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 September 30, 2009**

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

 

**Forthe transition period from                to                **

 

**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 of principal 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 has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T during thepreceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files). Yes o     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 |
| (Do not check if  a smaller reporting company) |   |                         |

 

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

 

Indicate thenumber of shares outstanding of each of the issuer’s classes of common stock,as of the latest practicable date.

 

| **Class**                                | ** ** | **Outstanding  at November 2, 2009** |
|------------------------------------------|------------|-------------------------------------------|
| Common Stock,  $0.01 par value per share |       | 164,176,495  shares                       |

 

 

 

----

Table of Contents

 

**BRUKERCORPORATION**

 

**QuarterlyReport on Form 10-Q**

**Forthe Quarter Ended September 30, 2009**

 

**Index**

 
| ** **       | ** **                                                                                                                       | **Page** |
|------------------|----------------------------------------------------------------------------------------------------------------------------------|----------|
| **Part I**  | **FINANCIAL INFORMATION**                                                                                                        | 1        |
| Item 1:          | Unaudited Condensed  Consolidated Financial Statements                                                                           | 1        |
|             | Unaudited  Condensed Consolidated Balance Sheets as of September 30, 2009 and  December 31, 2008                       | 1        |
|             | Unaudited  Condensed Consolidated Statements of Operations for the three and nine months  ended September 30, 2009 and 2008 | 2        |
|             | Unaudited  Condensed Consolidated Statements of Cash Flows for the nine months ended  September 30, 2009 and 2008           | 3        |
|             | Notes to Unaudited Condensed Consolidated Financial  Statements                                                                  | 4        |
| Item 2:          | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                      | 20       |
| Item 3:          | Quantitative  and Qualitative Disclosures About Market Risk                                                                      | 37       |
| Item 4:          | Controls and Procedures                                                                                                          | 38       |
| **Part II** | **OTHER INFORMATION**                                                                                                            | 39       |
| Item 1:          | Legal Proceedings                                                                                                                | 39       |
| Item 1A:         | Risk Factors                                                                                                                     | 39       |
| Item 2:          | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                     | 40       |
| Item 3:          | Defaults Upon  Senior Securities                                                                                                 | 41       |
| Item 4:          | Submission of  Matters to a Vote of Security Holders                                                                             | 41       |
| Item 5:          | Other Information                                                                                                                | 41       |
| Item 6:          | Exhibits                                                                                                                         | 41       |
|             | Signatures                                                                                                                       | 42       |

 

----

Tableof Contents

 

**PART I****                                                      ****FINANCIAL INFORMATION**

 

**ITEM 1.****                                                    ****UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

 

**BRUKERCORPORATION**

**UNAUDITED CONDENSED CONSOLIDATEDBALANCE SHEETS**

**(inmillions, except share data)**

** **
| ** **                                                                                                                                                                                                                | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                | ** ** | **2009**               | ** ** | **2008**              | ** ** |
| **ASSETS**                                                                                                                                                                                                                |       |                   |       |                  |       |
| Current  assets:                                                                                                                                                                                                          |       |                   |       |                  |       |
| Cash  and cash equivalents                                                                                                                                                                                                |       | $                      | 148.5      |                  | $          | 166.2 |   |
| Restricted  cash                                                                                                                                                                                                          |       | 2.0                    |       | 1.5                   |       |
| Accounts  receivable, net                                                                                                                                                                                                 |       | 151.7                  |       | 171.9                 |       |
| Inventories                                                                                                                                                                                                               |       | 443.6                  |       | 425.1                 |       |
| Other  current assets                                                                                                                                                                                                     |       | 72.7                   |       | 56.0                  |       |
| Total  current assets                                                                                                                                                                                                     |       | 818.5                  |       | 820.7                 |       |
|                                                                                                                                                                                                                      |       |                   |       |                  |       |
| Property,  plant and equipment, net                                                                                                                                                                                       |       | 226.4                  |       | 221.3                 |       |
| Intangibles  and other long-term assets                                                                                                                                                                                   |       | 79.3                   |       | 74.3                  |       |
| Total  assets                                                                                                                                                                                                             |       | $                      | 1,124.2    |                  | $          | 1,116.3 |   |
|                                                                                                                                                                                                                      |       |                   |       |                  |       |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY**                                                                                                                                                                            |       |                   |       |                  |       |
| Current  liabilities:                                                                                                                                                                                                     |       |                   |       |                  |       |
| Short-term  borrowings                                                                                                                                                                                                    |       | $                      | 0.4        |                  | $          | 22.7 |   |
| Current  portion of long-term debt                                                                                                                                                                                        |       | 30.5                   |       | 18.3                  |       |
| Accounts  payable                                                                                                                                                                                                         |       | 45.5                   |       | 43.3                  |       |
| Customer  advances                                                                                                                                                                                                        |       | 197.1                  |       | 199.6                 |       |
| Other  current liabilities                                                                                                                                                                                                |       | 247.5                  |       | 235.8                 |       |
| Total  current liabilities                                                                                                                                                                                                |       | 521.0                  |       | 519.7                 |       |
|                                                                                                                                                                                                                      |       |                   |       |                  |       |
| Long-term  debt                                                                                                                                                                                                           |       | 120.4                  |       | 182.8                 |       |
| Other  long-term liabilities                                                                                                                                                                                              |       | 109.3                  |       | 101.1                 |       |
| Commitments  and contingencies (Note 18)                                                                                                                                                                                  |       |                   |       |                  |       |
|                                                                                                                                                                                                                      |       |                   |       |                  |       |
| Shareholders’  equity:                                                                                                                                                                                               |       |                   |       |                  |       |
| Preferred  stock, $0.01 par value 5,000,000 shares authorized, none issued or  outstanding at September 30, 2009 and December 31, 2008                                                                          |       | —                 |       | —                |       |
| Common  stock, $0.01 par value 260,000,000 shares authorized, 164,189,513 and  164,078,721 shares issued and 164,176,558 and 164,068,252 outstanding at September 30,  2009 and December 31, 2008, respectively |       | 1.6                    |       | 1.6                   |       |
| Treasury  stock at cost, 12,955 and 10,469 at September 30, 2009 and  December 31, 2008, respectively                                                                                                           |       | (0.1                   | )          | (0.1                  | )          |
| Other  shareholders’ equity                                                                                                                                                                                          |       | 371.2                  |       | 310.4                 |       |
| Total  shareholders’ equity                                                                                                                                                                                          |       | 372.7                  |       | 311.9                 |       |
| Noncontrolling  interest in subsidiaries                                                                                                                                                                                  |       | 0.8                    |       | 0.8                   |       |
| Total  shareholders’ equity of Bruker Corporation                                                                                                                                                                    |       | 373.5                  |       | 312.7                 |       |
| Total  liabilities and shareholders’ equity                                                                                                                                                                          |       | $                      | 1,124.2    |                  | $          | 1,116.3 |   |

 

*Theaccompanying notes are an integral part of these statements.*

 

1

----

Table of Contents

 

**BRUKERCORPORATION**

**UNAUDITED CONDENSED CONSOLIDATEDSTATEMENTS OF OPERATIONS**

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

** **
| ** **                                                                           | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|--------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                           | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                                           | ** ** | **2009**               | ** ** | **2008**               | ** ** | **2009** | ** ** | **2008** | ** ** |
| Product  revenue                                                                     |       | $                      | 230.7      |                   | $          | 211.8 |   | $ | 655.8 |   | $ | 700.4 |   |
| Service  revenue                                                                     |       | 32.4                   |       | 28.8                   |       | 87.6 |   | 87.7 |   |
| Other  revenue                                                                       |       | 2.0                    |       | 1.5                    |       | 4.7 |   | 3.8 |   |
| Total  revenue                                                                       |       | 265.1                  |       | 242.1                  |       | 748.1 |   | 791.9 |   |
|                                                                                 |       |                   |       |                   |       |   |   |   |   |
| Cost  of product revenue                                                             |       | 127.9                  |       | 114.6                  |       | 364.8 |   | 382.3 |   |
| Cost  of service revenue                                                             |       | 18.0                   |       | 16.4                   |       | 50.2 |   | 54.9 |   |
| Total  cost of revenue                                                               |       | 145.9                  |       | 131.0                  |       | 415.0 |   | 437.2 |   |
| Gross  profit                                                                        |       | 119.2                  |       | 111.1                  |       | 333.1 |   | 354.7 |   |
|                                                                                 |       |                   |       |                   |       |   |   |   |   |
| Operating  expenses:                                                                 |       |                   |       |                   |       |   |   |   |   |
| Sales  and marketing                                                                 |       | 44.1                   |       | 45.2                   |       | 130.6 |   | 136.7 |   |
| General  and administrative                                                          |       | 17.5                   |       | 17.7                   |       | 50.8 |   | 51.7 |   |
| Research  and development                                                            |       | 31.6                   |       | 33.1                   |       | 91.8 |   | 100.8 |   |
| Acquisition-related  charges (credits), net                                          |       | —                 |       | —                 |       | (0.6 | ) | 6.2 |   |
| Total  operating expenses                                                            |       | 93.2                   |       | 96.0                   |       | 272.6 |   | 295.4 |   |
| Operating  income                                                                    |       | 26.0                   |       | 15.1                   |       | 60.5 |   | 59.3 |   |
|                                                                                 |       |                   |       |                   |       |   |   |   |   |
| Interest  and other income (expense), net                                            |       | (1.8                   | )          | 0.8                    |       | (4.6 | ) | (7.8 | ) |
| Income  before income taxes and noncontrolling interest in consolidated subsidiaries |       | 24.2                   |       | 15.9                   |       | 55.9 |   | 51.5 |   |
| Income  tax provision (benefit)                                                      |       | 8.1                    |       | (2.0                   | )          | 18.5 |   | 12.5 |   |
| Consolidated  net income                                                             |       | 16.1                   |       | 17.9                   |       | 37.4 |   | 39.0 |   |
| Less:  net income (loss) attributable to noncontrolling interests                    |       | (0.3                   | )          | 0.1                    |       | (0.3 | ) | 0.3 |   |
| Net  income attributable to Bruker Corporation                                       |       | $                      | 16.4       |                   | $          | 17.8 |   | $ | 37.7 |   | $ | 38.7 |   |
|                                                                                 |       |                   |       |                   |       |   |   |   |   |
| Net  income per common share attributable to Bruker Corporation shareholders:        |       |                   |       |                   |       |   |   |   |   |
| Basic                                                                                |       | $                      | 0.10       |                   | $          | 0.11 |   | $ | 0.23 |   | $ | 0.24 |   |
| Diluted                                                                              |       | $                      | 0.10       |                   | $          | 0.11 |   | $ | 0.23 |   | $ | 0.23 |   |
|                                                                                 |       |                   |       |                   |       |   |   |   |   |
| Weighted  average common shares outstanding:                                         |       |                   |       |                   |       |   |   |   |   |
| Basic                                                                                |       | 163.5                  |       | 162.8                  |       | 163.4 |   | 162.5 |   |
| Diluted                                                                              |       | 165.0                  |       | 165.9                  |       | 164.7 |   | 165.6 |   |

 

*Theaccompanying notes are an integral part of these statements.*

 

2

----

Table of Contents

 

**BRUKERCORPORATION**

**UNAUDITED CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(inmillions)**

** **
| ** **                                                                    | ** ** | **Nine Months Ended**  | ** ** |
|-------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                    | ** ** | **September 30,** | ** ** |
| ** **                                                                    | ** ** | **2009**               | ** ** | **2008** | ** ** |
| Cash  flows from operating activities:                                        |       |                   |       |   |   |
| Net  income attributable to Bruker Corporation                                |       | $                      | 37.7       |   | $ | 38.7 |   |
| Adjustments  to reconcile net income to cash flows from operating activities: |       |                   |       |   |   |
| Depreciation  and amortization                                                |       | 20.9                   |       | 22.3 |   |
| Stock-based  compensation                                                     |       | 4.8                    |       | 3.1 |   |
| Gain  on acquisition                                                          |       | (2.1                   | )          | — |   |
| Other  non-cash income                                                        |       | (6.0                   | )          | (7.2 | ) |
| Changes  in operating assets and liabilities:                                 |       |                   |       |   |   |
| Accounts  receivable                                                          |       | 26.9                   |       | 41.8 |   |
| Inventories                                                                   |       | 7.7                    |       | (35.6 | ) |
| Accounts  payable                                                             |       | 0.6                    |       | (14.7 | ) |
| Customer  advances                                                            |       | (16.6                  | )          | (26.1 | ) |
| Other  changes in operating assets and liabilities, net                       |       | (6.6                   | )          | (3.4 | ) |
| Net  cash provided by operating activities                                    |       | 67.3                   |       | 18.9 |   |
|                                                                          |       |                   |       |   |   |
| Cash  flows from investing activities:                                        |       |                   |       |   |   |
| Purchases  of property, plant and equipment                                   |       | (8.9                   | )          | (39.8 | ) |
| Redemption  of short-term investments                                         |       | —                 |       | 9.6 |   |
| Acquisitions,  net of cash acquired                                           |       | (1.6                   | )          | (4.1 | ) |
| Payments  in connection with the acquisition of Bruker BioSpin                |       | —                 |       | (6.5 | ) |
| Changes  in restricted cash                                                   |       | (0.7                   | )          | (0.2 | ) |
| Net  cash used in investing activities                                        |       | (11.2                  | )          | (41.0 | ) |
|                                                                          |       |                   |       |   |   |
| Cash  flows from financing activities:                                        |       |                   |       |   |   |
| Proceeds  from (repayments of) short-term borrowings, net                     |       | (51.5                  | )          | 3.8 |   |
| Proceeds  from (repayments of) long-term debt, net                            |       | (20.1                  | )          | 168.9 |   |
| Payment  of deferred financing costs                                          |       | —                 |       | (2.9 | ) |
| Proceeds  from issuance of common stock, net of repurchases                   |       | 0.6                    |       | 3.7 |   |
| Deemed  dividend in connection with the acquisition of Bruker BioSpin         |       | —                 |       | (386.0 | ) |
| Cash  payments to shareholders                                                |       | —                 |       | (23.4 | ) |
| Net  cash used in financing activities                                        |       | (71.0                  | )          | (235.9 | ) |
|                                                                          |       |                   |       |   |   |
| Effect  of exchange rate changes on cash and cash equivalents                 |       | (2.8                   | )          | 9.9 |   |
| Net  change in cash and cash equivalents                                      |       | (17.7                  | )          | (248.1 | ) |
| Cash  and cash equivalents at beginning of period                             |       | 166.2                  |       | 332.4 |   |
| Cash  and cash equivalents at end of period                                   |       | $                      | 148.5      |   | $ | 84.3 |   |

 

*Theaccompanying notes 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, optical emission spectroscopy andinfrared and Raman molecular spectroscopy technologies. The Company sells abroad range of field analytical systems for chemical, biological, radiological,nuclear and explosive (“CBRNE”) detection. The Company also develops and manufactureslow temperature and high temperature superconducting wire products andsuperconducting devices. The Company maintains major technical andmanufacturing centers in Europe, North America and Japan and sales officesthroughout the world. The Company’s diverse customer base includes lifescience, pharmaceutical, biotechnology and molecular diagnostic researchcompanies, academic institutions, advanced materials and semiconductorindustries and government agencies.

 

The financial statementsrepresent the consolidated accounts of the Company. All significantintercompany accounts and transactions have been eliminated in consolidation.The condensed consolidated financial statements as of and for the three andnine months ended September 30, 2009 and 2008 have been prepared inaccordance with accounting principles generally accepted in the United States (“GAAP”)for interim financial information and pursuant to the rules andregulations of the Securities and Exchange Commission for Quarterly Reports on Form 10-Qand Article 10 of Regulation S-X. Accordingly, the financial informationpresented herein does not include all of the information and footnotes requiredby GAAP for complete financial statements. In the opinion of management, alladjustments, consisting only of normal recurring adjustments, considerednecessary for a fair presentation have been included. The results for interimperiods are not necessarily indicative of the results expected for the fullyear. Certain prior year amounts have been reclassified to conform to thecurrent year presentation. These reclassifications had no effect on previouslyreported net income or shareholders’ equity.

 

In February 2008,the Company completed the acquisition of the Bruker BioSpin Group (“BrukerBioSpin”). Both the Company and Bruker BioSpin were majority owned by sixaffiliated shareholders prior to the acquisition. As a result, the acquisitionof Bruker BioSpin was considered a business combination of companies undercommon control and was accounted for at historical carrying values at the dateof the acquisition. The unaudited condensed consolidated balance sheets,statements of operations, statements of cash flows and notes to theconsolidated financial statements for all periods presented herein have beenrestated by combining the historical consolidated financial statements of theCompany with those of Bruker BioSpin. Additionally, because this transactionwas accounted for as a business combination of entities under common control,all one-time transaction costs were expensed as incurred.

 

In the second quarter of2009, the Company reevaluated its reporting segments following the acquisitionof a business engaged in developing and manufacturing superconducting devicesand other advanced technologies for alternative energy research. As a result ofthe acquisition and the corresponding changes in the Company’s organizationalstructure, management reports results on the basis of the following twosegments:

 

·                  *Scientific Instruments.*The operations ofthis segment include the design, manufacture and distribution of advancedinstrumentation and automated solutions based on X-ray technology,spark-optical emission spectroscopy technology, atomic force microscopy,magnetic resonance technology, mass spectrometry technology and infrared andRaman molecular spectroscopy technology. Typical customers of the ScientificInstruments segment include pharmaceutical, biotechnology, molecular diagnosticcompanies, academic institutions, medical schools, other non-profit organizations,clinical microbiology laboratories, government departments and agencies,nanotechnology, semiconductor, chemical, cement, metals and petroleum companiesand food, beverage and agricultural analysis companies and laboratories.

 

·                  *Energy and Supercon Technologies**.* The operations of this segment includedevelopment and production of low temperature superconductor and hightemperature superconductor wires for use in advanced magnet technology andenergy applications as well as electron and ion linear accelerators,superconducting and normal conducting accelerator cavities, insertion devices,prototype superconducting fault current limiters, 

 

4

----

Tableof Contents

 

prototype crystalgrowth magnets, other accelerator components and highly specializedmanufacturing services for physics and energy research and a variety of otherscientific applications. Typical customers of the Energy and SuperconTechnologies segment include the medical, power and energy, and processingindustries, private and public research and development laboratories in thefields of fundamental and applied sciences, energy research, biotechnology andproteomics, as well as academic institutions and government agencies.

 

Management has evaluatedsubsequent events through November 9, 2009, the date the financialstatements were filed with the Securities and Exchange Commission (“SEC”), anddetermined that there were none requiring disclosure.

