item 14 exhibits financial statements schedules reports form 8k afinancial statements schedules 1 financial statements report independent auditors board directors bruker daltonics inc audited accompanying consolidated balance sheets bruker daltonics inc company december 31 2000 2001 related consolidated statements operations stockholders equity cash flows three years period ended december 31 2001 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position bruker daltonics inc december 31 2000 2001 consolidated results operations cash flows three years period ended december 31 2001 conformity accounting principles generally accepted united states ernst young llp boston massachusetts february 15 2002 bruker daltonics inc consolidated balance sheets amounts thousands except share data accompanying notes integral part statements bruker daltonics inc consolidated statements operations amounts thousands except per share data accompanying notes integral part statements bruker daltonics inc consolidated statements stockholders equity amounts thousands accompanying notes integral part statements bruker daltonics inc consolidated statements cash flows dollar amounts thousands accompanying notes integral part statements bruker daltonics inc notes financial statements 1 description business bruker daltonics inc whollyowned subsidiaries company design manufacture market proprietary life science systems based mass spectrometry core technology platforms company also sells broad range field analytical systems substance detection pathogen identification company maintains major technical centers europe north america japan bruker daltonics allocates substantial capital resources research development party various collaborations strategic alliances companys diverse customer base includes pharmaceutical companies biotechnology companies proteomic companies academic institutions government agencies financial statements include accounts bruker daltonics inc subsidiaries significant intercompany accounts transactions eliminated consolidation 2 summary significant accounting policies use estimates preparation financial statements conformity accounting principles generally accepted united states requires management make estimates assumptions affect amounts reported financial statements accompanying footnotes actual results could differ estimates cash equivalents company considers highly liquid investments original maturities 90 days less date purchase cash equivalents cash equivalents carried cost approximates fair market value year end shortterm investments company accounts shortterm investments accordance statement financial accounting standards sfas 115 accounting certain investments debt equity securities companys investments carried fair value consist funds comprised shortterm money market bond instruments classified availableforsale december 31 2001 concentration credit risk financial instruments subject company credit risk consist cash equivalents shortterm investments accounts receivables risk respect cash equivalents shortterm investments minimized companys policy investing shortterm financial instruments issued highlyrated financial institutions risk respect accounts receivable minimized credit worthiness companys customers company performs periodic credit evaluations customers financial condition generally require collateral credit losses within managements expectations years ended december 31 1999 2000 2001 two customers accounted aggregate 30 11 17 respectively companys product revenue accounts receivables two customers accounted aggregate 3 10 total receivables december 31 2000 2001 inventories stated lower cost market cost determined firstin firstout fifo method allowance excess obsolete inventory maintained reflect expected unsaleable unrefundable inventory based evaluation slow moving products inventories include demonstration equipment company offers current potential customers company amortizes demonstration equipment three year period amortization expense demonstration equipment approximately 307000 952000 18 million years ended december 31 1999 2000 2001 respectively property plant equipment property plant equipment includes land buildings machinery equipment furniture fixtures leasehold improvements stated cost depreciable assets depreciated straightline basis estimated useful lives assets follows software costs purchased software capitalized cost amortized estimated useful life generally three years software developed use companys products expensed incurred classified research development expense assets consist principally patents licenses patents patent applications rights stated acquisition cost amortization patents recorded using straightline method legal lives patents generally periods ranging ten years accumulated amortization assets approximately 12 million 14 million december 31 2000 2001 respectively investments companies investment companies consists equity securities privatelyheld companies accounted cost method companys ownership interest individual companies less 20 longlived assets company reviews longlived assets impairment accordance statement financial accounting standard sfas 121 accounting impairment longlived assets disposed whenever events circumstances indicate carrying amount asset may recoverable assets writtendown fair value carrying costs exceed amount impairment losses determined based upon estimated future cash flows fair values date indicators impairment identified warranty costs company provides one year parts labor warranty purchase equipment anticipated cost one year warranty accrued upon recognition sale included current liability accompanying balance sheets extent company experiences increased warranty claim activity increased costs associated servicing claims warranty accrual increase resulting decreased gross profit contingencies patent litigation costs company subject proceedings lawsuits claims related patents product matters company assesses likelihood adverse judgments outcomes matters well potential ranges probable losses determination amount reserves required contingencies made careful analysis individual issue required reserves may change future due new developments matter changes approach change settlement strategy dealing matters company records charges costs anticipates incurring connection litigation claims company management reasonably estimate costs customer deposits terms conditions contracts certain customers company may require advance deposit amounts recorded liability revenue recognized specific contract time acceptance system earnings per share basic earnings per share calculated dividing net earnings weightedaverage number common shares outstanding period diluted earnings per share computation includes effect shares would issuable upon exercise outstanding stock options reduced number shares assumed purchased company resulting proceeds average market price period fair value financial instruments companys financial instruments consist primarily cash equivalents shortterm investments accounts receivable accounts payable amounts due fromto affiliated companies longterm debt carrying amounts companys cash equivalents shortterm investments accounts receivable accounts payable amounts due fromto affiliated companies approximate fair value due shortterm nature fair value longterm debt estimated based current interest rates offered company financing arrangements similar maturities recorded value financial instruments approximate fair value december 31 2000 2001 foreign currency translation accordance statement financial accounting standards sfas 52 foreign currency translation balance sheet accounts foreign subsidiaries translated united states dollars current exchange rate income statement items translated average exchange rate period resulting translation adjustments made directly accumulated comprehensive income loss stockholders equity realized exchange gains losses foreign currency transactions included income expenses gains approximately 332000 2000 losses approximately 113000 2001 revenue recognition revenue recognized system sales including hardware embedded software product accepted customer except sold independent distributor strategic distribution partner unconsolidated bruker affiliated distributor assumes responsibility installation case system sale recognized products shipped distributor title transferred distributor distributors price protection rights return however products warranted free defect period typically one year revenue accessories parts recognized upon shipment revenue services performed company also offers customers warranty service agreements extending beyond initial year warranty fee fees recorded deferred revenue amortized revenue life agreements revenues principally comprised research development grants recognized grant work performed company believes revenue recognition policies comply sec staff accounting bulletin 101 revenue recognition financial statements american institute certified public accountants aicpa statement position sop 972 software revenue recognition shipping handling costs company records costs incurred connection shipping handling products marketing selling expenses amounts billed customers connection costs included revenues shipping handling costs 07 million 10 million year ended december 31 2000 2001 respectively advertising costs advertising costs expensed incurred advertising expenses included sales marketing approximately 364000 793000 958000 years ended december 31 1999 2000 2001 respectively income taxes company provides income taxes liability method prescribed sfas 109 accounting income taxes method deferred tax assets liabilities determined based difference financial statements tax basis assets liabilities using enacted tax rates effect year difference expected reverse valuation allowances established necessary reduce deferred tax assets amounts expected realized accounting developments july 2001 financial accounting standards board issued sfas 141 business combinations sfas 142 goodwill intangible assets sfas 141 requires purchase method accounting used business combinations initiated june 30 2001 prohibits use poolingofinterests method sfas 142 changes accounting goodwill amortization method impairmentonly approach thus amortization goodwill including goodwill recorded past business combinations cease upon adoption sfas 142 companies calendar year ends january 1 2002 addition companies required evaluate existing goodwill impairment within six months adoption comparing fair value reporting unit carrying value date adoption transitional impairment losses recognized first interim period year adoption recognized effect change accounting principle management believes adoption sfas 141 sfas 142 material effect financial position results operations company august 2001 fasb issued sfas 144 accounting impairment disposal longlived assets sfas 144 requires one accounting model used longlived assets disposed sale discontinued operations longer measured net realizable value basis measured similar longlived assets classified held sale lower carrying amount fair value less cost sell future operating losses longer recognized occur sfas 144 also broadens presentation discontinued operations include component entity operations cash flows clearly distinguished establishes criteria determine longlived asset held sale provisions statement effective financial statements issued fiscal years beginning december 15 2001 management believes adoption statement material effect results operations financial position company reclassifications certain prior period amounts accompanying consolidated financial statements reclassified conform 2001 presentation 3 acquisitions investments companies viking instruments corporation june 22 1999 company purchased assets viking instruments corporation developer manufacturer transportable gas chromatrograph mass spectrometers gcms transportable gcms instruments used laboratory field analysis soil air water identification quantification wide variety organic compounds pollutants acquisition cost 150000 results operations included accompanying consolidated financial statements date acquisition connection acquisition 100000 expensed purchased inprocess research development 25000 allocated core technology classified intangible 20000 allocated inventory 5000 allocated fixed assets amortization period five years intangibles three five years fixed assets 100000 inprocess research development attributed viking 573 transportable gas chromatrograph mass spectrometer supported discounted probable cash flow analysis projectbyproject basis modified reflect stage completion inprocess research development expenditures june 22 1999 feasibility acquired technology established acquired technology future alternative uses geneprot inc november 2000 company acquired 909091 shares series b preferred stock geneprot inc exchange 70 million cash 79218 shares companys common stock acquired securities included investments companies accounted cost method integrative proteomics inc march 2001 company acquired 369004 shares series iia preferred stock integrative proteomics inc exchange 500005 cash 28425 shares companys common stock acquired securities included investments companies accounted cost method geneformatics inc october 2001 company acquired 333334 shares series c preferred stock geneformatics inc exchange 500013 cash 30693 shares companys common stock acquired securities included investments companies accounted cost method 4 inventories components inventories follows 5 property plant equipment property plant equipment consisted following depreciation expense years ended december 31 1999 2000 2001 approximately 33 million 32 million 39 million respectively amortization leasehold improvements included depreciation accompanying financial statements 6 income taxes components income loss continuing operations provision income taxes consisted following significant components provision income taxes follows reconciliation income tax computed united states federal statutory tax rate income tax expense years ended december 31 1999 2000 2001 follows components companys deferred income taxes follows december 31 2001 company approximately 25 million net operating loss carryforwards available reduce future tax liabilities credits various expiration dates 2009 company also research development tax credits approximately 508000 available offset future tax liabilities expire various dates 2021 december 31 2001 valuation allowance established offset certain deferred tax assets due uncertainty respect future realization assets valuation allowance necessary december 31 2000 undistributed earnings foreign subsidiaries aggregated approximately 131 million december 31 2001 existing law subject united states tax distributed dividends earnings intended indefinitely reinvested foreign operations provision made united states income taxes may applicable thereto 7 financing arrangements october 2001 company entered revolving line credit citizens bank amount 25 million line secured certain inventory receivables equipment united states used provide working capital expires july 31 2002 interest line credit lower libor plus 175 basis points 363 december 31 2001 prime rate 475 december 31 2001 commitment fee unused portion line december 31 2000 2001 company amounts outstanding line credit company also maintained revolving lines credit 2000 2001 approximately 77 million 67 million respectively among german banks interest rates ranging 645 875 december 31 2001 35 million outstanding credit facilities lines secured certain inventory accounts receivable germany renewable june 2002 company three notes payable outstanding balances aggregating 120 million 113 million december 31 2000 2001 respectively one note 48 million 45 million december 31 2000 2001 respectively interest rate 510 payable full 2003 two notes 72 million 68 million aggregate december 31 2000 2001 respectively interest rate 465 due 2008 interest due monthly obligations collateralized land buildings bruker daltonik gmbh first half 2001 company entered three revolving lines credit approximately 12 million japanese bank december 31 2001 company repaid approximately 797000 close two lines approximately 381000 outstanding remaining line credit unsecured 8 stockholders equity initial public offering august 3 2000 company issued 9200000 shares common stock 119600000 13 per share company incurred 9912000 offering costs result transaction preferred stock december 31 2001 5000000 shares blank check preferred stock stated par value 001 per share authorized none issued stock split february 14 2000 board directors bruker daltonics inc authorized sevenforone stock split form stock dividend stockholders record received six additional shares common stock every share owned common shares per share data accompanying financial statements restated reflect stock split stock options february 2000 board directors adopted stockholders approved 2000 stock option plan provides issuance 2188000 shares common stock connection awards plan allows committee board directors committee grant incentive stock options nonqualified stock options stock appreciation rights stock awards including use restricted stock phantom shares committee authority determine employees receive rewards amount awards terms conditions award year ended december 31 2000 2001 committee granted stock options 871385 372500 shares common stock respectively vest threetofive year periods stock option activity year ended december 31 2000 2001 follows following table summarizes information stock options outstanding december 31 2001 company accounts stockbased compensation using intrinsic value method accordance accounting principles board opinion 25 accounting stock issued employees apb 25 adopted disclosureonly alternative sfas 123 accounting stockbased compensation sfas 123 apb 25 exercise price companys stock options granted employees equaled fair market value underlying stock date grant compensation expense recognized stock options granted nonemployees including scientific advisory board members accounted accordance emerging issues task force issue 9618 accounting equity instruments issued employees acquiring conjunction selling goods services requires value options remeasured vest performance period fair value options determined using blackscholes model resulting charge recognized related services performed company recorded approximately 181000 238000 compensation expense relating nonemployee grants year ended december 31 2000 2001 respectively pro forma information regarding net income earnings per share required sfas 123 also requires information determined bruker daltonics accounted employee stock options fair value method statement fair value options estimated date grant using blackscholes option pricing model following weightedaverage assumptions 2001 riskfree interest rates ranging 218 380 expected dividend yield 0 volatility factor 1362 weightedaverage expected life options threetofive years following weightedaverage assumptions 2000 riskfree interest rates ranging 545 665 expected dividend yield 0 volatility factor 0051 0386 weightedaverage expected life options threetofive years blackscholes option valuation model developed use estimating fair value traded options vesting restrictions fully transferable addition option valuation models require input highly subjective assumptions including expected stock price volatility companys employee stock options characteristics significantly different traded options changes subjective input assumptions materially affect fair value estimate managements opinion existing models necessarily provide reliable single measure fair value employee stock options purposes pro forma disclosures estimated fair value stock options amortized expense options respective vesting periods estimated fair value shares issued companys stock option plan determined based fair value date grant defined sfas 123 companys pro forma results years ended december 31 2000 2001 would follows 9 segment geographic information company operates one business segment engages design manufacturing marketing proprietary life science systems process analysis systems analytical instruments based primarily mass spectrometry technology geographic areas information concerning principal geographic areas follows 1net product revenues attributable geographic areas based region sale 10 discontinued operations 1999 company decided discontinue fourier transforminfrared ftir business ftir business unit sold serviced ftir instruments variety markets outside companys core technology platform mass spectrometry company completed sale ftir business bruker optik gmbh affiliated entity first half 2000 price approximated net book value assets liabilities business summary results discontinued operations years ended december 31 1999 2000 follows 11 relatedparty transactions company affiliated common stockholders several entities use bruker name company affiliates entered sharing agreement provides sharing specified intellectual property rights services facilities related items company recognized sales affiliated entities approximately 103 million 1999 94 million 2000 41 million 2001 purchases affiliated entities approximately 32 million 1999 56 million 2000 35 million 2001 company recognized sales geneprot inc approximately 14 million 60 million 2000 2001 respectively company recognized sales geneformatics inc approximately 03 million 2001 sales either company 1999 purchases either company 2001 sales recorded arms length conditions normal course business 1999 2000 2001 various bruker affiliates provided administrative services including office space company cost approximately 437000 443000 894000 respectively based assessment estimated fair market value services 2000 company purchased land principal shareholder 742000 estimated fair market value 12 employee benefit plans company maintains sponsors various defined contribution retirement plans cover domestic international employees company may make contributions