News Column

BRUKER CORP - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

February 27, 2014

The following Management's Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, describes the principal factors affecting the results of our operations, financial condition and changes in financial condition, as well as our critical accounting policies and estimates. Our MD&A is organized as follows:

Executive Overview. This section provides a general description and history of our business, a brief discussion of our reportable segments, significant recent developments in our business and other opportunities, and challenges and risks that may impact our business in the future. Critical Accounting Policies. This section discusses the accounting estimates that are considered important to our financial condition and results of operations and require us to exercise subjective or complex judgments in their application. All of our significant accounting policies, including our critical accounting policies and estimates, are summarized in Note 2 to our consolidated financial statements in Item 8 of this Annual Report on Form 10-K. Results of Operations. This section provides our analysis of the significant line items on our consolidated statement of income for the year ended December 31, 2013 compared to the year ended December 31, 2012 and for the year ended December 31, 2012 compared to the year ended December 31, 2011. Liquidity and Capital Resources. This section provides an analysis of our liquidity and cash flow and a discussion of our outstanding debt and commitments. Transactions with Related Parties. This section summarizes transactions with principal shareholders and directors.



EXECUTIVE OVERVIEW

Business Overview

Bruker Corporation and its wholly-owned subsidiaries design, manufacture, service and distribute proprietary life science and materials research systems based on our technology platforms, including magnetic resonance technologies, mass spectrometry technologies, gas chromatography technologies, infrared and Raman molecular spectroscopy technologies, X-ray technologies, spark-optical emission spectroscopy, atomic force microscopy, and stylus and optical metrology technology. We sell a broad range of field analytical systems for chemical, biological, radiological, nuclear and explosive (CBRNE) detection. We also develop and manufacture low temperature and high temperature superconducting wire products and superconducting wire and superconducting devices for use in advanced magnet technology, physics research and energy applications. Our diverse customer base includes life science, pharmaceutical, biotechnology and molecular diagnostic research companies, academic institutions, advanced materials and semiconductor industries and government agencies. Our corporate headquarters are located in Billerica, Massachusetts. We maintain major technical and manufacturing centers in Europe, North America and Japan and we have sales offices located throughout the world.

Our business strategy is to capitalize on our ability to innovate and generate above market revenue growth, both organically and through acquisitions. Our revenue growth strategy combined with anticipated improvements to our gross profit margins and increased leverage on our research and development, sales and marketing and distribution investments and general and administrative expenses is expected to enhance our operating margins and improve our profitability in the future.

We are organized into four operating segments: the Bruker BioSpin Group, the Bruker CALID Group, the Bruker MAT Group, and Bruker Energy & Supercon Technologies (BEST) division. The Bruker BioSpin Group combines the Bruker Magnetic Resonance and Preclinical Imaging divisions and

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designs, manufactures and distributes enabling life science tools based on magnetic resonance technology.

The Bruker CALID Group combines the Bruker Life Sciences and Clinical (LSC), Bruker Chemical and Applied Markets (CAM), Bruker Detection and Bruker Optics divisions and designs, manufactures, and distributes mass spectrometry and chromatography instruments and solutions for life sciences, including proteomics, metabolomics and clinical research applications. Our mass spectrometry and chromatography instruments also provide solutions for applied markets that include food safety, environmental analysis and petrochemical analysis. Bruker CALID also designs, manufactures and distributes various analytical instruments for CBRNE detection and research, as well as analytical, research and process analysis instruments and solutions based on infrared and Raman molecular spectroscopy technologies.

The Bruker MAT Group includes the Bruker AXS, Bruker Nano Surfaces, Bruker Nano Analytical and Bruker Elemental divisions and designs, manufactures and distributes advanced X-ray, spark-optical emission spectroscopy, atomic force microscopy and stylus and optical metrology instrumentation used in non-destructive molecular, materials and elemental analysis.

The BEST division designs, manufactures and distributes low temperature superconductor and high temperature superconductor materials for use in advanced magnet technology and energy applications as well as linear accelerators, accelerator cavities, insertion devices, other accelerator components and specialty superconducting magnets for physics and energy research and a variety of other scientific applications.

For financial reporting purposes, we aggregate the Bruker BioSpin, Bruker CALID and Bruker MAT operating segments into the Scientific Instruments (BSI) reporting segment, which represents approximately 93% of the Company's revenues for the year ended December 31, 2013. This aggregation reflects these operating segments' similar economic characteristics, production processes, customer services provided, types and classes of customers, methods of distribution and regulatory environments. As such, management reports its financial results based on the following segments:

BSI. The operations of the BSI segment include the design, manufacture and distribution of advanced instrumentation and automated solutions based on magnetic resonance technology, mass spectrometry technology, gas chromatography technology, infrared and Raman molecular spectroscopy technology, X-ray technology, spark-optical emission spectroscopy technology, atomic force microscopy technology and stylus and optical metrology technology. Typical customers of the BSI segment include: pharmaceutical, biotechnology and molecular diagnostic companies; academic institutions, medical schools and other non-profit organizations; clinical microbiology laboratories; government departments and agencies; nanotechnology, semiconductor, chemical, cement, metals and petroleum companies; and food, beverage and agricultural analysis companies and laboratories. BEST. The operations of the BEST segment include the design, manufacture and distribution of superconducting materials, primarily metallic low temperature superconductors, for use in magnetic resonance imaging, nuclear magnetic resonance, fusion energy research and other applications, and ceramic high temperature superconductors primarily for energy grid and magnet applications. Typical customers of the BEST segment include companies in the medical industry, private and public research and development laboratories in the fields of fundamental and applied sciences and energy research, academic institutions and government agencies. The BEST segment is also developing superconductors and superconducting-enabled devices for applications in power and energy, as well as industrial processing industries. 43



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Financial Overview

For the year ended December 31, 2013, our revenue increased by $48.0 million, or 2.7%, to $1,839.4 million, compared to $1,791.4 million for the year ended December 31, 2012. Included in this change in revenue are decreases of approximately $5.3 million from the impact of foreign exchange due to the strengthening of the U.S. Dollar versus the Japanese Yen, offset by a weakening of the U.S. Dollar versus the Euro, and approximately $3.8 million attributable to recent acquisitions and divestitures. Excluding the effects of foreign exchange and our recent acquisitions and divestitures, revenue increased by $57.1 million, or 3.2%. The increase in revenue on an adjusted basis is attributable to the BSI segment, which increased by $56.6 million, or 3.4%, and the BEST segment, which increased by $6.5 million, or 4.8%, offset by intersegment eliminations.

Revenue in the BSI segment on an adjusted basis reflects increased sales in the Bruker BioSpin and Bruker CALID Groups, specifically nuclear magnetic resonance products, MALDI Biotyper and Fourier transform mass spectrometry (FTMS) products sold by our LSC division and improved commercial execution by our Bruker Optics division. These increases were partially offset by declines in the Bruker MAT Group, specifically atomic force microscopy and X-ray products. The mix of products sold in the BSI segment during 2013 reflects significant quarterly variability in demand, both geographically and by end market, for our products. In particular, there was an increase in demand in academic markets, especially in Europe and Asia, offset by decreased demand from customers in industrial and microelectronics markets, particularly in Asia. We are uncertain whether the recent market conditions will continue or how our revenue derived from those market segments may be affected. Revenues in the BEST segment increased due to increased sales of low temperature superconducting wire as well as beamline and cavity device sales, partially offset by an incremental decline of $10.7 million of license revenue recognized on the sale of technology.