 

**2.****             ****Acquisition of Bruker BioSpin**

 

On February 26,2008, the Company completed the acquisition of all of the outstanding capitalstock of Bruker BioSpin in accordance with the terms of various stock purchaseagreements dated as of December 2, 2007. The acquisition of Bruker BioSpinrepresented a combination of companies under common control due to the majorityownership of both companies by six related individuals as an affiliatedshareholder group. As a result, the acquisition of Bruker BioSpin was accountedfor at historical carrying values. The technologies of Bruker BioSpin arecomplementary to the Company’s accurate-mass electrospray time-of-flight massspectrometers and single-crystal diffraction X-ray spectrometers and havecreated revenue synergies and provided opportunities to supply customers withequipment packages that have a broader range of applications and value. Theaddition of Bruker BioSpin has also enhanced the Company’s worldwidedistribution and sales and service infrastructure.

 

At the completion of thisacquisition, 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,$351.0 million of cash obtained under a new credit facility and thebalance with cash on hand. The value of the shares of common stock issued inconnection with the merger was determined using a trailing average of theclosing market prices of the Company’s stock for a period of ten consecutivetrading days ending two days prior to the signing of the various stock purchaseagreements.

 

Under the stock purchaseagreements, $98.8 million of the purchase price was paid into escrowaccounts pending the resolution of indemnification obligations and workingcapital obligations of the sellers. In May 2008, $6.8 million of theescrow was released following the receipt of combined audited financialstatements of Bruker BioSpin for the year ended December 31, 2007. In April 2009,the remaining $92.0 million of the escrow was released following thereceipt of audited financial statements of the Company, including BrukerBioSpin, for the year ended December 31, 2008.

 

**3.****             ****Other Acquisitions**

 

In April 2009, theCompany acquired substantially all of the assets of the research instrumentsportion of ACCEL Instruments GmbH (the “RI business”) from Varian MedicalSystems, Inc. The acquisition of the RI business was accounted for underthe acquisition method in accordance with Financial Accounting Standards Board(“FASB”) Accounting Standards Codification (“Codification”) Topic No. 805,*Business Combinations*. The RI business,located in Bergisch Gladbach, Germany, consists of the development andmanufacture of electron and ion linear accelerators, superconducting and normalconducting accelerator cavities, insertion devices, superconducting faultcurrent limiters, other accelerator components and specialty superconductingmagnets for physics and energy research and a variety of other scientificapplications. The consideration transferred in acquiring the RI business wasapproximately $0.4 million and consisted entirely of cash. The Company acquiredapproximately $1.6 million of receivables, $4.4 million of inventory, $2.9 millionof other current assets and $4.9 million of property, plant and equipment inthis acquisition and assumed approximately $11.3 million of currentliabilities. In connection with the acquisition of the RI business, the Companyrecorded a gain of approximately $2.1 million that has been recorded as acomponent of acquisition-related charges (credits), net in the unauditedcondensed consolidated statements of operations. The results of the RI businesshave been included in the Energy and Supercon Technologies segment from thedate of acquisition. Pro forma financial information reflecting the acquisitionof the RI business has not been presented because the impact on revenues, netincome and net income per common share attributable to Bruker Corporation shareholdersis not material.

 

5

----

Tableof Contents

 

In August 2008, theCompany acquired S.I.S. Surface Imaging Systems GmbH (“S.I.S.”), aprivately-held company located in Herzogenrath, Germany. The acquisition ofS.I.S. was accounted for under the purchase method. S.I.S. develops,manufactures and distributes advanced atomic force/scanning probe microscopyfor applications in materials research, including semiconductors, data storage,electronic materials, solar cells, polymers and catalysts. The results ofS.I.S. have been included in the Scientific Instruments segment from the dateof acquisition. The aggregate purchase price of S.I.S. was $2.1 million.In addition, the Company issued an aggregate of 59,342 restricted unregisteredshares of the Company’s common stock, par value $0.01 per share, to certainS.I.S. shareholders. These shares were not included in the purchase pricebecause of contingencies related to the continuing employment of theshareholders and, accordingly, are being recorded as compensation expense. TheCompany recorded $2.1 million of goodwill in connection with theacquisition of S.I.S. and assigned the goodwill to the Scientific Instrumentssegment. Pro forma financial information reflecting the acquisition of S.I.S.has not been presented because the impact on revenues, net income and netincome per common share attributable to Bruker Corporation shareholders was notmaterial.

 

In January 2008, theCompany acquired JUWE Laborgeraete GmbH (“JUWE”), a privately-held companylocated in Viersen, Germany. The acquisition of JUWE was accounted for underthe purchase method. 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 Scientific Instruments segment from the date of acquisition. Theaggregate purchase price of JUWE was $1.6 million, of which$1.2 million was paid in cash and $0.4 million consisted of netliabilities assumed by the Company. In addition, the Company issued anaggregate of 111,000 restricted unregistered shares of the Company’s commonstock, par value $0.01 per share, to JUWE’s shareholders. These shares were notincluded in the purchase price because of contingencies related to thecontinuing employment of the shareholders and, accordingly, are being recordedas compensation expense. The Company recorded $1.1 million of goodwill inconnection with the acquisition of JUWE and assigned the goodwill to theScientific Instruments segment. Pro forma financial information reflecting theacquisition of JUWE has not been presented because the impact on revenues, netincome and net income per common share attributable to Bruker Corporationshareholders was not material.

 

**4.****             ****Stock-Based Compensation**

 

In February 2008,the Company’s shareholders approved an amendment and restatement of the BrukerBioSciences Corporation Amended and Restated 2000 Stock Option Plan to increasethe number of shares available by 2,000,000 shares, to a total of 10,000,000shares.

 

As of September 30,2009, the Company’s primary types of share-based compensation were in the formof stock options and restricted stock. The Company recorded stock-basedcompensation expense for the three and nine months ended September 30,2009 and 2008 as follows (in millions):

 
| ** **                                  | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|---------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| ** **                                  | ** ** | **2009**                                  | ** ** | **2008**                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| Stock  options                              |       | $                                         | 1.2        |                                     | $          | 1.2 |   | $ | 3.7 |   | $ | 2.7 |   |
| Restricted  stock                           |       | 0.3                                       |       | 0.1                                      |       | 1.1 |   | 0.4 |   |
| Total  stock-based compensation, pre-tax    |       | 1.5                                       |       | 1.3                                      |       | 4.8 |   | 3.1 |   |
| Tax  benefit                                |       | 0.3                                       |       | 0.2                                      |       | 0.9 |   | 0.6 |   |
| Total  stock-based compensation, net of tax |       | $                                         | 1.2        |                                     | $          | 1.1 |   | $ | 3.9 |   | $ | 2.5 |   |

 

Compensation expense isamortized on a straight-line basis over the underlying vesting terms. Stockoptions of the Company’s common stock are periodically awarded to executiveofficers and other employees of the Company subject to a vesting period ofthree to five years. The fair value of each option award is estimated on thedate of grant using the Black-Scholes option-pricing model. Assumptions regardingvolatility, expected life, dividend yield and risk-free interest rate arerequired for the Black-Scholes model and are presented in the table below:

 

6

----

Tableof Contents

 
| ** **               | ** ** | **2009**    | ** ** | **2008**    | ** ** |
|--------------------------|------------|-------------|------------|-------------|------------|
| Risk-free  interest rate |       | 1.71%-3.60% |       | 2.71%-3.95% |       |
| Expected  life           |       | 6.5 years   |       | 6.5 years   |       |
| Volatility               |       | 64.0%       |       | 72.0%       |       |
| Expected  dividend yield |       | 0.0%        |       | 0.0%        |       |

 

Risk-free interest rateis the yield on zero-coupon U.S. Treasury securities for a period that iscommensurate with the expected life assumption. Expected life is determinedthrough the simplified method as defined in the Securities and ExchangeCommission Staff Accounting Bulletin No. 110. The Company believes thatthis is the best estimate of the expected life of a new option. Expectedvolatility can be based on a number of factors but the Company currentlybelieves that the exclusive use of historical volatility results in the bestestimate of the grant-date fair value of employee stock options because itreflects the market’s current expectations of future volatility. Expecteddividend yield was not considered in the option pricing formula since theCompany does not pay dividends and has no current plans to do so in the future.The terms of some of the Company’s indebtedness also currently restricts itsability to pay dividends to its shareholders.

 

Stock option activity forthe nine months ended September 30, 2009 was as follows:

 
| ** **                                                       | ** ** | **Shares Subject  to Options** | ** ** | **Weighted  Average  Option Price** | ** ** | **Weighted  Average  Remaining  Contractual  Term (Yrs)** | ** ** | **Aggregate  Intrinsic Value  ($’s in millions)** | ** ** |
|------------------------------------------------------------------|------------|--------------------------------|------------|-------------------------------------|------------|-----------------------------------------------------------|------------|--------------------------------------------------------|------------|
| Outstanding  at December 31, 2008                           |       | 5,268,523                      |       | $                                   | 8.56       |                                                      |       |                                                   |       |   |
| Granted                                                          |       | 51,000                         |       | 4.33                                |       |                                                      |       |                                                   |       |
| Exercised                                                        |       | (110,990                       | )          | 5.02                                |       |                                                      |       |                                                   |       |
| Forfeited                                                        |       | (64,541                        | )          | 9.08                                |       |                                                      |       |                                                   |       |
| Outstanding  at September 30, 2009                          |       | 5,143,992                      |       | $                                   | 8.59       |                                                      | 3.8        |                                                   | $          | 14.4 |   |
|                                                             |       |                           |       |                                |       |                                                      |       |                                                   |       |
| Exercisable  at September 30, 2009                          |       | 2,839,587                      |       | $                                   | 7.60       |                                                      | 3.8        |                                                   | $          | 10.6 |   |
|                                                             |       |                           |       |                                |       |                                                      |       |                                                   |       |
| Exercisable  and expected to vest at September 30, 2009 (a) |       | 5,010,337                      |       | $                                   | 8.56       |                                                      | 3.8        |                                                   | $          | 14.2 |   |

 

----

(a) In addition to the options that areexercisable as of September 30, 2009, the Company expects a portion of theunvested options to become exercisable in the future. Options expected to vestare determined by applying an estimated forfeiture rate to the unvestedoptions.

 

Unrecognized pre-taxstock-based compensation expense of $13.7 million related to stock optionawards is expected to be recognized over the weighted average remaining serviceperiod of 2.6 years for stock options outstanding at September 30,2009. The intrinsic values above are based on the Company’s closing stock priceof $10.67 on September 30, 2009.

 

Restricted shares of theCompany’s common stock are periodically awarded to executive officers, directorsand certain key employees of the Company, subject to service restrictions,which expire ratably over periods of three to five years. The restricted sharesof common stock may not be sold or transferred during the restriction period.Stock compensation for restricted stock is recorded based on the stock price onthe grant date and charged to expense ratably through the restriction period.The following table summarizes information about restricted stock activityduring the nine months ended September 30, 2009:

 

7

----

Tableof Contents

 
| ** **                              | ** ** | **Shares Subject  to Restriction** | ** ** | **Weighted  Average Grant  Date Fair  Value** | ** ** |
|-----------------------------------------|------------|------------------------------------|------------|-----------------------------------------------|------------|
| Outstanding  at December 31, 2008  |       | 591,675                            |       | $                                             | 7.26       |   |
| Granted                                 |       | —                             |       | —                                        |       |
| Vested                                  |       | (151,911                           | )          | 6.08                                          |       |
| Forfeited                               |       | (940                               | )          | 5.00                                          |       |
| Outstanding  at September 30, 2009 |       | 438,824                            |       | $                                             | 7.67       |   |

 

Unrecognized pre-taxstock-based compensation expense of $2.8 million related to restrictedstock awards is expected to be recognized over the weighted average remainingservice period of 1.7 years for restricted stock awards outstanding at September 30,2009.

 

**5.****             ****Earnings Per Share**

 

Net income per share iscalculated by dividing net income by the weighted-average shares outstandingduring the period. The diluted net income per share computation includes theeffect of shares, which would be issuable upon the exercise of outstandingstock options and the vesting of restricted stock, 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 nine months ended September 30, 2009 and 2008 (in millions,except per share amounts):

 
| ** **                                                                    | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|-------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                    | ** ** | **2009**                                                 | ** ** | **2008**                                                | ** ** | **2009** | ** ** | **2008** | ** ** |
| Net  income attributable to Bruker****Corporation,  as reported               | ** ** | $                                                        | 16.4       | ** **                                              | $          | 17.8 | ** ** | $ | 37.7 | ** ** | $ | 38.7 | ** ** |
|                                                                          |       |                                                     |       |                                                    |       |   |   |   |   |
| Weighted  average shares outstanding:                                         |       |                                                     |       |                                                    |       |   |   |   |   |
| Weighted  average shares outstanding-basic                                    |       | 163.5                                                    |       | 162.8                                                   |       | 163.4 |   | 162.5 |   |
| Effect  of dilutive securities:                                               |       |                                                     |       |                                                    |       |   |   |   |   |
| Stock  options and restricted stock                                           |       | 1.5                                                      |       | 3.1                                                     |       | 1.3 |   | 3.1 |   |
| Weighted  average shares outstanding - diluted                                |       | 165.0                                                    |       | 165.9                                                   |       | 164.7 |   | 165.6 |   |
|                                                                          |       |                                                     |       |                                                    |       |   |   |   |   |
| Net  income per common share attributable to Bruker Corporation shareholders: |       |                                                     |       |                                                    |       |   |   |   |   |
| Basic                                                                         |       | $                                                        | 0.10       |                                                    | $          | 0.11 |   | $ | 0.23 |   | $ | 0.24 |   |
| Diluted                                                                       |       | $                                                        | 0.10       |                                                    | $          | 0.11 |   | $ | 0.23 |   | $ | 0.23 |   |

 

Stock options to purchaseapproximately 2.1 million shares and 0.1 million shares were excluded from thecomputation of diluted earnings per share in the three months ended September 30,2009 and 2008, respectively, and approximately 3.3 million shares and 0.4million shares were excluded from the computation of diluted earnings per sharein the nine months ended September 30, 2009 and 2008, respectively,because the exercise price of the stock options exceeded the average marketprice of the Company’s common stock and, as a result, would have had ananti-dilutive effect.

 

**6.****             ****Fair Value of FinancialInstruments**

 

The Company followsCodification Topic No. 820,*Fair ValueMeasurements and Disclosures*, which establishes a three-levelvaluation hierarchy for measuring fair value and expands financial statementdisclosures about fair value measurements. The valuation hierarchy is basedupon the transparency of inputs to the valuation of an asset or liability as ofthe measurement date. A financial instrument’s characterization within thevaluation hierarchy is based upon the lowest level of input that is significantto the fair value measurement. The three levels are defined as follows:

 

8

----

Tableof Contents

 

*Level 1:*    Inputs to thevaluation methodology are quoted prices (unadjusted) for identical assets orliabilities in active markets.

 

*Level 2:*    Inputs to thevaluation methodology include quoted prices for similar assets and liabilitiesin active markets, and inputs that are observable for the asset or liability,either directly or indirectly, for substantially the full term of the financialinstrument.

 

*Level 3:*    Inputs to thevaluation methodology are unobservable and significant to the fair valuemeasurement.

 

The Company measures thefollowing financial assets and liabilities at fair value on a recurring basis.The fair value of these financial assets and liabilities was determined using thefollowing inputs at September 30, 2009 (in millions):

 
| ** **                                               | ** ** | **Total** | ** ** | **Quoted Prices in  Active Markets  Available (Level 1)** | ** ** | **Significant Other  Observable  Inputs (Level 2)** | ** ** | **Significant  Unobservable  Inputs (Level 3)** | ** ** |
|----------------------------------------------------------|------------|-----------|------------|-----------------------------------------------------------|------------|-----------------------------------------------------|------------|-------------------------------------------------|------------|
| Assets:                                                  |       |      |       |                                                      |       |                                                |       |                                            |       |
| Cash  equivalents                                        |       | $         | 46.2       |                                                      | $          | 46.2                                                |       | $                                               | —     |   | $ | — |   |
| Restricted  cash                                         |       | 2.0       |       | 2.0                                                       |       | —                                              |       | —                                          |       |
| Long-term  restricted cash                               |       | 2.1       |       | 2.1                                                       |       | —                                              |       | —                                          |       |
| Foreign  exchange contracts                              |       | 0.1       |       | —                                                    |       | 0.1                                                 |       | —                                          |       |
| Total  assets recorded at fair value                     |       | $         | 50.4       |                                                      | $          | 50.3                                                |       | $                                               | 0.1        |   | $ | — |   |
|                                                     |       |      |       |                                                      |       |                                                |       |                                            |       |
| Liabilities:                                             |       |      |       |                                                      |       |                                                |       |                                            |       |
| Interest  rate swap                                      |       | $         | 4.0        |                                                      | $          | —                                              |       | $                                               | 4.0        |   | $ | — |   |
| Embedded  derivatives in purchase and delivery contracts |       | 2.3       |       | —                                                    |       | 2.3                                                 |       | —                                          |       |
| Foreign  exchange contracts                              |       | 1.1       |       | —                                                    |       | 1.1                                                 |       | —                                          |       |
| Total  liabilities recorded at fair value                |       | $         | 7.4        |                                                      | $          | —                                              |       | $                                               | 7.4        |   | $ | — |   |

 

The Company’s financialinstruments consist primarily of cash equivalents, restricted cash, accountsreceivable, short-term borrowings, accounts payable and long-term debt. Thecarrying amounts of the Company’s cash equivalents, restricted cash, accountsreceivable, short-term borrowings and accounts payable approximate fair valuedue to their short-term nature. The Company’s long-term debt consists primarilyof variable rate arrangements with interest rates that reset every three monthsand, as a result, reflect current interest rates. Consequently, the carryingvalue of the Company’s long-term debt approximates fair value.

 

**7.****             ****Inventories**

 

Inventories consisted ofthe following as of September 30, 2009 and December 31, 2008 (inmillions):

 
| ** **           | ** ** | **September 30,  2009** | ** ** | **December 31,  2008** | ** ** |
|----------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **           | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| Raw  materials       |       | $                            | 121.1      |                        | $          | 115.8 |   |
| Work-in-process      |       | 143.6                        |       | 129.6                       |       |
| Demonstration  units |       | 41.7                         |       | 36.7                        |       |
| Finished  goods      |       | 137.2                        |       | 143.0                       |       |
| Inventories          |       | $                            | 443.6      |                        | $          | 425.1 |   |

 

The Company reduces thecarrying value of its demonstration inventories for differences between itscost and estimated net realizable value through a charge to cost of revenuethat is based on a number of factors including, the age of the unit, thephysical condition of the unit and an assessment of technological obsolescence.Amounts recorded in cost of product revenue related to the write-down ofdemonstration units to net realizable value were $7.0 million and $5.8 millionfor the three months ended September 30, 2009 and 2008, respectively, and$18.9 million and $18.5 million for the nine months ended September 30,2009 and 2008, respectively.