plans discretion retirement benefits earned generally based years service compensation active employment eligibility generally determined accordance local statutory requirements however level benefits terms vesting may vary among plans company contributed approximately 123000 199000 315000 1999 2000 2001 respectively 13 commitments contingencies license agreements company entered license agreements allowing utilize certain patents used connection commercial product sale company pays royalties ranging 015 500 related product revenues licensing fees years ended december 31 1999 2000 2001 approximately 178000 238000 405000 respectively grants company grant national institute standards technology nist advanced technology program commenced march 1 1995 ran february 28 2000 grant development dna sequencing timeofflight mass spectrometer total project cost 70 million 35 million reimbursed nist companys expenditures 21 million 703000 1999 2000 respectively amounts reimbursed nist approximately 10 million 226000 1999 2000 respectively classified revenues companys whollyowned subsidiary bruker daltonik gmbh subsidiary bruker saxonia analytik gmbh recipients grants german government authorities grants made connection companys development specific spectrometers components spectrometers total grants awarded amount 50 million expire november 30 2004 amounts received grants 1999 2000 2001 totaled 30 million 12 million 926000 respectively classified revenues total expenditures related grants 32 million 27 million 10 million 1999 2000 2001 respectively legal since december 31 1996 company involved patent litigation competitor finnigan subsidiary thermo electron corporation august 2001 companies reached comprehensive settlement agreement related litigation settlement agreement provides dismissal pending suits waiving damages framework licensing arbitration potential future patent disputes companies field ion trap mass spectrometry itms settlement allows companies well distributors sell unmodified itms systems effective immediately result company reduced patent litigation accrual approximately 19 million third quarter 2001 leaving balance 12 million estimated remaining costs third quarter 2001 company accrued 15 million reserve related existing contract within substance detection pathogen identification business reserve possible cost overruns attorneys fees expenses related contract lawsuits claims proceedings nature considered normal businesses may pending time company believes outcome proceedings material impact companys financial position results operations 14 earnings per share following table sets computation basic diluted average shares outstanding period indicated thousands 15 quarterly information unaudited summary operating results quarterly periods two years ended december 31 2001 set forth quarter ended december 31 2000 company recorded provision loss contract 11 million 2financial statements schedules omitted since either applicable required information included elsewhere herein 3exhibits see c breports form 8k none clist exhibits exhibit title 21 asset purchase agreement dated july 1 1996 registrant spectrospin ag 22 share purchase agreement dated december 9 1998 among registrant bruker physik ag estate dr guenther r laukien 23 asset purchase agreement dated may 28 1999 registrant viking instruments corp 24 proteigene share purchase agreement dated december 6 1999 registrant frank h laukien 25 proteigene share purchase agreement dated march 1 2000 registrant sidney r kaufman 31 amended restated certificate incorporation registrant 32 amended restated bylaws registrant 41 specimen stock certificate representing shares common stock registrant 101 2000 stock option plan 102 sharing agreement dated february 28 2000 among registrant 13 affiliates registrant 103 collaboration oem agreement dated march 6 2000 perkinelmer instruments llc affiliates registrant affiliates 104 cooperation agreement dated november 15 1999 bruker daltonik gmbh mwgbiotech ag 105 license agreement dated august 10 1998 registrant indiana universitys advanced research technology institute 106 lease dated june 27 1996 registrant bruker instruments inc amended 107 itms collaboration agreement hewlettpackard registrant bruker daltonik gmbh dated april 28 1999 108 collaboration agreement dated december 4 1997 brukerfranzen analytik gmbh sequenom instruments gmbh 109 agreement bruker daltonik gmbh bruker saxonia analytik gmbh bruker optik gmbh dated march 31 2000 1010 strategic alliance agreement registrant geneva proteomics inc dated september 12 2000 1011 standard form purchase sale agreement bruker daltonics inc isolde laukien dated december 1 2000 211 subsidiaries registrant 231 consent ernst young llp independent auditors 241 power attorney included page s1 incorporated reference registration statement form s1 registration number 33334820 declared effective securities exchange commission august 3 2000 incorporated reference annual report form 10k fiscal year ended december 31 2000 confidential treatment requested certain portions omitted filed separately commission schedules provisions made applicable accounting regulations securities exchange commission required related instructions inapplicable therefore omitted signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bruker daltonics inc frank h laukien phd name frank h laukien phd title president chief executive officer chairman date march 11 2002 undersigned officers directors bruker daltonics inc hereby severally constitute appoint frank h laukien phd sign us names capacities indicated report form 10k filed herewith amendments report file exhibits thereto documents connection therewith case securities exchange commission generally things names behalf capacities consistent provisions securities act 1934 amended requirements securities exchange commission pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated name title date frank h laukien phd frank h laukien phd president chief executive officer chairman board principal executive officer march 11 2002 john j hulburt cpa john j hulburt cpa chief financial officer treasurer principal financial accounting officer march 11 2002 dieter koch phd dieter koch phd director march 11 2002 bernhard wangler bernhard wangler director march 11 2002 william linton william linton director march 11 2002 s1 collin dsilva collin dsilva director march 11 2002 richard stein richard stein director march 11 2002 christopher canavan jr christopher canavan jr director march 11 2002 s2 bruker daltonics inc annual report form 10k table contents part iii part iv report independent auditors bruker daltonics inc consolidated balance sheets amounts thousands except share data bruker daltonics inc consolidated statements operations amounts thousands except per share data bruker daltonics inc consolidated statements stockholders equity amounts thousands bruker daltonics inc consolidated statements cash flows dollar amounts thousands bruker daltonics inc notes financial statements signaturesitem 14 controls procedures within ninety day period prior date report company conducted evaluation supervision participation companys management including companys chief executive officer chief financial officer principal executive officer principal financial officer respectively regarding effectiveness design operation companys disclosure controls procedures defined rule 13a14 securities exchange act 1934 exchange act based upon evaluation chief executive officer chief financial officer concluded companys disclosure controls procedures effective ensure material information relating company including consolidated subsidiaries made known others within entities significant changes companys internal controls factors could significantly affect internal controls subsequent date company carried evaluation part iv item 15nanitem 14 principal accountant fees services information required disclosed item pursuant item 9e schedule 14a contained proxy statement annual meeting stockholders held may 12 2005 caption report audit committee incorporated annual report form 10k reference item 15item 14 principal accountant fees services information required disclosed item pursuant item 9e schedule 14a contained proxy statement annual meeting stockholders held may 31 2006 caption “report audit committee” incorporated annual report form 10k reference item 15item 14 principal accountant fees services information required disclosed item 14 pursuant item 9e schedule 14a contained proxy statement annual meeting stockholders held may 16 2007 caption “report audit committee” incorporated annual report form 10k reference part iv item 15item 14 principal accounting fees services information required disclosed item 14 pursuant item 9e schedule 14a contained proxy statement annual meeting stockholders held may 7 2009 captions report audit committee incorporated annual report form 10k reference part iv item 15item 14 principal accounting fees services information required disclosed item 14 pursuant item 9e schedule 14a contained proxy statement annual meeting stockholders held may 14 2010 caption report audit committee incorporated annual report form 10k reference part iv item 15item 14 principal accounting fees services information required disclosed item 14 pursuant item 9e schedule 14a contained proxy statement annual meeting stockholders held may 12 2011 caption report audit committee incorporated annual report form 10k reference part iv item 15item 14 principal accounting fees services information contained definitive proxy statement 2012 annual meeting stockholders captions independent registered public accounting firm proposal 2ratification independent registered public accounting incorporated herein reference part iv item 15item 14 principal accounting fees services information contained definitive proxy statement 2013 annual meeting stockholders captions independent registered public accounting firm proposal 2ratification independent registered public accounting firm incorporated herein reference part iv item 15item 14 principal accounting fees services information contained definitive proxy statement 2014 annual meeting stockholders captions independent registered public accounting firm proposal 2ratification independent registered public accounting firm incorporated herein reference part iv item 15item 14 principal accounting fees services information contained definitive proxy statement 2015 annual meeting stockholders captions independent registered public accounting firm proposal 2ratification independent registered public accounting firm incorporated herein reference part iv item 15item 14 principal accounting fees services information contained definitive proxy statement 2016 annual meeting stockholders captions independent registered public accounting firm ratification independent registered public accounting firm incorporated herein reference part iv item 15item 14 principal accounting fees services information contained definitive proxy statement 2017 annual meeting stockholders captions independent registered public accounting firm ratification independent registered public accounting firm incorporated herein reference part iv item 15item 14 principal accountant fees services information contained definitive proxy statement 2019 annual meeting stockholders captions independent registered public accounting firm ratification independent registered public accounting firm incorporated herein reference part iv item 15item 14 principal accountant fees services information required item form 10k incorporated reference definitive proxy statement filed sec pursuant regulation 14a exchange act relating 2020 annual meeting stockholders part iv item 15item 14 exhibits financial statements schedules reports form 8k financial statements schedules report independent auditors board directors bruker daltonics inc audited accompanying consolidated balance sheets bruker daltonics inc company december 31 1999 2000 related combinedconsolidated statements operations stockholders equity cash flows three years period ended december 31 2000 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position bruker daltonics inc december 31 1999 2000 combinedconsolidated results operations cash flows three years period ended december 31 2000 conformity accounting principles generally accepted united states ernst young llp boston massachusetts march 1 2001 bruker daltonics inc consolidated balance sheets amounts thousands except share data accompanying notes integral part statements bruker daltonics inc combined consolidated statements operations amounts thousands except share per share data accompanying notes integral part statements bruker daltonics inc combined consolidated statements stockholders equity amounts thousands accompanying notes integral part statements bruker daltonics inc combined consolidated statements cash flows dollar amounts thousands accompanying notes integral part statements bruker daltonics inc notes financial statements 1 description business bruker daltonics inc whollyowned subsidiaries company design manufacture market proprietary life science systems based mass spectrometry core technology platforms company also sells broad range field analytical systems substance detection pathogen identification company maintains major technical centers europe north america japan bruker daltonics allocates substantial capital resources research development party various collaborations strategic alliances companys diverse customer base includes pharmaceutical companies biotechnology companies proteomic companies academic institutions government agencies financial statements represent consolidated accounts bruker daltonics inc whollyowned subsidiaries december 31 1999 2000 years ended combined accounts bruker daltonics inc affiliated companies year ended december 31 1998 see note 3 significant intercompany accounts transactions eliminated consolidation combination respectively 2 summary significant accounting policies use estimates preparation financial statements conformity accounting principles generally accepted united states requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates cash equivalents company considers highly liquid investments original maturities 90 days less date purchase cash equivalents cash equivalents carried cost approximates fair market value year end shortterm investments company accounts shortterm investments accordance statement financial accounting standards sfas 115 accounting certain investments debt equity securities companys investments carried fair value consist funds comprised shortterm money market bond instruments classified availableforsale december 31 2000 concentration credit risk financial instruments subject company credit risk consist cash equivalents shortterm investments accounts receivables risk respect cash equivalents shortterm investments minimized companys policy investing shortterm financial instruments issued highlyrated financial institutions risk respect accounts receivable minimized credit worthiness companys customers company performs periodic credit evaluations customers financial condition generally require bruker daltonics inc notes financial statements continued 2 summary significant accounting policies continued collateral credit losses within managements expectations years ended december 31 1998 1999 2000 two customers accounted aggregate 32 30 11 respectively companys product revenue accounts receivables two customers accounted aggregate 3 total receivables december 31 1999 2000 inventories stated lower cost market cost determined firstin firstout fifo method inventories include demonstration equipment company offers current potential customers company amortizes demonstration equipment three year period amortization expense demonstration equipment approximately 259000 307000 952000 years ended december 31 1998 1999 2000 respectively property plant equipment property plant equipment includes land buildings machinery equipment furniture fixtures leasehold improvements stated cost depreciable assets depreciated straightline basis estimated useful lives assets follows software costs purchased software capitalized cost amortized estimated useful life generally three years software developed use companys products expensed incurred classified research development expense assets consist principally patents licenses patents patent applications rights stated acquisition cost amortization patents recorded using straightline method legal lives patents generally periods ranging ten years accumulated amortization assets approximately 1121000 1177000 december 31 1999 2000 respectively investments companies investment companies consists equity securities privatelyheld companies accounted cost method companys ownership interest individual companies less 20 bruker daltonics inc notes financial statements continued 2 summary significant accounting policies continued longlived assets company reviews longlived assets impairment accordance statement financial accounting standard sfas 121 accounting impairment longlived assets disposed whenever events circumstances indicate carrying amount asset may recoverable assets writtendown fair value carrying costs exceed amount impairment losses determined based upon estimated future cash flows fair values date indicators impairment identified warranty costs company provides one year parts labor warranty purchase equipment anticipated cost one year warranty accrued upon recognition sale included current liability accompanying balance sheets customer deposits terms conditions contracts certain customers company may require advance deposit amounts recorded liability revenue recognized specific contract time acceptance system patent litigation costs company records charges costs anticipates incurring connection litigation claims company management reasonably estimate costs earnings per share basic earnings per share calculated dividing net earnings weightedaverage number common shares outstanding period diluted earnings per share computation includes effect shares would issuable upon exercise outstanding stock options reduced number shares assumed purchased company resulting proceeds average market price period fair value financial instruments companys financial instruments consist primarily cash equivalents shortterm investments accounts receivable accounts payable amounts due fromto affiliated companies longterm debt carrying amounts companys cash equivalents shortterm investments accounts receivable accounts payable amounts due fromto affiliated companies approximate fair value due shortterm nature fair value longterm debt estimated based current interest rates offered company financing arrangements similar maturities recorded value financial instruments approximate fair value december 31 1999 2000 foreign currency translation accordance statement financial accounting standards sfas 52 foreign currency translation balance sheet accounts foreign subsidiaries translated united bruker daltonics inc notes financial statements continued 2 summary significant accounting policies continued states dollars current exchange rate income statement items translated average exchange rate period resulting translation adjustments made directly accumulated comprehensive income loss stockholders equity realized exchange gains losses foreign currency transactions included income expenses immaterial 1998 1999 gains approximately 332000 2000 revenue recognition revenue recognized system sales including hardware embedded software product accepted customer except sold independent distributor strategic distribution partner unconsolidated bruker affiliated distributor assumes responsibility installation case system sale recognized products shipped distributor title transferred distributor distributors price protection rights return however products warranted free defect period typically one year revenue accessories parts recognized upon shipment revenue services performed company also offers customers warranty service agreements extending beyond initial year warranty fee fees recorded deferred revenue amortized revenue life agreements revenues principally comprised research development grants recognized grant work performed company believes revenue recognition policies comply sec staff accounting bulletin 101 revenue recognition financial statements american institute certified public accountants aicpa statement position sop 972 software revenue recognition advertising costs advertising costs expensed incurred advertising expenses included sales marketing approximately 452000 364000 793000 years ended december 31 1998 1999 2000 respectively income taxes company provides income taxes liability method prescribed sfas 109 accounting income taxes method deferred tax assets liabilities determined based difference financial statements tax basis assets liabilities using enacted tax rates effect year difference expected reverse valuation allowances established necessary reduce deferred tax assets amounts expected realized accounting developments june 1998 financial accounting standards board fasb issued sfas 133 accounting derivative instruments hedging activities provisions statement require recognition derivatives either assets liabilities statement financial bruker daltonics inc notes financial statements continued 2 summary significant accounting policies continued position measurement instruments fair value accounting changes fair value derivative depends intended use derivative resulting designation company required implement statement first quarter fiscal 2001 company believe new accounting standard material impact financial statements reclassifications certain amounts accompanying combined consolidated financial statements reclassified conform 2000 presentation 3 acquisitions bruker daltonik gmbh effective december 21 1998 bruker daltonics inc acquired equity interests bruker daltonik gmbh formerly known bruker franzen analytik gmbh manufacturer mass spectrometers 5435012 funded issuance 