announced that we hadentered into a definitive agreement to acquire all of the stock of Bruker BioSpin.The acquisition of Bruker BioSpin was approved by our shareholders on February 25,2008 and was completed on February 26, 2008. The acquisition represented abusiness combination of companies under common control due to a majority ofownership of both Bruker Corporation and Bruker BioSpin by the same individualsand, as a result, transaction costs are expensed as incurred. During the sixmonths ended June 30, 2008, the Company incurred and expensedacquisition-related charges totaling $6.2 million, which consisted ofinvestment banking fees, legal fees and accounting fees.

 

***Interestand Other Income (Expense), Net***

 

Interest and other income (expense), net during thesix months ended June 30, 2008, was $(8.7) million, compared to $3.0million during the six months ended June 30, 2007.

 

During the six months ended June 30, 2008, themajor component within interest and other income (expense), net, was losses onforeign currency transactions of $9.0 million. Foreign exchange losses of $12.2million were incurred in the first three months of 2008 and were drivenprimarily by the re-measurement of certain foreign currency denominated assets,principally cash, inter-company receivables and a short-term inter-company loan,into the functional currency of the affected entities. The losses resulted fromthe continued weakening of the U.S. Dollar and the Euro by approximately 11%and 3%, respectively, during the five weeks between the closing of the BrukerBioSpin acquisition and the end of the first quarter of 2008.

 

During the six months ended June 30, 2007, themajor components within interest and other income (expense), net, were netinterest income of $3.0 million and gains on foreign currency transactions of$0.5 million.

 

***Provisionfor Income Taxes***

 

Our effective tax rate reflects our tax provision fornon-U.S. entities only, since no benefit was recognized for losses incurred inthe U.S. We will maintain a full valuation allowance for our U.S. net operatinglosses until evidence exists that it is more likely than not that the losscarryforward amounts will be utilized to offset U.S. taxable income. Our taxrate may change over time as the amount and mix of income and taxes outside theU.S. changes. The effective tax rate is calculated using our projected annualpre-tax income or loss and is affected by research and development tax credits,the expected level of other tax benefits, and the impact of changes to thevaluation allowance, as well as changes in the mix of our pre-tax income andlosses among jurisdictions with varying statutory tax rates and credits.

 

27

----

Table of Contents

 

The income tax provisionfor the six months ended June 30, 2008, was $14.5 million compared to anincome tax provision of $12.3 million for the six months ended June 30,2007, representing effective tax rates of 40.5% and 27.7%, respectively. Theeffective tax rate for the six months ended June 30, 2008 is a result ofthe acquisition-related charges and the foreign exchange losses that resultedin only modest tax benefits. The acquisition-related costs did not generate taxsignificant benefits for us because they were incurred primarily in the U.S.and the foreign exchange losses did not generate tax significant benefits forus because they occurred in foreign locations with relatively low tax rates.

 

***MinorityInterest in Consolidated Subsidiaries***

 

Minority interest inconsolidated subsidiaries for the six months ended June 30, 2008, was $0.2million compared to $0.1 million for the comparable period of 2007. The minorityinterest in subsidiaries represents the minority shareholders’ proportionateshare of net income of those subsidiaries for the six months ended June 30,2008 and 2007. The minority interest relates to our two majority-owned indirectsubsidiaries, InCoaTec GmbH and Bruker Baltic Ltd.

 

***NetIncome***

 

Our net income for thesix months ended June 30, 2008, was $21.0 million, or $0.13 per dilutedshare, compared to $32.0 million, or $0.20 per diluted share, for thecomparable period of 2007.

 

***SegmentResults***

 

***Revenue***

 

The following tablepresents revenue, change in revenue and revenue growth by reportable segmentfor the six months ended June 30, 2008 and 2007 (dollars in thousands):

 
| ** **       | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | **Percentage** | ** ** |
|------------------|------------|------------|------------|------------|------------|-------------------|------------|----------------|------------|
| ** **       | ** ** | **2008**   | ** ** | **2007**   | ** ** | **$ Change** | ** ** | **Change**     | ** ** |
| BioScience       |       | $          | 303,222    |       | $          | 236,956           |       | $              | 66,266     |   | 28.0 | % |
| BioSpin          |       | 275,888    |       | 233,411    |       | 42,477            |       | 18.2           | %          |
| Eliminations (a) |       | (29,209    | )          | (24,489    | )          | (4,720            | )          |           |       |
|             |       |       |       |       |       |              |       |           |       |
| Total Revenue    |       | $          | 549,901    |       | $          | 445,878           |       | $              | 104,023    |   | 23.3 | % |

 

----

(a) Represents product and service revenue between reportablesegments.   