 

9

----

Table of Contents

 

Finished goods includein-transit systems that have been shipped to the Company’s customers but havenot yet been installed and accepted by the customer. As of September 30,2009 and December 31, 2008, inventory-in-transit was $81.4 million and$91.6 million, respectively.

 

**8.****             ****Goodwill and Other IntangibleAssets**

 

The following table setsforth the changes in the carrying amount of goodwill for the nine months ended September 30,2009 (in millions):

 
| Balance  at December 31, 2008   |   | $   | 46.4   |   |
|--------------------------------------|--------|-----|--------|--------|
| Goodwill  acquired during the period |   | 0.3 |   |
| Foreign  currency impact             |   | 1.2 |   |
| Balance  at September 30, 2009  |   | $   | 47.9   |   |

 

The Company accounts forgoodwill and other intangible assets in accordance with Codification Topic No. 350,*Intangibles—Goodwill and Other*.Codification Topic No. 350 requires that goodwill and intangible assetswith indefinite useful lives not be amortized. Instead, these assets are testedfor impairment on a reporting unit basis annually, or on an interim basis whenevents or changes in circumstances warrant. The Company performed its annualtest for impairment as of December 31, 2008 and determined that goodwilland other intangible assets were not impaired at that time. The Company did notidentify any indicators of impairment during the three and nine month periodsended September 30, 2009.

 

The following is asummary of other intangible assets subject to amortization at September 30,2009 and December 31, 2008 (in millions):

 
| ** **                               | ** ** | **September 30, 2009** | ** ** | **December 31, 2008** | ** ** |
|------------------------------------------|------------|-----------------------------|------------|----------------------------|------------|
| ** **                               | ** ** | **Gross**                   | ** ** | ** **                 | ** ** | **Net** | ** ** | **Gross** | ** ** | ** ** | ** ** | **Net** | ** ** |
| ** **                               | ** ** | **Carrying**                | ** ** | **Accumulated**            | ** ** | **Carrying** | ** ** | **Carrying** | ** ** | **Accumulated** | ** ** | **Carrying** | ** ** |
| ** **                               | ** ** | **Amount**                  | ** ** | **Amortization**           | ** ** | **Amount** | ** ** | **Amount** | ** ** | **Amortization** | ** ** | **Amount** | ** ** |
| Existing  technology and related patents |       | $                           | 14.6       |                       | $          | (10.6 | ) | $ | 4.0 |   | $ | 14.1 |   | $ | (9.2 | ) | $ | 4.9 |   |
| Customer  relationships                  |       | 2.0                         |       | (0.8                       | )          | 1.2 |   | 1.6 |   | (0.6 | ) | 1.0 |   |
| Trade  names                             |       | 0.4                         |       | (0.3                       | )          | 0.1 |   | 0.4 |   | (0.3 | ) | 0.1 |   |
| Total  amortizable intangible assets     |       | $                           | 17.0       |                       | $          | (11.7 | ) | $ | 5.3 |   | $ | 16.1 |   | $ | (10.1 | ) | $ | 6.0 |   |

 

For the three monthsended September 30, 2009 and 2008, the Company recorded amortizationexpense of $0.4 million and $0.4 million, respectively, related to intangibleassets subject to amortization. For the nine months ended September 30,2009 and 2008, the Company recorded amortization expense of $1.3 million and$1.2 million, respectively, related to intangible assets subject toamortization.

 

The estimated futureamortization expense related to other intangible assets is as follows (inmillions):

 
| 2009  (a)  |   | $   | 0.5    |   |
|------------|--------|-----|--------|--------|
| 2010       |   | 1.8 |   |
| 2011       |   | 1.1 |   |
| 2012       |   | 0.6 |   |
| 2013       |   | 0.5 |   |
| Thereafter |   | 0.8 |   |
| Total      |   | $   | 5.3    |   |

 

----

(a) Amount represents estimated amortizationexpense for the remaining three months ending December 31, 2009.

 

**9.****             ****Debt**

 

At September 30,2009 and December 31, 2008, the Company’s debt obligations consisted ofthe following (in millions):

 

10

----

Tableof Contents

 
| ** **                                                                                                                                                                                                                                       | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                       | ** ** | **2009**               | ** ** | **2008**              | ** ** |
| US  Dollar term loan under the Credit Agreement                                                                                                                                                                                                  |       | $                      | 135.0      |                  | $          | 144.4 |   |
|                                                                                                                                                                                                                                             |       |                   |       |                  |       |
| US  Dollar revolving loan under the Credit Agreement                                                                                                                                                                                             |       | 8.5                    |       | 35.6                  |       |
|                                                                                                                                                                                                                                             |       |                   |       |                  |       |
| Euro  mortgage loan at six month European Interbank Offered Rate plus 1.00%, 2.69%  at September 30, 2009 collateralized by a building of Bruker AXS GmbH, biannual  principal and interest payments due and payable through 2012           |       | 2.0                    |       | 2.2                   |       |
|                                                                                                                                                                                                                                             |       |                   |       |                  |       |
| Euro  bank loans at fixed rates of 4.65% and 8.01%,   respectively, collateralized by accounts receivable of certain  subsidiaries of Bruker AXS, biannual principal payments and quarterly  interest payments due and payable through 2013 |       | —                 |       | 0.3                   |       |
|                                                                                                                                                                                                                                             |       |                   |       |                  |       |
| Euro  bank loans at fixed rate of 2.95%, collateralized by land and buildings of  Bruker Daltonik GmbH, quarterly principal payments and monthly interest payments  due and payable through 2010                                                 |       | 0.5                    |       | 1.0                   |       |
|                                                                                                                                                                                                                                             |       |                   |       |                  |       |
| Euro  bank loans at fixed rate of 5.01%, collateralized by land and buildings of  Bruker Optik GmbH, biannual principal payments and monthly interest payments  due and payable through 2013                                                     |       | —                 |       | 10.7                  |       |
|                                                                                                                                                                                                                                             |       |                   |       |                  |       |
| Japanese  Yen bank loan at fixed rate of 2.03%, uncollateralized, quarterly principal  and interest payments due and payable through 2011                                                                                                        |       | —                 |       | 1.6                   |       |
|                                                                                                                                                                                                                                             |       |                   |       |                  |       |
| Capital  lease obligations                                                                                                                                                                                                                       |       | 4.9                    |       | 5.3                   |       |
| Total  long-term debt                                                                                                                                                                                                                            |       | 150.9                  |       | 201.1                 |       |
| Current  portion of long-term debt                                                                                                                                                                                                               |       | (30.5                  | )          | (18.3                 | )          |
| Total  long-term debt, less current portion                                                                                                                                                                                                      |       | $                      | 120.4      |                  | $          | 182.8 |   |

 

In connection with theacquisition of Bruker BioSpin, the Company entered into a credit agreement witha syndication of lenders (the “Credit Agreement”), which provides for arevolving credit line with a maximum commitment of $230.0 million and aterm facility of $150.0 million. The outstanding principal and interestunder the term loan is payable in quarterly installments through December 2012.Borrowings under the Credit Agreement bear interest, at the Company’s option,at either (i) the higher of the prime rate or the federal funds rate plus0.50%, 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 of September 30, 2009,the weighted average interest rate of borrowings under the term facility of theCredit Agreement was approximately 2.7%.

 

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 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.

 

11

----

Tableof Contents

 

In addition, at September 30,2009 and December 31, 2008, the Company had the following amounts outstandingunder revolving loan arrangements (in millions):

 
| ** **                                       | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **2009**               | ** ** | **2008**              | ** ** |
| Euro  revolving loans under the Credit Agreement |       | $                      | —     |                  | $          | 16.5 |   |
| Other  revolving loans                           |       | 0.4                    |       | 6.2                   |       |
| Total  short-term borrowings                     |       | $                      | 0.4        |                  | $          | 22.7 |   |

 

The following is asummary of the maximum commitments and net amounts available to the Companyunder revolving loans as of September 30, 2009 (in millions):

 
| ** **             | ** ** | **Weighted  Average  Interest Rate** | ** ** | **Total Amount  Committed by  Lenders** | ** ** | **Outstanding  Borrowings** | ** ** | **Outstanding  Letters of  Credit** | ** ** | **Total Amount  Available** | ** ** |
|------------------------|------------|--------------------------------------|------------|-----------------------------------------|------------|-----------------------------|------------|-------------------------------------|------------|-----------------------------|------------|
| Credit  Agreement      |       | 1.0                                  | %          | $                                       | 230.0      |                        | $          | 8.5                                 |       | $                           | 1.4        |   | $ | 220.1 |   |
| Other  revolving loans |       | 4.9                                  | %          | 81.0                                    |       | 0.4                         |       | 59.9                                |       | 20.7                        |       |
| Total  revolving loans |       | 1.1                                  | %          | $                                       | 311.0      |                        | $          | 8.9                                 |       | $                           | 61.3       |   | $ | 240.8 |   |

 

Other revolving loans arewith various financial institutions located primarily in Germany, Switzerlandand France. The Company’s other revolving lines of credit typically are dueupon demand with interest payable monthly. Certain of these lines of credit areunsecured while others are secured by the accounts receivable and inventory ofthe related subsidiary.

 

**10.****      ****Derivative Instruments and Hedging Activities**

 

The Company accounts forderivative financial instruments in accordance with Codification Topic No. 815,*Derivatives and Hedging*. Allderivatives, whether designated as hedging relations or not, are recorded onthe unaudited condensed consolidated balance sheets at fair value. Theaccounting for changes in fair value of a derivative instrument depends onwhether it has been designated and qualifies as part of a hedging relationshipand further, on the type of hedging relationship. For those derivativeinstruments that are designated and qualify as hedging instruments, the Companymust designate the hedging instrument, based on the exposure being hedged, as afair value hedge, cash flow hedge or a hedge of a net investment in a foreignoperation.

 

A fair value hedge is aderivative instrument designated for the purpose of hedging the exposure ofchanges in fair value of an asset or a liability resulting from a particularrisk. If the derivative is designated as a fair value hedge, the changes in thefair value of the derivative and of the hedged item attributable to the hedgedrisk are both recognized in the same caption in the unaudited condensedconsolidated statements of operations. A cash flow hedge is a derivativeinstrument designated for the purpose of hedging the exposure to variability infuture cash flows resulting from a particular risk. If the derivative isdesignated as a cash flow hedge, the effective portions of changes in the fairvalue of the derivative are recorded in accumulated other comprehensive incomeand are recognized in the results of operations when the hedged item affectsearnings. Ineffective portions of changes in the fair value of cash flow hedgesare recognized in the results of operations. A hedge of a net investment in aforeign operation is designated for the purpose of hedging the exposure ofchanges in value of investments in foreign subsidiaries. If the derivative isdesignated as a hedge of a net investment in a foreign operation, the effectiveportions of changes in the fair value of the derivative are recorded in othercomprehensive income as a part of the currency translation adjustment.Ineffective portions of net investment hedges are recognized in the results ofoperations. For derivative instruments not designated as hedging instruments,changes in fair value are recognized in the results of operations in thecurrent period.

 

The Company is exposed tocertain market risks associated with its ongoing business operations. Theprimary risks that are managed by using derivative instruments are associatedwith changes in interest rates and foreign exchange rates.

 

The Company’s exposure tointerest rate risk relates primarily to outstanding variable-rate debt andadverse movements in the related short-term market rates. The most significantcomponent of the Company’s interest rate 

 

12

----

Tableof Contents

 

risk relates to theamounts outstanding under the Credit Agreement. In April 2008, the Companyentered into an interest rate swap arrangement to manage its exposure tointerest rate movements and the related effect on its variable rate debt. Underthis interest rate swap arrangement, the Company pays a fixed rate ofapproximately 3.8% and receives a variable rate based on three month LIBOR. Theinterest rate swap agreement utilized by the Company effectively modifies theCompany’s exposure to interest rate risk by converting a portion of the Company’svariable rate debt to a fixed rate for the term of the Credit Agreement. Theinitial notional amount of this interest rate swap was $90.0 million andit amortizes in proportion to the term debt component of the Credit Agreementthrough December 2012. At September 30, 2009, the notional amount ofthis interest rate swap was $81.0 million. The Company concluded that thisswap met the criteria to qualify as an effective hedge of the variability ofcash flows of the interest payments and accounts for the hedge as a cash flowhedge under Codification Topic No. 815. Accordingly, the Company reflectschanges in the fair value of this interest rate swap in accumulated othercomprehensive income, a component of shareholders’ equity. The Company expects$2.5 million of the accumulated loss to be reclassified into earnings over thenext twelve months.

 

The Company periodicallyenters into foreign currency contracts in order to minimize the volatility thatfluctuations in currency exchange rates have on the Company’s cash flowsrelated to purchases and sales denominated in foreign currencies. Under thesearrangements, the Company typically agrees to purchase a fixed amount of aforeign currency in exchange for a fixed amount of U.S. Dollars or othercurrencies on specified dates with maturities of less than twelve months. At September 30,2009, the Company had outstanding forward contracts with a notional amount of$29.5 million for sales and purchases of Swiss Francs and Euros, respectively.These transactions do not qualify for hedge accounting under Codification TopicNo. 815 and, accordingly, the instrument is recorded at fair value withthe corresponding gains and losses recorded in the unaudited condensedconsolidated statements of operations.

 

The Company enters intocontracts for the purchase of goods and the sale of the Company’s products thatare denominated in currencies other than the functional currency of the partiesto the transaction. In accordance with Codification Topic No. 815, theCompany accounts for these transactions separately, valuing the “embeddedderivative” component of these contracts. At September 30, 2009, contractsdenominated in currencies other than the functional currency of the transactingparties amounted to $47.7 million for the delivery of products and$3.3 million for the purchase of products. At December 31, 2008,contracts denominated in currencies other than the functional currency of thetransacting parties amounted to $44.2 million for the delivery of productsand $5.4 million for the purchase of products.

 

The fair values ofderivative instruments in our unaudited condensed consolidated financialstatements as of September 30, 2009 and December 31, 2008 are asfollows (in millions):

 
| ** **                   | ** ** | ** **                 | ** ** | **Fair Value**               | ** ** |
|------------------------------|------------|----------------------------|------------|------------------------------|------------|
| ** **                   | ** ** | **Balance Sheet Location** | ** ** | **September 30,  2009** | ** ** | **December 31,  2008** | ** ** |
| Derivative  assets:          |       |                       |       |                         |       |   |   |
| Foreign  exchange contracts  |       | Other current  assets      |       | $                            | 0.1        |   | $ | — |   |
|                         |       |                       |       |                         |       |   |   |
| Derivative  liabilities:     |       |                       |       |                         |       |   |   |
| Interest  rate swap contract |       | Other current  liabilities |       | $                            | 4.0        |   | $ | 4.8 |   |
| Embedded  derivatives        |       | Other current  liabilities |       | 2.3                          |       | 2.2 |   |
| Foreign  exchange contracts  |       | Other current  liabilities |       | 1.1                          |       | — |   |

 

The losses recognized inother comprehensive income related to the effective portion of derivativeinstruments designated as hedging instruments for the three and nine monthsended September 30, 2009 and 2008 are as follows (in millions):

 
| ** **                   | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| ** **                   | ** ** | **2009**                                  | ** ** | **2008**                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| Interest  rate swap contract |       | $                                         | (1.0       | )                                        | $          | (0.6 | ) | $ | (0.9 | ) | $ | (0.5 | ) |
|                              |            |                                           |            |                                          |            |  |  |  |  |  |  |  |  |

 

13

----

Tableof Contents

 

The losses recognized innet income related to derivative instruments designated as hedging instrumentsthat were reclassified from accumulated other comprehensive income for thethree and nine months ended September 30, 2009 and 2008 are as follows (inmillions):

 
| ** **                   | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| ** **                   | ** ** | **2009**                                  | ** ** | **2008**                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| Interest  rate swap contract |       | $                                         | (0.7       | )                                        | $          | (0.3 | ) | $ | (1.8 | ) | $ | (0.4 | ) |
|                              |            |                                           |            |                                          |            |  |  |  |  |  |  |  |  |

 

The Company did notrecognize any amounts related to ineffectiveness in the unaudited condensed consolidatedstatements of operations during the three or nine months ended September 30,2009 and 2008.

 

The impact of changes inthe fair value of derivative instruments not designated as hedging instrumentson net income are as follows (in millions):

 
| ** **                  | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|-----------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| ** **                  | ** ** | **2009**                                  | ** ** | **2008**                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| Foreign  exchange contracts |       | $                                         | (1.0       | )                                        | $          | — |   | $ | (1.0 | ) | $ | (0.6 | ) |
| Embedded  derivatives       |       | (0.7                                      | )          | 1.0                                      |       | (0.1 | ) | 1.0 |   |
| Income  (expense), net      |       | $                                         | (1.7       | )                                        | $          | 1.0 |   | $ | (1.1 | ) | $ | 0.4 |   |

 

The amounts recorded inthe unaudited condensed consolidated statements of operations related toderivative instruments not designated as hedging instruments are recorded ininterest and other income (expense), net.

 

**11.****      ****Restructuring Activities**

 

In the fourth quarter of2008, the Company recorded restructuring charges of $2.3 million, whichconsisted primarily of severance costs associated with a restructuring ofcertain operations in the Netherlands (the “Netherlands Program”). The restructuringcharges associated with the Netherlands Program were allocated to theScientific Instruments segment. Approximately $2.2 million of therestructuring charges related to an involuntary severance program under whichapproximately 30 employees have left the Company and the balance related toexit costs associated with terminating certain leases. In the nine months endedSeptember 30, 2009, the Company recorded an additional $0.2 million of net restructuringcharges related to the involuntary severance component of the NetherlandsProgram. The impact of the Netherlands Program reduced the number of employeesin sales and marketing and research and development and consolidated theselling and developments efforts of the Company’s single crystal diffraction products.The Company does not expect to incur any additional costs related to theNetherlands Program and expects to have made all of the severance payments bythe end of 2009. The liability for restructuring charges is recorded in othercurrent liabilities in the unaudited condensed consolidated balance sheets. Thereserves related to this program are as follows (in millions):

 
| ** **                                 | ** ** | **Total** | ** ** | **Severance** | ** ** | **Exit Costs** | ** ** |
|--------------------------------------------|------------|-----------|------------|---------------|------------|----------------|------------|
| Balance  at December 31, 2008         |       | $         | 2.3        |          | $          | 2.2            |       | $ | 0.1 |   |
| Restructuring  charges                     |       | 0.3       |       | 0.3           |       | —         |       |
| Reversal  of accrued restructuring charges |       | (0.1      | )          | (0.1          | )          | —         |       |
| Cash  payments                             |       | (2.3      | )          | (2.2          | )          | (0.1           | )          |
| Foreign  currency impact                   |       | 0.1       |       | 0.1           |       | —         |       |
| Balance  at September 30, 2009        |       | $         | 0.3        |          | $          | 0.3            |       | $ | — |   |

 

**12.****      ****Impairment Charges**

 

In the second quarter of2009, the Company recorded an impairment charge of $0.7 million, whichconsisted of equipment used in the production of certain superconducting wire.The impairment loss was recorded because the Company determined that thecarrying value of the assets exceeded their fair value based on the estimatedundiscounted operating cash flows generated by those assets. The impairmentcharge was allocated to the Energy and Supercon Technologies segment and hasbeen recorded as a component of acquisition-related charges in the unauditedcondensed consolidated statements of operations.