5750000 shares common stock 100 per share existing stockholders operations bruker daltonik gmbh subsidiary bruker saxonia analytik gmbh based germany included 1998 combined statements operations comparative purposes transaction represented exchange entities common control accordingly assets acquired liabilities assumed accounted historical cost manner similar poolingofinterests proteigene inc december 1999 company acquired 49 interest proteigene inc officer company 50000 estimated fair market value march 2000 company acquired remaining 51 interest proteigene inc unrelated party 26000 estimated fair market value proteigene bioanalytical research development company specializing applications mass spectrometry bioinformatics medical microbiologic diagnostics proteigene developing products used care patients suffering routine exotic infections organ transplant rejection genetic environmental diseases including cancers autoimmune conditions standard microbiologic histopathologic diagnostics proven ineffective viking instruments corporation june 22 1999 company purchased assets viking instruments corporation developer manufacturer transportable gas chromatrograph mass spectrometers gcms transportable gcms instruments used laboratory field analysis soil air water identification quantification wide variety organic compounds pollutants acquisition cost 150000 results operations included accompanying consolidated financial statements date acquisition connection acquisition 100000 expensed purchased inprocess research development 25000 allocated core technology classified intangible 20000 allocated inventory 5000 allocated fixed assets amortization period five years intangibles three five years fixed assets bruker daltonics inc notes financial statements continued 3 acquisitions continued 100000 inprocess research development attributed viking 573 transportable gas chromatrograph mass spectrometer supported discounted probable cash flow analysis projectbyproject basis modified reflect stage completion inprocess research development expenditures june 22 1999 feasibility acquired technology established acquired technology future alternative uses geneva proteomics inc november 2000 company acquired 909091 shares series b preferred stock geneva proteomics inc exchange 7 million cash 79218 shares companys common stock acquired securities included investments companies accounted cost method 4 inventories components inventories follows 5 property plant equipment property plant equipment consisted following depreciation expense years ended december 31 1998 1999 2000 approximately 2465000 3317000 3176000 respectively amortization leasehold improvements included depreciation accompanying financial statements bruker daltonics inc notes financial statements continued 6 income taxes components income loss continuing operations provision income taxes consisted following years ended december 31 1998 1999 2000 significant components provision benefit income taxes years ended december 31 1998 1999 2000 follows reconciliation income tax computed united states federal statutory tax rate income tax expense years ended december 31 1998 1999 2000 follows bruker daltonics inc notes financial statements continued 6 income taxes continued components companys deferred income taxes follows financial reporting purposes valuation allowance december 31 1999 recognized offset deferred tax assets since uncertainty existed respect future realization deferred tax assets valuation allowance necessary december 31 2000 december 31 2000 research development tax credits net operating loss carryforwards available reduce future federal state foreign tax liabilities credits expire various dates year 2020 undistributed earnings foreign subsidiaries aggregated approximately 97 million december 31 2000 existing law subject united states tax distributed dividends earnings intended indefinitely reinvested foreign operations provision made united states income taxes may applicable thereto bruker daltonics inc notes financial statements continued 7 financing arrangements august 1999 company entered revolving line credit citizens bank amount 2500000 line secured certain inventory receivables equipment united states used provide working capital expires july 31 2001 interest line credit lower libor plus 175 basis points 815 december 31 2000 prime rate 950 december 31 2000 commitment fee unused portion line december 31 1999 2000 company 1000000 0 respectively outstanding line credit company also maintained revolving lines credit 1999 2000 respectively approximately 6200000 7700000 among german banks interest rates ranging 645 675 december 31 1999 2000 1496350 0 respectively outstanding revolving lines credit lines secured certain inventory accounts receivable germany renewable june 2001 company three notes payable outstanding balances aggregating 12843582 12036591 december 31 1999 2000 respectively one note 5137434 4814636 december 31 1999 2000 respectively interest rate 510 payable full 2003 two notes 7706148 7221955 aggregate december 31 1999 2000 respectively interest rate 465 due 2008 interest due monthly obligations collateralized land buildings bruker daltonik gmbh 8 stockholders equity initial public offering august 3 2000 company issued 9200000 shares common stock 119600000 13 per share company incurred 9912000 offering costs result transaction preferred stock december 31 2000 5000000 shares blank check preferred stock stated par value 001 per share authorized none issued stock split february 14 2000 board directors bruker daltonics inc authorized sevenforone stock split form stock dividend stockholders record received six additional shares common stock every share owned common shares per share data accompanying financial statements restated reflect stock split stock options february 2000 board directors adopted stockholders approved 2000 stock option plan provides issuance 2188000 shares common stock connection awards plan allows committee board directors committee grant incentive stock options nonqualified stock options stock appreciation rights stock awards including use restricted stock phantom shares committee authority determine employees receive rewards amount awards terms conditions award year ended december 31 2000 bruker daltonics inc notes financial statements continued 8 stockholders equity continued committee granted stock options 871385 shares common stock vest threetofive year periods stock option activity year ended december 31 2000 follows following table summarizes information stock options outstanding december 31 2000 company accounts stockbased compensation using intrinsic value method accordance accounting principles board opinion 25 accounting stock issued employees apb 25 adopted disclosureonly alternative sfas 123 accounting stockbased compensation sfas 123 apb 25 exercise price companys stock options equaled fair market value underlying stock date grant compensation expense recognized stock options granted nonemployees including scientific advisory board members accounted accordance emerging issues task force issue 9618 accounting equity instruments issued employees acquiring conjunction selling goods services requires value options remeasured vest performance period fair value options determined using blackscholes model resulting charge recognized related services performed company incurred approximately 181000 net compensation expense relating nonemployee grants year ended december 31 2000 pro forma information regarding net income earnings per share required sfas 123 also requires information determined bruker daltonics accounted bruker daltonics inc notes financial statements continued 8 stockholders equity continued employee stock options fair value method statement fair value options estimated date grant using blackscholes option pricing model following weightedaverage assumptions 2000 riskfree interest rates ranging 545 665 expected dividend yield 0 volatility factor 0151 0386 weightedaverage expected life options threetofive years blackscholes option valuation model developed use estimating fair value traded options vesting restrictions fully transferable addition option valuation models require input highly subjective assumptions including expected stock price volatility companys employee stock options characteristics significantly different traded options changes subjective input assumptions materially affect fair value estimate managements opinion existing models necessarily provide reliable single measure fair value employee stock options purposes pro forma disclosures estimated fair value stock options amortized expense options respective vesting periods estimated fair value shares issued companys stock option plan determined based fair value date grant defined sfas 123 companys pro forma results year ended december 31 2000 would follows 9 segment geographic information company operates one business segment engages design manufacturing marketing proprietary life science systems process analysis systems analytical instruments based primarily mass spectrometry technology geographic areas information concerning principal geographic areas follows 1 net product revenues attributable geographic areas based region sale bruker daltonics inc notes financial statements continued 9 segment geographic information continued 10 discontinued operations 1999 company decided discontinue fourier transforminfrared ftir business ftir business unit sells services ftir instruments variety markets outside companys core technology platform mass spectrometry company completed sale ftir business bruker optik gmbh affiliated entity first half 2000 price approximates net book value assets liabilities business summary results discontinued operations years ended december 31 1998 1999 2000 follows assets liabilities discontinued operations december 31 1999 consisted inventories 32000 accounts payable 147000 11 relatedparty transactions company affiliated common stockholders several entities use bruker name company affiliates entered sharing agreement provides sharing specified intellectual property rights services facilities related items bruker daltonics inc notes financial statements continued 11 relatedparty transactions continued company recognized sales affiliated entities approximately 9805000 1998 10307000 1999 9378000 2000 purchases affiliated entities approximately 3914000 1998 3209000 1999 5627000 2000 1998 1999 2000 various bruker affiliates provided administrative services including office space company cost approximately 227000 437000 443000 respectively based assessment estimated fair market value services 2000 company purchased land principal shareholder 742000 estimated fair market value 12 employee benefit plans company maintains sponsors various defined contribution retirement plans cover domestic international employees company may make contributions plans discretion retirement benefits earned generally based years service compensation active employment eligibility generally determined accordance local statutory requirements however level benefits terms vesting may vary among plans company contributed approximately 66000 123000 199000 1998 1999 2000 respectively 13 commitments contingencies license agreements company entered license agreements allowing company utilize certain patents used connection commercial product sale company pays royalties ranging 015 500 related product revenues licensing fees years ended december 31 1998 1999 2000 approximately 146000 178000 238000 respectively grants company grant national institute standards technology nist advanced technology program commenced march 1 1995 ran february 28 2000 grant development dna sequencing timeofflight mass spectrometer total project cost 7 million 35 million reimbursed nist companys expenditures 13 million 21 million 703000 1998 1999 2000 respectively amounts reimbursed nist approximately 594000 1 million 226000 1998 1999 2000 respectively classified revenues companys whollyowned subsidiary bruker daltonik gmbh subsidiary bruker saxonia analytik gmbh recipients six grants german government authorities grants made connection companys development specific spectrometers components spectrometers total grants awarded amount 45 million expire december 31 2001 amounts received grants 1998 1999 2000 totaled 15 million 3 million 12 million respectively classified revenues total expenditures related grants 3 million 32 million 27 million 1998 1999 2000 respectively bruker daltonics inc notes financial statements continued 13 commitments contingencies continued legal companys whollyowned subsidiary bruker daltonik gmbh 58 million 41 million accrued liability december 31 1999 2000 respectively related certain patent infringement litigation filed competitor 1997 competitor initiated action united states district court massachusetts alleging patent infringement company agilent formerly division hewlettpackard competitor also filed request investigation patent infringement claims united states international trade commission itc filed suit company germany france united kingdom 1998 itc found favor company 1999 court appeals federal circuit confirmed part itc decision favor company filed counterclaims relation patent claims 1999 filed antitrust suit competitor massachusetts federal court company believes meritorious defense competitors claims intends vigorously defend based review current facts circumstances management company subsidiary believe amount accrued liability reasonable estimate exposure loss associated matters representing principally anticipated legal fees acknowledging uncertainties litigation company believes matters resolved without material effect companys financial position results operations however unfavorable outcome matters could result material adverse impact companys financial statements although estimate impact cannot made lawsuits claims proceedings nature considered normal businesses pending company subsidiary company believes outcome proceedings material impact companys financial position results operations bruker daltonics inc notes financial statements continued 14 quarterly information unaudited summary operating results quarterly periods two years ended december 31 2000 set forth quarter ended december 31 2000 company recorded provision loss contract 11 million 2 financial statements schedules omitted since either applicable required information included elsewhere herein 3 exhibits see c b reports form 8k none c list exhibits incorporated reference registration statement form s1 registration number 33334820 declared effective securities exchange commission august 3 2000 confidential treatment requested certain portions omitted filed separately commission schedules provisions made applicable accounting regulations securities exchange commission required related instructions inapplicable therefore omitted signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized undersigned officers directors bruker daltonics inc hereby severally constitute appoint frank h laukien phd sign us names capacities indicated report form 10k filed herewith amendments report file exhibits thereto documents connection therewith case securities exchange commission generally things names behalf capacities consistent provisions securities act 1934 amended requirements securities exchange commission pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated s1 s2item 14 principal accounting fees services information required disclosed item 14 pursuant item 9e schedule 14a contained proxy statement annual meeting stockholders held may 8 2008 caption report audit committee incorporated annual report form 10k reference part iv item 15item 14 principal accounting fees services information contained definitive proxy statement 2018 annual meeting stockholders captions independent registered public accounting firm ratification independent registered public accounting firm incorporated herein reference part iv item 15item 14 principal accountant fees services information required item form 10k incorporated reference definitive proxy statement filed sec pursuant regulation 14a exchange act relating 2021 annual meeting stockholders part iv item 15 item 7 managements discussion analysis financial condition results operations read following discussion analysis financial condition results operations together selected financial data financial statements related notes appearing elsewhere report discussion analysis contains forwardlooking statements involve risks uncertainties assumptions actual results may differ materially anticipated forwardlooking statements result many factors including limited set forth factors affecting business operating results financial condition elsewhere report overview leading developer provider innovative life science tools based mass spectrometry also worldwide leader supplying mass spectrometrybased systems substance detection pathogen identification security defense applications maintain technical centers europe north america japan well customer support facilities many industrialized developing countries allocate substantial capital resources research development party various collaborations strategic alliances diverse customer base includes pharmaceutical companies biotechnology companies proteomic companies academic institutions government agencies significant accounting policies inventories maintain allowance excess obsolete inventory reflect expected unsaleable unrefundable inventory based evaluation slow moving products investments companies investments companies consist equity securities privatelyheld companies accounted cost method companys ownership interest individual companies less 20 customer deposits terms conditions contracts many customers require portion purchase price form advance deposit record deposit amounts liability associated revenue recognized time acceptance system warranty costs company provides oneyear parts labor warranty purchase equipment anticipated cost oneyear warranty accrued upon recognition sale included current liability accompanying balance sheets extent company experiences increased warranty claim activity increased costs associated servicing claims warranty accrual increase resulting decreased gross profit contingencies subject proceedings lawsuits claims related patents product matters required assess likelihood adverse judgments outcomes matters well potential ranges probable losses determination amount reserves required contingencies made careful analysis individual issue required reserves may change future due new developments matter changes approach change settlement strategy dealing matters revenue recognition recognize revenue system sales including hardware embedded software product accepted customer except sold independent distributor strategic distribution partner unconsolidated bruker affiliated distributor assumes responsibility installation case system sale recognized products shipped distributor title transferred distributor distributors price protection rights return however products warranted free defect period typically one year revenue accessories parts recognized upon shipment revenue services performed cost product revenue cost product revenue includes direct costs materials direct labor benefits well indirect costs related generating revenue indirect costs include indirect labor materials supplies equipment rental depreciation production equipment test equipment facilities related production space revenue sales marketing sales marketing expenses include salaries sales commissions benefits travel occupancy costs related expenses direct sales force sales support marketing functions expanded sales marketing organization substantially since 1997 adding subsidiaries sales representatives china france japan scandinavia switzerland united kingdom canada italy australia singapore taiwan sales marketing expenses also include costs associated supporting distribution channel partners timeofflight ion trap mass spectrometry products expect sales marketing expenses continue increase future expand global distribution capabilities introduce new products general administrative general administrative expenses include salaries benefits expenses executive finance legal human resources internal systems support personnel addition general administrative expenses include occupancy costs fees professional services depreciation office equipment expect general administrative expenses increase continue expand administrative infrastructure support anticipated growth business continue incur costs associated public company research development research development expenses include costs development new technologies products expenses include materials salaries benefits occupancy costs related expenses development personnel expense research development costs incurred expect increase spending research development order develop new products applications percentage revenues spending decrease time patent litigation costs patent litigation costs include actual estimated legal fees anticipated assessments associated litigation connection intellectual property particularly finnigan litigation costs may increase depending upon outcome current legal proceedings results operations following table sets forth certain items included results operations three years ended december 31 2001 expressed percentage net revenue periods year ended december 31 2001 compared year ended december 31 2000 product revenue total product revenue increased 170 million 227 918 million 2001 compared 748 million 2000 topline product revenue growth rate year approximately 265 unfavorable currency effects life science systems revenue substance detection systems revenue aftermarket revenue percentage product revenue 74 10 16 respectively 2001 compared 66 22 12 respectively 2000 increase total product revenue related continuing growth life science product lines significant growth aftermarket sales revenue decreased 904000 494 926000 2001 compared 18 million 2000 decrease due completion certain projects earlystage research