 

***BioScienceSegment Revenues***

 

BioScience segmentrevenue increased by $66.3 million, or 28.0%, to $303.2 million for the sixmonths ended June 30, 2008, compared to $237.0 million for the comparableperiod in 2007. Included in this change in revenue is approximately $21.0million from the impact of foreign exchange. Excluding the effect of foreignexchange, revenue increased by 19.1%. The increase in revenue, excluding theeffect of foreign exchange, is attributable to increases in system revenuesacross several of the product lines, in particular X-ray systems, molecularspectroscopy systems and chemical detections systems, as well as higheraftermarket revenue. Revenues in the six months ended June 30, 2007include $4.1 million of molecular spectroscopy revenue that was recognized fromour order with the Chinese State Food and Drug Administration. The order fromthe Chinese State Food and Drug Administration was completed during 2007 and wedid not recognize any system revenue from this order during the six monthsended June 30, 2008.

 

System revenue, othersystem revenue and aftermarket revenue as a percentage of total BioSciencesegment revenue were as follows during the six months ended June 30, 2008and 2007 (dollars in thousands):

 

28

----

Table of Contents

 
| ** **            | ** ** | **2008**    | ** ** | **2007**                 | ** ** |
|-----------------------|------------|-------------|------------|--------------------------|------------|
| ** **            | ** ** | ** **  | ** ** | **Percentage of**   | ** ** | ** ** | ** ** | **Percentage of** | ** ** |
| ** **            | ** ** | **Revenue** | ** ** | **Segment Revenue** | ** ** | **Revenue** | ** ** | **Segment Revenue** | ** ** |
| System Revenue        |       | $           | 221,794    |                     | 73.1       | % | $ | 174,382 |   | 73.6 | % |
| Other System  Revenue |       | 21,979      |       | 7.3                      | %          | 15,449 |   | 6.5 | % |
| Aftermarket  Revenue  |       | 59,449      |       | 19.6                     | %          | 47,125 |   | 19.9 | % |
|                  |       |        |       |                     |       |   |   |   |   |
| Total Revenue         |       | $           | 303,222    |                     | 100.0      | % | $ | 236,956 |   | 100.0 | % |

 

System revenues in theBioScience segment include X-ray systems, mass spectrometry systems, CBRNdetection systems and molecular spectroscopy systems. Other system revenues inthe BioScience segment relate primarily to the distribution of products notmanufactured by the BioScience segment. Aftermarket revenues in the BioSciencesegment include accessory sales, consumables, training and services.

 

***BioSpinSegment Revenues***

 

BioSpin segment revenueincreased by $42.5 million, or 18.2%, to $275.9 million for the six months endedJune 30, 2008, compared to $233.4 million for the comparable period in2007. Included in this change in revenue is approximately $26.5 million fromthe impact of foreign exchange. Excluding the effect of foreign exchange,revenue increased by 6.8%. The increase in revenue, excluding the effect offoreign exchange, is attributable to increases in magnetic resonance systemrevenues.

 

System and wire revenue,other system revenue and aftermarket revenue as a percentage of total BioSpinsegment revenue were as follows during the six months ended June 30, 2008and 2007 (dollars in thousands):

 
| ** **               | ** ** | **2008**    | ** ** | **2007**                 | ** ** |
|--------------------------|------------|-------------|------------|--------------------------|------------|
| ** **               | ** ** | ** **  | ** ** | **Percentage of**   | ** ** | ** ** | ** ** | **Percentage of** | ** ** |
| ** **               | ** ** | **Revenue** | ** ** | **Segment Revenue** | ** ** | **Revenue** | ** ** | **Segment Revenue** | ** ** |
| System and Wire  Revenue |       | $           | 213,045    |                     | 77.2       | % | $ | 176,600 |   | 75.7 | % |
| Other System  Revenue    |       | 12,135      |       | 4.4                      | %          | 4,434 |   | 1.9 | % |
| Aftermarket  Revenue     |       | 50,708      |       | 18.4                     | %          | 52,377 |   | 22.4 | % |
|                     |       |        |       |                     |       |   |   |   |   |
| Total Revenue            |       | $           | 275,888    |                     | 100.0      | % | $ | 233,411 |   | 100.0 | % |

 

System and wire revenuesin the BioSpin segment include nuclear magnetic resonance systems, magneticresonance imaging systems, electron paramagnetic resonance systems, Minispecsystems, power supplies and our LTS and HTS wire business. Other systemrevenues in the BioSpin segment relate primarily to the distribution ofproducts not manufactured by the BioSpin segment. Aftermarket revenues in theBioSpin segment include accessory sales, consumables, training and services.