 

14

----

Tableof Contents

 

**13.****      ****Employee Benefit Plans**

 

Substantially all of theCompany’s employees in Switzerland, France and Japan, as well as certainemployees in Germany, are covered by Company-sponsored defined benefit pensionplans. Retirement benefits are generally earned based on years of service andcompensation during active employment. Eligibility is generally determined inaccordance with local statutory requirements; however, the level of benefitsand terms of vesting varies among plans.

 

The net periodic pensioncost consists of the following components for the three and nine months ended September 30,2009 and 2008 (in millions):

 
| ** **                                 | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|--------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| ** **                                 | ** ** | **2009**                                  | ** ** | **2008**                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| Components  of net periodic pension costs: |       |                                      |       |                                     |       |   |   |   |   |
| Service  cost                              |       | $                                         | 1.3        |                                     | $          | 1.3 |   | $ | 3.4 |   | $ | 3.4 |   |
| Interest  cost                             |       | 1.3                                       |       | 1.3                                      |       | 3.4 |   | 3.4 |   |
| Expected  return on plan assets            |       | (1.0                                      | )          | (1.0                                     | )          | (3.0 | ) | (3.0 | ) |
| Net  periodic pension costs                |       | $                                         | 1.6        |                                     | $          | 1.6 |   | $ | 3.8 |   | $ | 3.8 |   |

 

The Company madecontributions of $1.8millionto its defined benefit plans during the nine months ended September 30,2009 and estimates contributions of $0.6 million will be made during theremainder of 2009.

 

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

 

The components ofinterest and other income (expense), net, were as follows for the three andnine months ended September 30, 2009 and 2008 (in millions):

 
| ** **                                                | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|-----------------------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                | ** ** | **2009**                                  | ** ** | **2008**                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| Interest  income                                          |       | $                                         | 0.4        |                                     | $          | 0.7 |   | $ | 1.2 |   | $ | 4.3 |   |
| Interest  expense                                         |       | (1.8                                      | )          | (3.4                                     | )          | (6.2 | ) | (9.1 | ) |
| Exchange  gains (losses) on foreign currency transactions |       | (0.8                                      | )          | 3.2                                      |       | (0.2 | ) | (5.8 | ) |
| Other                                                     |       | 0.4                                       |       | 0.3                                      |       | 0.6 |   | 2.8 |   |
| Interest  and other income (expense), net                 |       | $                                         | (1.8       | )                                        | $          | 0.8 |   | $ | (4.6 | ) | $ | (7.8 | ) |

 

**15.****      ****Provision (Benefit) for Income Taxes**

 

The Company accounts forincome taxes in accordance with Codification Topic No. 740,*Income Taxes*. Codification Topic No. 740requires the asset and liability approach to account for income taxes byrecognizing deferred tax assets and liabilities for the expected future taxconsequences of differences between the financial statement basis and the taxbasis of assets and liabilities, calculated using enacted tax rates in effectfor the year in which the differences are expected to be reflected in the taxreturn. The Company records a valuation allowance to reduce deferred tax assetsto the amount that is more likely than not to be realized.

 

In addition, the Companyalso accounts for uncertain tax positions in accordance with the provisions ofCodification Topic No. 740. Among other things, Codification Topic No. 740provides guidance to address uncertainty in tax positions and clarifies theaccounting for income taxes by prescribing a minimum recognition threshold,which an income tax position must achieve before being recognized in thefinancial statements.

 

The income tax provision(benefit) for the three months ended September 30, 2009 was $8.1 millioncompared to $(2.0) million for the three months ended September 30, 2008,representing effective tax rates of 33.5% and (12.6)%, respectively. The incometax provision for the nine months ended September 30, 2009 was $18.5million compared to $12.5 million for the nine months ended September 30,2008, representing effective tax rates of 33.1% and 24.3%, respectively.

 

15

----

Tableof Contents

 

The Company’s effectivetax rate generally reflects the tax provision (benefit) for non-U.S. entitiesonly, since no benefit was recognized for cumulative losses incurred in theU.S. A full valuation allowance will be maintained against all U.S. deferredtax assets, including U.S. net operating losses and tax credits, until evidenceexists that it is more likely than not that the loss carryforward and creditamounts will be utilized to offset U.S. taxable income. The Company’s tax ratemay change over 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-taxincome or loss and is affected by research and development tax credits, theexpected level of other tax benefits, the impact of changes to the valuationallowance, and changes in the mix of the Company’s pre-tax income and lossesamong jurisdictions with varying statutory tax rates and credits.

 

The Company’s effectivetax rate for the three and nine months ended September 30, 2008 wasfavorably impacted by 68.3% and 21.1%, respectively, related to reversingcertain valuation allowances and reaching the more-likely-than-not thresholdfor recognizing certain tax receivables.

 

During the third quarterof 2008, two German subsidiaries in the Scientific Instruments segment weremerged into a third German subsidiary. As a result of the merger, the Companywill be able to use certain net operating loss carryforwards that existed inthe merged entities but had previously been fully reserved. The valuationallowance related to these net operating loss carryforwards was reversed in thethird quarter of 2008 and resulted in a tax benefit of approximately $6.5million. Additionally, the Company established a profit and loss sharingagreement between two other German subsidiaries in the Scientific Instruments segmentduring the third quarter of 2008. This agreement allows the losses of oneentity to reduce the taxable income of the other entity. Prior to thisagreement being put in place, certain deferred tax assets related to theseentities had full valuation allowances. These valuation allowances werereversed during the third quarter of 2008, resulting in a tax benefit ofapproximately $1.2 million.

 

Additionally, the Companyreceived a $0.5 million refund of French taxes on inter-corporate dividendsduring the third quarter of 2008 which was recorded as a tax benefit. Thisrefund related to withholding taxes paid in connection with dividends paid by aFrench subsidiary to its Swiss parent company in 2005 and 2006. At the end of2007, as a result of a tax law change in France, the Company determined that arefund of these withholding taxes was uncertain and did not meet themore-likely-than-not threshold for recording a tax receivable. As such, the2005, 2006 and 2007 taxes paid on dividends from the French subsidiary to itsSwiss parent were expensed through the income tax provision with nocorresponding tax receivable recorded. Because the facts and circumstancesaround the dividends and the withholding taxes were the same for all threeyears and the 2005 and 2006 withholding taxes were refunded by the Frenchgovernment, the Company concluded that it was more likely than not that the2007 French withholding taxes would also be refunded. As such, the Company alsorecorded a tax benefit of approximately $2.7 million during the third quarterof 2008 for the 2007 withholding tax receivable. The Company received therefund of these withholding taxes in the third quarter of 2009.

 

The Company hasunrecognized tax benefits of approximately $21.8 million as of September 30,2009, of which $12.7 million, if recognized, would result in a reduction of theCompany’s effective tax rate. The Company recognizes penalties andinterest related to unrecognized tax benefits in the provision for incometaxes. As of September 30, 2009 and December 31, 2008, approximately$3.6 million and $3.0 million, respectively, of accrued interest and penaltiesrelated to uncertain tax positions was included in other current liabilities onthe unaudited condensed consolidated balance sheets. Penalties and interestrelated to unrecognized tax benefits in the provision for income taxes of $0.2million were recorded during the three months ended September 30, 2009 and2008, respectively, and $0.6 million and $0.8 million was recorded during thenine months ended September 30, 2009 and 2008, respectively.

 

The Company files returns in many foreign and statejurisdictions with varying statutes of limitations, but considers itssignificant tax jurisdictions to include the United States, Germany andSwitzerland. The tax years 2003 to 2008 are open tax years in these majortaxing jurisdictions. One of the Company’s Swiss entities is currently beingaudited for the tax years 2003 through 2006 and the audit is expected to becompleted during 2009. In addition, all of the Company’s German subsidiariesare under tax audit for the years 2003 through 2008. The Company cannotreasonably predict the timing or outcome of these audits.

 

16

----

Table of Contents

 

**16.****      ****Comprehensive Income (Loss)**

 

Comprehensive income (loss)refers 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 (loss) for the three and ninemonths ended September 30, 2009 and 2008 (in millions):

 
| ** **                                                                                | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                                | ** ** | **2009**                                  | ** ** | **2008**                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| Consolidated  net income                                                                  |       | $                                         | 16.1       |                                     | $          | 17.9 |   | $ | 37.4 |   | $ | 39.0 |   |
| Foreign  currency translation adjustments                                                 |       | 19.5                                      |       | (35.8                                    | )          | 15.8 |   | (0.6 | ) |
| Unrealized  gains (losses) on interest rate swap:                                         |       |                                      |       |                                     |       |   |   |   |   |
| Unrealized  holding gains (losses) arising during the period                              |       | (1.0                                      | )          | (0.6                                     | )          | (0.9 | ) | (0.5 | ) |
| Reclassification  adjustments for settlements included in the determination of net income |       | 0.7                                       |       | 0.3                                      |       | 1.8 |   | 0.4 |   |
| Unrealized  losses on available for sale securities:                                      |       |                                      |       |                                     |       |   |   |   |   |
| Unrealized  holding losses arising during the period                                      |       | —                                    |       | —                                   |       | — |   | (0.1 | ) |
| Reclassification  adjustments for settlements included in the determination of net income |       | —                                    |       | —                                   |       | — |   | (1.3 | ) |
| Pension  liability adjustments                                                            |       | —                                    |       | (0.6                                     | )          | 1.0 |   | (0.9 | ) |
| Total  comprehensive income (loss)                                                        |       | 35.3                                      |       | (18.8                                    | )          | 55.1 |   | 36.0 |   |
| Less:  Comprehensive income (loss) attributable to noncontrolling interests               |       | (0.3                                      | )          | 0.1                                      |       | (0.3 | ) | 0.3 |   |
| Comprehensive  income (loss) attributable to Bruker Corporation                           |       | $                                         | 35.6       |                                     | $          | (18.9 | ) | $ | 55.4 |   | $ | 35.7 |   |

 

**17.****      ****Noncontrolling Interests**

 

Noncontrolling interestsrepresents the minority shareholders’ proportionate share of the net incomerecorded by the Company’s five majority-owned indirect subsidiaries, BrukerBaltic Ltd., Bruker Labmate Pvt. Ltd., InCoaTec GmbH and Perch Solutions OY,which are included in the Scientific Instruments segment, and RI ResearchInstruments GmbH, which is included in the Energy and Supercon Technologiessegment. Net income (loss) attributable to noncontrolling interests for thethree months ended September 30, 2009 and 2008 was $(0.3) million and $0.1million, respectively. Net income (loss) attributable to noncontrollinginterests for the nine months ended September 30, 2009 and 2008 was $(0.3)million and $0.3 million, respectively. There were no transfers to or from thenoncontrolling interests during the three and nine months ended September 30,2009 or September 30, 2008.

 

**18.****      ****Commitments and Contingencies**

 

***Legal***

 

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. As of September 30, 2009 and December 31,2008, no accruals have been recorded for such potential contingencies.

 

***Lettersof Credit and Guarantees***

 

At September 30,2009 and December 31, 2008, the Company had bank guarantees of$61.3 million and $62.1 million, respectively, for its customeradvances. These arrangements guarantee the refund of advance payments receivedfrom customers in the event that the merchandise is not delivered in compliancewith the terms of the contract. Certain of these guarantees affect theavailability of the Company’s lines of credit.

 

17

----

Tableof Contents

 

**19.****      ****Business Segment Information**

 

Codification Topic No. 280,*Segment Reporting*, establishes standardsfor reporting information about operating segments in annual financialstatements of public business enterprises. It also establishes standards forrelated disclosures about products and service, geographic areas and majorcustomers. Operating segments are identified as components of an enterprise forwhich separate discrete financial information is available for evaluation bythe chief operating decision maker for the purpose of allocating resources and assessingperformance.

 

The Company hasdetermined that it has five operating segments, representing each of its fivedivisions: Bruker AXS, Bruker BioSpin, Bruker Daltonics, Bruker Optics andBruker Energy and Supercon Technologies. Bruker AXS is in the business ofmanufacturing and distributing advanced X-ray, spark-optical emissionspectroscopy and atomic force microscopy instrumentation used innon-destructive molecular and elemental analysis. Bruker BioSpin is in thebusiness of manufacturing and distributing enabling life science tools based onmagnetic resonance technology. Bruker Daltonics is in the business ofmanufacturing and distributing mass spectrometry instruments that can beintegrated and used along with other analytical instruments and our CBRNEdetection products. 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 Energy and Supercon Technologies is in the business of developing andproducing low temperature superconductor and high temperature superconductorwires for use in advanced magnet technology and energy applications as well aslinear accelerators, accelerator cavities, insertion devices, superconductingfault current limiters, other accelerator components and specialtysuperconducting magnets for physics and energy research and a variety of otherscientific applications.

 

The Company has combinedthe Bruker AXS, Bruker BioSpin, Bruker Daltonics and Bruker Optics operatingsegments into the Scientific Instruments reporting segment because each hassimilar economic characteristics, product processes and services, types andclasses of customers, methods of distribution and regulatory environments.

 

Selected business segmentinformation for the three and nine months ended September 30, 2009 and2008 is presented below (in millions):

 
| ** **                             | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|----------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| ** **                             | ** ** | **2009**                                  | ** ** | **2008**                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| Revenue:                               | ** ** | ** **                                | ** ** | ** **                               | ** ** | ** ** | ** ** | ** ** | ** ** |
| Scientific  Instruments                |       | $                                         | 251.6      |                                     | $          | 233.8 |   | $ | 716.5 |   | $ | 767.3 |   |
| Energy  and Supercon Technologies      |       | 14.2                                      |       | 10.2                                     |       | 36.0 |   | 32.5 |   |
| Eliminations  (a)                      |       | (0.7                                      | )          | (1.9                                     | )          | (4.4 | ) | (7.9 | ) |
| Total  revenue                         |       | $                                         | 265.1      |                                     | $          | 242.1 |   | $ | 748.1 |   | $ | 791.9 |   |
|                                   |       |                                      |       |                                     |       |   |   |   |   |
| Operating  Income:                     | ** ** | ** **                                | ** ** | ** **                               | ** ** | ** ** | ** ** | ** ** | ** ** |
| Scientific  Instruments                |       | $                                         | 26.9       |                                     | $          | 18.0 |   | $ | 63.4 |   | $ | 65.7 |   |
| Energy  and Supercon Technologies      |       | (1.2                                      | )          | (2.9                                     | )          | (4.3 | ) | (6.6 | ) |
| Corporate,  eliminations and other (b) |       | 0.3                                       |       | —                                   |       | 1.4 |   | 0.2 |   |
| Total  operating income                |       | $                                         | 26.0       |                                     | $          | 15.1 |   | $ | 60.5 |   | $ | 59.3 |   |

 

----

(a) Representsproduct and service revenue between reportable segments.

(b) Representscorporate costs and eliminations not allocated to the reportable segments.

 

Total assets by segmentas of September 30, 2009 and December 31, 2008 are as follows (inmillions):

 

18

----

Tableof Contents

 
| ** **                             | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|----------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                             | ** ** | **2009**               | ** ** | **2008**              | ** ** |
| Scientific  Instruments                |       | $                      | 1,076.5    |                  | $          | 1,081.5 |   |
| Energy  and Supercon Technologies      |       | 58.9                   |       | 39.4                  |       |
| Corporate,  eliminations and other (a) |       | (11.2                  | )          | (4.6                  | )          |
| Total                                  |       | $                      | 1,124.2    |                  | $          | 1,116.3 |   |

 

----

(a) Representscorporate assets not allocated to the reportable segments and eliminations ofintercompany transactions.

 

**20.****      ****Recent Accounting Pronouncements**

 

The FASB issuedCodification Topic No. 105, *Generally AcceptedAccounting Principles*. Codification Topic No. 105 is effectivefor fiscal years and interim periods, ending after September 15, 2009.Codification Topic No. 105 is intended to improve financial reporting byidentifying the *FASB Accounting StandardsCodification*and rules and interpretive releases of the SECunder authority of federal securities laws as the sole sources of authoritativeaccounting principles to be used in preparing financial statements that arepresented in conformity with GAAP for SEC registrants. The adoption ofCodification Topic No. 105 did not have a material impact on the Company’sresults of operations, financial position or cash flows.

 

In September 2009,the Emerging Issues Task Force reached consensus on FASB Accounting StandardsUpdate 2009-14, *Software (Topic 985)—Certain RevenueArrangements That Include Software Elements*. FASB AccountingStandards Updates 2009-14 changes the accounting model for revenue arrangementsthat include both tangible products and software elements. Under this guidance,tangible products containing software components and non-software componentsthat function together to deliver the tangible product’s essential functionalityare excluded from the software revenue guidance in Subtopic 985-605, *Software-Revenue Recognition.* In addition,hardware components of a tangible product containing software components arealways excluded from the software revenue guidance. FASB Accounting StandardsUpdates 2009-14 is effective prospectively for revenue arrangements enteredinto or materially modified in fiscal years beginning on or after June 15,2010, however, early adoption is permitted. The Company is currently assessingthe impact that the additional disclosure requirements will have on its resultsof operations and financial position and when the Company will adopt theserequirements.

 

In September 2009,the Emerging Issues Task Force reached consensus on FASB Accounting StandardsUpdate 2009-13, *Revenue Recognition (Topic605)—Multiple-Deliverable Revenue Arrangements*. FASB AccountingStandards Update 2009-13 addresses the accounting for multiple-deliverablearrangements to enable vendors to account for products or services separatelyrather than as a combined unit. Specifically, this guidance amends the criteriain Subtopic 605-25, *RevenueRecognition-Multiple-Element Arrangements,* for separatingconsideration in multiple-deliverable arrangements. This guidance establishes aselling price hierarchy for determining the selling price of a deliverable,which is based on: (a) vendor-specific objective evidence; (b) third-partyevidence; or (c) estimates. This guidance also eliminates the residualmethod of allocation and requires that arrangement consideration be allocatedat the inception of the arrangement to all deliverables using the relativeselling price method. In addition, this guidance significantly expands requireddisclosures related to a vendor’s multiple-deliverable revenue arrangements.FASB Accounting Standards Update 2009-13 is effective prospectively for revenuearrangements entered into or materially modified in fiscal years beginning onor after June 15, 2010, however, early adoption is permitted. The Companyis currently assessing the impact that the additional disclosure requirementswill have on its results of operations and financial position and when theCompany will adopt these requirements.