development funded grants german united states governments cost product revenue including provision loss contract cost product revenue increased 84 million 230 451 million 2001 compared 367 million 2000 cost product revenue percentage product revenue 491 2001 compared 490 2000 increase costs product revenue percentage product revenue relates product mix sales directly third party customers sales strategic alliances provision loss contract increased 431000 400 15 million 2001 compared 11 million 2000 provision relates existing contract within substance detection pathogen identification business reserve estimated cost overruns legal fees liquidated damages related contract sales marketing sales marketing expenses increased 79 million 573 217 million 2001 compared 138 million 2000 sales marketing expenses percentage product revenues 237 2001 185 2000 increase relates significant new product introductions first second quarters 2001 cost associated rollout products increase also attributed higher sales commissions earned direct sales force well addition four distribution subsidiaries operation full year 2000 general administrative general administrative expenses increased 10 million 188 60 million 2001 compared 50 million 2000 general administrative expenses percentage product revenues 65 2001 68 2000 although general administrative expenses percentage product revenue decreased general administrative expenses remained relatively consistent overall increased sales growth company increase total amount general administrative expenses relates increase costs incurred 2001 associated several business development projects research development research development expenses decreased 16 million 78 185 million 2001 compared 200 million 2000 percentage product revenues research development expenses 201 2001 compared 268 2000 decrease relates completion certain new projects results incorporated existing product line litigation credit costs litigation reserve reduced 22 million third quarter 2001 result settlement certain ongoing litigation 1997 interest income net interest income net 27 million 2001 compared 16 million 2000 increase relates fact earned interest income shortterm investments throughout full year 2001 compared earning interest four months 2000 provision income taxes provision income taxes 24 million 2001 compared 254000 2000 effective tax rate 2001 394 compared effective rate 109 2000 lower effective rate 2000 reflected onetime benefit revaluation net deferred tax liabilities result reduction enacted tax rates germany well reduction valuation allowance based forecasted taxable income united states effective tax rates reflect blended tax rate various countries operate year ended december 31 2000 compared year ended december 31 1999 product revenue total product revenue increased 142 million 233 748 million 2000 compared 606 million 1999 topline product revenue growth rate year approximately 39 unfavorable currency effects due particular weakness european currencies throughout year life science product revenue substance detection pathogen identification product revenue percentage product revenue approximately 66 22 respectively 2000 compared 54 46 respectively 1999 increase product revenue 2000 fueled continuing strong demand life science products various product lines new existing customers revenue decreased 22 million 551 18 million 2000 compared 41 million 1999 decrease due completion certain projects earlystage research development funded grants german government advanced technology program national institute standards technologies united states historically obtained significant funding grant awards earlystage research development activity anticipate funding significantly reduced future cost product revenue including provision loss contract cost product revenue increased 40 million 126 356 million 2000 compared 316 million 1999 cost product revenue percentage product revenue 476 2000 compared 522 1999 decrease due combination greater revenues new life science products lower cost increased efficiencies manufacturing operations lower material costs driven increase volume discounts fourth quarter 2000 took 11 million special charge unprofitable contract within substance detection pathogen identification business made considerable design changes systems delivered contract increased cost sales marketing sales marketing expenses increased 25 million 217 138 million 2000 compared 113 million 1999 dollar increase due higher sales commissions earned direct sales force result increase number units sold addition new distribution subsidiaries operation 1999 sales marketing expenses percentage product revenues 185 2000 187 1999 general administrative general administrative expenses increased 16 million 483 51 million 2000 compared 34 million 1999 percentage product revenues general administrative expenses 68 2000 56 1999 increase relates certain noncash charges compensation expense related stock option grants well various costs related public company research development research development expenses increased 49 million 323 200 million 2000 compared 151 million 1999 percentage product revenues research development expenses increased 268 2000 250 1999 dollar increase 2000 due increased staffing related personnel costs well late stage testing costs incurred new products scheduled introduction early 2001 investing heavily proteomics lifescience systems integration general expect introduce several new products early march 2001 well second half year patent litigation costs patent litigation costs 303000 2000 increase reflects revised estimate legal costs associated intellectual property litigation reflects estimated assessments related ongoing litigation 1996 interest income expenses net interest income net 16 million 2000 compared interest expense net 777000 1999 difference due interest income earned additional funding raised equity offering third quarter 2000 payoff outstanding shortterm lines credit united states germany income discontinued operations net income taxes income discontinued operations net income taxes decreased 189000 508 184000 2000 compared 373000 1999 income discontinued operations related disposal infrared sales group early 2000 provision income taxes provision income taxes 254000 2000 compared 987000 1999 effective tax rate 2000 109 reflected blended tax rate various countries operate reduction valuation allowance united states result future anticipated earnings benefit revaluation net deferred tax liabilities result reduction enacted tax rates germany effective tax rate 1999 529 reflected blended tax rate various countries operate benefits utilization tax loss carryforwards germany increase valuation allowance united states associated tax loss carryforwards liquidity capital resources presently anticipate existing capital resources meet operating investing needs end 2002 historically financed growth combination cash provided operations debt financing issuance common stock 2001 net cash used operating activities 115 million represents increase net cash used operating activities compared 2000 primarily result increased inventory accounts receivables prepaid assets used 174 million cash 2001 capital expenditures principally related expenditures expansion existing facility germany construction new production facility united states company expects capital expenditures related new facilities 2002 approximately 110 million total capital expenditures approximately 170 million capital expenditures made improve productivity expand manufacturing capacity expect continue make capital investments focused enhancing efficiency operations supporting growth october 2001 entered revolving line credit citizens bank united states amount 25 million line secured portions inventory receivables equipment united states used support working capital expires july 31 2002 also maintain revolving lines credit approximately 67 million german banks december 31 2001 approximately 35 million outstanding lines german lines credit unsecured first half 2001 entered three revolving lines credit approximately 12 million japanese bank december 31 2001 repaid approximately 797000 close two lines approximately 381000 outstanding remaining line lines credit unsecured three longterm notes payable outstanding balances aggregating 113 million december 31 2001 one note 45 million interest rate 510 payable full 2003 two notes 68 million aggregate interest rate 465 payable full 2008 interest due monthly obligations collateralized land buildings bruker daltonik gmbh future capital uses requirements depend numerous factors including success selling existing products progress research development ability introduce sell new products sales marketing expenses need expand production capacity costs associated possible acquisitions expenses associated unforeseen litigation regulatory changes competition technological developments market inflation believe inflation material impact business operating results periods presented impact foreign currencies sell products many countries substantial portion sales portion costs expenses denominated foreign currencies especially euro historically realized foreign exchange gains losses significant accordingly hedged foreign currency position past however expand sales internationally plan evaluate currency risks may enter foreign exchange contracts time mitigate foreign currency exposure relatedparty transactions company affiliated common stockholders several entities use bruker name company affiliates entered sharing agreement provides sharing specified intellectual property rights services facilities related items company recognized sales affiliated entities approximately 94 million 2000 41 million 2001 purchases affiliated entities approximately 56 million 2000 35 million 2001 company recognized sales geneprot inc geneformatics inc two companies bruker daltonics investments approximately 60 million 03 million respectively 2001 sales recorded arms length conditions normal course business 2000 2001 various bruker affiliates provided administrative services including office space company cost approximately 443000 894000 respectively based assessment estimated fair market value services 2000 company purchased land principal shareholder 742000 estimated fair market value recent accounting pronouncements july 2001 fasb issued sfas 141 business combinations sfas 142 goodwill intangible assetssfas 141 requires purchase method accounting used business combinations initiated june 30 2001 prohibits use poolingofinterests method sfas 142 changes accounting goodwill amortization method impairmentonly approach thus amortization goodwill including goodwill recorded past business combinations cease upon adoption sfas 142 companies calendar year ends january 1 2002 addition companies required evaluate existing goodwill impairment within six months adoption comparing fair value reporting unit carrying value date adoption transitional impairment losses recognized first interim period year adoption recognized effect change accounting principle management believes adoption sfas 141 sfas 142 material effect financial position results operations company august 2001 fasb issued sfas 144 accounting impairment disposal longlived assets sfas 144 requires one accounting model used longlived assets disposed sale discontinued operations longer measured net realizable value basis measured similar longlived assets classified held sale lower carrying amount fair value less cost sell future operating losses longer recognized occur sfas 144 also broadens presentation discontinued operations include component entity operations cash flows clearly distinguished establishes criteria determine longlived asset held sale provisions statement effective financial statements issued fiscal years beginning december 15 2001 management believes adoption statement material effect results operations financial position company quantitative qualitative disclosures market risk part information called item provided caption liquidity capital resources impact foreign currencies item 7 managements discussion analysis financial condition results operations company use derivative financial instruments trading speculative purposes however company regularly invests excess cash overnight repurchase agreements interestbearing investmentgrade securities shortterm partnership funds subject changes shortterm interest rates company believes market risk arising holding financial instruments minimal companys exposure market risks associated changes interest rates relates primarily increase decrease amount interest income earned investment portfolio since companys longterm debt fixed rate company ensures safety preservation invested funds limiting default risks market risk reinvestment risk company mitigates default risk investing investment grade securities hypothetical 100 basis point adverse move interest rates along entire interest rate yield curve would materially affect fair value companys interest sensitive financial instruments december 31 2001 declines interest rates time however reduce companys interest income factors affecting business operating results financial condition following risk factors considered conjunction information included report may include forwardlooking statements involve risks uncertainties addition risk factors discussed elsewhere report identify following risk factors could affect actual results cause actual results differ materially forwardlooking statements products fail achieve sustain sufficient market acceptance across broad intended range applications life sciences generate expected revenue business strategy depends ability successfully commercialize broad range products based mass spectrometry use variety life science applications recently commercially launched many current products sale markets many products achieved limited sales commercial success life science products depends obtaining continued expanding market acceptance mass spectrometry tools pharmaceutical biotechnology proteomics companies academic government research laboratories across wide range applications covered product offerings may fail achieve sustain substantial market acceptance products across full range intended life science applications one principal intended life science applications failure could decrease sales revenue succeed must convince substantial numbers pharmaceutical biotechnology companies laboratories replace existing techniques mass spectrometry techniques employing systems limited funding available capital acquisitions customers well customers internal purchasing approval policies could hinder market acceptance products intended life science customers may reluctant make substantial capital investment generally needed acquire products incur training costs involved replacing existing systems products also may able convince intended life science customers systems attractive costeffective alternative technologies systems acquisition analysis management molecular information factors products may fail gain sustain market acceptance products compete markets subject rapid technological change products based range mass spectrometry technologies one could made obsolete new technology market life science discovery tools characterized rapid technological change frequent new product introductions rapidly changing technology could make life science product lines obsolete unless able continually improve existing products develop new products substantially life science products based mass spectrometry particularly vulnerable technological advances would make mass spectrometry obsolete basis bioanalytical systems life science markets meet evolving needs customers must rapidly continually enhance current planned products services develop introduce new products services business model calls us derive significant portion revenues year products exist previous year however may experience difficulties may delay prevent successful development introduction marketing new products product enhancements addition product lines based complex technologies subject rapid change new technologies developed introduced marketplace may difficulty keeping abreast rapid changes affecting different markets serve intend serve fail develop introduce products timely manner response changing technology market demands requirements customers product sales may decline could experience significant losses offer plan offer broad product line incurred expect continue incur substantial expenses development new products enhanced versions existing products speed technological change life science markets may prevent us able successfully market products length time required recover often significant development costs failure recover development costs one products product lines could decrease profitability cause us experience significant losses furthermore failure develop successful products capitalize research development investment would negatively influence profits financial position face substantial competition market life science products face substantial competition major competitors including competitors offer mass spectrometrybased systems along product lines competitors offer technology alternatives mass spectrometry expect competition life science markets increase significantly biotechnology pharmaceutical companies adopt automated highthroughput bioanalytical instruments tools drug discovery drug development proteomics genomics metabolomics currently principal competition comes established companies providing products using existing technologies including mass spectrometry technologies perform many functions market products addition companies may choose enter field future competitors may develop market products effective commercially attractive current future products may render products obsolete many competitors experience life sciences market substantially greater financial operational marketing technical resources could give competitive edge areas research development production marketing distribution ability compete successfully depend part ability develop proprietary products reach market timely manner technologically superior less expensive costeffective currently marketed products success depends ability operate without infringing misappropriating proprietary rights others commercial success depends avoiding infringement parties valid patents proprietary rights well breach licenses relating technologies products various thirdparty patents may relate technology may found future infringe patents proprietary rights third parties either products currently marketing developing new products may develop future third party holding rights patent successfully asserts infringement claim respect current future products may prevented manufacturing marketing infringing product country countries covered patent infringe unless obtain license patent holder may able obtain license commercially reasonable terms especially patent holder competitor addition even obtain license may nonexclusive permit others practice technology licensed us may also required pay substantial damages patent holder certain circumstances united states damages may include damages equal triple actual damages experienced patent holder supplied infringing products third parties marketing licensed third parties manufacture use market infringing products may obligated indemnify third parties damages required pay patent holder losses third parties may sustain result lost sales license payments required make patent holder successful infringement action brought us may also adversely affect marketing infringing product markets covered infringement action well marketing products based similar technology furthermore suffer adverse consequences successful infringement action us even action subsequently reversed appeal nullified another action resolved settlement patent holder damages remedies awarded may significant result successful infringement action us could prevent us selling products cause us experience significant losses may involved lawsuits protect enforce patents brought us would expensive timeconsuming order protect enforce patent rights may initiate patent litigation third parties may also become subject interference proceedings conducted patent trademark offices various countries determine priority inventions defense prosecution necessary intellectual property suits interference proceedings related legal administrative proceedings costly diverts technical management personnel normal responsibilities may prevail suits adverse determination litigation defense proceedings could put patents risk invalidated interpreted narrowly could put patent applications risk issuing furthermore substantial amount discovery required connection intellectual property litigation risk confidential information could compromised disclosure type litigation example course kind litigation could public announcements results hearings motions interim proceedings developments litigation securities analysts investors perceive results negative could substantial negative effect trading price stock unable effectively protect intellectual property third parties may use technology would impair ability compete markets continued success depend significant part ability obtain maintain meaningful patent protection products throughout world rely patents protect significant part intellectual property enhance competitive position however presently pending future patent applications may issue patents patent previously issued us may challenged invalidated held unenforceable circumvented furthermore claims patents issued may issued us future may sufficiently broad prevent third parties producing competing products similar products addition laws various foreign countries compete may protect intellectual property extent laws united states failure obtain adequate patent protection proprietary technology could materially impair ability commercially competitive addition patent protection also rely protection trade secrets knowhow