 

***Incomefrom Operations***

 

The following tablepresents income from operations and operating margins on revenue by reportablesegment for the six months ended June 30, 2008 and 2007 (dollars inthousands):

 
| ** **                             | ** ** | **2008**      | ** ** | **2007**      | ** ** |
|----------------------------------------|------------|---------------|------------|---------------|------------|
| ** **                             | ** ** | **Operating** | ** ** | **Operating** | ** ** | **Operating** | ** ** | **Operating** | ** ** |
| ** **                             | ** ** | **Income**    | ** ** | **Margin**    | ** ** | **Income** | ** ** | **Margin** | ** ** |
| BioScience                             |       | $             | 18,476     |          | 6.1        | % | $ | 17,067 |   | 7.2 | % |
| BioSpin                                |       | 36,532        |       | 13.2          | %          | 31,196 |   | 13.4 | % |
| Corporate,  Eliminations and Other (a) |       | (10,639       | )          |          |       | (6,767 | ) |   |   |
|                                   |       |          |       |          |       |   |   |   |   |
| Total Operating  Income                |       | $             | 44,369     |          | 8.1        | % | $ | 41,496 |   | 9.3 | % |

 

----

(a) Represents corporate costs not allocated to the reportablesegments.  

 

BioScience segment incomefrom operations for the six months ended June 30, 2008, was $18.5 million,resulting 

 

29

----

Table of Contents

 

in an operating margin of6.1%, compared to income from operations of $17.1 million, resulting in anoperating margin of 7.2%, for the comparable period of 2007. The increase inincome from operations was driven by an increase in revenues offset partiallyby lower gross profit margins and increases in operating expenses. The increasein costs is, in part, attributable to changes in foreign currency exchangerates, primarily the Euro, as a majority of our production and research anddevelopment is performed in Europe. However, increases in headcount, primarilyin sales and marketing, and research and development material costs alsocontributed to the increase in expenses for the six months ended June 30,2008.

 

BioSpin segment incomefrom operations for the six months ended June 30, 2008, was $36.5 million,resulting in an operating margin of 13.2%, compared to income from operationsof $31.2 million, resulting in an operating margin of 13.4%, for the comparableperiod of 2007. The increase in income from operations was attributableprimarily to an increase in revenue and higher gross profit margins offsetpartially by higher operating expenses. The increase in gross profit margins isthe result of improved utilization driven by higher revenues. The increase incosts relates primarily to research and development expenses and is associatedwith changes in foreign currency exchange rates and higher material costsassociated with new product development.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

We currently anticipatethat our existing cash and credit facilities will be sufficient to support ouroperating and investing needs for at least the next twelve months, but thisdepends on our profitability and our ability to manage working capitalrequirements. Our future cash requirements will also be affected byacquisitions that we may consider. Historically, we have financed our growththrough a combination of debt financings and issuances of common stock. In thefuture, there can be no assurances that additional financing alternatives will beavailable to us if required, or if available, will be obtained on termsfavorable to us.

 

During the six monthsended June 30, 2008, net cash provided by operating activities was $18.1million compared to net cash provided by operating activities of $16.6 millionduring the six months ended June 30, 2007. Cash provided by operatingactivities in the six months ended June 30, 2008 was attributable to theresults of operations offset partially by changes in the components of workingcapital. Cash provided by operating activities in the six months ended June 30,2007 was also attributable to the results of operations offset partially bychanges in the components of working capital.

 

During the six monthsended June 30, 2008, net cash used by investing activities was $(28.0)million, compared to net cash used by investing activities of $(15.6) millionduring the six months ended June 30, 2007. Cash used by investingactivities during the six months ended June 30, 2008 was attributable to$27.1 million of capital expenditures and $7.3 million used for acquisitionrelated costs and acquisitions. These uses were offset partially by $9.8million of proceeds from the sale of short-term investments. Cash used byinvesting activities during the six months ended June 30, 2007 wasattributable to $13.0 million of capital expenditures and $2.5 million foracquisitions.