Gross profit for the year ended December 31, 2013 was $805.2 million compared to $829.4 million for the year ended December 31, 2012. Our gross profit margin for the year ended December 31, 2013 was 43.8%, compared with 46.3% for the year ended December 31, 2012. Excluding the effects of amortization of acquisition-related intangible assets and other acquisition-related costs and restructuring charges totaling, in the aggregate, $27.3 million and $21.9 million for the year ended December 31, 2013 and 2012, respectively, gross profit margins decreased to 45.3% for the year ended December 31, 2013 compared with 47.5% for the year ended December 31, 2012. The decrease in gross profit margins for the year ended December 31, 2013 was partially due to the negative effects of foreign exchange rates, including the impact of the strengthening of the U.S. Dollar versus the Japanese Yen, as our Yen denominated revenues substantially exceeded our Yen denominated expenses. Changes in the value of the Yen compared to the U.S. Dollar can have a significant positive or negative affect on our gross profit margins and income from operations. In addition, there was a year-over-year decline in the amount of license revenue recognized on the sale of technology in the BEST segment, which had no cost of revenue and further decreased our gross profit margins. Finally, volume and pricing declines in our Bruker MAT Group had a negative impact on our margins.

Selling, general and administrative expenses and research and development expenses decreased to $628.4 million, or 34.2% of revenue, in 2013 from $635.7 million, or 35.5% of revenue, in 2012. The decrease in selling, general and administrative expenses and research and development expenses in 2013 is attributable to lower discretionary spending, including management's decision to reduce spending in less profitable portions of the Company and lower levels of research and development material consumption. These effects were partially offset by increased general and administrative spending related to certain investments, including financial systems improvements.

We recorded an impairment charge in the amount of $23.8 million for the year ended December 31, 2012, comprising goodwill and definite-lived intangible assets of $1.4 million and $16.4 million, respectively, related to our CAM division, and an impairment charge of $6.0 million for

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other long-lived assets to reduce the carrying value to their estimated fair value. There was no impairment charge recorded for the year ended December 31, 2013.

Other charges, net were $28.6 million in 2013 as compared to $13.9 million in 2012. The increase in other charges, net was primarily due to $18.2 million of restructuring costs recorded in 2013 related to closing facilities and implementing outsourcing and other restructuring initiatives. Of the $18.2 million, $15.9 million is within the BSI segment and $2.3 million is within the BEST segment. This was partially offset by a decrease in legal and other professional service fees associated with our internal investigation and review of our operations in China.

Income from operations for the year ended December 31, 2013 was $148.2 million, resulting in an operating margin of 8.1%, compared to income from operations of $156.0 million, resulting in an operating margin of 8.7%, for the year ended December 31, 2012. Included in income from operations are various charges for amortization of acquisition-related intangible assets and other acquisition-related costs; impairment of goodwill, intangible assets and other long-term assets; legal and other professional services fees related to our internal investigation and review of our operations in China; and restructuring and relocation costs totaling, in the aggregate, $57.3 million and $63.0 million in 2013 and 2012, respectively. Excluding these charges, operating margins were 11.2% in 2013 and 12.2% in 2012. Adjusting for these items, the decrease in operating margins for the year ended December 31, 2013 compared to the prior year is primarily due to the negative effects of foreign exchange rates, including the impact of the strengthening of the U.S. Dollar versus the Japanese Yen, as our Yen denominated revenues substantially exceeded our Yen denominated expenses. This was partially offset by lower selling, general and administrative expenses and research and development expenses as noted above. We are continuing to focus on controlling costs and are reviewing additional selective cost saving programs to further reduce expenses and improve operating margins in 2014.

Our effective tax rate for 2013 was 34.3%, compared to 43.5% for 2012. The decrease in the effective tax rate was primarily due to the impairment charges noted above recorded in 2012, for which a tax deduction was not permitted.

Our net income attributable to the shareholders of Bruker Corporation for the year ended December 31, 2013 was $80.1 million, or $0.48 per diluted share, compared to $77.5 million, or $0.46 per diluted share, for the year ended December 31, 2012. The increase for the year ended December 31, 2013 was primarily due to higher revenue levels, reductions in overall operating expenses and a lower effective tax rate, partially offset by a decline in gross profit margins.

CRITICAL ACCOUNTING POLICIES

This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition, the expensing and capitalization of software development costs, stock-based compensation expense, restructuring and other related charges, income taxes, including the recoverability of deferred tax assets, allowances for doubtful accounts, inventory reductions for excess and obsolete inventories, estimated fair values of long-lived assets used to evaluate the recoverability of long-lived assets, intangible assets and goodwill, expected future cash flows used to evaluate the recoverability of intangible assets and long-lived assets, warranty costs, derivative financial instruments and contingent liabilities. We base our estimates and judgments on our historical experience, current market and economic conditions, industry trends, and other assumptions that we believe are reasonable and form the basis for making judgments

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about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.

We believe the following critical accounting policies to be both those most important to the portrayal of our financial position and results of operations and those that require the most subjective judgment.

Revenue recognition. We recognize revenue from system sales when persuasive evidence of an arrangement exists, the price is fixed or determinable, title and risk of loss has been transferred to the customer and collectability of the resulting receivable is reasonably assured. Title and risk of loss are generally transferred upon customer acceptance for a system that has been delivered to the customer and installed. When products are sold through an independent distributor or a strategic distribution partner who assumes responsibility for installation, we recognize the system sale when the product has been shipped and title and risk of loss have been transferred to the distributor. Our distributors do not have price protection rights or rights of return; however, our products are typically warranted to be free from defect for a period of one year. Revenue is deferred until cash is received when collectability is not reasonably assured or when the price is not fixed or determinable. For arrangements with multiple elements, we allocate revenue to each element either using vendor specific objective evidence (VSOE), third-party evidence (TPE) or estimated selling price (ESP). We attempt to determine the fair value of using VSOE. If VSOE is not available, we use TPE, and when we can't determine VSOE or TPE we use ESP. Typically, we cannot ascertain TPE. When products and services offered do not qualify as separate units of accounting, we recognize revenue upon customer acceptance for a system that has been shipped, installed, and for which the customer has been trained. As a result, the timing of customer acceptance or readiness could cause reported revenues to differ materially from expectations. Revenue from accessories and parts is recognized upon shipment and service revenue is recognized as the services are performed. We also have contracts for which we apply the percentage-of-completion model and completed contract model of revenue recognition. Application of the percentage-of-completion method requires us to make reasonable estimates of the extent of progress toward completion of the contract and the total costs we will incur under the contract and losses are recorded immediately when we estimate that contracts will ultimately result in a loss. Changes in our estimates could affect the timing of revenue recognition.

Income taxes. The determination of income tax expense requires us to make certain estimates and judgments concerning the annual effective tax rate, and the calculation of deferred tax assets and liabilities, the forecasted profitability of our subsidiaries in certain geographic jurisdictions, as well as the deductions, carryforwards and credits that are available to reduce taxable income. Deferred tax assets and liabilities arise from differences in the timing of the recognition of revenue and expenses for financial statement and tax purposes. Deferred tax assets and liabilities are measured using the tax rates in effect for the year in which these temporary differences are expected to be settled. We estimate the degree to which tax assets and loss carryforwards will result in a benefit based on expected profitability by tax jurisdiction, and we provide a valuation allowance for tax assets and loss carryforwards that we believe will more likely than not go unused. If it becomes more likely than not that a tax asset or loss carryforward will be used for which a reserve has been provided, we reverse the related valuation allowance. If our actual future taxable income by tax jurisdiction differs from estimates, additional allowances or reversals of reserves may be necessary. In addition, we only recognize benefits for tax positions that we believe are more likely than not of being sustained upon review by a taxing authority with knowledge of all relevant information. We reevaluate our uncertain tax positions on a quarterly basis and any changes to these positions as a result of tax audits, tax laws or other facts and circumstances could result in additional charges or credits to operations. The expiration of statutes of limitations affecting estimates made for uncertain tax positions can cause higher earnings.