confidential proprietary information maintain confidentiality trade secrets proprietary information generally seek enter confidentiality agreements employees consultants strategic partners upon commencement relationship us however may obtain agreements circumstances event unauthorized use disclosure information agreements even obtained may provide meaningful protection trade secrets confidential information addition adequate remedies may exist event unauthorized use disclosure information loss exposure trade secrets proprietary information would impair competitive advantages could material adverse affect operating results financial condition future growth prospects furthermore others may future independently develop substantially similar superior knowhow technology agreed share name portions intellectual property rights distribution channels entities common control could result loss name lock price products may sell entities may best price available products maintain sharing agreement 12 affiliated entities requires us share portions intellectual property existed february 28 2000 distribution channels affiliated companies affiliates also share bruker name many affiliates could lose right use bruker name declare bankruptcy b interfere another partys use name c take material action materially detracts goodwill associated name suffer major loss reputation industry marketplace loss bruker name could result loss goodwill brand loyalty sales products addition agreed maintain price products purchased sold affiliates period twelve years subject yearly adjustments equal increase consumer price index manufacture sale products could lead product liability claims could substantial liability manufacture sale products exposes us product liability claims products cause injury found otherwise unsuitable manufacturing marketing sale customer use successful product liability claim brought us excess outside coverage insurance coverage could material adverse effect business financial situation results operations may able maintain product liability insurance acceptable terms insurance may provide adequate coverage potential liabilities business could harmed collaborations fail advance product development demand products depend part upon extent collaborations pharmaceutical biotechnology proteomics companies successful developing helping us develop new products new applications existing products addition collaborate academic institutions product development limited control resources collaborator may devote products present future collaborators may perform obligations expected fail enter maintain appropriate collaboration agreements events occur may able develop new products could materially impede ability generate revenue lose strategic partners could impair marketing efforts substantial portion sales selected products consists sales third parties incorporate products systems third parties responsible marketing sales systems little control marketing sales activities use resources present future strategic partners may purchase sufficient quantities products us perform appropriate marketing sales activities failures present future strategic partners inability maintain enter new arrangements strategic partners product distribution could materially impede growth business ability generate sufficient revenue reduction capital resources government funding customers could reduce sales impede ability generate revenue significant portion sales capital purchases customers spending policies customers could significant effect demand products policies based wide variety factors including resources available make purchases spending priorities among various types equipment policies regarding spending recessionary periods changes political climate changes capital spending changes capital budgets customers could significantly reduce demand products capital resources biotechnology corporate customers may limited availability equity debt financing significant decline research development expenditures life science customers could significantly decrease sales addition make substantial portion sales nonprofit government entities dependent government support scientific research decline support could decrease ability customers purchase products general health care spending patterns decline ability generate revenue may suffer dependent directly indirectly upon general health care spending patterns particularly research development budgets pharmaceutical biotechnology industries well upon financial condition various governments government agencies since inception academic collaborators benefited various governmental contracts research grants whether academic collaborators continue able attract grants depends quality products also general spending patterns public institutions exists risk potential decrease level governmental spending allocated scientific medical research could substantially reduce even eliminate grants status public company likely eliminate ability obtain research grants german government future german government focuses funding small private companies limited access capital may able expand sales service staff meet demand products services need expand direct marketing sales force well service support staff future revenue profitability depend ability expand team marketing service personnel products technical nature believe marketing sales support staff must scientific technical expertise experience competition employees skills intense may able continue attract retain sufficient qualified sales service people may able grow maintain efficient effective sales marketing support department fail continue attract retain qualified people business could suffer plan significant growth risk able manage growth success depend expansion operations effective growth management place increased demands management operational financial resources manage growth must expand facilities augment operational financial management systems hire train additional qualified personnel failure manage growth effectively could impair ability generate revenue could cause expenses increase rapidly revenue resulting operating losses addition risks applicable life science products substance detection pathogen identification products subject number additional risks including lengthy product development contract negotiation periods certain risks inherent longterm government contracts substance detection pathogen identification products subject many risks associated life science products including vulnerability rapid technological change dependence mass spectrometry technology substantial competition addition substance detection pathogen identification products generally sold government agencies longterm contracts generally involve lengthy precontract negotiations product development may required devote substantial working capital resources prior obtaining product orders result may incur substantial costs recognize revenue products moreover return larger longerterm contracts customers products often demand stringent acceptance criteria may also cause delay ability recognize revenue sales products furthermore may able accurately predict advance costs fulfill obligations longterm contracts fail accurately predict costs due inflation factors could incur significant losses single longterm contract substance detection pathogen identification products may represent material portion total business volume loss contract could material adverse effect results operations march 2000 completed production contract united states government accounted 12 13 net revenue 1998 1999 respectively failure increase business obtain another government contract one would cause revenue decline also presence absence contracts may cause substantial variation results operations fiscal periods result results operations given fiscal period may predictive results subsequent fiscal periods resulting uncertainty may adverse impact stock price subject existing potential additional regulation impose burdens operations narrow markets products subject directly indirectly adverse impact existing potential future government regulation operations markets example exportation products particularly substance detection pathogen identification products subject strict regulatory control number jurisdictions failure satisfy export control criteria obtain necessary clearances could delay prevent shipment products could adversely affect revenues profitability moreover life sciences industry market principal products historically heavily regulated example laws several jurisdictions restricting research genetic engineering operate narrow markets given evolving nature industry legislative bodies regulatory authorities may adopt additional regulation adversely affects market opportunities additionally ethical concerns surrounding use genetic information gene therapy genetically modified organisms become widespread may less demand products business also directly affected wide variety government regulations applicable business enterprises generally companies operating life sciences industry particular failure comply regulations obtain maintain necessary permits licenses could result variety fines censures interruption business operations may negative impact ability generate revenues dependent upon various key personnel must recruit additional qualified personnel number management positions success highly dependent continued services key management technical scientific personnel management employees may voluntarily terminate employment us time upon short notice loss services member senior management technical scientific staff may significantly delay prevent achievement product development business objectives chief executive officer also chairman board directors affiliated company management officer another affiliate may reduce time attention devote management future success also depend ability identify recruit retain additional qualified scientific technical managerial personnel competition qualified personnel intense particularly areas information technology engineering science process hiring suitably qualified personnel often lengthy unable hire retain sufficient number qualified employees ability conduct expand business could seriously reduced dependent operations upon limited number suppliers contract manufacturers currently purchase components used mass spectrometry systems limited number outside sources reliance limited number suppliers could result time delays associated redesigning product due inability obtain adequate supply required components reduced control pricing quality timely delivery interruption supply components could adverse effect business results operations financial condition scarcity components may unable obtain adequate supply components may required pay higher prices purchase components lesser quality market experiencing shortage electrical components critical components many products delay interruption supply components could impair ability manufacture deliver products harm reputation cause reduction revenues addition increase cost components use products could make products less competitive lower margins may able obtain sufficient quantities required components substantially terms additionally consolidations among suppliers could result sole source suppliers us future must integrate global operations us headquarters located billerica massachusetts european headquarters located bremen germany principal manufacturing facilities located billerica massachusetts bremen germany leipzig germany operating diverse geographic locations imposes number risks burdens us including need manage employees contractors diverse cultural backgrounds speak different languages difficulties associated operating number time zones may encounter unforeseen difficulties logistical problems operating diverse locations success international operations dependent many factors could adversely affect ability sell products internationally could affect profitability international sales account expected continue account significant portion total revenues fiscal year ended december 31 2001 international sales totaled 689 million 751 net product revenue intend substantially increase international operations international operations continue subject variety risks associated conducting business internationally many beyond control risks may adversely affect ability achieve maintain profitability ability sell products internationally include •changes regulatory requirements •legislation regulation including tariffs relating import export high technology products •the imposition government controls •political economic instability conflicts •costs risks deploying systems foreign countries •limited intellectual property rights •the burden complying wide variety complex foreign laws treaties additionally international expansion require hire additional personnel fail hire additional personnel develop maintain relationships foreign customers partners may able expand international sales would suffer decreased profits may lose money exchange foreign currency received international sales us dollars significant portion business conducted currencies us dollar reporting currency result currency fluctuations among us dollar currencies business caused continue cause foreign currency transaction gains losses recognize foreign currency gains losses arising operations period incurred cannot predict effects exchange rate fluctuations upon future operating results number currencies involved variability currency exposures potential volatility currency exchange rates various international tax risks could adversely affect earnings subject international tax risks distributions earnings payments received subsidiaries may subject withholding taxes imposed countries operating formed foreign countries income tax treaties united states countries subsidiaries incorporated could subject high rates withholding taxes distributions payments could also subject taxed twice income related operations nontreaty countries unable reduce taxable income one operating company losses incurred another operating company located another country may higher foreign effective income tax rate companies industry amount credit may claim us federal income tax foreign income taxes subject many limitations may significantly restrict ability claim credit foreign taxes pay responding claims relating improper handling storage disposal hazardous chemicals radioactive biological materials use could time consuming costly use controlled hazardous radioactive materials business generate wastes regulated hazardous wastes united states federal massachusetts state environmental atomic energy regulatory laws equivalent provisions law jurisdictions research manufacturing facilities located use substances materials subject stringent periodically changing regulation impose costly compliance obligations us potential adversely affect manufacturing activities risk accidental contamination injury materials cannot completely eliminated accident substances occurs could held liable damages result addition incurring cleanup costs liabilities substantial additionally accident could damage research manufacturing facilities resulting delays increased costs unpredictability fluctuation quarterly results may adversely affect trading price common stock revenues results operations past may future vary quarter due number factors many outside control may cause stock price fluctuate primary factors may affect us include following •the timing sales products services •the timing recognizing revenue deferred revenue us gaap •changes pricing policies pricing policies competitors •increases sales marketing product development administration expenses •the mix services provided us thirdparty contractors •our ability attain maintain quality levels products •costs related acquisitions technology businesses historically experienced decrease revenue first quarter fiscal year relative prior fourth quarter believe due customers budgeting cycles rely quartertoquarter comparisons results operations indication future performance likely future quarters results operations may expectations public market analysts investors event price common stock may fall unable make successful acquisitions contemplated growth strategy integrate acquisitions business development may suffer company strategy involves expanding technology base strategic acquisitions fail effect acquisitions technology base may expand quickly efficiently anticipated without expansion ability keep evolving needs market meet future performance goals adversely affected additionally fail effectively integrate acquired businesses technologies existing business failure could adversely affect business item 7aitem 7 managements discussion analysis financial condition results operations read following discussion analysis financial condition results operations together selected financial data financial statements related notes appearing elsewhere report discussion analysis contains forwardlooking statements involve risks uncertainties assumptions actual results may differ materially anticipated forwardlooking statements result many factors including limited set forth factors affecting business operating results financial condition elsewhere report overview leading developer provider innovative life science tools based mass spectrometry also worldwide leader supplying mass spectrometrybased systems substance detection pathogen identification security defense applications maintain technical centers europe north america japan well customer support facilities many industrialized developing countries allocate substantial capital resources research development party various collaborations strategic alliances diverse customer base includes pharmaceutical companies biotechnology companies proteomic companies academic institutions government agencies significant accounting policies inventories stated lower cost market cost determined firstin firstout fifo method maintain allowance excess obsolete inventory reflect expected unsaleable unrefundable inventory based evaluation slow moving products investments companies investments companies consist equity securities privatelyheld companies accounted cost ownership interest individual companies less 20 periodically evaluate carrying value investments potential impairment evaluation identifies impairment deem temporary investments written estimated fair value charge current earnings customer deposits terms conditions contracts many customers require portion purchase price form advance deposit record deposit amounts liability associated revenue recognized time acceptance system warranty costs provide oneyear parts labor warranty purchase equipment anticipated cost oneyear warranty accrued upon recognition sale included current liability accompanying balance sheets extent company experiences increased warranty claim activity increased costs associated servicing claims warranty accrual increase resulting decreased gross profit contingencies subject proceedings lawsuits claims related patents product matters required assess likelihood adverse judgments outcomes matters well potential ranges probable losses determination amount reserves required contingencies made careful analysis individual issue required reserves may change future due new developments matter changes approach change settlement strategy dealing matters revenue recognition recognize revenue system sales including hardware embedded software product accepted customer except sold independent distributor strategic distribution partner unconsolidated affiliated distributor assumes responsibility installation case system sale recognized products shipped distributor title transferred distributor distributors price protection rights return however products warranted free defect period typically one year revenue accessories parts recognized upon shipment revenue services performed cost product revenue cost product revenue includes direct costs materials direct labor benefits well indirect costs related generating revenue indirect costs include indirect labor materials supplies equipment rental depreciation production equipment test equipment facilities related production space revenue sales marketing sales marketing expenses include salaries sales commissions benefits travel occupancy costs related expenses direct sales force sales support marketing functions expanded sales marketing organization substantially since 1997 adding subsidiaries sales representatives china france japan scandinavia switzerland united kingdom canada italy australia singapore south africa belgium netherlands taiwan sales marketing expenses also include costs associated supporting distribution channel partners timeofflight ion trap mass spectrometry products expect sales marketing expenses continue increase future expand global distribution capabilities introduce new products general administrative general administrative expenses include salaries benefits expenses executive finance legal human resources internal systems support personnel addition general administrative expenses include occupancy costs fees professional services depreciation office equipment expect general administrative expenses increase continue expand administrative infrastructure support anticipated growth business continue incur costs associated public company research development research development expenses include costs development new technologies products expenses include materials salaries benefits occupancy costs related expenses development personnel expense research development costs incurred expect increase spending research development order develop new products applications percentage revenues spending decrease time special charges credit special charges credit include actual estimated charges specific events occurred year 2002 included increase accrual uk ministry defense contract restructuring charges reversal patent litigation accruals patent litigation costs credit include actual estimated legal fees