 

During the six monthsended June 30, 2008, net cash used by financing activities was $(217.5)million, compared to net cash used by financing activities of $(34.5) millionduring the six months ended June 30, 2007. Cash used by financingactivities during the six months ended June 30, 2008 was attributable to $386.0million paid to certain shareholders in connection with the acquisition ofBruker BioSpin and $23.4 million of withholding taxes paid by the Company inconnection with a dividend declared by Bruker BioSpin prior to the acquisition.These uses were offset, in part, by $193.4 million of net borrowings underlong-term and short-term investments.  Cashused by financing activities during the six months ended June 30, 2007 wasattributable to a $37.6 million dividend payment to the shareholders of BrukerBioSpin and $15.2 million in net repayments of short-term and long-term debtoffset partially by $18.4 million in net proceeds from the offering of commonstock.

 

On February 26,2008, the Company completed its acquisition of Bruker BioSpin for $914.0million. The acquisition of Bruker BioSpin was financed with 57,544,872 sharesof unregistered common stock valued at $526.0 million based on the trailing 10day trading average closing price of $9.14 per share as of two days prior tothe signing of the transaction agreements, $351.0 million of cash obtainedunder new credit facilities and the balance with cash on hand. The CreditAgreement with a syndication of lenders provides for a revolving credit linewith a maximum commitment of $230.0 million and a term loan facility of $150.0million. The outstanding principal under the term loan is payable in quarterlyinstallments through December 2012. Borrowings under the Credit Agreementbear interest, at the Company’s option, at either (i) the higher of theprime rate or the federal funds rate plus 0.50%, or (ii) adjusted LIBOR,plus margins ranging from 0.40% to 1.25% and a facility fee ranging from 0.10%to 0.20%. As 

 

30

----

Table of Contents

 

of June 30, 2008,the weighted-average interest rate of borrowings under the Credit Agreement wasapproximately 4.0%.

 

Borrowings under theCredit Agreement are secured by the pledge to the banks of 100% of the capitalstock of each of the Company’s wholly-owned domestic subsidiaries and 65% ofthe capital stock of certain of the Company’s wholly-owned direct or indirectforeign subsidiaries. The Credit Agreement also requires the Company tomaintain certain financial ratios related to maximum leverage and minimuminterest coverage, as defined in the Credit Agreement. In addition to thefinancial ratios, the Credit Agreement restricts, among other things, theCompany’s ability to do the following: make certain payments; incur additionaldebt; incur certain liens; make certain investments, including derivativeagreements; merge, consolidate, sell or transfer all or substantially all ofthe Company’s assets; and enter into certain transactions with affiliates.

 

At June 30, 2008, wehad outstanding debt totaling $242.2 million consisting of $194.3 million outstandingunder the Credit Agreement, including $148.1 million drawn on a term loan and$46.2 million under revolving loans, $33.6 million outstanding under otherlong-term debt arrangements, $11.2 million outstanding under other revolvinglines of credit and $3.1 million under capital lease obligations. At December 31,2007, we had outstanding debt totaling $44.2 million consisting of $28.0million outstanding under other long-term debt arrangements, $13.2 millionoutstanding under other revolving lines of credit and $3.0 million undercapital lease obligations.

 

Amounts outstanding underother long-term debt arrangements include both collateralized anduncollateralized arrangements with various financial institutions in Germany,Japan and a government agency in the United States. These debt arrangementsconsist of fixed and variable interest rates ranging from 1.8% to 8.0% at June 30,2008. In connection with certain of these agreements, we are required tomaintain certain financial ratios as defined in the agreements. At June 30,2008, we were not in compliance with one of the covenants required by ourarrangement with the government agency in the United States. The failure tomeet this covenant did not trigger any cross-default provisions in otherborrowing arrangements, including the Credit Agreement. On July 28, 2008,we received a limited waiver from the holder of the debt for the quarterlyperiod ended June 30, 2008 and agreement from the holder of the debt tomodify the covenant for the remainder of 2008.

 

Amounts outstanding underother revolving lines of credit are with various financial institutions inGermany, Switzerland, Japan and France and have aggregate maximum borrowingamounts of approximately $90.0 million at June 30, 2008. Withconsideration to outstanding letters of credit, we had availability ofapproximately $65.5 million under other revolving lines of credit at June 30,2008. Our revolving lines of credit are generally uncollateralized and bearinterest at variable rates ranging from 1.5% to 9.8% at June 30, 2008.Effective February 26, 2008, we terminated a $75.0 million line of creditin the United States and replaced it with the revolving credit available underthe Credit Agreement.