 

The FASB amendedCodification Topic No. 715, *Compensation—Retirement Plans*,to require detailed disclosures regarding the investment strategies, fair valuemeasurements, and concentrations of risk of plan assets of a defined benefitpension or other postretirement plan. The additional disclosures are effectivefor fiscal years ending after December 15, 2009 and will be appliedprospectively. The Company is currently assessing the impact that theadditional disclosure requirements will have on its results of operations andfinancial position.

 

19

----

Tableof 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 unaudited condensed consolidated financialstatements and the notes to those statements included in Part 1, Item 1 ofthis Quarterly Report on Form 10-Q, and in conjunction with theconsolidated financial statements contained in our Annual Report on Form 10-Kfor the year ended December 31, 2008.

 

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, 2008.

 

**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 accountingpolicies*. Thissection discusses the accounting estimates that are considered important to ourfinancial position and results of operations and that require us to exercisesubjective or complex judgments in their application.

 

·                  *Results of operations*. This section provides our analysis ofthe significant line items on our consolidated statement of operations for thethree and nine months ended September 30, 2009 compared to the three andnine months ended September 30, 2008.

 

·                  *Liquidity and capitalresources*. Thissection provides an analysis of our liquidity and cash flow and a discussion ofour outstanding debt and commitments.

 

·                  *Recent accountingpronouncements*.This section provides information about new accounting standards that have beenissued but for which adoption is not yet required.

 

**EXECUTIVE OVERVIEW**

 

**Business Overview**

 

Bruker Corporation andits wholly-owned subsidiaries design, manufacture, service and marketproprietary life science and materials research systems based on its coretechnology platforms, including X-ray technologies, magnetic resonancetechnologies, mass spectrometry technologies, optical emission spectroscopy andinfrared and Raman molecular spectroscopy technologies. We sell a broad rangeof field analytical systems for chemical, biological, radiological, nuclear andexplosive detection, or CBRNE. We also develop and manufacture low temperatureand high temperature superconducting wire products and superconducting devices.Our diverse customer base includes life science, pharmaceutical, biotechnologyand molecular diagnostic research companies, academic institutions, advancedmaterials and semiconductor industries and government agencies. We maintainmajor technical and manufacturing centers in Europe, North America and Japanand we have sales offices located throughout the world. Our corporateheadquarters are located in Billerica, Massachusetts.

 

20

----

Tableof Contents

 

Our business strategy isto capitalize on our ability to innovate and generate above industry-averagerevenue performance, both organically and through acquisitions. Our growthstrategy combined with anticipated improvements to our gross profit margins andincreased leverage on our research and development, sales and marketing anddistribution investments and general and administrative expenses is expected toenhance our operating margins and improve our earnings in the future.

 

On February 26,2008, we completed our acquisition of Bruker BioSpin. Both the Company andBruker BioSpin were majority owned by six affiliated shareholders prior to theacquisition. As a result, the acquisition of Bruker BioSpin is considered acombination of companies under common control, and has been accounted for athistorical carrying values. Historical unaudited condensed consolidated balancesheets, statements of operations, statements of cash flows and notes to the consolidatedfinancial statements have been restated by combining the historicalconsolidated financial statements of Bruker Corporation with those of BrukerBioSpin. Because the transaction was accounted for as an acquisition ofbusinesses under common control, all one-time transaction costs were expensedas incurred.

 

With the addition ofBruker BioSpin, we enhanced our scientific instruments business and thusfurthered our position as a leading supplier of life science and materialsresearch 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 havecreated revenue synergies and provided opportunities to supply customers withequipment packages that have a broader range of applications and value. Theaddition of Bruker BioSpin has also enhanced our distribution of scientificinstruments in the Americas, Europe and Asia and our sales and serviceinfrastructure.

 

We are organized intofive operating segments, representing each of our five divisions: Bruker AXS,Bruker BioSpin, Bruker Daltonics, Bruker Optics and Bruker Energy and SuperconTechnologies. Bruker AXS is in the business of manufacturing and distributingadvanced X-ray, spark-optical emission spectroscopy and atomic force microscopyinstrumentation used in non-destructive molecular and elemental analysis.Bruker BioSpin is in the business of manufacturing and distributing enablinglife science tools based on magnetic resonance technology. Bruker Daltonics isin the business of manufacturing and distributing mass spectrometry instrumentsthat can be integrated and used along with other analytical instruments and ourCBRNE detection products. 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 Energy and Supercon Technologies is in the business of developing andproducing low temperature superconductor and high temperature superconductorwires for use in advanced magnet technology and energy applications as well aslinear accelerators, accelerator cavities, insertion devices, superconductingfault current limiters, other accelerator components and specialtysuperconducting magnets for physics and energy research and a variety of otherscientific applications.

 

We have combined theBruker AXS, Bruker BioSpin, Bruker Daltonics and Bruker Optics operating segmentsinto the Scientific Instruments reporting segment because each has similareconomic characteristics, product processes and services, types and classes ofcustomers, methods of distribution and regulatory environments. As such,management reports its results based on the following segments:

 

·                  *Scientific Instruments.*The operations ofthis segment include the design, manufacture and distribution of advancedinstrumentation and automated solutions based on X-ray technology,spark-optical emission spectroscopy technology, atomic force microscopy,magnetic resonance technology, mass spectrometry technology and infrared andRaman molecular spectroscopy technology. Typical customers of the ScientificInstruments segment include pharmaceutical, biotechnology, molecular diagnosticcompanies, academic institutions, medical schools, other non-profitorganizations, clinical microbiology laboratories, government departments andagencies, nanotechnology, semiconductor, chemical, cement, metals and petroleumcompanies and food, beverage and agricultural analysis companies andlaboratories.

 

·                  *Energy and Supercon Technologies**.* The operations of this segment includedevelopment and production of low temperature superconductor and hightemperature superconductor wires for use in advanced magnet technology andenergy applications as well as electron and ion linear accelerators,superconducting and normal conducting accelerator cavities, insertion devices,prototype superconducting fault current limiters, prototype crystal growthmagnets, other accelerator components and highly specialized manufacturing

 

21

----

Tableof Contents

 

services forphysics and energy research and a variety of other scientific applications.Typical customers of the Energy and Supercon Technologies segment include themedical, power and energy, and processing industries, private and publicresearch and development laboratories in the fields of fundamental and appliedsciences, energy research, biotechnology and proteomics, as well as academicinstitutions and government agencies.

 

**Financial Overview**

 

For the three monthsended September 30, 2009, our revenue increased by $23.0 million, or 9.5%,to $265.1 million, compared to $242.1 million for the comparable period in2008. Included in this change in revenue is a reduction of approximately $4.6million from the impact of foreign exchange due to the strengthening of theU.S. Dollar versus the Euro and other foreign currencies. Excluding the effectof foreign exchange, revenue increased by $27.6 million, or 11.4%. The increasein revenue, excluding the effect of foreign exchange, is attributable mainly tothe Scientific Instruments segment and related primarily to sales of ourmagnetic resonance systems, but sales of our optical emission spectroscopy,X-ray and mass spectrometry systems also increased. The results of the thirdquarter of 2009, particularly higher sales of optical emission spectroscopy andX-ray systems, reflect a change in the trend of lower demand from industrialcustomers that has negatively impacted our results over the last severalquarters. Although revenues from industrial customers improvedquarter-over-quarter and sequentially, we will continue to closely monitordemand in these markets. Spending from academic and government customers hascontinued to increase as a result of stimulus packages implemented bygovernments in various countries, including the United States, Germany andJapan, and we anticipate this trend will continue into 2010.

 

For the nine months endedSeptember 30, 2009, our revenue decreased by $43.8 million, or 5.5%, to$748.1 million, compared to $791.9 million for the comparable period in 2008.Included in this change in revenue is a reduction of approximately $47.6million from the impact of foreign exchange due to the strengthening of theU.S. Dollar versus the Euro and other foreign currencies. Excluding the effectof foreign exchange, revenue increased by $3.8 million, or 0.5%. The increasein revenue, excluding the effect of foreign exchange, is attributable mainly tohigher sales of mass spectrometry systems offset by lower sales of magneticresonance systems and X-ray and spark-OES systems. The mix of products soldreflects the overall trend in revenue from prior quarters, specifically, lowerdemand from industrial customers offset by increased demand from academic andgovernment customers. We attribute the trend in lower sales to industrial customersas a function of the worldwide recession. Spending from academic and governmentcustomers has increased, however, as a result of stimulus packages implementedby governments of various countries, including the U.S., Germany and Japan.

 

Income from operationsfor the three months ended September 30, 2009 was $26.0 million, resultingin an operating margin of 9.8%, compared to income from operations of $15.1million, resulting in an operating margin of 6.2%, for the comparable period in2008. Income from operations for the three months ended September 30, 2009increased by $10.9 million as a result of the higher revenues described above.Higher revenues also resulted in higher gross profits, although our grossprofit margin as a percentage of revenue for the third quarter of 2009decreased to 45.0% compared to 45.9% for the comparable period in 2008. Lowergross profit margins were primarily a function of product mix and, to a lesserdegree, pricing pressure, particularly in the industrial markets. A decrease inoperating expenses also contributed to an improvement in operating margins andis attributable to changes in foreign currency exchange rates and various costreduction programs.

 

Income from operationsfor the nine months ended September 30, 2009 was $60.5 million, resultingin an operating margin of 8.1%, compared to income from operations of $59.3million, resulting in an operating margin of 7.5%, for the comparable period in2008. Operating margins in the first nine months of 2009 include $0.6 millionof acquisition-related credits and operating margins in the first nine monthsof 2008 include $6.2 million of acquisition-related charges. Excluding theeffect of these acquisition-related credits and charges, income from operationsdecreased by $5.6 million as a result of the lower revenues described above,offset by a decrease in operating expenses. Lower revenues also resulted inlower gross profits; however, our gross profit margin as a percentage ofrevenue was relatively flat at 44.5% for the first nine months of 2009 comparedto 44.8% for the comparable period in 2008. Higher gross profit margins on ournewly introduced mass spectrometry products, in addition to productivityinitiatives, the benefits of cost cutting and changes in foreign exchangerates, allowed us to maintain our overall gross profit margins despite lowerrevenues. The decrease in operating expenses is attributable to changes inforeign currency exchange rates and cost reduction programs implementedthroughout the second half of 2008.

 

22

----

Tableof Contents

 

During the nine monthsended September 30, 2009, we recorded net losses on foreign currencytransactions of $0.2 million compared to net losses of $5.8 million for thecomparable period in 2008. We incurred $12.2 million of foreign exchange lossesin the first three months of 2008 that were driven by the re-measurement ofcertain foreign currency denominated assets, principally cash, inter-companyreceivables and a short-term inter-company loan, into the functional currencyof the affected entities.

 

We incurred approximately$6.2 million of interest expense during the nine months ended September 30,2009 compared to $9.1 million for the comparable period in 2008. Of the totalinterest expense incurred during the nine months ended September 30, 2009,approximately $4.9 million related to a credit facility that we entered intoduring the first quarter of 2008. We initially borrowed $351.0 million underthis credit facility in order to finance the acquisition of Bruker BioSpin. Inthe first nine months of 2009, we repaid approximately $52.2 million of theamounts outstanding under this credit agreement and, from the inception of thiscredit agreement, we have reduced the net amount outstanding by approximately$207.5 million.

 

Our effective tax ratefor the three months ended September 30, 2009 was 33.5%, compared to(12.6)% for the comparable period in 2008. Our effective tax rate for the ninemonths ended September 30, 2009 was 33.1%, compared to 24.3% for thecomparable period in 2008. The change in our effective tax rate relatesprimarily to the amount and mix of income and taxes outside the U.S because weare not able to record a tax benefit on losses incurred in the U.S. The taxbenefit in the third quarter of 2008 was primarily the result of $10.9 millionrelated to reversing certain valuation allowances and reaching themore-likely-than-not threshold for recognizing certain tax receivables.

 

Our net incomeattributable to the shareholders of Bruker Corporation for the three monthsended September 30, 2009 was $16.4 million, or $0.10 per diluted share,compared to $17.8 million, or $0.11 per diluted share, for the comparableperiod in 2008. Our net income attributable to the shareholders of BrukerCorporation for the nine months ended September 30, 2009 was $37.7million, or $0.23 per diluted share, compared to $38.7 million, or $0.23 perdiluted share, for the comparable period in 2008.

 

**CRITICAL ACCOUNTING POLICIES**

 

This discussion andanalysis of our financial condition and results of operations is based upon ourunaudited condensed consolidated financial statements, which have been preparedin accordance with accounting principles generally accepted in the UnitedStates of America. The preparation of these financial statements requires thatwe make estimates and assumptions that affect the reported amounts of assetsand liabilities and the disclosure of contingent assets and liabilities at thedate of the financial statements and reported amounts of revenues and expensesduring the reporting period. On an ongoing basis, management evaluates itsestimates and judgments, including those related to revenue recognition, incometaxes, allowance for doubtful accounts, inventories, goodwill, other intangibleassets and long-lived assets, warranty costs and derivative financialinstruments. We base our estimates and judgments on historical experience,current market and economic conditions, industry trends and other assumptionsthat we believe are reasonable and form the basis for making judgments aboutthe carrying value of assets and liabilities that are not readily apparent fromother sources. Actual results could differ from these estimates.

 

We believe the followingcritical accounting policies to be both those most important to the portrayalof our financial position and results of operations and those that require themost subjective judgment.

 

*Revenuerecognition.*Werecognize revenue from system sales when persuasive evidence of an arrangementexists, the price is fixed or determinable, title and risk of loss has beentransferred to the customer and collectibility of the resulting receivable isreasonably assured. Title and risk of loss generally are transferred to thecustomer upon receipt of a signed customer acceptance form for a system thathas been shipped, installed, and for which the customer has been trained. As aresult, the timing of customer acceptance or readiness could cause our reportedrevenues to differ materially from expectations. When products are sold throughan independent distributor or a strategic distribution partner, who assumesresponsibility for installation, we recognize the system sale when the producthas been shipped and title and risk of loss have been transferred to thedistributor. 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 year. Revenue is deferred until cash is received when asignificant portion of the fee is due over 

 

23

----

Tableof Contents

 

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 sales prices when the element issold separately. Changes in our ability to establish the fair value for eachelement in multiple element arrangements could affect the timing of revenuerecognition. Revenue from accessories and parts is recognized upon shipment andservice revenue is recognized as the services are performed. We also havecontracts for which we apply the percentage-of-completion method for revenuerecognition. Application of the percentage-of-completion method requires us tomake reasonable estimates of the extent of progress toward completion of thecontract and the total costs we will incur under the contract. Changes in ourestimates could affect the timing of revenue recognition. Grant revenue isrecognized when we complete the services required under the grant.

 

*Incometaxes.* Weestimate the degree to which tax assets and loss carryforwards will result in abenefit based on expected profitability by tax jurisdiction, and we 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.

 

*Allowancefor doubtful accounts.* We maintain allowances for doubtful accounts for estimated lossesresulting from the inability of our customers to pay amounts due. If thefinancial condition of our customers were to deteriorate, reducing theirability to make payments, additional allowances would be required, resulting ina charge to operations.

 

*Inventories.* Inventories are stated at the lower ofcost or market, with costs determined by the first-in, first-out method for amajority of subsidiaries and by average cost for certain internationalsubsidiaries. We record provisions to account for excess and obsolete inventoryto reflect the expected non-saleable or non-refundable inventory based on anevaluation of slow moving products. If ultimate usage or demand varies significantlyfrom expected usage or demand, additional write-downs may be required,resulting in additional charges to operations.

 

*Goodwill,other intangible assets and other long-lived assets.* We evaluate whether goodwill andindefinite lived intangible assets are impaired annually and when events occuror circumstances change. Goodwill is impaired when the fair value of areporting unit is less than its carrying amount. Fair value is determined usingdiscounted future cash flows. We also review long-lived intangible assets andother assets when indication of potential impairment exists, such as asignificant reduction in undiscounted cash flows associated with the assets.Should the fair value of our long-lived assets decline because of reducedoperating performance, market declines, or other indicators of impairment, acharge to operations for impairment may be necessary.

 

*Warrantycosts.* Wenormally provide a one year parts and labor warranty with the purchase ofequipment. The anticipated cost for this warranty is accrued upon recognitionof the sale based on historical warranty rates and our assumptions of futurewarranty claims. The warranty accrual is included as a current liability on theunaudited condensed consolidated balance sheets. Although our products undergoquality assurance and testing procedures throughout the production process, ourwarranty obligation is affected by product failure rates, material usage andservice delivery costs incurred in correcting a product failure. Although ouractual warranty costs have historically been consistent with expectations, to theextent warranty claim activity or costs associated with servicing those claimsdiffer from our estimates, revisions to the warranty accrual may be required.

 

*Derivativefinancial instruments.* All derivative instruments are recorded as other assets or otherliabilities at fair value, which is calculated as an estimate of the futurecash flows, and subsequent changes in a derivative’s fair value are recognizedin income, unless specific hedge accounting criteria are met. Changes in thefair value of a derivative that is highly effective and designated as a cashflow hedge are recognized in accumulated other comprehensive income until theforecasted transaction occurs or it becomes probable that the forecastedtransaction will not occur. We perform an assessment at the inception of thehedge and on a quarterly basis thereafter, to determine whether our derivativesare highly effective in offsetting changes in the value of the hedged items.Any changes in the fair value resulting from hedge ineffectiveness areimmediately recognized as income or expense.