anticipated assessments associated litigation connection intellectual property particularly finnigan litigation results operations following table sets forth certain items included results operations three years ended december 31 2002 expressed percentage net revenue periods year ended december 31 2002 compared year ended december 31 2001 product revenue total product revenue increased 244 million 266 1162 million 2002 compared 918 million 2001 topline product revenue growth rate year approximately 216 favorable currency effects life science systems revenue substance detection systems revenue aftermarket revenue percentage product revenue 70 15 respectively 2002 compared 74 10 16 respectively 2001 increase total product revenue related continuing growth life science product lines 2002 also saw significant growth substance detection system sales due large cbms contract excess 100 million us army revenue decreased 708000 765 218000 2002 compared 926000 2001 decrease due completion certain projects earlystage research development funded grants german united states governments revenues fluctuate year depending timing completion certain governmental funded grants cost product revenue cost product revenue increased 123 million 282 559 million 2002 compared 436 million 2001 cost product revenue percentage product revenue 481 2002 compared 475 2001 second quarter 2002 increased inventory reserve approximately 700000 increase reserve mainly related items within slower growth product lines including substance detection business excluding charge 2002 cost product revenue would approximately 475 sales marketing sales marketing expenses increased 51 million 235 268 million 2002 compared 217 million 2001 sales marketing expenses percentage product revenues 231 2002 237 2001 overall dollar increase relates significant new product introductions first second quarters 2002 cost associated rollout products general increase business decline percentage product revenues related increasingly effective leveraging selling marketing expenses increase product revenues general administrative general administrative expenses increased 10 million 167 70 million 2002 compared 60 million 2001 general administrative expenses percentage product revenues 60 2002 65 2001 although general administrative expenses percentage product revenue decreased general administrative expenses remained relatively consistent overall increased sales growth company increase total amount general administrative expenses relates increase costs incurred 2002 associated several business development projects research development research development expenses increased 23 million 123 207 million 2002 compared 185 million 2001 percentage product revenues research development expenses 179 2002 compared 201 2001 overall dollar increase relates development certain new projects incorporated product line throughout 2003 decline expense percentage product revenues continues result decreasing research development expenses percentage product revenue special charges credit special charges credit 200000 2002 compared 400000 2001 charges credits 2002 consist 700000 charge increase contract reserve cost completing existing contract uk ministry defense well 500000 charge related restructuring charge primarily related workforce reduction approximately 50 employees charge consisted primarily employee severance professional fees outplacement services second quarter 2002 company booked approximately 15 million anticipated costs recorded credit approximately 10 million reserve third fourth quarters 2002 reflect revised estimate actual employee severance costs 2002 also 10 million credit relating reversal previously established reserve patent litigation finnigan reserve reduced 10 million 2002 result final settlement litigation noted incurred special charge fourth quarter 2002 connection contract german swiss subsidiaries uk ministry defense consisted additional reserve amount 700000 represents projected increase cost rework retesting contract due various technical problems associated meeting contract requirements previously incurred charge 11 million contract fourth quarter 2000 required make considerable design changes product time increased cost contract performance earlier reserve fourth quarter 2000 still books 800000 addition reported third quarter 2001 also books reserve 17 million connection possible imposition liquidated damages pursuant contract established reserve even though strongly dispute applicability liquidated damages time german swiss subsidiaries making strong efforts deliver product deemed acceptable uk ministry defense tests currently occurring auspices ministry defense management continue closely monitor situation interest expense income net interest expense income net 99 million 2002 compared 27 million 2001 increase expenses relates 96 million writedown investments three nonaffiliated proteomics companies well foreign currency exchange loss year 379000 year earned interest income approximately 14 million paid approximately 12 million interest expense interest income shortterm investments declined 2002 due use cash complete expansion united states germany facilities well due reduced rate return provision income taxes provision income taxes 21 million 2002 compared 24 million 2001 effective tax rate 2002 excluding capital losses 375 compared effective rate 394 2001 effective tax rates reflect blended tax rate various countries operate year ended december 31 2001 compared year ended december 31 2000 product revenue total product revenue increased 170 million 227 918 million 2001 compared 748 million 2000 topline product revenue growth rate year approximately 265 unfavorable currency effects life science systems revenue substance detection systems revenue aftermarket revenue percentage product revenue 74 10 16 respectively 2001 compared 66 22 12 respectively 2000 increase total product revenue related continuing growth life science product lines significant growth aftermarket sales revenue decreased 904000 494 926000 2001 compared 18 million 2000 decrease due completion certain projects earlystage research development funded grants german united states governments cost product revenue including special charges cost product revenue increased 84 million 230 451 million 2001 compared 367 million 2000 cost product revenue percentage product revenue 491 2001 compared 490 2000 increase costs product revenue percentage product revenue relates product mix sales directly third party customers sales strategic alliances special charges increased 431000 400 15 million 2001 compared 11 million 2000 special charge relates existing contract within substance detection pathogen identification business reserve estimated cost overruns legal fees liquidated damages related contract sales marketing sales marketing expenses increased 79 million 573 217 million 2001 compared 138 million 2000 sales marketing expenses percentage product revenues 237 2001 185 2000 increase relates significant new product introductions first second quarters 2001 cost associated rollout products increase also attributed higher sales commissions earned direct sales force well addition four distribution subsidiaries operation full year 2000 general administrative general administrative expenses increased 10 million 188 60 million 2001 compared 50 million 2000 general administrative expenses percentage product revenues 65 2001 68 2000 although general administrative expenses percentage product revenue decreased general administrative expenses remained relatively consistent overall increased sales growth company increase total amount general administrative expenses relates increase costs incurred 2001 associated several business development projects research development research development expenses decreased 16 million 78 185 million 2001 compared 200 million 2000 percentage product revenues research development expenses 201 2001 compared 268 2000 decrease relates completion certain new projects results incorporated existing product line litigation credit costs litigation reserve reduced 22 million third quarter 2001 result settlement certain ongoing litigation 1997 interest income net interest income net 27 million 2001 compared 16 million 2000 increase relates fact earned interest income shortterm investments throughout full year 2001 compared earning interest four months 2000 provision income taxes provision income taxes 24 million 2001 compared 254000 2000 effective tax rate 2001 394 compared effective rate 109 2000 lower effective rate 2000 reflected onetime benefit revaluation net deferred tax liabilities result reduction enacted tax rates germany well reduction valuation allowance based forecasted taxable income united states effective tax rates reflect blended tax rate various countries operate liquidity capital resources presently anticipate existing capital resources meet operating investing needs end 2003 historically financed growth combination cash provided operations debt financing issuance common stock 2002 net cash used operating activities 114 million consistent net cash used operating activities 2001 used 159 million cash 2002 capital expenditures principally related expenditures expansion existing facility germany construction new production demonstration research development facility united states expect continue make capital investments focus enhancing efficiency operations supporting growth december 2002 entered demand revolving line credit citizens bank united states amount 25 million line secured portions inventory receivables equipment united states used support working capital expiration date also maintain revolving lines credit approximately 142 million german banks 47 million japanese banks december 31 2002 approximately 53 million 47 million outstanding german japanese lines credit respectively german japanese lines credits unsecured one shortterm note payable two longterm notes payable outstanding balances aggregating 134 million december 31 2002 one note 54 million interest rate 510 payable full 2003 two notes 80 million aggregate interest rate 465 payable full 2008 interest due monthly obligations collateralized land buildings bruker daltonik gmbh 2002 repurchased 457200 shares common stock average price per share 510 accordance terms stock repurchase plan stock repurchase plan announced august 26 2002 authorizes us repurchase one million shares common stock future capital uses requirements depend numerous factors including success selling existing products progress research development ability introduce sell new products sales marketing expenses need expand production capacity costs associated possible acquisitions expenses associated unforeseen litigation regulatory changes competition technological developments market information march 2000 began strategic alliance perkin elmer instruments order leverage perkin elmers global distribution capability comarket omniflex timeofflight products september 2002 bruker daltonics perkin elmer various commercial reasons terminated strategic alliance settled outstanding issues surrounding alliance inflation believe inflation material impact business operating results periods presented impact foreign currencies sell products many countries substantial portion sales portion costs expenses denominated foreign currencies especially euro historically realized foreign exchange gains losses significant accordingly hedged foreign currency position past however expand sales internationally plan evaluate currency risks may enter foreign exchange contracts time mitigate foreign currency exposure relatedparty transactions affiliated common stockholders several entities use bruker name entered sharing agreement affiliates provides sharing specified intellectual property rights services facilities related items recognized sales affiliated entities approximately 94 million 2000 41 million 2001 58 million 2002 purchases affiliated entities approximately 56 million 2000 35 million 2001 53 million 2002 2000 2001 2002 various bruker affiliates provided administrative services including office space company cost approximately 443000 894000 939000 respectively based assessment estimated fair market value services investments three nonaffiliated companies recognized sales companies geneprot inc geneformatics inc affinium pharmaceuticals inc approximately 14 million 0 respectively 2000 60 million 03 million 0 respectively 2001 510000 0 194000 respectively 2002 sales recorded arms length conditions normal course business purchases companies 2000 2001 2002 november 28 2002 issued 109800 shares restricted common stock par value 001 per share dr dieter koch managing director bruker daltonik gmbh director bruker daltonics inc valued approximately 593000 cash 593000 exchange minority interest bruker saxonia analytik gmbh majorityowned subsidiary bruker daltonik gmbh shares common stock issued pursuant exemption registration requirements securities act 1933 amended afforded section 42 act 2000 purchased land principal shareholder 742000 estimated fair market value recent accounting pronouncements june 2002 fasb issued statement 146 accounting costs associated exit disposal activities effective exit disposal activities initiated december 31 2002 statement 146 nullifies emerging issues task force issue 943 liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring statement 146 requires liability costs associated exit disposal activity recognized measured fair value liability incurred rather date entitys commitment exit disposal plan adopted provisions statement 146 effective january 1 2003 statement 146 impact accounting restructuring plan approved announced december 31 2002 however pronouncement impact accounting future exit disposal activities november 2002 fasb issued interpretation 45 guarantors accounting disclosure requirements guarantees including indirect guarantees indebtedness others interpretation 45 requires liability recognized time company issues guarantee fair value obligations assumed certain guarantee agreements additional disclosures guarantee agreements also required interim annual financial statements disclosure provisions interpretation 45 effective us december 31 2002 provisions initial recognition measurement guarantee agreements effective prospective basis guarantees issued modified december 31 2002 expect recognition provisions interpretation 45 materially impact consolidated financial statements december 2002 fasb issued statement 148 accounting stockbased compensationtransition disclosure statement 148 amends statement 123 provide alternative methods transition statement 123s fair value method accounting stockbased employee compensation statement 148 also amends disclosure provisions statement 123 apb opinion 28 interim financial reporting require disclosure summary significant accounting policies effects entitys accounting policy respect stockbased employee compensation reported net income earnings per share annual interim financial statements company adopted disclosure provisions statement 148 january 2003 fasb issued fasb interpretation 46 consolidation variable interest entities interpretation arb 51 fin 46 requires certain variable interest entities consolidated primary beneficiary entity equity investors entity characteristics controlling financial interest sufficient equity risk entity finance activities without additional subordinated financial support parties fin 46 effective new variable interest entities created acquired january 31 2003 variable interest entities created acquired prior february 1 2003 provisions fin 46 must applied first interim annual period beginning june 15 2003 currently evaluating effect adoption fin 46 results operations financial condition quantitative qualitative disclosures market risk part information called item provided captions liquidity capital resources impact foreign currencies item 7 managements discussion analysis financial condition results operations use derivative financial instruments trading speculative purposes however regularly invest excess cash overnight repurchase agreements interestbearing investmentgrade securities shortterm partnership funds subject changes shortterm interest rates believe market risk arising holding financial instruments minimal exposure market risks associated changes interest rates relates primarily increase decrease amount interest income earned investment portfolio since longterm debt fixed rate ensure safety preservation invested funds limiting default risks market risk reinvestment risk mitigate default risk investing investment grade securities hypothetical 100 basis point adverse move interest rates along entire interest rate yield curve would materially affect fair value interestsensitive financial instruments december 31 2002 declines interest rates time however reduce interest income factors affecting business operating results financial condition following risk factors considered conjunction information included report may include forwardlooking statements involve risks uncertainties addition risk factors discussed elsewhere report identify following risk factors could affect actual results cause actual results differ materially forwardlooking statements products fail achieve sustain sufficient market acceptance across broad intended range applications life sciences generate expected revenue business strategy depends ability successfully commercialize broad range products based mass spectrometry use variety life science applications recently commercially launched many current products sale markets many products achieved limited sales commercial success life science products depends obtaining continued expanding market acceptance mass spectrometry tools pharmaceutical biotechnology proteomics companies academic government research laboratories across wide range applications covered product offerings may fail achieve sustain substantial market acceptance products across full range intended life science applications one principal intended life science applications failure could decrease sales revenue succeed must convince substantial numbers pharmaceutical biotechnology companies laboratories replace existing techniques mass spectrometry techniques employing systems limited funding available capital acquisitions customers well customers internal purchasing approval policies could hinder market acceptance products intended life science customers may reluctant make substantial capital investment generally needed acquire products incur training costs involved replacing existing systems products also may able convince intended life science customers systems attractive costeffective alternative technologies systems acquisition analysis management molecular information factors products may fail gain sustain market acceptance products compete markets subject rapid technological change products based range mass spectrometry technologies one could made obsolete new technology market life science discovery tools characterized rapid technological change frequent new product introductions rapidly changing technology could make life science product lines obsolete unless able continually improve existing products develop new products substantially life science products based mass spectrometry particularly vulnerable technological advances would make mass spectrometry obsolete basis bioanalytical systems life science markets meet evolving needs customers must rapidly continually enhance current planned products services develop introduce new products services business model calls us derive significant portion revenues year products exist previous year however may experience difficulties may delay prevent successful development introduction marketing new products product enhancements addition product lines based complex technologies subject rapid change new technologies developed introduced marketplace may difficulty keeping abreast rapid changes affecting different markets serve intend serve fail develop introduce products timely manner response changing technology market demands requirements customers product sales may decline could experience significant losses offer plan offer broad product line incurred expect continue incur substantial expenses development new products enhanced versions existing products speed technological change life science markets may prevent us able successfully market products length time required recover often significant development costs failure recover development costs one products product lines could decrease profitability cause us experience significant losses furthermore failure develop successful products capitalize research development investment would negatively influence profits financial position face substantial competition market life science products face substantial competition major competitors including competitors offer mass spectrometrybased systems along product lines competitors offer technology alternatives mass spectrometry expect competition life science markets increase significantly biotechnology pharmaceutical companies adopt automated highthroughput bioanalytical instruments tools drug discovery drug development proteomics genomics metabolomics currently principal competition comes established companies providing products using existing technologies including mass spectrometry technologies perform many functions market products addition companies may choose enter field future competitors may develop market products effective commercially attractive current future products may render products obsolete many competitors experience life sciences market substantially greater financial operational marketing technical resources could give competitive edge areas research development production marketing distribution ability compete successfully depend part ability develop proprietary products reach market timely manner technologically superior less expensive costeffective currently marketed products success depends ability operate without infringing misappropriating