 

As of June 30, 2008,we have approximately $26.0 million of net operating loss carryforwardsavailable to reduce future U.S. taxable income. These losses have variousexpiration dates through 2027. The Company also has U.S. tax credits ofapproximately $11.1 million available to offset future tax liabilities thatexpire at various dates. These credits include foreign tax credits of $8.0million expiring in various years through 2017 and research anddevelopment tax credits of $3.1 million expiring through 2025. These operatinglosses and tax credit carryforwards may be subject to limitations underprovisions of the Internal Revenue Code.

 

The following tablesummarizes maturities for our significant financial obligations as of June 30,2008 (in thousands):

 

31

----

Table of Contents

 
| ** **                                 | ** ** | ** ** | ** ** | **Less than** | ** ** | **1-3**   | ** ** | **4-5**   | ** ** | **More than** | ** ** |
|--------------------------------------------|------------|------------|------------|--------------------|------------|-----------|------------|-----------|------------|--------------------|------------|
| **Contractual Obligations**           | ** ** | **Total**  | ** ** | **1 year**    | ** ** | **Years** | ** ** | **Years** | ** ** | **5 years**   | ** ** |
| Short-term  borrowings                     |       | $          | 11,153     |               | $          | 11,153    |       | $         | —     |               | $          | — |   | $ | — |   |
| Long-term debt,  including current portion |       | 227,845    |       | 54,467             |       | 68,537    |       | 104,561   |       | 280                |       |
| Capital lease  obligations                 |       | 3,152      |       | 811                |       | 1,188     |       | 595       |       | 558                |       |
| Uncertain tax  contingencies               |       | 19,418     |       | —             |       | 19,418    |       | —    |       | —             |       |
|                                       |       |       |       |               |       |      |       |      |       |               |       |
| Total  contractual obligations             |       | $          | 261,568    |               | $          | 66,431    |       | $         | 89,143     |               | $          | 105,156 |   | $ | 838 |   |

 

Uncertain taxcontingencies are positions taken or expected to be taken on an income taxreturn that may result in additional payments to tax authorities. The amount inthe preceding table includes interest and penalties accrued related to thesepositions as of June 30, 2008. The total amount of uncertain taxcontingencies is included in the “1-3 Years” column as we are not able toreasonably estimate the timing of potential future payments. If a tax authorityagrees with the tax position taken or expected to be taken or the applicablestatute of limitations expires, then additional payments will not be necessary.

 

**NEW ACCOUNTING PRONOUNCEMENTS**

 

In December 2007,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 141(R), *BusinessCombinations*(“SFAS No. 141(R)”). This statement willsignificantly change the accounting for business combinations. Under SFAS No. 141(R),an acquiring entity will be required to recognize all of the assets acquiredand liabilities assumed in a transaction at the acquisition date fair valuewith certain limited exceptions. In addition, SFAS No. 141(R) willchange the accounting treatment for acquisition costs, in-process research anddevelopment, restructuring costs associated with business combinations andchanges in deferred tax asset valuation allowances and income tax uncertaintiesafter the acquisition date. SFAS No. 141(R) also includes asignificant number of new disclosure requirements. Early adoption of SFAS No. 141(R) isprohibited and we will be required to apply SFAS No. 141(R) toacquisitions that occur on or after January 1, 2009.

 

In December 2007,the FASB issued SFAS No. 160, *Noncontrolling Interestsin Consolidated Financial Statements — An Amendment of ARB No. 51*(“SFASNo. 160”). This statement establishes new accounting and reportingstandards for the minority interest in a subsidiary and the deconsolidation ofa subsidiary. SFAS No. 160 is effective as of the beginning of fiscal 2009and early adoption is prohibited. We have not yet assessed the effect, if any,that adoption of SFAS No. 160 will have on our results of operations andfinancial position.

 

In March 2008, theFASB issued SFAS No. 161, *Disclosures aboutDerivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133*(“SFAS No. 161”). SFAS No. 161 requires enhanced disclosures about anentity’s derivative and hedging activities and, thereby, improves thetransparency of financial reporting. SFAS No. 161 is effective for fiscalyears beginning on or after November 15, 2008. We are currently evaluatingthe impact that the adoption of SFAS No. 161 will have on our financialposition, results of operations and cash flows.

 

**ITEM 3.               QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

We are potentiallyexposed to market risks associated with changes in foreign exchange rates andinterest rates. We selectively use financial instruments to reduce these risks.All transactions related to risk management techniques are authorized andexecuted pursuant to our policies and procedures. Analytical techniques used tomanage and monitor foreign exchange and interest rate risk include marketvaluations and sensitivity analysis.