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Inventories. Inventories are stated at the lower of cost or market, with costs determined by the first-in, first-out method for a majority of subsidiaries and by average cost for certain other subsidiaries. We record provisions to account for excess and obsolete inventory to reflect the expected non-saleable or non-refundable inventory based on an evaluation of slow moving products or products no longer offered for sale. Inventories also include demonstration units located in our demonstration laboratories or installed at the sites of potential customers. We consider our demonstration units to be available for sale. We reduce the carrying value of demonstration inventories for differences between cost and estimated net realizable value, taking into consideration usage in the preceding twelve months, expected demand, technological obsolescence and other information including the physical condition of the unit. If ultimate usage or demand varies significantly from 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 goodwill for impairment annually and when events occur or circumstances change. We test goodwill for impairment at the reporting unit level, which is the operating segment or one level below an operating segment. Under U.S. GAAP, we have the option of performing a qualitative assessment to determine whether further impairment testing is necessary before performing a two-step quantitative assessment. The qualitative assessment requires significant judgments about macro-economic conditions including the entity's operating environment; its industry and other market considerations; entity-specific events related to financial performance or loss of key personnel; and other events that could impact the reporting unit. If, as a result of our qualitative assessment, it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test will be required. Otherwise, no further testing is required. If a quantitative impairment test is performed, the first step involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. We generally determine the fair value of our reporting units using a weighting of both the market approach and the income approach methodologies. The income approach valuation methodology includes discounted cash flow estimates. Estimating the fair value of the reporting units requires significant judgment about the future cash flows. If the carrying amount of a reporting unit exceeds the fair value of the reporting unit, we perform the second step of the goodwill impairment test to measure the amount of the impairment. In the second step of the goodwill impairment test, we compare the implied fair value of the reporting unit's goodwill with the carrying value of that goodwill.

We also review definite-lived intangible assets and other long-lived assets when indications of potential impairment exist. Should the fair value of our long-lived assets decline because of reduced operating performance, market declines or other indicators of an impairment, a charge to operations for impairment may be necessary.

Warranty costs. We normally provide a one year parts and labor warranty with the purchase of equipment. The anticipated cost for this warranty is accrued upon recognition of the sale based on historical warranty rates and our assumptions of future warranty claims. The warranty accrual is included as a current liability on the consolidated balance sheets. Although our products undergo quality assurance and testing procedures throughout the production process, our warranty obligation is caused by product failure rates, material usage, and service delivery costs incurred in correcting a product failure. Although our actual warranty costs have historically been consistent with expectations, to the extent warranty claim activity or costs associated with servicing those claims differ from our estimates, changes to our reserve levels may be required.

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RESULTS OF OPERATIONS

Year Ended December 31, 2013 Compared to the Year Ended December 31, 2012

Consolidated Results

The following table presents our results for the years ended December 31, 2013 and 2012 (dollars in millions, except per share data):

Year Ended December 31, 2013 2012 Product revenue $ 1,611.4$ 1,556.5 Service revenue 219.3 210.0 Other revenue 8.7 24.9 Total revenue 1,839.4 1,791.4 Cost of product revenue 891.7 837.2 Cost of service revenue 142.5 124.8 Total cost of revenue 1,034.2 962.0 Gross profit 805.2 829.4 Operating expenses: Selling, general and administrative 437.9 440.4 Research and development 190.5 195.3 Impairment of assets - 23.8 Other charges 28.6 13.9 Total operating expenses 657.0 673.4 Operating income 148.2 156.0 Interest and other income (expense), net (23.6 ) (17.7 ) Income before income taxes and noncontrolling interest in consolidated subsidiaries 124.6 138.3 Income tax provision 42.8 60.1 Consolidated net income 81.8 78.2



Net income attributable to noncontrolling interest in consolidated subsidiaries

1.7 0.7 Net income attributable to Bruker Corporation $ 80.1$ 77.5 Net income per common share attributable to Bruker Corporation shareholders: Basic $ 0.48$ 0.47 Diluted $ 0.48$ 0.46 Weighted average common shares outstanding: Basic 166.5 166.0 Diluted 168.5 167.4 Revenue



For the year ended December 31, 2013, our revenue increased by $48.0 million, or 2.7%, to $1,839.4 million, compared to $1,791.4 million for the year ended December 31, 2012. Included in this change in revenue are decreases of approximately $5.3 million from the impact of foreign exchange due

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to the strengthening of the U.S. Dollar versus the Japanese Yen, offset by a weakening of the U.S. Dollar versus the Euro, and approximately $3.8 million attributable to recent acquisitions and divestitures. Excluding the effects of foreign exchange and our recent acquisitions and divestitures, revenue increased by $57.1 million, or 3.2%. The increase in revenue on an adjusted basis is attributable to both the BSI segment, which increased by $56.6 million, or 3.4%, and the BEST segment, which increased by $6.5 million, or 4.8%%, offset by intersegment eliminations.

Revenue in the BSI segment on an adjusted basis reflects increased sales in the Bruker BioSpin and Bruker CALID Groups, particularly nuclear magnetic resonance products, MALDI Biotyper and FTMS products sold by our LSC division, and improved commercial execution by our Bruker Optics division. These increases were partially offset by reduced sales in the Bruker MAT Group, particularly atomic force microscopy and X-ray products. The mix of products sold in the BSI segment during 2013 reflects significant quarterly variability in demand, both geographically and by end market, for our products. In particular, there was an increase in demand in academic markets, especially in Europe and Asia, offset by decreased demand from customers in industrial and microelectronics markets, particularly in Asia. Revenues in the BEST segment increased due to increased sales of low temperature superconducting wire as well as beamline and cavity device sales, partially offset by an incremental decline of $10.7 million of license revenue recognized on the sale of technology.

Cost of Revenue

Our cost of revenue for the year ended December 31, 2013 was $1,034.2 million, resulting in a gross profit margin of 43.8%, compared to cost of revenue of $962.0 million, resulting in a gross profit margin of 46.3%, for the year ended December 31, 2012. The increase in cost of revenue is primarily a function of the higher revenues described above. Our cost of revenue for the year ended December 31, 2013 and 2012 includes charges of $27.3 million and $21.9 million, respectively, representing amortization of acquisition-related intangible assets and other acquisition-related costs and restructuring charges during 2013. Excluding these charges, our gross profit margin for the year ended December 31, 2013 and 2012 was 45.3% and 47.5%, respectively. The lower gross profit margin was partially due to the negative effects of foreign exchange rates, including the impact of the strengthening of the U.S. Dollar versus the Japanese Yen, as our Yen denominated revenues substantially exceeded our Yen denominated expenses. Changes in the value of the Yen compared to the U.S. Dollar can have a significant positive or negative effect on our gross profit margins and income from operations. In addition, there was a year-over-year decline in the amount of license revenue recognized on the sale of technology in the BEST segment, which had no cost of revenue and further decreased our gross profit margins. Finally, volume and pricing declines in our Bruker MAT Group had a negative impact on our margins.

Selling, General and Administrative

Our selling, general and administrative expense for the year ended December 31, 2013 decreased to $437.9 million, or 23.8% of revenue, from $440.4 million, or 24.6% of revenue, for the year ended December 31, 2012. The decrease in selling, general and administrative expenses is driven by the impact of lower discretionary spending, partially offset by increased general and administrative spending related to certain investments, including financial system improvements, as well as expenses due to recent acquisitions.

Research and Development

Our research and development expense for the year ended December 31, 2013 decreased to $190.5 million, or 10.4% of revenue, from $195.3 million, or 10.9% of revenue, for the year ended December 31, 2012. The decrease in research and development expenses was attributable to

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management's decision to reduce spending in less profitable portions of the Company and lower levels of material costs.

Impairment of Assets

The Company recorded an impairment of assets of $23.8 million for the year ended December 31, 2012, comprising goodwill and definite-lived intangible asset impairment charges of $1.4 million and $16.4 million, respectively, relating to our CAM division, and an impairment charge of $6.0 million of other long-lived assets to reduce the carrying value to their estimated fair value.