proprietary rights others commercial success depends avoiding infringement parties valid patents proprietary rights well breach licenses relating technologies products various thirdparty patents may relate technology may found future infringe patents proprietary rights third parties either products currently marketing developing new products may develop future third party holding rights patent successfully asserts infringement claim respect current future products may prevented manufacturing marketing infringing product country countries covered patent infringe unless obtain license patent holder may able obtain license commercially reasonable terms especially patent holder competitor addition even obtain license may nonexclusive permit others practice technology licensed us may also required pay substantial damages patent holder certain circumstances united states damages may include damages equal triple actual damages experienced patent holder supplied infringing products third parties marketing licensed third parties manufacture use market infringing products may obligated indemnify third parties damages required pay patent holder losses third parties may sustain result lost sales license payments required make patent holder successful infringement action brought us may also adversely affect marketing infringing product markets covered infringement action well marketing products based similar technology furthermore suffer adverse consequences successful infringement action us even action subsequently reversed appeal nullified another action resolved settlement patent holder damages remedies awarded may significant result successful infringement action us could prevent us selling products cause us experience significant losses may involved lawsuits protect enforce patents brought us would expensive timeconsuming order protect enforce patent rights may initiate patent litigation third parties may also become subject interference proceedings conducted patent trademark offices various countries determine priority inventions defense prosecution necessary intellectual property suits interference proceedings related legal administrative proceedings costly diverts technical management personnel normal responsibilities may prevail suits adverse determination litigation defense proceedings could put patents risk invalidated interpreted narrowly could put patent applications risk issuing furthermore substantial amount discovery required connection intellectual property litigation risk confidential information could compromised disclosure type litigation example course kind litigation could public announcements results hearings motions interim proceedings developments litigation securities analysts investors perceive results negative could substantial negative effect trading price stock inability achieve acceptance certain products contract one customers could expose us potential significant liability subsidiary party contract supply certain equipment experienced difficulties achieving acceptance equipment contract pursuant provision contract relating late delivery assessed certain liquidated damages portion paid although made claims resulting suspension imposition additional liquidated damages discussions regarding settlement matter guarantee matter settled without litigation adverse determination litigation could significant adverse effect business results operations additionally regardless ultimate result litigation would likely divert managements attention resources matters could also adversely affect business unable effectively protect intellectual property third parties may use technology would impair ability compete markets continued success depend significant part ability obtain maintain meaningful patent protection products throughout world rely patents protect significant part intellectual property enhance competitive position however presently pending future patent applications may issue patents patent previously issued us may challenged invalidated held unenforceable circumvented furthermore claims patents issued may issued us future may sufficiently broad prevent third parties producing competing products similar products addition laws various foreign countries compete may protect intellectual property extent laws united states failure obtain adequate patent protection proprietary technology could materially impair ability commercially competitive addition patent protection also rely protection trade secrets knowhow confidential proprietary information maintain confidentiality trade secrets proprietary information generally seek enter confidentiality agreements employees consultants strategic partners upon commencement relationship us however may obtain agreements circumstances event unauthorized use disclosure information agreements even obtained may provide meaningful protection trade secrets confidential information addition adequate remedies may exist event unauthorized use disclosure information loss exposure trade secrets proprietary information would impair competitive advantages could material adverse affect operating results financial condition future growth prospects furthermore others may future independently develop substantially similar superior knowhow technology agreed share name portions intellectual property rights distribution channels entities common control could result loss name lock price products may sell entities may best price available products maintain sharing agreement 13 affiliated entities requires us share portions intellectual property existed february 28 2000 distribution channels affiliated companies affiliates also share bruker name many affiliates could lose right use bruker name declare bankruptcy b interfere another partys use name c take material action materially detracts goodwill associated name suffer major loss reputation industry marketplace loss bruker name could result loss goodwill brand loyalty sales products addition agreed maintain price products purchased sold affiliates period twelve years subject yearly adjustments equal increase consumer price index manufacture sale products could lead product liability claims could substantial liability manufacture sale products exposes us product liability claims products cause injury found otherwise unsuitable manufacturing marketing sale customer use particular one substance detection pathogen identification products malfunctions could lead civilian military casualties time unrest exposing company increased potential highprofile liability successful product liability claim brought us excess outside coverage insurance coverage could material adverse effect business financial situation results operations may able maintain product liability insurance acceptable terms insurance may provide adequate coverage potential liabilities business could harmed collaborations fail advance product development demand products depend part upon extent collaborations pharmaceutical biotechnology proteomics companies successful developing helping us develop new products new applications existing products addition collaborate academic institutions product development limited control resources collaborator may devote products present future collaborators may perform obligations expected fail enter maintain appropriate collaboration agreements events occur may able develop new products could materially impede ability generate revenue lose strategic partners could impair marketing efforts substantial portion sales selected products consists sales third parties incorporate products systems third parties responsible marketing sales systems little control marketing sales activities use resources present future strategic partners may purchase sufficient quantities products us perform appropriate marketing sales activities failures present future strategic partners inability maintain enter new arrangements strategic partners product distribution could materially impede growth business ability generate sufficient revenue reduction capital resources government funding customers could reduce sales impede ability generate revenue significant portion sales capital purchases customers spending policies customers could significant effect demand products policies based wide variety factors including resources available make purchases spending priorities among various types equipment policies regarding spending recessionary periods changes political climate changes capital spending changes capital budgets customers could significantly reduce demand products capital resources biotechnology corporate customers may limited availability equity debt financing significant decline research development expenditures life science customers could significantly decrease sales addition make substantial portion sales nonprofit government entities dependent government support scientific research decline support could decrease ability customers purchase products general health care spending patterns decline ability generate revenue may suffer dependent directly indirectly upon general health care spending patterns particularly research development budgets pharmaceutical biotechnology industries well upon financial condition various governments government agencies since inception academic collaborators benefited various governmental contracts research grants whether academic collaborators continue able attract grants depends quality products also general spending patterns public institutions exists risk potential decrease level governmental spending allocated scientific medical research could substantially reduce even eliminate grants status public company likely eliminate ability obtain research grants german government future german government focuses funding small private companies limited access capital may able expand sales service staff meet demand products services need expand direct marketing sales force well service support staff future revenue profitability depend ability expand team marketing service personnel products technical nature believe marketing sales support staff must scientific technical expertise experience competition employees skills intense may able continue attract retain sufficient qualified sales service people may able grow maintain efficient effective sales marketing support department fail continue attract retain qualified people business could suffer plan significant growth risk able manage growth success depend expansion operations effective growth management place increased demands management operational financial resources manage growth must expand facilities augment operational financial management systems hire train additional qualified personnel failure manage growth effectively could impair ability generate revenue could cause expenses increase rapidly revenue resulting operating losses addition risks applicable life science products substance detection pathogen identification products subject number additional risks including lengthy product development contract negotiation periods certain risks inherent longterm government contracts substance detection pathogen identification products subject many risks associated life science products including vulnerability rapid technological change dependence mass spectrometry technology substantial competition addition substance detection pathogen identification products generally sold government agencies longterm contracts generally involve lengthy precontract negotiations product development may required devote substantial working capital resources prior obtaining product orders result may incur substantial costs recognize revenue products moreover return larger longerterm contracts customers products often demand stringent acceptance criteria may also cause delay ability recognize revenue sales products furthermore may able accurately predict advance costs fulfill obligations longterm contracts fail accurately predict costs due inflation factors could incur significant losses single longterm contract substance detection pathogen identification products may represent material portion total business volume loss contract could material adverse effect results operations december 2002 completed production contract united states government accounted less 10 revenue 2001 2002 failure increase business obtain another government contract one would cause revenue decline also presence absence contracts may cause substantial variation results operations fiscal periods result results operations given fiscal period may predictive results subsequent fiscal periods resulting uncertainty may adverse impact stock price subject existing potential additional regulation impose burdens operations narrow markets products subject directly indirectly adverse impact existing potential future government regulation operations markets example exportation products particularly substance detection pathogen identification products subject strict regulatory control number jurisdictions failure satisfy export control criteria obtain necessary clearances could delay prevent shipment products could adversely affect revenues profitability moreover life sciences industry market principal products historically heavily regulated example laws several jurisdictions restricting research genetic engineering operate narrow markets given evolving nature industry legislative bodies regulatory authorities may adopt additional regulation adversely affects market opportunities additionally ethical concerns surrounding use genetic information gene therapy genetically modified organisms become widespread may less demand products business also directly affected wide variety government regulations applicable business enterprises generally companies operating life sciences industry particular failure comply regulations obtain maintain necessary permits licenses could result variety fines censures interruption business operations may negative impact ability generate revenues dependent upon various key personnel must recruit additional qualified personnel number management positions success highly dependent continued services key management technical scientific personnel management employees may voluntarily terminate employment us time upon short notice loss services member senior management technical scientific staff may significantly delay prevent achievement product development business objectives chief executive officer also chairman board directors affiliated company management officer another affiliate may reduce time attention devote management future success also depend ability identify recruit retain additional qualified scientific technical managerial personnel competition qualified personnel intense particularly areas information technology engineering science process hiring suitably qualified personnel often lengthy unable hire retain sufficient number qualified employees ability conduct expand business could seriously reduced dependent operations upon limited number suppliers contract manufacturers currently purchase components used mass spectrometry systems limited number outside sources reliance limited number suppliers could result time delays associated redesigning product due inability obtain adequate supply required components reduced control pricing quality timely delivery interruption supply components could adverse effect business results operations financial condition scarcity components may unable obtain adequate supply components may required pay higher prices purchase components lesser quality market experiencing shortage electrical components critical components many products delay interruption supply components could impair ability manufacture deliver products harm reputation cause reduction revenues addition increase cost components use products could make products less competitive lower margins may able obtain sufficient quantities required components substantially terms additionally consolidations among suppliers could result sole source suppliers us future must integrate global operations us headquarters located billerica massachusetts european headquarters located bremen germany principal manufacturing facilities located billerica massachusetts bremen germany leipzig germany operating diverse geographic locations imposes number risks burdens us including need manage employees contractors diverse cultural backgrounds speak different languages difficulties associated operating number time zones may encounter unforeseen difficulties logistical problems operating diverse locations derive significant portion revenue international sales subject risks business foreign countries international sales account expected continue account significant portion total revenues fiscal year ended december 31 2002 international sales totaled 800 million 687 net revenue intend substantially increase international operations international expansion require hire additional personnel fail hire additional personnel develop maintain relationships foreign customers partners may able expand international sales would suffer decreased profits international operations continue subject variety risks associated conducting business internationally many beyond control risks may adversely affect ability achieve maintain profitability ability sell products internationally include •changes regulatory requirements •legislation regulation including tariffs relating import export high technology products •the imposition government controls •political economic instability including international hostilities acts terrorism governmental restrictions inflation trade relationships military political alliances •costs risks deploying systems foreign countries •limited intellectual property rights •the burden complying wide variety complex foreign laws treaties impact factors difficult predict one factors could adversely affect operations future may lose money exchange foreign currency received international sales us dollars significant portion business conducted currencies us dollar reporting currency result currency fluctuations among us dollar currencies business caused continue cause foreign currency transaction gains losses recognize foreign currency gains losses arising operations period incurred cannot predict effects exchange rate fluctuations upon future operating results number currencies involved variability currency exposures potential volatility currency exchange rates various international tax risks could adversely affect earnings subject international tax risks distributions earnings payments received subsidiaries may subject withholding taxes imposed countries operating formed foreign countries income tax treaties united states countries subsidiaries incorporated could subject high rates withholding taxes distributions payments could also subject taxed twice income related operations nontreaty countries unable reduce taxable income one operating company losses incurred another operating company located another country may higher foreign effective income tax rate companies industry amount credit may claim us federal income tax foreign income taxes subject many limitations may significantly restrict ability claim credit foreign taxes pay current armed hostilities could constrain ability conduct business internationally could also disrupt us operations current world unrest united states responses may lead acts terrorism civil disturbances united states elsewhere may contribute economic instability united states attacks armed conflicts may affect physical facilities suppliers customers could impact domestic international sales supply chain production capability insurance premiums ability purchase insurance ability deliver products customers consequences risks unpredictable longterm effect upon company uncertain responding claims relating improper handling storage disposal hazardous chemicals radioactive biological materials use could time consuming costly use controlled hazardous radioactive materials business generate wastes regulated hazardous wastes united states federal massachusetts state environmental atomic energy regulatory laws equivalent provisions law jurisdictions research manufacturing facilities located use substances materials subject stringent periodically changing regulation impose costly compliance obligations us potential adversely affect manufacturing activities risk accidental contamination injury materials cannot completely eliminated accident substances occurs could held liable damages result addition incurring cleanup costs liabilities substantial additionally accident could damage research manufacturing facilities resulting delays increased costs unpredictability fluctuation quarterly results may adversely affect trading price common stock revenues results operations past may future vary quarter due number factors many outside control may cause stock price fluctuate primary factors may affect us include following •the timing sales products services •the timing recognizing revenue deferred revenue us gaap •changes pricing policies pricing policies competitors •increases sales marketing product development administration expenses •the mix services provided us thirdparty contractors •our ability attain maintain quality levels products •costs related acquisitions technology businesses historically experienced decrease revenue first quarter fiscal year relative prior fourth quarter believe due customers budgeting cycles rely quartertoquarter comparisons results operations indication future performance likely future quarters results operations may expectations public market analysts investors event price common stock may fall face potential volatility stock price public market common stock since august 2000 market price common stock may fluctuate substantially response various factors many beyond control including quarterly fluctuations results operations described ability successfully commercialize products technological innovations new commercial products us competitors developments concerning government regulations proprietary rights could affect potential growth customers