 

***Impactof Foreign Currencies***

 

We generate a substantialportion of our revenues in international markets, principally Europe and Japan,which subjects our operations to the exposure of exchange rate fluctuations.The impact of currency exchange rate movement can be positive or negative inany period. Our costs related to sales in foreign currencies are largelydenominated in the same respective currencies, limiting our transaction riskexposure. However, for sales not 

 

32

----

Table of Contents

 

denominated in U.S.Dollars, if there is an increase in the rate at which a foreign currency isexchanged for U.S. Dollars, it will require more of the foreign currency toequal a specified amount of U.S. Dollars than before the rate increase. In suchcases, if we price our products in the foreign currency, we will receive lessin U.S. Dollars than we did before the rate increase went into effect. If weprice our products in U.S. Dollars and competitors price their products inlocal currency, an increase in the relative strength of the U.S. Dollar couldresult in our prices not being competitive in a market where business istransacted in the local currency.

 

Our foreign exchangegains (losses), net, were $(9.0) million and $0.5 million for the sixmonths ended June 30, 2008 and 2007, respectively. As we continue toexpand internationally, we will continue to evaluate our currency risks and mayutilize foreign exchange contracts more frequently in order to mitigate ourforeign currency exposures. From time to time, we have entered into foreigncurrency contracts in order to minimize the volatility that fluctuations inexchange rates will have on the Company’s cash flows related to purchases andsales denominated in foreign currencies. There were no outstanding forwardcurrency contracts at June 30, 2008.

 

***Impactof Interest Rates***

 

We regularly investexcess cash in short-term investments that are subject to changes in short-terminterest rates. We believe that the market risk arising from holding thesefinancial instruments is minimal.

 

Our exposure related toadverse movements in interest rates is derived primarily from outstandingfloating rate debt instruments that are indexed to short-term market rates. Ourobjective in managing our exposure to interest rates is to decrease thevolatility that changes in interest rates might have on our earnings and cashflows. To achieve this objective we entered into interest rate swaps and crosscurrency rate swaps in order to minimize the volatility that changes ininterest rates might have on earnings and cash flows.

 

In April 2008, weentered into an interest rate swap arrangement to pay a fixed rate of approximately3.8% and receive a variable rate based on three month LIBOR through December 31,2012. The initial notional amount of this interest rate swap is $90.0 millionand will amortize in proportion to the term debt component of the CreditAgreement. We have determined that this swap is an effective hedge of thevariability of cash flows of the interest payments under SFAS No. 133, *Accounting for Derivative Instruments and Hedging Activities*(“SFASNo. 133”).

 

In addition, in 2002 weentered into a cross currency interest rate swap arrangement under which theCompany receives semiannual interest payments in Euros based on a variableinterest rate equal to the six-month EURIBOR rate in exchange for semiannualpayments in Swiss francs at a fixed rate of 4.97% through December 2011.The notional amount of this interest rate swap arrangement was €5.0 million at June 30,2008. In 1999, the Company entered into an interest rate swap arrangement topay a 4.60% fixed rate of interest and receive a variable rate of interestbased on the Securities Industry and Financial Markets Municipal Swap Indexthrough December 2013. The notional amount of this interest rate swaparrangement was $1.5 million at June 30, 2008. We have determined thatthese swaps are not effective in offsetting the change in interest rates on thecash flows being hedged as defined by SFAS No. 133.

 

A 10% increase ordecrease in the average cost of our variable rate debt would not result in amaterial change in pre-tax interest expense.

 

***Inflation***

 

We do not believe inflationhad a material impact on our business or operating results during any of theperiods presented.

 

**ITEM 4.               CONTROLSAND PROCEDURES**

 

We have establisheddisclosure controls and procedures that are designed to ensure that materialinformation relating to us, including our consolidated subsidiaries, is madeknown to our Chief Executive Officer (principal executive officer) and ChiefFinancial Officer (principal financial officer) by others within ourorganization. Under the supervision and with the participation of ourmanagement, including our Chief Executive Officer and Chief Financial Officer,we conducted an evaluation of the effectiveness of our disclosure controls andprocedures as of 

 

33

----

Table of Contents

 

June 30, 2008. Basedon this evaluation, our Chief Executive Officer and Chief Financial Officerconcluded that our disclosure controls and procedures were effective, as of June 30,2008, to ensure that the information required to be disclosed by us in thereports that we file or submit under the Securities Exchange Act of 1934 isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and forms.

 

There were no changes inour internal control over financial reporting that occurred during the quarterended June 30, 2008 that materially affected, or are reasonably likely toaffect, our internal control over financial reporting.