At December 31, 2013, the Company performed its annual goodwill and indefinite-lived intangible impairment evaluation by performing a qualitative assessment and concluded that it is more-likely-than-not that the fair value of the reporting units are greater than their carrying amount, and therefore, no impairment is required. At December 31, 2012, the Company performed its annual goodwill and indefinite-lived intangible impairment evaluation by performing a quantitative assessment and concluded all reporting units' fair values exceeded their carrying values, with the exception of the CAM division, which experienced increased deterioration in its financial performance. The Company, therefore, performed step two of the impairment test to measure potential impairment and concluded an impairment charge of $1.4 million was required and represented all the goodwill allocated to the CAM division. There were no indefinite-lived intangible assets associated with the CAM division and no impairment of indefinite-lived intangible assets during the year ended December 31, 2012.

The increased deterioration in financial performance of the CAM division during 2012 discussed above was an indicator requiring the evaluation of the definite-lived intangible assets and other long-term assets within that reporting unit for recoverability. The Company performed a valuation at December 31, 2012 and determined that the definite-lived intangible assets and certain other long-term assets within the CAM division were impaired. The Company recorded an impairment charge in the amount of $21.2 million for the year ended December 31, 2012 to reduce the carrying value of those assets to their estimated fair values. No impairment losses were recorded related to definite-lived intangible assets during the year ended December 31, 2013.

In addition, based on the abandonment of a project in the BEST reporting unit in 2012 there was an indicator requiring the evaluation of those long-lived assets for recoverability. The Company performed a valuation at December 31, 2012, and determined that certain of the other long-lived assets within the BEST reporting unit were impaired. During the year ended December 31, 2012, an impairment charge in the amount of $1.2 million related to property, plant and equipment was recorded to reduce the carrying value of those assets to their estimated fair values.

We will continue to monitor goodwill and long-lived intangible assets, as well as long-lived tangible assets, for possible future impairment.

Other Charges

Other charges, net of $28.6 million recorded in 2013 related primarily to the BSI segment. The charges consist of $18.2 million of restructuring costs, including $15.9 million within the BSI segment and $2.3 million within the BEST segment, related to closing facilities and implementing outsourcing and other restructuring initiatives, $6.1 million of legal and other professional service fees associated with our internal investigation and review of our operations in China, $3.6 million of acquisition-related costs and $0.7 million related to two factory relocations within the BEST segment.

Other charges, net of $13.9 million recorded in 2012 consist of $11.1 million of legal and other professional service fees associated with our internal investigation and review of our operations in China, $2.0 million related to two factory relocations within the BEST segment, and $0.8 million of other charges.

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In 2014, we expect to incur $15-$20 million of expense related to various outsourcing initiatives and other restructuring activities that were implemented in 2013 or will commence in 2014.

Interest and Other Income (Expense), Net

Interest and other income (expense), net during the year ended December 31, 2013 was $(23.6) million, compared to $(17.7) million for the year ended December 31, 2012.

During the year ended December 31, 2013, the major components within interest and other income (expense), net were net interest expense of $12.4 million and realized and unrealized losses on foreign currency transactions of $10.4 million. During the year ended December 31, 2012, the major components within interest and other income (expense), net were net interest expense of $13.4 million and realized and unrealized losses on foreign currency transactions of $6.8 million, partially offset by a $2.2 million gain on the sale of a product line during 2012.

The decrease in interest expense is driven by the maturity of an interest rate swap at the end of 2012. The realized and unrealized losses on foreign currency transactions during 2013 were driven by the strengthening of the U.S. Dollar and Euro versus a number of currencies in which we operate.

We expect to incur approximately $14 million of interest expense in 2014.

Provision for Income Taxes

Our income tax provision generally reflects amounts for non-U.S. entities only as we maintain a full valuation allowance against all U.S. deferred tax assets, including our U.S. net operating losses and tax credits, until evidence exists that it is more likely than not that the loss carryforward and credit amounts will be utilized to offset U.S. taxable income. Our tax rate may change over time as the amount and mix of income and taxes outside the U.S. changes.

The income tax provision for the year ended December 31, 2013 was $42.8 million compared to an income tax provision of $60.1 million for the year ended December 31, 2012, representing effective tax rates of 34.3% and 43.5%, respectively. The decrease in the effective tax rate is primarily due to the impairment charges recorded in 2012, for which a tax deduction was not permitted.

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests for the year ended December 31, 2013 was $1.7 million compared to $0.7 million for the year ended December 31, 2012. The net income attributable to noncontrolling interests represents the minority shareholders' proportionate share of the net income recorded by our majority-owned indirect subsidiaries.

Net Income Attributable to Bruker Corporation

Our net income attributable to Bruker Corporation for the year ended December 31, 2013 was $80.1 million, or $0.48 per diluted share, compared to net income of $77.5 million, or $0.46 per diluted share, for 2012. The increase for the year ended December 31, 2013 was primarily due to higher revenue levels, reductions in overall operating expenses and a lower effective tax rate, partially offset by a decline in gross margins.

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Table of Contents Segment Results Revenue The following table presents revenue, change in revenue and revenue growth by reportable segment for the years ended December 31, 2013 and 2012 (dollars in millions): Percentage 2013 2012 Dollar Change Change BSI $ 1,709.5$ 1,666.1$ 43.4 2.6 % BEST 147.4 136.2 11.2 8.2 % Eliminations (a) (17.5 ) (10.9 ) (6.6 ) $ 1,839.4$ 1,791.4$ 48.0 2.7 %



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(a)

Represents product and service revenue between reportable segments.

BSI Segment Revenues

BSI segment revenue increased by $43.4 million, or 2.6%, to $1,709.5 million for the year ended December 31, 2013, compared to $1,666.1 million for the year ended December 31, 2012. Included in this change in revenue is a decrease of approximately $9.4 million from the impact of changes on foreign exchange rates due to the strengthening of the U.S. Dollar versus the Japanese Yen, offset by a weakening of the U.S. Dollar versus the Euro, and a decrease of approximately $3.8 million attributable to our recent acquisitions and divestitures. Excluding the effect of foreign exchange and acquisitions and divestitures, revenue increased by $56.6 million, or 3.4%.

The Bruker BioSpin Group experienced an increase in revenue, primarily driven by increased sales of nuclear magnetic resonance products due to strong demand from academic customers, particularly in Europe and Asia. The Bruker CALID Group also experienced an increase in revenue, driven primarily by increases in MALDI Biotyper and FTMS products sold by our LSC division and improved commercial execution by our Bruker Optics division. The Bruker MAT Group experienced a decrease in revenue across most of its divisions driven by declines in atomic force microscopy products and X-ray products. This resulted from lower demand from customers in industrial and microelectronics markets, particularly in Asia.

System revenue and aftermarket revenue as a percentage of total BSI segment revenue were as follows during the years ended December 31, 2013 and 2012 (dollars in millions):

2013 2012 Percentage of Percentage of Revenue Segment Revenue Revenue Segment Revenue System revenue $ 1,385.1 81.0 % $ 1,354.2 81.3 % Aftermarket revenue 324.4 19.0 % 311.9 18.7 % Total revenue $ 1,709.5 100.0 % $ 1,666.1 100.0 %



System revenue in the BSI segment includes nuclear magnetic resonance systems, magnetic resonance imaging systems, electron paramagnetic imaging systems, mass spectrometry systems, gas chromatography systems, CBRNE detection systems, X-ray systems, spark-optical emission spectroscopy systems, atomic force microscopy systems, stylus and optical metrology systems, molecular spectroscopy systems and other systems. Aftermarket revenues in the BSI segment include accessory sales, consumables, training and services.

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BEST Segment Revenues

BEST segment revenues increased by $11.2 million, or 8.2%, to $147.4 million for the year ended December 31, 2013, compared to $136.2 million for the year ended December 31, 2012. Included in this change in revenue is an increase of approximately $4.7 million from the impact of foreign exchange due to the weakening of the U.S. Dollar versus the Euro and other foreign currencies. Excluding the effect of foreign exchange, revenue increased by $6.5 million, or 4.8%. The increase in revenue, excluding the effect of foreign exchange, is primarily attributable to increased sales of low temperature superconducting wire as well as beamline and cavity devices, partially offset by a $10.7 million reduction in license revenue recognized on the sale of technology.