 

24

----

Tableof Contents

 

**RESULTSOF OPERATIONS**

 

***Three Months Ended September 30, 2009 Compared to theThree Months Ended September 30, 2008***

 

***Consolidated Results***

 

The following table presentsour results for the three months ended September 30, 2009 and 2008(dollars in millions, except per share data):

 
| ** **                                                                                        | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                        | ** ** | **September 30,** | ** ** |
| ** **                                                                                        | ** ** | **2009**               | ** ** | **2008** | ** ** |
| Product  revenue                                                                                  |       | $                      | 230.7      |   | $ | 211.8 |   |
| Service  revenue                                                                                  |       | 32.4                   |       | 28.8 |   |
| Other  revenue                                                                                    |       | 2.0                    |       | 1.5 |   |
| Total  revenue                                                                                    |       | 265.1                  |       | 242.1 |   |
|                                                                                              |       |                   |       |   |   |
| Cost  of product revenue                                                                          |       | 127.9                  |       | 114.6 |   |
| Cost  of service revenue                                                                          |       | 18.0                   |       | 16.4 |   |
| Total  cost of revenue                                                                            |       | 145.9                  |       | 131.0 |   |
| Gross  profit                                                                                     |       | 119.2                  |       | 111.1 |   |
|                                                                                              |       |                   |       |   |   |
| Operating  expenses:                                                                              |       |                   |       |   |   |
| Sales  and marketing                                                                              |       | 44.1                   |       | 45.2 |   |
| General  and administrative                                                                       |       | 17.5                   |       | 17.7 |   |
| Research  and development                                                                         |       | 31.6                   |       | 33.1 |   |
| Total  operating expenses                                                                         |       | 93.2                   |       | 96.0 |   |
| Operating  income                                                                                 |       | 26.0                   |       | 15.1 |   |
|                                                                                              |       |                   |       |   |   |
| Interest  and other income (expense), net                                                         |       | (1.8                   | )          | 0.8 |   |
| Income  before income taxes and noncontrolling interest in consolidated subsidiaries              |       | 24.2                   |       | 15.9 |   |
| Income  tax provision (benefit)                                                                   |       | 8.1                    |       | (2.0 | ) |
| Consolidated  net income                                                                          |       | 16.1                   |       | 17.9 |   |
| Less:  net income (loss) attributable to noncontrolling interests                                 |       | (0.3                   | )          | 0.1 |   |
| Net  income attributable to Bruker Corporation                                                    |       | $                      | 16.4       |   | $ | 17.8 |   |
|                                                                                              |       |                   |       |   |   |
| Net  income per common share attributable to Bruker Corporation shareholders -  basic and diluted |       | $                      | 0.10       |   | $ | 0.11 |   |
|                                                                                              |       |                   |       |   |   |
| Weighted  average common shares outstanding:                                                      |       |                   |       |   |   |
| Basic                                                                                             |       | 163.5                  |       | 162.8 |   |
| Diluted                                                                                           |       | 165.0                  |       | 165.9 |   |

 

***Revenue***

 

Our revenue increased by$23.0 million, or 9.5%, to $265.1 million for the three months ended September 30,2009, compared to $242.1 million for the comparable period in 2008. Included inthis change in revenue is a reduction of approximately $4.6 million from theimpact of foreign exchange. Excluding the effect of foreign exchange, revenueincreased by 11.4%. The increase in revenue, excluding the effect of foreignexchange, is attributable mainly to the Scientific Instruments segment andrelated primarily to our magnetic resonance systems,

 

25

----

Tableof Contents

 

but we also increasedsales of our optical emission spectroscopy, X-ray and mass spectrometrysystems. The results of the third quarter of 2009, particularly higher sales ofoptical emission spectroscopy and X-ray systems, reflect a change in the trendof lower demand from industrial customers that has negatively impacted ourresults over the last several quarters. Although revenues from industrialcustomers improved quarter-over-quarter and sequentially, we will continue toclosely monitor demand in these markets. Spending from academic and governmentcustomers has continued to increase as a result of stimulus packagesimplemented by governments in various countries, including the United States,Germany and Japan.

 

***Cost of Revenue***

 

Our cost of product andservice revenue for the three months ended September 30, 2009, was $145.9million, resulting in a gross profit margin of 45.0%, compared to cost ofproduct and service revenue of $131.0 million, resulting in a gross profitmargin of 45.9%, for the comparable period in 2008. Our gross profits increasedby $8.1 million for the three months ended September 30, 2009 compared tothe three months ended September 30, 2008. Gross profits increased becauseof the increase in revenues described above. The decrease in gross profitmargin is primarily a function of product mix and, to a lesser degree, pricingpressure, particularly in the industrial markets.

 

***Sales and Marketing***

 

Our sales and marketingexpense for the three months ended September 30, 2009 decreased to $44.1million, or 16.8% of product and service revenue, from $45.2 million, or 18.8%of product and service revenue, for the comparable period in 2008. The decreasein sales and marketing expense is attributable mainly to changes in foreigncurrency exchange rates, primarily the Euro. Additionally, we realized thebenefits from certain cost cutting initiatives, but those savings were offset,in part, by selling and marketing efforts associated with a number of recentlyintroduced products.

 

***General and Administrative***

 

Our general andadministrative expense for the three months ended September 30, 2009 was$17.5 million, or 6.7% of product and service revenue, essentially flatcompared with general and administrative expense of $17.7 million, or 7.4% ofproduct and service revenue, for the comparable period in 2008.

 

***Research and Development***

 

Our research anddevelopment expense for the three months ended September 30, 2009decreased to $31.6 million, or 12.0% of product and service revenue, from $33.1million, or 13.8% of product and service revenue, for the comparable period in2008. The decrease in research and development expense is attributable mainlyto changes in foreign currency exchange rates, primarily the Euro, as amajority of our research and development is performed in Europe. Additionally,we realized the benefits from certain cost cutting initiatives, but thosesavings were offset, in part, by investments in a number of new products andfeatures scheduled to be released in the next six to twelve months.

 

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

 

Interest and other income(expense), net during the three months ended September 30, 2009 was $(1.8)million, compared to $0.8 million for the comparable period of 2008.

 

During the three monthsended September 30, 2009, the major components within interest and otherincome (expense), net were net interest expense of $1.4 million andrealized and unrealized losses on foreign currency transactions of$0.8 million. During the three months ended September 30, 2008, themajor component within interest and other income (expense), net, were realizedand unrealized gains on foreign currency transactions of $3.2 millionoffset, in part, by net interest expense of $2.7 million.

 

26

----

Tableof Contents

 

***Income Tax Provision (Benefit)***

 

Our effective tax rategenerally reflects our tax provision for non-U.S. entities only since nobenefit was recognized for losses incurred in the U.S. We will maintain a fullvaluation allowance against all U.S. deferred tax assets, including our U.S.net operating losses and tax credits, until evidence exists that it is morelikely than not that the loss carryforward and credit amounts will be utilizedto offset U.S. taxable income. Our tax rate may change over time as the amountand mix of income and taxes outside the U.S. changes. The effective tax rate iscalculated using our projected annual pre-tax income or loss and is affected bytax credits, the expected level of other tax benefits, and the impact ofchanges to the valuation allowance, as well as changes in the mix of ourpre-tax income and losses among jurisdictions with varying statutory tax ratesand credits.

 

The income tax provision(benefit) for the three months ended September 30, 2009, was $8.1 millioncompared to $(2.0) million for the three months ended September 30, 2008,representing effective tax rates of 33.5% and (12.6)%, respectively. The taxbenefit in the third quarter of 2008 was primarily the result of reversingcertain valuation allowances and reaching the more-likely-than-not thresholdfor recognizing certain tax receivables.

 

During the third quarterof 2008, two German subsidiaries in the Scientific Instruments segment weremerged into a third German subsidiary. As a result of the merger, we were ableto use certain net operating loss carryforwards that existed in the mergedentities but had previously been fully reserved. The valuation allowancerelated to these net operating loss carryforwards was reversed in the thirdquarter of 2008 and resulted in a tax benefit of approximately $6.5 million.Additionally, we established a profit and loss sharing agreement between twoother German subsidiaries during the third quarter of 2008. This agreementallows the losses of one entity to reduce the taxable income of the otherentity. Prior to this agreement being put in place, certain deferred tax assetsrelated to these entities had full valuation allowances. These valuationallowances were reversed during the third quarter of 2008, resulting in a taxbenefit of approximately $1.2 million.

 

We received a $0.5million refund of French taxes on inter-corporate dividends during the thirdquarter of 2008, which was recorded as a tax benefit. This refund related towithholding taxes paid in connection with dividends paid by a French subsidiaryto its Swiss parent company in 2005 and 2006. At the end of 2007, as a resultof a tax law change in France, we determined that a refund of these withholdingtaxes was uncertain and did not meet the more likely than not threshold forrecording a tax receivable. As such, the 2005, 2006 and 2007 taxes paid ondividends from the French subsidiary to its Swiss parent were expensed throughthe income tax provision with no corresponding tax receivable recorded. Becausethe facts and circumstances around the dividends and the withholding taxes werethe same for all three years and the 2005 and 2006 withholding taxes wererefunded by the French government, we concluded that it was more likely thannot that the 2007 French withholding taxes would also be refunded. As such, wealso recorded a tax benefit of approximately $2.7 million during the thirdquarter of 2008 for the 2007 withholding tax receivable. We received the refundof these withholding taxes in the third quarter of 2009.

 

***Net Income (Loss) Attributable to Noncontrolling Interests***

 

Net income (loss)attributable to noncontrolling interests for the three months ended September 30,2009 was $(0.3) million compared to $0.1 million for the comparable period of2008. Net income (loss) attributable to noncontrolling interests represents theminority shareholders’ proportionate share of the net income (loss) recorded byfive majority-owned indirect subsidiaries, Bruker Baltic Ltd., Bruker LabmatePvt. Ltd., InCoaTec GmbH and Perch Solutions OY, which are included in theScientific Instruments segment, and RI Research Instruments GmbH, which isincluded in the Energy and Supercon Technologies segment.

 

***Net Income Attributable to Bruker Corporation***

 

Our net income for thethree months ended September 30, 2009, was $16.4 million, or $0.10 perdiluted share, compared to $17.8 million, or $0.11 per diluted share for thecomparable period in 2008.

 

***Segment Results***

 

***Revenue***

 

The following tablepresents revenue, change in revenue and revenue growth by reportable segmentfor the

 

27

----

Tableof Contents

 

three months ended September 30,2009 and 2008 (dollars in millions):

 
| ** **                        | ** ** | **2009** | ** **  | **2008** | ** ** | **Dollar Change** | ** ** | **Percentage  Change** | ** ** |
|-----------------------------------|------------|----------|-------------|----------|------------|-------------------|------------|------------------------|------------|
| Scientific  Instruments           |       | $        | 251.6       |     | $          | 233.8             |       | $                      | 17.8       |   | 7.6 | % |
| Energy  and Supercon Technologies |       | 14.2     |        | 10.2     |       | 4.0               |       | 39.2                   | %          |
| Eliminations  (a)                 |       | (0.7     | )           | (1.9     | )          | 1.2               |       |                   |       |
|                              |       | $        |  265.1 |     | $          | 242.1             |       | $                      | 23.0       |   | 9.5 | % |

 

----

(a) Representsproduct and service revenue between reportable segments.

 

***ScientificInstruments Segment Revenues***

 

Scientific Instrumentssegment revenue increased by $17.8 million, or 7.6%, to$251.6 million for the three months ended September 30, 2009,compared to $233.8 million for the comparable period in 2008. Included inthis change in revenue is a reduction of approximately $3.9 million from theimpact of foreign exchange. Excluding the effect of foreign exchange, revenue increasedby 9.3%. The increase in revenue, excluding the effect of foreign exchange, isrelated primarily to sales of our magnetic resonance systems, but sales of ouroptical emission spectroscopy products, X-ray products and mass spectrometrysystems also increased.

 

System revenue andaftermarket revenue as a percentage of total Scientific Instruments segmentrevenue were as follows during the three months ended September 30, 2009and 2008 (dollars in millions):

 
| ** **           | ** ** | **2009**    | ** ** | **2008**                            | ** ** |
|----------------------|------------|-------------|------------|-------------------------------------|------------|
| ** **           | ** ** | **Revenue** | ** ** | **Percentage of  Segment  Revenue** | ** ** | **Revenue** | ** ** | **Percentage of  Segment  Revenue** | ** ** |
| System  revenue      |       | $           | 197.6      |                                | 78.5       | % | $ | 176.9 |   | 75.7 | % |
| Aftermarket  revenue |       | 54.0        |       | 21.5                                | %          | 56.9 |   | 24.3 | % |
| Total  revenue       |       | $           | 251.6      |                                | 100.0      | % | $ | 233.8 |   | 100.0 | % |

 

System revenues in theScientific Instruments segment include X-ray systems, nuclear magneticresonance systems, magnetic resonance imaging systems, electron paramagneticimaging systems, mass spectrometry systems, CBRNE detection systems andmolecular spectroscopy systems. Aftermarket revenues in the ScientificInstruments segment include accessory sales, consumables, training andservices.

 

***Energyand Supercon Technologies******Segment Revenues***

 

Energy and SuperconTechnologies segment revenue increased by $4.0 million, or 39.2%, to$14.2 million for the three months ended September 30, 2009, comparedto $10.2 million for the comparable period in 2008. Included in thischange in revenue is a reduction of approximately $0.7 million from theimpact of foreign exchange. Excluding the effect of foreign exchange, revenueincreased by 46.1%. The increase in revenue, excluding the effect of foreignexchange, is attributable to the acquisition of the research instrumentsbusiness offset in part by lower demand for certain types of superconductingwire.

 

System and wire revenueand aftermarket revenue as a percentage of total Energy and SuperconTechnologies segment revenue were as follows during the three months ended September 30,2009 and 2008 (dollars in millions):

 
| ** **               | ** ** | **2009**    | ** ** | **2008**                            | ** ** |
|--------------------------|------------|-------------|------------|-------------------------------------|------------|
| ** **               | ** ** | **Revenue** | ** ** | **Percentage of  Segment  Revenue** | ** ** | **Revenue** | ** ** | **Percentage of  Segment  Revenue** | ** ** |
| System  and wire revenue |       | $           | 13.5       |                                | 95.1       | % | $ | 9.2 |   | 90.2 | % |
| Aftermarket  revenue     |       | 0.7         |       | 4.9                                 | %          | 1.0 |   | 9.8 | % |
| Total  revenue           |       | $           | 14.2       |                                | 100.0      | % | $ | 10.2 |   | 100.0 | % |

 

System and wire revenuesin the Energy and Supercon Technologies segment include low and hightemperature superconducting wire and electron and ion linear accelerators,superconducting and normal conducting accelerator

 

28

----

Tableof Contents

 

cavities, insertiondevices, superconducting fault current limiters, other accelerator componentsand specialty superconducting magnets for physics and energy research and avariety of other scientific applications. Aftermarket revenues in the Energyand Supercon Technologies segment include services and accessory sales.

 

***Income (Loss) from Operations***

 

The following tablepresents income (loss) from operations and operating margins on revenue byreportable segment for the three months ended September 30, 2009 and 2008(dollars in millions):

 
| ** **                             | ** ** | **2009**              | ** ** | **2008**                            | ** ** |
|----------------------------------------|------------|-----------------------|------------|-------------------------------------|------------|
| ** **                             | ** ** | **Operating  Income** | ** ** | **Percentage of  Segment  Revenue** | ** ** | **Operating  Income** | ** ** | **Percentage of  Segment  Revenue** | ** ** |
| Scientific  Instruments                |       | $                     | 26.9       |                                | 10.7       | % | $ | 18.0 |   | 7.7 | % |
| Energy  and Supercon Technologies      |       | (1.2                  | )          | (8.5                                | )%         | (2.9 | ) | (28.4 | )% |
| Corporate,  eliminations and other (a) |       | 0.3                   |       |                                |       | — |   |   |   |
| Total  operating income                |       | $                     | 26.0       |                                | 9.8        | % | $ | 15.1 |   | 6.2 | % |

 

----

(a) Representscorporate costs and eliminations not allocated to the reportable segments.

 

Scientific Instrumentssegment income from operations for the three months ended September 30,2009 was $26.9 million, resulting in an operating margin of 10.7%,compared to income from operations of $18.0 million, resulting in anoperating margin of 7.7%, for the comparable period in 2008.

 

Income from operations inthe Scientific Instruments segment increased as a result of the higher revenuesdescribed above and a decrease in operating expenses. In the third quarter of2009, gross profit margin as a percentage of revenue in the ScientificInstruments decreased to 45.6% from 47.4% for the comparable period in 2008.The change in gross profit margin as a percentage of revenue is a function ofproduct mix. The decrease in operating expenses is attributable to changes inforeign currency exchange rates and various cost reduction programs.

 

Energy and SuperconTechnologies segment loss from operations for the three months ended September 30,2009 was $1.2 million, resulting in an operating margin of (8.5)%,compared to a loss from operations of $2.9 million, resulting in anoperating margin of (28.4)%, for the comparable period in 2008.

 

The decrease in the lossfrom operations was a result of the higher revenues described above and animprovement in gross profit margin as a percentage of revenue.

 

***Nine Months Ended September 30, 2009 Compared to theNine Months Ended September 30, 2008***

 

***Consolidated Results***

 

The following tablepresents our results for the nine months ended September 30, 2009 and 2008(dollars in millions, except per share data):

 

29

----

Tableof Contents

 
| ** **                                                                           | ** ** | **Nine Months Ended**  | ** ** |
|--------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                           | ** ** | **September 30,** | ** ** |
| ** **                                                                           | ** ** | **2009**               | ** ** | **2008** | ** ** |
| Product  revenue                                                                     |       | $                      | 655.8      |   | $ | 700.4 |   |
| Service  revenue                                                                     |       | 87.6                   |       | 87.7 |   |
| Other  revenue                                                                       |       | 4.7                    |       | 3.8 |   |
| Total  revenue                                                                       |       | 748.1                  |       | 791.9 |   |
|                                                                                 |       |                   |       |   |   |
| Cost  of product revenue                                                             |       | 364.8                  |       | 382.3 |   |
| Cost  of service revenue                                                             |       | 50.2                   |       | 54.9 |   |
| Total  cost of revenue                                                               |       | 415.0                  |       | 437.2 |   |
| Gross  profit                                                                        |       | 333.1                  |       | 354.7 |   |
|                                                                                 |       |                   |       |   |   |
| Operating  expenses:                                                                 |       |                   |       |   |   |
| Sales  and marketing                                                                 |       | 130.6                  |       | 136.7 |   |
| General  and administrative                                                          |       | 50.8                   |       | 51.7 |   |
| Research  and development                                                            |       | 91.8                   |       | 100.8 |   |
| Acquisition-related  charges (credits), net                                          |       | (0.6                   | )          | 6.2 |   |
| Total  operating expenses                                                            |       | 272.6                  |       | 295.4 |   |
| Operating  income                                                                    |       | 60.5                   |       | 59.3 |   |
|                                                                                 |       |                   |       |   |   |
| Interest  and other income (expense), net                                            |       | (4.6                   | )          | (7.8 | ) |
| Income  before income taxes and noncontrolling interest in consolidated subsidiaries |       | 55.9                   |       | 51.5 |   |
| Income  tax provision                                                                |       | 18.5                   |       | 12.5 |   |
| Consolidated  net income                                                             |       | 37.4                   |       | 39.0 |   |
| Less:  net income attributable to noncontrolling interests                           |       | (0.3                   | )          | 0.3 |   |
| Net  income attributable to Bruker Corporation                                       |       | $                      | 37.7       |   | $ | 38.7 |   |
|                                                                                 |       |                   |       |   |   |
| Net  income per common share attributable to Bruker Corporation shareholders:        |       |                   |       |   |   |
| Basic                                                                                |       | $                      | 0.23       |   | $ | 0.24 |   |
| Diluted                                                                              |       | $                      | 0.23       |   | $ | 0.23 |   |
|                                                                                 |       |                   |       |   |   |
| Weighted  average common shares outstanding:                                         |       |                   |       |   |   |
| Basic                                                                                |       | 163.4                  |       | 162.5 |   |
| Diluted                                                                              |       | 164.7                  |       | 165.6 |   |

 

***Revenue***

 

Our revenue decreased by$43.8 million, or (5.5)%, to $748.1 million for the nine months ended September 30,2009, compared to $791.9 million for the comparable period in 2008. Included inthis change in revenue is a reduction of approximately $47.6 million from theimpact of foreign exchange. Excluding the effect of foreign exchange, revenueincreased by 0.5%. The increase in revenue, excluding the effect of foreignexchange, is attributable mainly to higher sales of mass spectrometry systemsoffset by lower sales of magnetic resonance systems and X-ray and spark-OESsystems. The mix of products sold reflects the overall trend in revenue from priorquarters, specifically, lower demand from industrial customers offset byincreased demand from academic and government customers.