 

34

----

Table of Contents

 

**PART II              OTHERINFORMATION**

 

**ITEM 1.               LEGALPROCEEDINGS**

 

Except as set forthbelow, there have been no material changes to the legal proceedings disclosedin Part I, “Item 3. Legal Proceedings” in our Annual Report on Form 10-Kfor the year ended December 31, 2007 and our Quarterly Report on Form 10-Qfor the quarter ended March 31, 2008.

 

Our subsidiary BrukerDaltonics is party to an Agreement with Isis Pharmaceuticals, Inc.regarding the manufacture and sale of certain systems sold by Isis whichincorporate mass spectrometers from Bruker Daltonics. A dispute previouslyarose regarding the performance of each party under the Agreement. Pursuant tothe Agreement’s dispute resolution mechanism, the parties had a series ofexecutive level meetings and engaged in mediation with a third party mediator.These efforts did not resolve the dispute, and in May 2008 BrukerDaltonics filed suit against Isis and its wholly owned subsidiary IbisBiosciences, Inc. Isis and Ibis have answered this complaint and assertedcounterclaims that Bruker Daltonics breached the Agreement. Bruker Daltonicsbelieves that the counterclaims of Ibis and Isis are without merit and intendsto pursue this litigation vigorously.

 

As previously disclosedin Part I, “Item 3. Legal Proceedings” in our Annual Report on Form 10-Kfor the year ended December 31, 2007, on October 10, 2007, BrianLamy, a former employee of Bruker BioSpin Corporation, filed a complaint withthe United States Department of Labor’s Occupational Health and SafetyAdministration (“OSHA”) alleging discriminatory employment practices inviolation of Section 806 of the Sarbanes-Oxley Act arising from BrukerBioSpin Corporation’s termination of his employment in July 2007. At thetime of the complaint, Bruker BioSpin Corporation was an affiliate of theCompany under common control of the Company. As a result of the Company’sacquisition of the Bruker BioSpin group of companies, Bruker BioSpinCorporation is now a wholly-owned subsidiary of the Company.

 

Mr. Lamy alsocontacted the Securities and Exchange Commission regarding his complaint. TheSEC contacted counsel for the Company in February 2008 regarding thismatter. Counsel for the Company at that time provided the SEC various materialsrelating to the matter, and the Company intends to cooperate fully with anyadditional requests that may be made by the SEC for information or documents.

 

On July 17, 2008, Mr. Lamywithdrew his action from OSHA and filed in federal court in the District ofMassachusetts a substantially similar complaint against Bruker BioSpinCorporation, Bruker Corporation and Dirk Laukien, entitled *Brian Lamyv. Bruker BioSpin Corporation, Bruker Corporation f/k/a Bruker BioSciencesCorporation and Dirk Laukien,* alleging termination in violation ofthe Sarbanes-Oxley Act.

 

The Audit Committee ofthe Company has conducted an internal review with regard to Mr. Lamy’sclaims and has found no evidence of any improper activity. The Company believesthe allegations of Mr. Lamy’s complaint to be without merit and intends todefend this matter vigorously.

 

**ITEM 1A.            RISKFACTORS**

 

In addition to the otherinformation set forth in this report, you should carefully consider the factorsdiscussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-Kfor the year ended December 31, 2007 and in Part II, “Item 1A. RiskFactors” in our Quarterly Report on Form 10-Q for the three months ended March 31,2008, which could materially affect our business, financial condition or futureresults. The risks described in this report and in our Annual Report on Form 10-Kand Quarterly Reports on Form 10-Q are not the only risks facing ourCompany. Additional risks and uncertainties not currently known to us or thatwe currently deem to be immaterial also may materially adversely affect ourbusiness, financial condition and/or operating results.

 

There have been nomaterial changes to the risk factors previously disclosed in our Annual Reporton Form 10-K for the fiscal year ended December 31, 2007 and ourQuarterly Report on Form 10-Q for the quarter ended March 31, 2008.

 

35

----

Table of Contents

 

**ITEM 2.               UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

 

None.

 

**ITEM 3.               DEFAULTSUPON SENIOR SECURITIES**

 

None.