System and wire revenue and aftermarket revenue as a percentage of total BEST segment revenue were as follows during the years ended December 31, 2013 and 2012 (dollars in millions):

2013 2012 Percentage of Percentage of Revenue Segment Revenue Revenue Segment Revenue System and wire revenue $ 137.3 93.1 % $ 111.7 82.0 % Aftermarket and other revenue 10.1 6.9 % 24.5 18.0 % Total revenue $ 147.4 100.0 % $ 136.2 100.0 %



System and wire revenue in the BEST segment includes low and high temperature superconducting wire and superconducting devices, including magnets, linear accelerators and radio frequency cavities. Aftermarket revenues in the BEST segment consist primarily of license revenue and consumables sales.

Gross Profit and Operating Expenses

For the year ended December 31, 2013, gross profit margin in the BSI segment decreased to 45.3% from 47.4% versus the comparable period in 2012. Lower gross profit margins resulted primarily from the negative effects of foreign exchange rates, including the impact of the strengthening of the U.S. Dollar versus the Japanese Yen, and volume and pricing declines in our Bruker MAT Group. In addition, restructuring charges were recorded during the year ended December 31, 2013 related to closing facilities and implementing outsourcing and other restructuring initiatives. BEST segment gross profit margin decreased to 21.5% from 31.2% for the comparable period in 2012, primarily due a decline in recognition of license revenue on the sale of technology, which had no cost of revenue. For the year ended December 31, 2013, selling, general and administrative expenses and research and development expenses in the BSI segment decreased to $609.1 million, or 35.6% of segment revenue, from $614.0 million, or 36.9% of segment revenue, for the comparable period in 2012. The decrease was driven by the impact of lower discretionary spending, management's decision to reduce research and development spending in less profitable portions of the business and lower levels of research and development material consumption, partially offset by higher general and administrative spending related to certain investments, including financial system improvements, as well as expenses due to recent acquisitions. Selling, general and administrative expenses and research and development expenses in the BEST segment decreased to $19.3 million, or 13.1% of segment revenue, from $26.2 million, or 19.2% of segment revenue for the comparable period in 2012. The decrease was attributable to lower discretionary spending and the impact of management's decision to reduce research and development spending in less profitable portions of the business.

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Income (Loss) from Operations

The following table presents income (loss) from operations and operating margins on revenue by reportable segment for the years ended December 31, 2013 and 2012 (dollars in millions):

2013 2012 Operating Percentage of Operating Percentage of Income (Loss) Segment Revenue Income (Loss) Segment Revenue BSI $ 138.9 8.1 % $ 140.8 8.5 % BEST 9.5 6.4 % 12.8 9.4 % Corporate, eliminations and other (a) (0.2 ) 2.4 Total operating income $ 148.2 8.1 % $ 156.0 8.7 %



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



BSI segment income from operations for the year ended December 31, 2013 was $138.9 million, resulting in an operating margin of 8.1%, compared to income from operations of $140.8 million, resulting in an operating margin of 8.5%, for the year ended December 31, 2012. Income from operations includes $54.1 million and $59.2 million in the years ended December 31, 2013 and 2012, respectively, included various charges representing amortization of acquisition-related intangible assets and other acquisition-related costs, impairment of goodwill, definite-lived intangible assets and other long-lived assets, and restructuring and relocation costs. Excluding these costs, income from operations in the BSI segment would have been $193.0 million and $200.0 million, resulting in operating margins of 11.3% and 12.0%, respectively, for the years ended December 31, 2013 and 2012. Income from operations, on an adjusted basis, declined primarily as a result of lower gross margins, due in part to the negative effects of foreign exchange rates, including the impact of the strengthening of the U.S. Dollar versus the Japanese Yen, as our Yen denominated revenues substantially exceeded our Yen denominated expenses. These declines were partially offset by higher revenues described above.

The Company recorded restructuring costs within the BSI segment of $23.0 million for the year ended December 31, 2013, related to closing facilities and implementing outsourcing and other restructuring initiatives. The Company recorded an impairment of assets within the BSI segment of $22.6 million for the year ended December 31, 2012, comprised of goodwill and definite-lived intangible asset impairment charges of $1.4 million and $16.4 million, respectively, in our CAM division, and an impairment charge of $4.8 million of other long-lived assets to reduce the carrying value to their estimated fair value.

BEST segment income from operations for the year ended December 31, 2013 was $9.5 million, resulting in an operating margin of 6.4%, compared to income from operations of $12.8 million, resulting in an operating margin of 9.4%, for the year ended December 31, 2012. The decline in operating margin was primarily the result of lower levels of license revenue on the sale of technology, which had no cost of revenue, and $2.3 million of restructuring expenses recorded during the year ended December 31, 2013. These factors were partially offset by lower selling, general and administrative expenses and research and development expenses. The Company recorded an impairment of assets within the BEST segment of $1.2 million for the year ended December 31, 2012 to reduce the carrying value of certain tangible long-lived assets to their estimated fair value.

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Year Ended December 31, 2012 Compared to the Year Ended December 31, 2011

Consolidated Results

The following table presents our results for the years ended December 31, 2012 and 2011 (dollars in millions, except per share data):

Year Ended December 31, 2012 2011 Product revenue $ 1,556.5$ 1,445.6 Service revenue 210.0 194.8 Other revenue 24.9 11.3 Total revenue 1,791.4 1,651.7 Cost of product revenue 837.2 792.5 Cost of service revenue 124.8 106.7 Total cost of revenue 962.0 899.2 Gross profit 829.4 752.5 Operating expenses: Selling, general and administrative 440.4 406.6 Research and development 195.3 177.2 Impairment of assets 23.8 - Write-off of deferred offering costs - 3.4 Other charges 13.9 9.7 Total operating expenses 673.4 596.9 Operating income 156.0 155.6 Interest and other income (expense), net (17.7 ) (10.1 ) Income before income taxes and noncontrolling interest in consolidated subsidiaries 138.3 145.5 Income tax provision 60.1 51.5 Consolidated net income 78.2 94.0



Net income attributable to noncontrolling interest in consolidated subsidiaries

0.7 1.7 Net income attributable to Bruker Corporation $ 77.5$ 92.3



Net income per common share attributable to Bruker Corporation shareholders: Basic

$ 0.47$ 0.56 Diluted $ 0.46$ 0.55 Weighted average common shares outstanding: Basic 166.0 165.4 Diluted 167.4 166.9 Revenue



For the year ended December 31, 2012, our revenue increased by $139.7 million, or 8.5%, to $1,791.4 million, compared to $1,651.7 million for the year ended December 31, 2011. Included in this change in revenue are a decrease of approximately $76.8 million from the impact of foreign exchange due to the strengthening of the U.S. Dollar versus the Euro and other foreign currencies and an increase of approximately $19.8 million attributable to recent acquisitions. Excluding the effects of foreign exchange and our recent acquisitions, revenue increased by $196.7 million, or 11.9%. The

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increase in revenue on an adjusted basis is attributable to both the BSI segment, which increased by $158.5 million, or 10.2%, and the BEST segment, which increased by $33.9 million, or 29.9%.

Revenue in the BSI segment reflects an increase in sales from many of our core technologies, particularly nuclear magnetic resonance, mass spectrometry and X-ray products. The mix of products sold in the BSI segment during 2012 reflects increased demand from academic, government and industrial customers. We attribute the increase in sales to academic and government customers to increased spending from these customers and to new product introductions. The improvement in revenues from our industrial customers reflects continued growth in these end markets and our new product introductions. Revenues in the BEST segment increased primarily due to recognition of license revenue on the sale of technology. In addition, revenue benefitted from higher demand for low temperature superconducting wire.