 

***Cost of Revenue***

 

Our cost of product andservice revenue for the nine months ended September 30, 2009, was $415.0million,

 

30

----

Tableof Contents

 

resulting in a grossprofit margin of 44.5%, compared to cost of product and service revenue of$437.2 million, resulting in a gross profit margin of 44.8%, for the comparableperiod in 2008. Lower revenues also resulted in lower gross profits. Highergross profit margins on our newly introduced mass spectrometry products, inaddition to productivity initiatives, the benefits of cost cutting and changesin foreign exchange rates, allowed us to maintain our overall gross profitmargin despite lower revenues.

 

***Sales and Marketing***

 

Our sales and marketingexpense for the nine months ended September 30, 2009 decreased to $130.6million, or 17.6% of product and service revenue, from $136.7 million, or 17.3%of product and service revenue, for the comparable period in 2008. The decreasein sales and marketing expense is attributable mainly to changes in foreigncurrency exchange rates, primarily the Euro. Additionally, realized thebenefits from certain cost cutting initiatives, but those savings were offset,in part, by selling and marketing efforts associated with a number of recentlyintroduced products.

 

***General and Administrative***

 

Our general andadministrative expense for the nine months ended September 30, 2009 was$50.8 million, or 6.8% of product and service revenue, essentially flatcompared with general and administrative expense of $51.7 million, or 6.6% ofproduct and service revenue, for the comparable period in 2008.

 

***Research and Development***

 

Our research anddevelopment expense for the nine months ended September 30, 2009 decreasedto $91.8 million, or 12.3% of product and service revenue, from $100.8 million,or 12.8% of product and service revenue, for the comparable period in 2008. Thedecrease in research and development expense is attributable mainly to changesin foreign currency exchange rates, primarily the Euro, as a majority of ourresearch and development is performed in Europe. Additionally, we realized thebenefits from certain cost cutting initiatives, but those savings were offset,in part, by investments in a number of new products and features scheduled tobe released in the next six to twelve months.

 

***Acquisition-Related Charges (Credits), Net***

 

Acquisition-relatedcredits of $(0.6) million recorded in the first nine months of 2009 relateentirely to the Energy and Supercon Technologies segment and include a bargain purchasegain of $2.1 million recorded in connection with the acquisition of theresearch instruments business from Varian Medical Systems, Inc. offset, inpart, by $0.8 million of transaction costs incurred in connection with theacquisition of the research instruments business and $0.7 million of impairmentcharges associated with fixed assets used in the production of certainsuperconducting wire.

 

Acquisition-relatedcharges in the first nine months of 2008 relate entirely to the ScientificInstruments segment and consist of $6.2 million of transaction costs incurredin connection with the acquisition of Bruker BioSpin. The acquisition of BrukerBioSpin represented a combination of companies under common control due to amajority of ownership of both Bruker Corporation and Bruker BioSpin by the sameindividuals and, as a result, transaction costs were expensed as incurred.

 

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

 

Interest and other income(expense), net during the nine months ended September 30, 2009 was $(4.6)million, compared to $(7.8) million for the comparable period of 2008.

 

During the nine monthsended September 30, 2009, the major component within interest and otherincome (expense), net was net interest expense of $5.0 million. During thenine months ended September 30, 2008, the major component within interestand other income (expense), net, was realized and unrealized losses on foreigncurrency transactions of $5.8 million. Losses on foreign currency transactionsin the first nine months of 2008

 

31

----

Tableof Contents

 

resulted from there-measurement of certain foreign currency denominated assets, principallycash, inter-company receivables and a short-term inter-company loan into thefunctional currency of the affected entities.

 

***Income Tax Provision***

 

Our effective tax rategenerally reflects our tax provision for non-U.S. entities only since nobenefit was recognized for losses incurred in the U.S. We will maintain a fullvaluation allowance against all U.S. deferred tax assets, including our U.S.net operating losses and tax credits, until evidence exists that it is morelikely than not that the loss carryforward and credit amounts will be utilizedto offset U.S. taxable income. Our tax rate may change over time as the amountand mix of income and taxes outside the U.S. changes. The effective tax rate iscalculated using our projected annual pre-tax income or loss and is affected bytax credits, the expected level of other tax benefits, and the impact ofchanges to the valuation allowance, as well as changes in the mix of ourpre-tax income and losses among jurisdictions with varying statutory tax ratesand credits.

 

The income tax provisionfor the nine months ended September 30, 2009, was $18.5 million comparedto $12.5 million for the nine months ended September 30, 2008,representing effective tax rates of 33.1% and 24.3%, respectively. The taxprovision in the first nine months of 2008 benefited from reversing certainvaluation allowances and reaching the more-likely-than-not threshold forrecognizing certain tax receivables in the third quarter of 2008.

 

During the third quarterof 2008, two German subsidiaries in the Scientific Instruments segment weremerged into a third German subsidiary. As a result of the merger, we were ableto use certain net operating loss carryforwards that existed in the mergedentities but had previously been fully reserved. The valuation allowancerelated to these net operating loss carryforwards was reversed in the thirdquarter of 2008 and resulted in a tax benefit of approximately $6.5 million.Additionally, we established a profit and loss sharing agreement between twoother German subsidiaries during the third quarter of 2008. This agreementallows the losses of one entity to reduce the taxable income of the otherentity. Prior to this agreement being put in place, certain deferred tax assetsrelated to these entities had full valuation allowances. These valuationallowances were reversed during the third quarter of 2008 resulting in a taxbenefit of approximately $1.2 million.

 

We received a $0.5million refund of French taxes on inter-corporate dividends during the thirdquarter of 2008 which was recorded as a tax benefit. This refund related towithholding taxes paid in connection with dividends paid by a French subsidiaryto its Swiss parent company in 2005 and 2006. At the end of 2007, as a resultof a tax law change in France, we determined that a refund of these withholdingtaxes was uncertain and did not meet the more likely than not threshold forrecording a tax receivable. As such, the 2005, 2006 and 2007 taxes paid ondividends from the French subsidiary to its Swiss parent were expensed throughthe income tax provision with no corresponding tax receivable recorded. Becausethe facts and circumstances around the dividends and the withholding taxes werethe same for all three years and the 2005 and 2006 withholding taxes were refundedby the French government, we concluded that it was more likely than not thatthe 2007 French withholding taxes would also be refunded. As such, we alsorecorded a tax benefit of approximately $2.7 million during the third quarterof 2008 for the 2007 withholding tax receivable. We received the refund ofthese withholding taxes in the third quarter of 2009.

 

***Net Income (Loss) Attributable to Noncontrolling Interests***

 

Net income (loss)attributable to noncontrolling interests for the nine months ended September 30,2009 was $(0.3) million compared to $0.3 million for the comparable period of2008. Net income (loss) attributable to noncontrolling interests represents theminority shareholders’ proportionate share of the net income (loss) recorded byfive majority-owned indirect subsidiaries, Bruker Baltic Ltd., Bruker LabmatePvt. Ltd., InCoaTec GmbH and Perch Solutions OY, which are included in theScientific Instruments segment, and RI Research Instruments GmbH, which isincluded in the Energy and Supercon Technologies segment.

 

***Net Income Attributable to Bruker Corporation***

 

Our net income for thenine months ended September 30, 2009, was $37.7 million, or $0.23 perdiluted share, compared to $38.7 million, or $0.23 per diluted share for thecomparable period in 2008.

 

32

----

Table of Contents

 

***Segment Results***

 

***Revenue***

 

The following tablepresents revenue, change in revenue and revenue growth by reportable segmentfor the nine months ended September 30, 2009 and 2008 (dollars inmillions):

 
| ** **                        | ** ** | **2009** | ** **  | **2008** | ** ** | **Dollar Change** | ** ** | **Percentage  Change** | ** ** |
|-----------------------------------|------------|----------|-------------|----------|------------|-------------------|------------|------------------------|------------|
| Scientific  Instruments           |       | $        | 716.5       |     | $          | 767.3             |       | $                      | (50.8      | ) | (6.6 | )% |
| Energy  and Supercon Technologies |       | 36.0     |        | 32.5     |       | 3.5               |       | 10.8                   | %          |
| Eliminations  (a)                 |       | (4.4     | )           | (7.9     | )          | 3.5               |       |                   |       |
|                              |       | $        |  748.1 |     | $          | 791.9             |       | $                      | (43.8      | ) | (5.5 | )% |

 

----

(a) Representsproduct and service revenue between reportable segments.

 

***ScientificInstruments Segment Revenues***

 

Scientific Instrumentssegment revenue decreased by $50.8 million, or 6.6%, to$716.5 million for the nine months ended September 30, 2009, compared to$767.3 million for the comparable period in 2008. Included in this changein revenue is a reduction of approximately $43.5 million from the impactof foreign exchange. Excluding the effect of foreign exchange, revenuedecreased by 1.0%. The decrease in revenue, excluding the effect of foreignexchange, is related primarily to decreased sales volume of magnetic resonancesystems and X-ray and spark-OES products. The decrease in revenue was offset,in part, by higher volumes of mass spectrometry systems. The mix of productssold in the Scientific Instruments segment reflects the trend in revenue overseveral previous quarters, specifically, lower demand from industrial customersoffset by increased demand from academic and government customers.

 

System revenue andaftermarket revenue as a percentage of total Scientific Instruments segmentrevenue were as follows during the nine months ended September 30, 2009and 2008 (dollars in millions):

 
| ** **           | ** ** | **2009**    | ** ** | **2008**                            | ** ** |
|----------------------|------------|-------------|------------|-------------------------------------|------------|
| ** **           | ** ** | **Revenue** | ** ** | **Percentage of  Segment  Revenue** | ** ** | **Revenue** | ** ** | **Percentage of  Segment  Revenue** | ** ** |
| System  revenue      |       | $           | 565.4      |                                | 78.9       | % | $ | 603.2 |   | 78.6 | % |
| Aftermarket  revenue |       | 151.1       |       | 21.1                                | %          | 164.1 |   | 21.4 | % |
| Total  revenue       |       | $           | 716.5      |                                | 100.0      | % | $ | 767.3 |   | 100.0 | % |

 

System revenues in theScientific Instruments segment include X-ray systems, nuclear magneticresonance systems, magnetic resonance imaging systems, electron paramagneticimaging systems, mass spectrometry systems, CBRNE detection systems andmolecular spectroscopy systems. Aftermarket revenues in the ScientificInstruments segment include accessory sales, consumables, training andservices.

 

***Energyand Supercon Technologies******Segment Revenues***

 

Energy and SuperconTechnologies segment revenue increased by $3.5 million, or 10.8%, to$36.0 million for the nine months ended September 30, 2009, comparedto $32.5 million for the comparable period in 2008. Included in thischange in revenue is a reduction of approximately $4.1 million from theimpact of foreign exchange. Excluding the effect of foreign exchange, revenueincreased by 23.4%. The increase in revenue, excluding the effect of foreignexchange, is attributable to the acquisition of the research instrumentsbusiness offset in part by lower demand for certain superconducting wire.

 

System and wire revenueand aftermarket revenue as a percentage of total Energy and SuperconTechnologies segment revenue were as follows during the nine months ended September 30,2009 and 2008 (dollars in millions):

 

33

----

Tableof Contents

 
| ** **               | ** ** | **2009**    | ** ** | **2008**                            | ** ** |
|--------------------------|------------|-------------|------------|-------------------------------------|------------|
| ** **               | ** ** | **Revenue** | ** ** | **Percentage of  Segment  Revenue** | ** ** | **Revenue** | ** ** | **Percentage of  Segment  Revenue** | ** ** |
| System  and wire revenue |       | $           | 34.4       |                                | 95.6       | % | $ | 29.6 |   | 91.1 | % |
| Aftermarket  revenue     |       | 1.6         |       | 4.4                                 | %          | 2.9 |   | 8.9 | % |
| Total  revenue           |       | $           | 36.0       |                                | 100.0      | % | $ | 32.5 |   | 100.0 | % |

 

System and wire revenuesin the Energy and Supercon Technologies segment include low and hightemperature superconducting wire and electron and ion linear accelerators,superconducting and normal conducting accelerator cavities, insertion devices,superconducting fault current limiters, other accelerator components andspecialty superconducting magnets for physics and energy research and a varietyof other scientific applications. Aftermarket revenues in the Energy andSupercon Technologies segment include services and accessory sales.

 

***Income (Loss) from Operations***

 

The following tablepresents income (loss) from operations and operating margins on revenue by reportablesegment for the nine months ended September 30, 2009 and 2008 (dollars inmillions):

 
| ** **                             | ** ** | **2009**              | ** ** | **2008**                            | ** ** |
|----------------------------------------|------------|-----------------------|------------|-------------------------------------|------------|
| ** **                             | ** ** | **Operating  Income** | ** ** | **Percentage of  Segment  Revenue** | ** ** | **Operating  Income** | ** ** | **Percentage of  Segment  Revenue** | ** ** |
| Scientific  Instruments                |       | $                     | 63.4       |                                | 8.8        | % | $ | 65.7 |   | 8.6 | % |
| Energy  and Supercon Technologies      |       | (4.3                  | )          | (11.9                               | )%         | (6.6 | ) | (20.3 | )% |
| Corporate,  eliminations and other (a) |       | 1.4                   |       |                                |       | 0.2 |   |   |   |
| Total  operating income                |       | $                     | 60.5       |                                | 8.1        | % | $ | 59.3 |   | 7.5 | % |

 

----

(a) Representscorporate costs and eliminations not allocated to the reportable segments.

 

Scientific Instrumentssegment income from operations for the nine months ended September 30,2009 was $63.4 million, resulting in an operating margin of 8.8%, comparedto income from operations of $65.7 million, resulting in an operatingmargin of 8.6%, for the comparable period in 2008. Operating margins in thefirst nine months of 2008 included $6.2 million of acquisition-related charges.Excluding the effect of these acquisition-related charges, the operating marginfor the nine months ended September 30, 2008 was 9.4%.

 

Income from operations inthe Scientific Instruments segment decreased as a result of the lower revenuesdescribed above which resulted in lower gross profits. The decrease in grossprofit was offset, in part, by lower operating expenses. Gross profit margin asa percentage of revenue in the Scientific Instruments segment was 45.7% in thefirst nine months of 2009 compared 45.5% for the comparable period in 2008.Higher gross profit margins on our newly introduced mass spectrometry products,in addition to productivity initiatives, the benefits of cost cutting andchanges in foreign exchange rates, allowed us to maintain our overall grossprofit margins despite lower revenues. The decrease in operating expenses isattributable to changes in foreign currency exchange rates and cost reductionprograms implemented throughout the second half of 2008.

 

Energy and SuperconTechnologies segment loss from operations for the nine months ended September 30,2009 was $4.3 million, resulting in an operating margin of (11.9)%,compared to a loss from operations of $6.6 million, resulting in anoperating margin of (20.3)%, for the comparable period in 2008.

 

Loss from operations inthe Energy and Supercon Technologies segment in the first nine months of 2009included a bargain purchase gain of $2.1 million recorded in connection withthe acquisition of the research instruments business offset, in part, by $0.8million of transaction costs incurred in connection with the acquisition of theresearch instruments business and $0.7 million of impairment charges associatedwith fixed assets used in the production of certain superconducting wire.Excluding the effect of these acquisition-related charges, the decrease in theloss from operations resulted from higher revenues and an improvement in grossprofit margin as a percentage of revenue.

 

34

----

Tableof Contents

 

**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 make in the future. Historically, we have financed ourgrowth through a combination of debt financings and issuances of common stock.In the future, there can be no assurances that additional financingalternatives will be available to us if required, or if available, will beobtained on terms favorable to us.

 

During the nine monthsended September 30, 2009, net cash provided by operating activities was$67.3 million, resulting primarily from $37.7 million of net income and $12.0million of net changes in working capital. During the nine months ended September 30,2008, net cash provided by operating activities was $18.9 million,resulting primarily from $56.9 million of net income adjusted for non-cashitems offset, in part, by $38.0 million of net changes in working capital.

 

During the nine monthsended September 30, 2009, net cash used by investing activities was$11.2 million, compared to net cash used by investing activities of$41.0 million during the nine months ended September 30, 2008. Cashused by investing activities during the nine months ended September 30,2009 was attributable primarily to $8.9 million of capital expendituresand $1.6 million used for acquisitions. Cash used by investing activitiesduring the nine months ended September 30, 2008 was attributable primarilyto $39.8 million of capital expenditures. The decrease in capitalexpenditures during the nine months ended September 30, 2009 comparedto 2008 related primarily to the expansion of our facility in Ettlingen,Germany, which was completed in the third quarter of 2008.

 

During the nine monthsended September 30, 2009, net cash used by financing activities was$71.0 million, compared to net cash used by financing activities of$235.9 million during the nine months ended September 30, 2008. Cashused by financing activities during the nine months ended September 30,2009 was attributable to $71.6 million of net debt repayments undervarious long-term and short-term arrangements. Cash used by financingactivities during the nine months ended September 30, 2008 wasattributable to $386.0 million paid to certain shareholders of Bruker BioSpinin connection with the acquisition and $23.4 million of withholding taxes paidin connection with a dividend declared by Bruker BioSpin prior to theacquisition. These uses were offset, in part, by $172.7 million of netborrowings related primarily to the Credit Agreement.

 

At September 30, 2009,we had outstanding debt totaling $151.3 million consisting of$143.5 million outstanding under the Credit Agreement, including$135.0 million outstanding under a term loan and $8.5 million underrevolving loans, $2.5 million outstanding under other long-term debtarrangements, $0.4 million outstanding under other revolving lines ofcredit and $4.9 million under capital lease obligations. At September 30,2009, we classified the $8.5 million borrowed under the revolving creditline of the Credit Agreement as short-term because we expect to repay thisamount in the next twelve months. At December 31, 2008, we had outstandingdebt totaling $223.8 million consisting of $196.5 million outstandingunder the Credit Agreement, including $144.4 million drawn on a term loanand $52.1 million under revolving loans, $15.8 million outstandingunder other long-term debt arrangements, $6.2 million outstanding underother revolving lines of credit and $5.3 million under capital leaseobligations. At December 31, 2008, we classified $35.6 million of the$52.1 million borrowed under the revolving credit line of the CreditAgreement as long-term because of our expectation that we would not repay thisamount in the next twelve months.