 

**ITEM 4.               SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS**

 
|   | (a)    |   | The  Annual Meeting of Stockholders of the Company was held on May 8, 2008.                                                                                                                                           |                                             |
|--------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                       |                                             |
|   | (c)    |   | Proxies  representing 160,382,927 shares were received. Total shares outstanding as of  the record date were 163,368,791. The matters voted upon and the results of the  voting at the Annual Meeting are set forth below: |                                             |
|   |   |   |                                                                                                                                                                                                                       |                                             |
|   | (i)    |   | To elect Collin J. D’Silva, Stephen W. Fesik  Ph.D., Dirk D. Laukien, Ph.D., Richard M. Stein and Bernhard Wangler as a Class II  director to hold office until the 2011 Annual Meeting:                         |                                             |
|   |   |   |                                                                                                                                                                                                                       |                                             |
|   |   |   | (i)                                                                                                                                                                                                                        | Collin J. D’Silva as Class II director |   |
|   |   |   |                                                                                                                                                                                                                       |                                             | Votes for |   | 159,762,613 |   |
|   |   |   |                                                                                                                                                                                                                       |                                             | Votes withheld |   | 620,314 |   |
|   |   |   |                                                                                                                                                                                                                       |                                             |   |   |   |
|   |   |   | (ii)                                                                                                                                                                                                                       | Stephen W. Fesik Ph.D. as Class II director |   |
|   |   |   |                                                                                                                                                                                                                       |                                             | Votes for |   | 159,566,905 |   |
|   |   |   |                                                                                                                                                                                                                       |                                             | Votes withheld |   | 816,022 |   |
|   |   |   |                                                                                                                                                                                                                       |                                             |   |   |   |   |
|   |   |   | (iii)                                                                                                                                                                                                                      | Dirk D. Laukien, Ph.D. as Class II director |   |
|   |   |   |                                                                                                                                                                                                                       |                                             | Votes for |   | 145,521,436 |   |
|   |   |   |                                                                                                                                                                                                                       |                                             | Votes withheld |   | 14,861,491 |   |
|   |   |   |                                                                                                                                                                                                                       |                                             |   |   |   |
|   |   |   | (iv)                                                                                                                                                                                                                       | Richard M. Stein as Class II director       |   |
|   |   |   |                                                                                                                                                                                                                       |                                             | Votes for |   | 144,374,888 |   |
|   |   |   |                                                                                                                                                                                                                       |                                             | Votes withheld |   | 16,008,039 |   |
|   |   |   |                                                                                                                                                                                                                       |                                             |   |   |   |   |
|   |   |   | (v)                                                                                                                                                                                                                        | Bernhard Wangler as Class II director       |   |
|   |   |   |                                                                                                                                                                                                                       |                                             | Votes for |   | 144,303,358 |   |
|   |   |   |                                                                                                                                                                                                                       |                                             | Votes withheld |   | 16,079,569 |   |
|   |   |   |                                                                                                                                                                                                                       |                                             |   |   |   |
|   | (ii)   |   | To ratify the selection of Ernst & Young  LLP as the Company’s independent registered public accounting firm for fiscal  year 2008:                                                                          |                                             |
|   |   |   |                                                                                                                                                                                                                       |                                             |   |   |
|   |   |   |                                                                                                                                                                                                                       | Votes for                                        |   | 160,136,736 |   |
|   |   |   |                                                                                                                                                                                                                       | Votes against                                    |   | 222,858 |   |
|   |   |   |                                                                                                                                                                                                                       | Votes abstaining                                 |   | 23,333 |   |
|        |        |        |                                                                                                                                                                                                                            |                                                  |  |  |  |  |  |

 

Except as set forth above, there were no sharesabstaining and no broker non-voting shares cast.

 

**ITEM 5.               OTHERINFORMATION**

 

None.

 

36

----

Table of Contents

 

**ITEM 6.               EXHIBITS**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                |
|----------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1                 |       | Certification by Chief  Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 (1)                                                                                  |
| 31.2                 |       | Certification by Chief  Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 (1)                                                                                  |
| 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 (2) |

 

----

(1)           Filed herewith.

(2)           Furnished herewith.

 

37

----

Table of Contents

 

**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
|                        | BRUKER CORPORATION |
|-----------------------------|--------------------|
|                        |               |
| Date: August 11,  2008 | By:                | /s/  FRANK H.  LAUKIEN, PH.D. |
|                        |               | Frank H. Laukien, Ph.D.

President, Chief  Executive Officer and Chairman 

(Principal Executive  Officer) |

 

 
| Date: August 11,  2008 | By:    | /s/  WILLIAM  J. KNIGHT                                                            |
|-----------------------------|--------|----------------------------------------------------------------------------------------------|
|                        |   | William J. Knight 

Chief Financial Officer  

(Principal Financial  and Accounting Officer) |

 

38

----