Cost of Revenue

Our cost of revenue for the year ended December 31, 2012, was $962.0 million, resulting in a gross profit margin of 46.3%, compared to cost of revenue of $899.2 million, resulting in a gross profit margin of 45.6%, for the year ended December 31, 2011. The increase in cost of revenue is primarily a function of the higher revenues described above. Our cost of revenue for the year ended December 31, 2012 includes charges of $21.9 million representing amortization of acquisition-related intangible assets and other acquisition-related costs. Our cost of revenue for the year ended December 31, 2011 includes charges of $24.4 million representing inventory allowances for the rework of certain specialty magnets that did not meet customer specifications and amortization of acquisition-related intangible assets and other acquisition-related costs. Excluding these charges, our gross profit margin for the year ended December 31, 2012 and 2011 was 47.5% and 47.0%, respectively. The higher gross profit margin was driven by license revenue from the sale of technology in the BEST segment, which had no cost of revenue, and sales of our newly introduced products which carry higher gross margins than our previous generations of products. Offsetting these items were increasing pricing pressures in certain markets, changes in the mix of products and lower gross profit margins in our CAM division due to increased production costs.

Selling, General and Administrative

Our selling, general and administrative expense for the year ended December 31, 2012 increased to $440.4 million, or 24.6% of revenue, from $406.6 million, or 24.6% of revenue, for the year ended December 31, 2011. The increase in selling, general and administrative expenses in dollars is driven by increases in headcount from our recent acquisitions and increases in headcount to support planned revenue growth in our existing businesses.

Research and Development

Our research and development expense for the year ended December 31, 2012 increased to $195.3 million, or 10.9% of revenue, from $177.2 million, or 10.7% of revenue, for the year ended December 31, 2011. The increase in research and development expenses is attributable to increases in headcount from recent acquisitions and increases in headcount and material costs to support future product introductions in our existing businesses.

Impairment of Assets

The Company recorded an impairment of assets of $23.8 million for the year ended December 31, 2012, comprising goodwill and definite-lived intangible asset impairment charges of $1.4 million and $16.4 million, respectively, relating to our CAM division, and an impairment charge of $6.0 million of other long-lived assets to reduce the carrying value to their estimated fair value.

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At December 31, 2012, the Company performed its annual goodwill and indefinite-lived intangible impairment evaluation by performing a quantitative assessment and concluded all reporting units' fair values exceeded their carrying values, with the exception of the CAM division, which experienced increased deterioration in its financial performance. The Company, therefore, performed step two of the impairment test to measure potential impairment and concluded an impairment charge of $1.4 million was required and represented all the goodwill allocated to the CAM division. There were no indefinite-lived intangible assets associated with the CAM division and no impairment of indefinite-lived intangible assets during the year ended December 31, 2012.

The increased deterioration in financial performance of the CAM division during 2012 discussed above was an indicator requiring the evaluation of the definite-lived intangible assets and other long-term assets within that reporting unit for recoverability. The Company performed a valuation at December 31, 2012 and determined that the definite-lived intangible assets and certain other long-term assets within the CAM division were impaired. The Company recorded an impairment charge in the amount of $21.2 million for the year ended December 31, 2012 to reduce the carrying value of those assets to their estimated fair values. No impairment losses were recorded related to definite-lived intangible assets during the years ended December 31, 2013 and 2011.

In addition, based on the abandonment of a project in the BEST reporting unit in 2012 there was an indicator requiring the evaluation of those long-lived assets for recoverability. The Company performed a valuation at December 31, 2012, and determined that certain of the other long-lived assets within the BEST reporting unit were impaired. During the year ended December 31, 2012, an impairment charge in the amount of $1.2 million related to property, plant and equipment was recorded to reduce the carrying value of those assets to their estimated fair values.

Write-off of Deferred Offering Costs

In September 2010, we announced plans to sell a minority ownership position in our BEST subsidiary through an initial public offering of the capital stock of BEST. As a result of economic and market factors, the timing of the BEST initial public offering was uncertain and deferred offering costs totaling $3.4 million were expensed in the third quarter of 2011. In March 2012, we determined not to proceed with the initial public offering of the capital stock of BEST.

Other Charges

Other charges, net of $13.9 million recorded in 2012 consist of $11.1 million of legal and other professional service fees associated with our internal investigation and review of our operations in China, $2.0 million related to two factory relocations that are occurring within the BEST segment, and $0.8 million of other charges.

Other charges, net of $9.7 million recorded in 2011 consist of charges recorded entirely in the BSI segment. The charges recorded in 2011 consist of $4.2 million of acquisition-related costs associated with the nano surfaces business, chemical analysis business and other acquisitions completed during the year. Acquisition-related costs consist of costs incurred under transition service arrangements we entered into with the sellers of the nano surfaces and chemical analysis businesses and transaction costs, including legal, accounting and other fees. Other charges, net for the year ended December 31, 2011 also includes $4.3 million of legal and other professional service fees associated with our internal investigation and review of our operations in China and $1.2 million of other charges.

Interest and Other Income (Expense), Net

Interest and other income (expense), net during the year ended December 31, 2012 was $(17.7) million, compared to $(10.1) million for the year ended December 31, 2011.

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During the year ended December 31, 2012, the major components within interest and other income (expense), net were net interest expense of $13.4 million and realized and unrealized losses on foreign currency transactions of $6.8 million, partially offset by a $2.2 million gain on the sale of a product line during 2012. During the year ended December 31, 2011, the major components within interest and other income (expense), net, consisted of net interest expense of $6.3 million and realized and unrealized losses on foreign currency transactions of $4.4 million.

The increase in interest expense is primarily a function of higher average outstanding debt balances throughout 2012 and an increase in the average interest rates we pay on outstanding borrowings due to entering into a longer-term debt arrangement in 2012 with higher interest rates. The realized and unrealized losses on foreign currency transactions during 2012 were primarily a function of changes in exchange rates between the Euro and the Swiss Franc against the U.S. Dollar.

Provision for Income Taxes

Our income tax provision generally reflects amounts for non-U.S. entities only. We maintain a full valuation allowance against all U.S. deferred tax assets, including our U.S. net operating losses and tax credits, until evidence exists that it is more likely than not that the loss carryforward and credit amounts will be utilized to offset U.S. taxable income. Our tax rate may change over time as the amount and mix of income and taxes outside the U.S. changes.

The income tax provision for the year ended December 31, 2012 was $60.1 million compared to an income tax provision of $51.5 million for the year ended December 31, 2011, representing effective tax rates of 43.5% and 35.4%, respectively. The increase in the effective tax rate was primarily due to the impairment charges, for which a tax deduction was not permitted.

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests for the year ended December 31, 2012 was $0.7 million compared to $1.7 million for the year ended December 31, 2011. The net income attributable to noncontrolling interests represents the minority shareholders' proportionate share of the net income recorded by our majority-owned indirect subsidiaries.

Net Income Attributable to Bruker Corporation

Our net income attributable to Bruker Corporation for the year ended December 31, 2012 was $77.5 million, or $0.46 per diluted share, compared to net income of $92.3 million, or $0.55 per diluted share, for 2011. The decrease for the year ended December 31, 2012 was due to increases in operating expenses, including impairment of goodwill, intangibles, and other long-lived assets, higher spending on non-recurring items and higher net interest expense. These were partially offset by revenue growth and higher gross margins.

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Table of Contents Segment Results Revenue The following table presents revenue, change in revenue and revenue growth by reportable segment for the years ended December 31, 2012 and 2011 (dollars in millions): Percentage 2012 2011 Dollar Change Change BSI $ 1,666.1$ 1,554.1$ 112.0 7.2 % BEST 136.2 113.4 22.8 20.1 % Eliminations (a) (10.9 ) (15.8 ) 4.9 $ 1,791.4$ 1,651.7$ 139.7 8.5 %



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(a)

Represents product and service revenue between reportable segments.

BSI Segment Revenues

BSI segment revenue increased by $112.0 million, or 7.2%, to $1,666.1 million for the year ended December 31, 2012, compared to $1,554.1 million for the year ended December 31, 2011. Included in this change in revenue is a decrease of approximately $66.3 million from the impact of foreign exchange due to the strengthening of the U.S. Dollar versus the Euro and other foreign currencies and an increase of approximately $19.8 million attributable to our recent acquisitions. Excluding the effect of foreign exchange and acquisitions, revenue increased by $158.5 million, or 10.2%. The increase in revenue, excluding the effect of foreign exchange and acquisitions, reflects an increase in sales from many of our core technologies, particularly nuclear magnetic resonance, mass spectrometry and X-ray products.