 

On February 26,2008, we completed our acquisition of Bruker BioSpin for $914.0 million.The acquisition of Bruker BioSpin was financed with 57,544,872 shares ofunregistered common stock valued at $526.0 million based on the trailing10-day 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 a new credit facility, which we refer to as the Credit Agreement, and thebalance with cash on hand. The Credit Agreement, which is with a syndication oflenders, provides for a revolving credit line with a maximum commitment of$230.0 million and a term loan facility of $150.0 million. Theoutstanding principal under the term loan is payable in quarterly installmentsthrough December 2012. Borrowings under the Credit Agreement bearinterest, at our option, at either (i) the higher of the prime rate or thefederal funds rate plus 0.50%, or (ii) adjusted LIBOR, plus marginsranging from 0.40% to 1.25% and a facility fee ranging from 0.10% to 0.20%. Asof September 30, 2009, the weighted average interest rate of

 

35

----

Tableof Contents

 

borrowings under the termfacility of the Credit Agreement was approximately 2.7%.

 

Borrowings under theCredit Agreement are secured by the pledge to the banks of 100% of the capitalstock of each of our wholly-owned domestic subsidiaries and 65% of the capitalstock of certain of our wholly-owned direct or indirect foreign subsidiaries.The Credit Agreement also requires that we maintain certain financial ratiosrelated to maximum leverage and minimum interest coverage, as defined in theCredit Agreement. In addition to the financial ratios, the Credit Agreementrestricts, among other things, our ability to do the following: make certainpayments; incur additional debt; incur certain liens; make certain investments,including derivative agreements; merge, consolidate, sell or transfer all orsubstantially all of our assets; and enter into certain transactions withaffiliates. As of September 30, 2009, the latest measurement date, we werein compliance with the covenants of the Credit Agreement.

 

Other long-term debtarrangements at September 30, 2009 consist of collateralized arrangementswith various financial institutions in Germany and are at fixed and variableinterest rates ranging from 2.69% to 2.95% at September 30, 2009. The termof these arrangements are through various dates between 2010 and 2012.

 

Other revolving loans arewith various financial institutions located primarily in Germany, Switzerlandand France. The following is a summary of the maximum commitments and netamounts available to the Company under revolving loans as of September 30,2009 (in millions):

 
| ** **             | ** ** | **Weighted  Average  Interest Rate** | ** ** | **Total Amount  Committed by  Lenders** | ** ** | **Outstanding  Borrowings** | ** ** | **Outstanding  Letters of  Credit** | ** ** | **Total Amount  Available** | ** ** |
|------------------------|------------|--------------------------------------|------------|-----------------------------------------|------------|-----------------------------|------------|-------------------------------------|------------|-----------------------------|------------|
| Credit  Agreement      |       | 1.0                                  | %          | $                                       | 230.0      |                        | $          | 8.5                                 |       | $                           | 1.4        |   | $ | 220.1 |   |
| Other  revolving loans |       | 4.9                                  | %          | 81.0                                    |       | 0.4                         |       | 59.9                                |       | 20.7                        |       |
| Total  revolving loans |       | 1.1                                  | %          | $                                       | 311.0      |                        | $          | 8.9                                 |       | $                           | 61.3       |   | $ | 240.8 |   |

 

As of September 30,2009, we have approximately $4.5 million of net operating loss carryforwardsavailable to reduce future U.S. taxable income; however, these losses are severelylimited in terms of their use. The Company also has approximately $45.3 millionof German Trade Tax net operating losses that are carried forward indefinitelyand U.S. tax credits of approximately $7.9 million available to offset futuretax liabilities that expire at various dates. U.S. tax credits, after thefiling of the 2008 U.S. Federal tax return in September 2009, includeforeign tax credits of $6.2 million expiring in various years through 2018 andresearch and development tax credits of $1.7 million expiring at variousdates through 2025. These operating losses and tax credit carryforwards may besubject to limitations under provisions of the Internal Revenue Code.

 

The following tablesummarizes maturities for our significant financial obligations as of September 30,2009 (in millions):

 
| **Contractual Obligations**                | ** ** | **Total** | ** ** | **Less than 1  Year** | ** ** | **1-3 Years** | ** ** | **4-5 Years** | ** ** | **More than 5  Years** | ** ** |
|--------------------------------------------|------------|-----------|------------|-----------------------|------------|---------------|------------|---------------|------------|------------------------|------------|
| Revolving  lines of credit                 |       | $         | 8.9        |                  | $          | 8.9           |       | $             | —     |                   | $          | — |   | $ | — |   |
| Long-term  debt, including current portion |       | 142.4     |       | 22.0                  |       | 80.6          |       | 39.8          |       | —                 |       |
| Uncertain  tax contingencies               |       | 21.8      |       | —                |       | 21.8          |       | —        |       | —                 |       |
|                                            |            |           |            |                       |            |               |            |               |            |                        |            |  |  |  |  |  |

 

Uncertain taxcontingencies are positions taken or expected to be taken on an income taxreturn that may result in additional payments to tax authorities. The totalamount of uncertain tax contingencies is included in the “1-3 Years” column aswe are not able to reasonably estimate the timing of potential future payments.If a tax authority agrees with the tax position taken or expected to be takenor the applicable statute of limitations expires, then additional payments willnot be necessary.

 

**RECENT ACCOUNTING PRONOUNCEMENTS**

 

The Financial AccountingStandards Board (“FASB”) issued Accounting Standards Codification (“Codification”)Topic No. 105, *Generally AcceptedAccounting Principles*. Codification Topic No. 105 is effectivefor fiscal years, and interim periods, ending after September 15, 2009.Codification Topic No. 105 is intended to improve financial reporting byidentifying the *FASB Accounting StandardsCodification*and rules and interpretive releases of theSecurities and Exchange Commission (“SEC”) under authority of federalsecurities laws as the sole

 

36

----

Tableof Contents

 

sources of authoritativeaccounting principles to be used in preparing financial statements that arepresented in conformity with accounting principles generally accepted in theUnited States of America for SEC registrants. The adoption of CodificationTopic No. 105 did not have a material impact on our results of operations,financial position or cash flows.

 

In September 2009,the Emerging Issues Task Force reached consensus on FASB Accounting StandardsUpdate 2009-14, *Software (Topic 985)—Certain RevenueArrangements That Include Software Elements*. FASB AccountingStandards Updates 2009-14 changes the accounting model for revenue arrangementsthat include both tangible products and software elements. Under this guidance,tangible products containing software components and non-software componentsthat function together to deliver the tangible product’s essentialfunctionality are excluded from the software revenue guidance in Subtopic No. 985-605,*Software-Revenue Recognition.* Inaddition, hardware components of a tangible product containing softwarecomponents are always excluded from the software revenue guidance. FASBAccounting Standards Updates 2009-14 is effective prospectively for revenuearrangements entered into or materially modified in fiscal years beginning onor after June 15, 2010. However, early adoption is permitted. We arecurrently assessing the impact that the additional disclosure requirements willhave on our results of operations and financial position and when we will adoptthese requirements.

 

In September 2009,the Emerging Issues Task Force reached consensus on FASB Accounting StandardsUpdate 2009-13, *Revenue Recognition (Topic605)—Multiple-Deliverable Revenue Arrangements*. FASB AccountingStandards Update 2009-13 addresses the accounting for multiple-deliverablearrangements to enable vendors to account for products or services separatelyrather than as a combined unit. Specifically, this guidance amends the criteriain Subtopic No. 605-25, *RevenueRecognition-Multiple-Element Arrangements,* for separatingconsideration in multiple-deliverable arrangements. This guidance establishes aselling price hierarchy for determining the selling price of a deliverable,which is based on: (a) vendor-specific objective evidence; (b) third-partyevidence; or (c) estimates. This guidance also eliminates the residualmethod of allocation and requires that arrangement consideration be allocatedat the inception of the arrangement to all deliverables using the relativeselling price method. In addition, this guidance significantly expands requireddisclosures related to a vendor’s multiple-deliverable revenue arrangements.FASB Accounting Standards Update 2009-13 is effective prospectively for revenuearrangements entered into or materially modified in fiscal years beginning onor after June 15, 2010, however, early adoption is permitted. We arecurrently assessing the impact that the additional disclosure requirements willhave on our results of operations and financial position and when we will adoptthese requirements.

 

The FASB amendedCodification Topic No. 715, *Compensation—RetirementPlans*, to require detailed disclosures regarding the investmentstrategies, fair value measurements, and concentrations of risk of plan assetsof a defined benefit pension or other postretirement plan. The additionaldisclosures are effective for fiscal years ending after December 15, 2009and will be applied prospectively. We are currently assessing the impact thatFSP 132(R)-1 will have on our results of operations and financial position.

 

**ITEM 3.****                                                    ****QUANTITATIVE ANDQUALITATIVE 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 market valuationsand sensitivity analysis.

 

***Impact of 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 denominated in U.S. Dollars, if there is anincrease in the rate at which a foreign currency is exchanged for U.S. Dollars,it will require more of the foreign currency to equal a specified amount ofU.S. Dollars than before the rate increase. In such cases, if we price ourproducts in the foreign currency, we will receive less in U.S. Dollars than wedid before the rate increase went into effect. If we price our products in U.S.Dollars and competitors price their

 

37

----

Tableof Contents

 

products in localcurrency, an increase in the relative strength of the U.S. Dollar could resultin our prices not being competitive in a market where business is transacted inthe local currency.

 

Our foreign exchangegains (losses), net were $(0.2) million and $(5.8) million for the ninemonths ended September 30, 2009 and 2008, respectively. From time to time,we have entered into foreign currency contracts in order to minimize thevolatility that fluctuations in exchange rates have on our cash flows relatedto purchases and sales denominated in foreign currencies. We will continue toevaluate our currency risks and in the future may utilize foreign currency contractsmore frequently as part of a transactional hedging program.

 

***Impact of Interest Rates***

 

We regularly investexcess cash in short-term investments that are subject to changes in interestrates. We believe that the market risk arising from holding these financialinstruments 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. A 10% increase ordecrease in the average cost of our variable rate debt would not result in amaterial change in pre-tax interest expense.

 

In April 2008, weentered into an interest rate swap arrangement to pay a fixed rate ofapproximately 3.8% and receive a variable rate based on three month LIBORthrough December 31, 2012. The initial notional amount of this interestswap was $90.0 million and amortizes in proportion to the term debtcomponent of our Credit Agreement. At September 30, 2009, the outstandingnotional amount of this swap was $81.0 million. We have determined that thisswap is an effective hedge of the variability of cash flows of the interestpayments.

 

***Inflation***

 

We do not believeinflation had a material impact on our business or operating results during anyof the periods presented.

 

**ITEM 4.****                                                    ****CONTROLS AND 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 September 30, 2009. Based on this evaluation, our ChiefExecutive Officer and Chief Financial Officer concluded that our disclosurecontrols and procedures were effective, as of September 30, 2009, toensure that the information required to be disclosed by us in the reports thatwe file or submit under the Securities Exchange Act of 1934 is recorded,processed, summarized and reported within the time periods specified in the SEC’srules and forms.

 

There were no changes inour internal control over financial reporting that occurred during the quarterended September 30, 2009 that materially affected, or are reasonablylikely to affect, our internal control over financial reporting.

 

38

----

Table of Contents

 

**PART II****                                                  ****OTHER INFORMATION**

 

**ITEM 1.****                                                    ****LEGAL PROCEEDINGS**

 

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, 2008 and our Quarterly Reports on Form 10-Qfor the quarters ended March 31, 2009 and June 30, 2009.

 

As previously reported, we have provided information to the Securitiesand Exchange Commission, or SEC, in connection with its investigation of certainallegations raised by a former Bruker BioSpin employee. In August 2009, wereceived notice from the SEC that the SEC staff had completed its investigationof the matter and did not intend to recommend enforcement action.

 

As previously reported, Roenalytic GmbH, previously known asRoentgenanalytik Appartebau GmbH, (“RAA”) filed a civil proceeding in Germanyagainst a Bruker AXS subsidiary and one employee and raised criminalallegations against certain employees of the same Bruker AXS subsidiary in connectionwith alleged improper use of certain intellectual property of RAA and libel. Ahearing on the civil matter was held in September 2009 and the decision ofthe court in Frankfurt am Main is expected to be delivered in the fourthquarter of 2009.

 

In the related criminal proceeding, during the third quarter of 2009RAA began its inspection of certain items authorized by the court. Theinspection has not been completed.

 

The Bruker AXS subsidiary continues to deny all allegations made by RAAin both proceedings. The Bruker AXS subsidiary intends to continue to pursueits action for declaratory judgment in the civil proceeding and continue toprovide legal counsel to the employees in the criminal inquiry.

 

**ITEM 1A.****                                           ****RISK FACTORS**

 

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, 2008, which could materially affect ourbusiness, financial condition or future results. The risks described in thisreport and in our Annual Report on Form 10-K are not the only risks facingour Company. Additional risks and uncertainties not currently known to us orthat we currently deem to be immaterial also may materially adversely affectour business, financial condition and/or operating results.

 

Except as set forthbelow, there have been no material changes to the risk factors previouslydisclosed in our Annual Report on Form 10-K for the fiscal year ended December 31,2008.

 

***Theglobal recession continues to hinder our growth.***

 

The global recession hashad a continuing impact on our revenues and profitability during 2009 and weexpect it will materially impact our financial performance for the remainder ofthis year. We experienced a decrease in revenues in the first half of 2009compared to the prior year period, and our operating income also declined.While we previously had anticipated improvement in our operating margin andearnings per share in 2009, we are not likely to reach that goal, and ourrevised goal is to minimize 2009 margin deterioration or to keep margins flatduring the recession. While we anticipate eventual margin improvement withanticipated benefits from stimulus funding and a gradual recovery in the globaleconomy, we cannot be sure of the extent to which we will benefit from stimulusfunding or when or how robustly the global economy will improve. Our revenuesand profitability may not improve or may further deteriorate.

 

***Wemay not realize anticipated benefits from global stimulus packages.***

 

Many governments aroundthe world, including the U.S. federal government, have enacted various stimuluspackages that are intended to increase investment and business activity, and inparticular to provide funding for life 

 

39

----

Tableof Contents

 

science research,equipment and facilities. Although we believe there is opportunity for Brukerto benefit from such economic stimulus spending programs, including theAmerican Recovery and Investment Act of 2009, there is no assurance that anysuch programs will have a material positive impact on our revenues and profits.The magnitude and timing of any benefits that we might realize from stimulusfunding initiatives are uncertain and are subject to a number of factors beyondour control, including, without limitation, government appropriations processesin various countries in which we and our customers do business, governmentaldeterminations regarding the allocation of stimulus funds to the academicinstitutions, not-for-profit research organizations and businesses that mayutilize our products and technologies, the success of our customers inobtaining stimulus grants, and our customers’ decisions to use any stimulusfunds they receive to purchase products from us. It is not possible to predictwhether or when we will realize the benefits from stimulus packages enacted inthe U.S. or elsewhere, or what impact, if any, stimulus packages will have onour business, results of operations or financial condition or the trading priceof our common stock.

 

***Ournew technologies and product developments may not succeed.***

 

We are currentlydeveloping a number of new key technologies and products, including various newLTS and HTS superconductors, prototype crystal growth magnets, and prototypesuperconducting fault current limiters at Bruker Energy and SuperconTechnologies, new magnet types at Bruker BioSpin, new mass spectrometrytechnologies and applications at Bruker Daltonics, and new CBRNE detectionproducts that may not succeed technically, or may not be able to bemanufactured reliably and economically. Any technology, product ormanufacturing ramp-up failure could decrease our opportunities for additionalrevenues and increased margins.

 

***Healthcare reform in the U.S. could adversely affect our revenue.***

 

President Obama hasstated that health care reform in the U.S. is one of his top priorities, and ithas recently been a topic of active discussion and debate. It is too soon topredict what form this reform may take, or whether and when it will happen.However, because many of our products are used for life science and health careapplications, it is possible that health care reform in the U.S. couldadversely affect our revenue.

 

**ITEM 2.****                                                    ****UNREGISTERED SALES OFEQUITY SECURITIES AND USE OF PROCEEDS**

 

The following table setsforth all purchases made by or on behalf of the Company or any “affiliated purchaser,”as defined in Rule 10b-18(a)(3) under the Exchange Act, of shares ofour common stock during each month in the third quarter of 2009.

 
| **Period**                                  | ** ** | **Total Number of  Shares Purchased** | ** ** | **Average Price  Paid per Share** | ** ** | **Total Number of  Shares Purchased  as Part of  Publicly  Announced Plans  or Programs** | ** ** | **Maximum  Number of Shares  that May Yet Be  Purchased Under  the Plans or  Programs** | ** ** |
|---------------------------------------------|------------|---------------------------------------|------------|-----------------------------------|------------|------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|
| July 1  - July 31, 2009           |       | 75,000                                |       | $                                 | 10.11      |                                                                                           | —     |                                                                                         | —     |   |
| August 1  - August 31, 2009       |       | 75,000                                |       | 10.04                             |       | —                                                                                         |       | —                                                                                       |       |
| September 1  - September 30, 2009 |       | 100,000                               |       | 9.85                              |       | —                                                                                         |       | —                                                                                       |       |
|                                        |       | 250,000                               |       | $                                 | 9.98       |                                                                                           | —     |                                                                                         | —     |   |

 

All purchases were madeby the Company’s Chief Executive Officer, Frank H. Laukien. Shares purchased inJuly 2009 and August 2009 were open market purchases effected inaccordance with the safe harbor provisions of Rule 10b-18 of the ExchangeAct. All shares purchased in September 2009 were purchased from Marc M.Laukien, Frank H. Laukien’s half-brother and a former 5% beneficial owner, in aprivately negotiated transaction. The purchases were previously disclosed onForms 4 filed with the U.S. Securities and Exchange Commission.

 

40

----

Tableof Contents

 

**ITEM 3.****                                                    ****DEFAULTS UPON SENIORSECURITIES**

 

None.

 

**ITEM 4.****                                                    ****SUBMISSION OF MATTERS TOA VOTE OF SECURITY HOLDERS**

 

None.

 

**ITEM 5.****                                                    ****OTHER INFORMATION**

 

None.

 

**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) Furnishedherewith.

 

41

----

Tableof 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: November 9,  2009 |   | By:                |   /s/ FRANK H. LAUKIEN, PH.D. |
|                         |   |               |   Frank H. Laukien, Ph.D.   President, Chief Executive Officer and Chairman   (Principal Executive Officer) |
|                         |   |               |   |
| Date: November 9,  2009 |   | By:                |   /s/ WILLIAM J. KNIGHT |
|                         |   |               |   William J. Knight   Chief Financial Officer   (Principal Financial Officer) |

 

42

----