System revenue and aftermarket revenue as a percentage of total BSI segment revenue were as follows during the years ended December 31, 2012 and 2011 (dollars in millions): 2012 2011 Percentage of Percentage of Segment Segment Revenue Revenue Revenue Revenue System revenue $ 1,354.2 81.3 % $ 1,238.9 79.7 % Aftermarket revenue 311.9 18.7 % 315.2 20.3 % Total revenue $ 1,666.1 100.0 % $ 1,554.1 100.0 %



System revenue in the BSI segment includes nuclear magnetic resonance systems, magnetic resonance imaging systems, electron paramagnetic imaging systems, mass spectrometry systems, gas chromatography systems, CBRNE detection systems, X-ray systems, spark-optical emission spectroscopy systems, atomic force microscopy systems, stylus and optical metrology systems, molecular spectroscopy systems and other systems. Aftermarket revenues in the BSI segment include accessory sales, consumables, training and services.

BEST Segment Revenues

BEST segment revenues increased by $22.8 million, or 20.1%, to $136.2 million for the year ended December 31, 2012, compared to $113.4 million for the year ended December 31, 2011. Included in this change in revenue is a reduction of approximately $11.1 million from the impact of foreign exchange due to the strengthening of the U.S. Dollar versus the Euro and other foreign currencies. Excluding the effect of foreign exchange, revenue increased by $33.9 million, or 29.9%. The increase in

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revenue, excluding the effect of foreign exchange, is primarily attributable to license revenue from the sale of technology, as well as higher demand for low temperature superconducting wire.

System and wire revenue and aftermarket revenue as a percentage of total BEST segment revenue were as follows during the years ended December 31, 2012 and 2011 (dollars in millions):

2012 2011 Percentage of Percentage of Segment Segment Revenue Revenue Revenue Revenue System and wire revenue $ 111.7 82.0 % $ 105.3 92.9 % Aftermarket and other revenue 24.5 18.0 % 8.1 7.1 % Total revenue $ 136.2 100.0 % $ 113.4 100.0 %



System and wire revenue in the BEST Technologies segment includes low and high temperature superconducting wire and superconducting devices, including magnets, linear accelerators and radio frequency cavities. Aftermarket revenues in the BEST segment consist primarily of license revenue and consumable sales.

Gross Profit and Operating Expenses

For the year ended December 31, 2012, gross profit margin in the BSI segment increased to 47.4% from 47.2% for the comparable period in 2011. Excluding the effects of certain non-recurring inventory charges, amortization of acquisition-related intangible assets and other acquisition-related costs and restructuring charges totaling, in the aggregate, $21.7 million and $24.1 million for the years ended December 31, 2012 and 2011, respectively, gross profit margins were 48.7% for the years ended December 31, 2012 and 2011. The consistency in gross profit margins was driven by sales of our newly introduced products which carry higher gross margins than our previous generations of products. Offsetting this increase were increasing pricing pressures in certain markets, changes in the mix of products and our CAM division contributing lower gross profit margins due to increased production costs. BEST segment gross profit margin increased to 31.2% from 19.8% for the comparable period in 2011, primarily due to the recognition of license revenue on the sale of technology in 2012, which had no cost of revenue. For the year ended December 31, 2012, selling, general and administrative expenses and research and development expenses in the BSI segment increased to $614.0 million, or 36.9% of segment revenue, from $560.8 million, or 36.1% of segment revenue, for the comparable period in 2011. This increase is a function of incremental investments in sales and marketing activities and research and development activities, as well as increases in operating expenses related to the acquisitions completed in 2011 and 2012. These cost increases primarily relate to additional headcount, higher sales commission expenses as a result of higher revenues and higher material costs. Selling, general and administrative expenses and research and development expenses in the BEST segment increased to $26.2 million, or 19.2% of segment revenue, from $23.1 million, or 20.4% of segment revenue for the comparable period in 2011. The decline as a percentage of revenue was attributable to the impact of recognizing license revenue in 2012 related to the sale of technology.

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Income (Loss) from Operations

The following table presents income (loss) from operations and operating margins on revenue by reportable segment for the years ended December 31, 2012 and 2011 (dollars in millions):

2012 2011 Percentage of Percentage of Operating Segment Operating Segment Income (Loss) Revenue Income (Loss) Revenue BSI $ 140.8 8.5 % $ 162.8 10.5 % BEST 12.8 9.4 % (4.1 ) (3.6 )% Corporate, eliminations and other (a) 2.4 (3.1 ) Total operating income $ 156.0 8.7 % $ 155.6 9.4 %



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



BSI segment income from operations for the year ended December 31, 2012 was $140.8 million, resulting in an operating margin of 8.5%, compared to income from operations of $162.8 million, resulting in an operating margin of 10.5%, for the year ended December 31, 2011. Income from operations includes $59.2 million and $37.5 million in the years ended December 31, 2012 and 2011, respectively, representing inventory charges, amortization of acquisition-related intangible assets and other acquisition-related costs, impairment of goodwill, definite-lived intangible assets and other long-lived assets and other charges. Excluding these costs, income from operations in the BSI segment would have been $200.0 million and $200.3 million, resulting in operating margins of 12.0% and 12.9%, respectively, for the years ended December 31, 2012 and 2011. Operating margins declined as a result of the increased pricing pressure in certain markets, product mix and higher operating expenses offset, in part, by higher revenues.

The Company recorded an impairment of assets within the BSI segment of $22.6 million for the year ended December 31, 2012, comprised of goodwill and definite-lived intangible asset impairment charges of $1.4 million and $16.4 million, respectively, in our CAM division, and an impairment charge of $4.8 million of other long-lived assets to reduce the carrying value to their estimated fair value.

BEST segment income from operations for the year ended December 31, 2012 was $12.8 million, resulting in an operating margin of 9.4%, compared to a loss from operations of $4.1 million, resulting in an operating margin of (3.6)%, for the year ended December 31, 2011. The increase in operating margin is the result of higher revenues, in particular the recognition of license revenue from the sale of technology, partially offset by higher operating expenses. The increase in operating expenses is a function of incremental investments in sales and marketing activities and research and development activities, as well as an impairment of assets of $1.2 million recorded for the year ended December 31, 2012 to reduce the carrying value of certain tangible long-lived assets to their estimated fair value.

LIQUIDITY AND CAPITAL RESOURCES

We currently anticipate that our existing cash and credit facilities will be sufficient to support our operating and investing needs for at least the next twelve months. Our future cash requirements could be affected by acquisitions that we may make in the future. Historically, we have financed our growth through cash flow generation and a combination of debt financings and issuances of common stock. In the future, there are no assurances that additional financing alternatives will be available to us, if required, or if available, will be obtained on terms favorable to us.

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During the year ended December 31, 2013, net cash provided by operating activities was $145.0 million, resulting primarily from $191.0 million of consolidated net income adjusted for non-cash items, partially offset by a $46.0 million increase in working capital. The increase in working capital for the year ended December 31, 2013 is primarily the result of a reduction in income tax payables, in part due to settlement of certain tax audits during 2013, and an increase in accounts receivable from our higher revenue levels. During the year ended December 31, 2012, net cash provided by operating activities was $133.1 million, resulting primarily from $191.4 million of consolidated net income adjusted for non-cash items, partially offset by a $58.3 million increase in working capital driven by higher inventory levels. We recorded an impairment of assets of $23.8 million for the year ended December 31, 2012, comprising goodwill and definite-lived intangible asset impairment charges of $1.4 million and $16.4 million, respectively, in our CAM division, and an impairment charge of $6.0 million of other long-lived assets to reduce the carrying value to their estimated fair value. The increase in working capital for the year ended December 31, 2012 is primarily the result of an increase in inventory build.

During the year ended December 31, 2013, net cash used in investing activities was $60.0 million, compared to net cash used in investing activities of $93.2 million during the year ended December 31, 2012. Cash used in investing activities during the year ended December 31, 2013 was attributable primarily to $48.9 million of capital expenditures, net and $11.6 million used for acquisitions. Cash used in investing activities during the year ended December 31, 2012 was attributable primarily to $69.5 million of capital expenditures, net and $27.0 million used for acquisitions. We currently anticipate that our capital spending will be below $50 million in 2014.

During the year ended December 31, 2013, net cash provided by financing activities was $26.5 million, compared to net cash provided by financing activities of $34.4 million during the year ended December 31, 2012. Cash provided by financing activities during the year ended December 31, 2013 was primarily attributable to proceeds of revolving lines of credit of $19.5 million and $8.2 million of proceeds from the issuance of common stock in connection with stock option exercises, offset, in part, by repayment of debt of $1.6 million. Cash provided by financing activities during the year ended December 31, 2012 was primarily attributable to $240.0 million of borrowings under the Note Purchase Agreement described below, offset, in part, by repayments of revolving lines of credit of $216.5 million, proceeds of revolving lines of credit of $93.0 million and net debt repayments under various long-term and short-term arrangements of $83.2 million.

At December 31, 2013 and December 31, 2012, we had $419.8 million and $288.2 million, respectively, of foreign cash and cash equivalents, most significantly in Germany, Switzerland and the Netherlands, compared to a total amount of cash and cash equivalents at December 31, 2013 and December 31, 2012 of $438.7 million and $310.6 million, respectively. If the cash and cash equivalents held by our foreign subsidiaries are needed to fund operations in the U.S., or we otherwise elect to repatriate the unremitted earnings of our foreign subsidiaries in the form of dividends or otherwise, or if the shares of the subsidiaries were sold or transferred, we would likely be subject to additional U.S. income taxes, net of the impact of any available tax credits, which could result in a higher effective tax rate in the future. Further, based on our current plans and anticipated cash needs to fund our U.S. operations, we do not foresee a need to repatriate earnings of our foreign subsidiaries and it is our current intent to indefinitely reinvest unremitted earnings in our foreign subsidiaries.

At December 31, 2013, we had outstanding debt totaling $355.0 million, consisting of $240.0 million outstanding under the Note Purchase Agreement described below, $112.5 million outstanding under the revolving loan component of the Amended Credit Agreement described below and $2.5 million under capital lease obligations and other loans. At December 31, 2012, we had outstanding debt totaling $337.2 million, consisting of $240.0 million outstanding under the Note Purchase Agreement described below, $93.0 million outstanding under the revolving loan component of

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the Amended Credit Agreement described below and $4.2 million under capital lease obligations and other loans.

In May 2011, we entered into an amendment and restatement of a credit agreement originally entered into in 2008, referred to as the Amended Credit Agreement. The Amended Credit Agreement provides for a revolving credit line with a maximum commitment of $250.0 million and maturity date of May 2016. Borrowings under the revolving credit line of the Amended Credit Agreement accrue interest, at our option, at either (a) the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.50% and (iii) adjusted LIBOR plus 1.00% or (b) LIBOR, plus margins ranging from 0.80% to 1.65%. There is also a facility fee ranging from 0.20% to 0.35%.

Borrowings under the Amended Credit Agreement are secured by guarantees from certain material subsidiaries, as defined in the Amended Credit Agreement, and Bruker Energy & Supercon Technologies, Inc. The Amended Credit Agreement also requires that we maintain certain financial ratios related to maximum leverage and minimum interest coverage, as defined in the Amended Credit Agreement. Specifically, our leverage ratio cannot exceed 3.0 and our interest coverage ratio cannot be less than 3.0. As of December 31, 2013, we were in compliance with the covenants of the Amended Credit Agreement. In addition to the financial ratios, the Amended Credit Agreement restricts, among other things, our ability to do the following: make certain payments; incur additional debt; incur certain liens; make certain investments, including derivative agreements; merge, consolidate, sell or transfer all or substantially all of our assets; and enter into certain transactions with affiliates. Our failure to comply with any of these restrictions or covenants may result in an event of default on the Amended Credit Agreement, which could permit acceleration of the debt under and require us to prepay the debt before its scheduled due date.

Other revolving loans are with various financial institutions located primarily in Germany, Switzerland and France. The following is a summary of the maximum commitments and net amounts available to the Company under revolving loans as of December 31, 2013 (dollars in millions):

Weighted Total Amount Outstanding Average Committed by Outstanding Letters of Total Amount Interest Rate Lenders Borrowings Credit Available Amended Credit Agreement 1.3 % $ 250.0$ 112.5$ 0.6$ 136.9 Other revolving loans - 214.4 - 170.6 43.8 Total revolving loans $ 464.4$ 112.5$ 171.2$ 180.7



In January 2012, we entered into a note purchase agreement, referred to as the Note Purchase Agreement, with a group of accredited institutional investors. Under the Note Purchase Agreement we issued and sold $240.0 million of senior notes, which consist of the following:

$20.0 million 3.16% Series 2012A senior notes due January 18, 2017; $15.0 million 3.74% Series 2012A senior notes due January 18, 2019; $105.0 million 4.31% Series 2012A senior notes due January 18, 2022; and $100.0 million 4.46% Series 2012A senior notes due January 18, 2024.



As of December 31, 2013, we were in compliance with the covenants of the Note Purchase Agreement. Our leverage ratio was 1.3 and our interest coverage ratio was 13.5.

As of December 31, 2013, we have approximately $30.3 million of U.S. net operating loss carryforwards available to reduce future state taxable income, which expire at various times through 2033, and approximately $54.3 million of German Trade Tax net operating losses that are carried forward indefinitely. Additionally, we have $8.6 million of other foreign net operating losses that are expected to expire at various times beginning in 2022. We also have U.S. tax credits of approximately

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$18.8 million available to offset future tax liabilities that expire at various dates. These credits include research and development tax credits of $11.6 million expiring at various times through 2033 and foreign tax credits of $7.2 million expiring at various times through 2023. These U.S. operating loss and tax credit carryforwards may be subject to limitations under provisions of the Internal Revenue Code.

The following table summarizes maturities for our significant financial obligations as of December 31, 2013 (dollars in millions):

Less than More than Contractual Obligations Total 1 Year 1-3 Years 4-5 Years 5 Years Revolving lines of credit $ 112.5 $ - $ 112.5 $ - $ - Other long-term debt, including current portion 242.5 0.7 1.4 20.2 220.2 Interest payable on long-term debt 87.9 10.2 20.4 19.7 37.6 Operating lease obligations 87.7 20.7 30.2 19.1 17.7 Pension liabilities 56.5 3.8 8.6 10.1 34.0 Uncertain tax contingencies 32.7 - 32.7 - - $ 619.8$ 35.4$ 205.8$ 69.1$ 309.5



Uncertain tax contingencies are positions taken or expected to be taken on an income tax return that may result in additional payments to tax authorities. The total amount of uncertain tax contingencies is included in the "1-3 Years" column as we 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 taken or the applicable statute of limitations expires, then additional payments will not be necessary.

TRANSACTIONS WITH RELATED PARTIES

We lease certain office space from certain of our principal shareholders, including a director and executive officer and another member of our Board of Directors, and members of their immediate family. During each of the years ended December 31, 2013, 2012 and 2011, these shareholders were paid approximately $2.6 million, $2.4 million and $2.4 million, respectively, which was estimated to be equal to the fair market value of the rentals.

During the years ended December 31, 2013, 2012 and 2011, we incurred expenses of $5.3 million, $2.4 million and $3.2 million, respectively, to a law firm in which one of the members of our Board of Directors is a partner.

During the years ended December 31, 2013, 2012 and 2011, we incurred expenses of $0.2 million, $0.4 million and $0.5 million, respectively, to a financial services firm in which one of the members of our Board of Directors is a partner.


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Source: Edgar Glimpses


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