material changes relationships viability strategic business partners market reaction trends revenues expenses especially research development changes earnings estimates analysts volatility uncertainty capital markets general loss key personnel changes accounting principles lack trading volume stock fluctuation within life science sector sales common stock existing stockholders particularly large institutional investors cannot hold stock traded less 5 per share economic political conditions market price common stock may also affected ability meet analysts expectations failure meet expectations even slightly could adverse effect market price common stock addition stock market nasdaq national market life science stocks particular subject extreme price volume fluctuations volatility significant effect market prices securities issued many companies reasons unrelated operating performance companies past companies experienced volatility market price securities subjects securities class action litigation instigated us could result substantial costs diversion managements attention resources could significantly harm business financial condition operating results unable make successful acquisitions contemplated growth strategy integrate acquisitions business development may suffer company strategy involves expanding technology base strategic acquisitions fail effect acquisitions technology base may expand quickly efficiently anticipated without expansion ability keep evolving needs market meet future performance goals adversely affected additionally fail effectively integrate acquired businesses technologies existing business failure could adversely affect business item 7aitem 7 managements discussion analysis financial condition results operations read following discussion analysis financial condition results operations together selected financial data financial statements schedules related financial notes appearing elsewhere report discussion analysis contains forwardlooking statements involve risks uncertainties assumptions actual results may differ materially anticipated forwardlooking statements result many factors including limited set forth factors affecting business operating results financial condition elsewhere report overview bruker biosciences parent company bruker daltonics inc bruker axs inc bruker daltonics leading developer provider innovative life science tools based mass spectrometry bruker axs leading developer provider life science advanced materials research tools based xray technology july 2003 merged bruker axs inc company common control surviving corporation merger result merger believe enhance leading position tools provider proteomics marketplace attempting crosssell lifescience mass spectrometry xray products order generate incremental revenues addition eliminating redundant public company costs expect reduce costs streamlining support functions merger also allowed us consolidate global production sites strive improve profitability business strategy includes focusing innovative product solution development gradually expanding global distribution customer support capability merger also created potential challenges risks us although affiliates bruker axs historically operated businesses autonomously currently working integrate select corporate functions facilitate communication cooperation however attempting consolidate research development marketing sales production service two operating companies believe could detrimental operating companies addition cannot certain able coordinate previously autonomous departments accounting finance administrative functions must endeavor expand integrate certain information management systems addition integration process could cause disruption business successful integration process may able realize cost savings benefits expected result merger bruker daltonics performance bruker daltonics business driven product lines lifescience mass spectrometry nbc detection 2003 bruker daltonics continued gain momentum lifescience mass spectrometry many earlier product introductions drove continued revenue market share growth malditoftof systems continued well new highcapacity ion trap unique hybrid qqftms also experienced favorable customer reception new benchtop esitof system well clinprot™ solution biomarker discovery clinical proteomics expect continue growth lifescience mass spectrometry 2004 positive trends bruker daltonics sales 2003 partially offset soft sales nbc detection systems nbc detection systems heavily dependent upon large contracts government agencies 2002 bruker daltonics recognized revenue large contract us army contract replaced 2003 similarsized contract thus nbc detection sales declined 2003 however based trends business expect improvement nbc detection revenue 2004 bruker axs performance bruker axs business driven product lines scd xrd xrf thermal analyzers bruker axs experienced softness xray system sales 2003 primarily due softness life science scd sales increased revenues elemental composition thermal analyzer systems well aftermarket sales partially offset decline life science sales second quarter 2003 introduced microstar high brilliancy xray source effort regain momentum scd core lines xrd materials research relatively flat 2003 order regain growth market introduced new d8 systems integrated highpower xray source technology originated mac science acquisition combined new vantec1™ xray detector technology new d8 super speed™ solutions provide higher speed sensitivity compared available products market believe products assist growth throughout 2004 following discussion financial condition results operations read conjunction consolidated financial statements schedules related notes statements contained item 8 annual report form 10k statements managements discussion analysis financial condition results operations express believe anticipate expect plan well statements historical fact forwardlooking statements within meaning private securities litigation act 1995 involve known risks uncertainties factors may cause actual results performance achievements company materially different future results performance achievements expressed implied forwardlooking statements factors include limited factors discussed factors affecting business operating results financial condition set forth managements discussion analysis financial condition results operations elsewhere report merger april 4 2003 entered definitive merger agreement bruker axs pursuant acquired outstanding shares bruker axs merger intended form leading tools supplier life science materials research emphasis advancing proteomics agreement signed following unanimous approval board directors company well unanimous recommendations independent special committees companies boards june 27 2003 merger approved shareholders bruker axs july 1 2003 merger consummated upon consummation merger outstanding share common stock bruker axs converted right receive election holder either 063 share common stock consideration intended substantially equivalent value payable 75 common stock 25 cash connection merger formed two operating subsidiaries bruker daltonics bruker axs transferred substantially assets liabilities except cash formerly belonged us bruker axs result merger two reportable operating segments subsidiaries bruker daltonics bruker axs merger represents business combination companies common control due majority ownership companies five related individuals affiliated shareholder group result merger relates shares bruker axs owned affiliated shareholders approximately 69 accounted manner similar poolingofinterest historical carrying value acquisition shares nonaffiliated shareholders approximately 31 accounted using purchase method accounting fair value manner similar acquisition minority interest excess purchase price interest common control fair value related net assets accounted goodwill fair value consideration paid acquisition minority interest 381 million including cash 54 million common stock valued 285 million stock options value 30 million merger transaction costs 12 million value 966 million shares common stock issued nonaffiliated shareholders connection merger determined using closing market price 295 bruker daltonics stock date terms merger agreed announced fair value stock options issued determined using blackscholes option pricing model purchase price 31 minority interest acquired allocated net assets acquired pro rata basis accordance sfas 141 business combinations accordingly intangible assets acquired allocated follows 15 million existing technology related patents estimated weightedaverage useful life four years 03 million customer relationships weightedaverage useful life five years 03 million trade names weightedaverage useful life ten years addition 25 million acquired intangible assets assigned inprocess research development projects iprd written date acquisition accordance fasb interpretation 4 applicability fasb statement 2 business combinations accounted purchase method writeoff included special charges consolidated statements operations iprd projects included next generation high brilliancy optics microsources new xray sources xray diffraction protein crystallography applications high sensitivity area detector systems solutionbased technologies software application projects time acquisition projects various stages completion ranging 4085 projects expected completed 2003 2004 estimated cost 11 million following table provides information regarding current status iprd projects actual costs incurred december 31 2003 dollars thousands although believe iprd projects completed provide value determined absence technology feasibility alternative future use iprd time acquisition value assigned iprd projects determined using discounted probable future cash flow analysis financial assumptions used estimate future cash flows based pricing margins expense levels historically realized bruker axs discount rate 45 utilized discount net cash flows generated acquired inprocess research development estimates used valuing acquired inprocess research development based upon assumptions believed reasonable inherently uncertain unpredictable result actual results may differ estimates minimal risk us projects completed timeframes noted complex aspects projects already completed since project result technologies individually integrated system platforms greater flexibility bringing projects technology market conjunction merger formulated plan consolidate production exit certain activities life science xray business production capacity life science systems produced bruker nonius facility delft netherlands outsourced absorbed within facilities throughout company result restructuring activities recorded approximately 22 million purchase accounting liabilities reserves approximately 15 million 69 purchase accounting liabilities reserves charged special charges cost product revenue inventory reserves remaining 07 million 31 included allocation purchase price goodwill purchase accounting liabilities reserves included 08 million severance costs approximately 19 employees 10 million reserve inventory longer used production 04 million costs upgrade xray systems longer produced miscellaneous restructuring costs anticipate severance payments payable connection plan made within next 12 months charges purchase accounting liabilities reserves recorded connection activities follows thousands addition wroteoff remaining balance goodwill 15 million trade names trademarks 02 million associated bruker nonius entity believe future cash flows remaining bruker nonius business implied fair value exceeds carrying amount goodwill approximately 12 million 69 writeoff goodwill trade names trademarks charged special charges remaining 05 million 31 included allocation purchase price goodwill restructuring charges subsidiary bruker axs implemented restructuring program year ending december 31 2002 order reduce costs improve productivity eliminating redundant positions streamlining production initiating cost reduction programs operating areas result recorded restructuring charge approximately 1767000 1043000 net tax year ended december 31 2002 2003 recorded additional restructuring charge 122000 charge included increase workforce reduction accrual 294000 related additional costs associated early retirement program germany increase offset reduction contractual obligations accrual 172000 due fact renegotiated penalties terminating contract outsourced information technology services following table summarizes restructuring charge activity balance restructuring accrual december 31 2003 thousands due impact certain german regulatory requirements applicable benefits german employees workforce reduction accrual fully paid 2008 critical accounting policies estimates discussion analysis financial condition results operations based upon financial statements prepared accordance accounting principles generally accepted united states america preparation financial statements requires make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis evaluate estimates including related allowance doubtful accounts inventories longlived assets warranty costs customer advances pension plan revenue recognition income taxes contingencies restructuring base estimates historical experience current market economic conditions assumptions believe reasonable results estimates form basis judgments carrying value assets liabilities values readily apparent sources actual results could differ estimates believe following critical accounting policies important portrayal financial condition require subjective judgment •allowance doubtful accounts maintain allowances doubtful accounts estimated losses resulting inability customers pay amounts due financial condition customers deteriorate reducing ability make payments additional allowances would required resulting decrease net income •inventories stated lower cost market cost determined firstin firstout method maintain allowance excess obsolete inventory reflect expected unsaleable unrefundable inventory based evaluation slow moving products ultimate usage demand varies significantly expected usage demand additional writedowns may required resulting decrease net income •goodwill intangible assets investments companies longlived assets periodically evaluate goodwill impairment using market comparables similar businesses forecasts discounted future cash flows also review intangible assets investments companies longlived assets indication potential impairment exists significant reduction cash flows associated assets fair value longlived assets decline reduced operating performance market declines indicators impairment charges impairment may necessary resulting decrease net income •warranty costs normally provide oneyear parts labor warranty purchase equipment anticipated cost oneyear warranty accrued upon recognition sale included current liability accompanying balance sheets extent experience increased warranty claim activity increased costs associated servicing claims warranty accrual increase resulting decreased gross profit •revenue recognition recognize revenue system sales including hardware embedded software product accepted customer revenue recognition dependent timing shipment subject customer acceptance readiness shipments made scheduled timelines products accepted customer reported revenues may differ materially expectations products sold independent distributor strategic distribution partner unconsolidated affiliated distributor assumes responsibility installation recognize system sale products shipped title transferred distributor distributors price protection rights return however products warranted free defect period one year revenue accessories parts recognized upon shipment revenue services performed •income taxes estimate degree tax assets loss carryforwards result benefit based expected profitability tax jurisdiction provide valuation allowance tax assets loss carryforwards believe likely go unused becomes likely tax asset loss carryforward used reverse related valuation allowance actual future taxable income tax jurisdiction vary estimates additional allowances reversals reserves may necessary •contingencies estimate losses contingencies provide reserve losses probable estimable ultimate losses contingencies litigation vary estimates adjustments reserves may required •restructuring record restructuring reserves severance inventory obsolescence contractual obligations restructuring costs based estimates expenses actual cash flows associated restructuring costs vary estimated amounts adjustments may required results operations following tables set forth certain items discussions based results operations three years ended december 31 2003 dollars thousands year ended december 31 2003 compared year ended december 31 2002 net revenue bruker daltonics net revenue increased 304 million 261 2003 compared 2002 increase approximately 177 million 152 resulted currency fluctuations organic growth 109 primarily due increase mass spectrometry system sales particularly within ion trap tof product lines aftermarket business consumables service contracts also experienced increase 11 million grant revenue result timing receipts various projects earlystage research development projects funded grants german government increases partially offset decline nbc detection business life science systems revenue nbc detection systems revenue aftermarket revenue percentage bruker daltonics product revenue 72 9 19 respectively 2003 compared 70 15 respectively 2002 bruker axs net revenue increased 96 million 92 2003 compared 2002 increase approximately 129 million 123 resulted currency fluctuations excluding currency effects bruker axs net revenue declined 31 decline net revenue excluding currency effects driven decline scd system sales decline partially offset increases xrf system thermal analyzer aftermarket revenues aftermarket revenues consist extended warranties service agreements replacement parts accessories software packages upgrades repair calls support services training analytical xray systems aftermarket sales percentage bruker axs product revenue 70 30 respectively 2003 compared 76 24 respectively 2002 cost product revenue bruker daltonics cost product revenue increased 202 million 362 2003 compared 2002 increase approximately 221 attributable foreign currency exchange rates increase also driven part increased sales increase also attributable unprofitable contract uk ministry defense mod resulted product revenue 29 million cost product revenue 28 million 09 increase cost product revenues remainder increase due change mix sales third party customers distributors bruker axs cost product revenue increased 56 million 89 2003 compared 2002 increase approximately 119 attributable foreign currency exchange rates net decrease 3 partially due lower sales also reducing cost product revenues lower installation warranty costs sales lower cost distributors well improved productivity related aftermarket sales offsetting part cost product revenue improvements 2003 writeoff 10 million inventory resulting restructuring xray life science business cost product revenues percentage product revenues also increased xray life science systems due overcapacity production operations sales marketing bruker daltonics sales marketing expense increased 59 million 222 2003 compared 2002 increase primarily due unfavorable currency effects resulted approximately 124 222 increase remainder increase attributable costs incurred commissions higher sales increase headcount increase amortization expense related demonstration inventory bruker axs sales marketing expense increased 63 million 297 2003 compared 2002 increase primarily due unfavorable currency effects resulted approximately 147 297 increase also attributable increased amortization expense related additional demonstration inventory higher commissions distributors representatives due increased sales channels general administrative bruker daltonics general administrative expense increased 11 million 159 2003 compared 2002 increase primarily due currency effects resulted 102 159 increase remainder increase due primarily additional overhead costs two new facilities us germany completed end 2002 bruker axs general administrative expense increased 539000 65 2003 compared 2002 increase primarily due currency effects resulted 131 65 increase also attributable increased amortization expense acquired intangible assets increases offset part elimination public company costs second half year result july 1 2003 merger bruker biosciences corporate charges 411000 related public company costs legal fees audit fees directors officers insurance second half year research development bruker daltonics research development expense increased 55 million 267 2003 compared 2002 increase attributable primarily increased investment research development expect result new product introductions 2004 2005 large research development project funded part research development grant germany also contributed increase bruker daltonics receives income 50 actual expenses incurred behalf grant recorded revenue consolidated statement operations grant expected continue 2004 netting grant revenue received 2003 total research development expense year bruker daltonics research development expense percent product revenue would 172 remainder change due currency effects resulting approximately 165 267 increase bruker axs research development expense increased 19 million 187 2003 compared 2002 increase relates currency effects resulted approximately 118 187 increase additionally increase licensing fees paid thirdparty software developer increase offset part reduction headcount timing purchasing materials project track research development expenditures project selective basis example identified research development expenditures iprd able estimate expenditure requirements complete research development projects currently process expect future research development expenditures consistent historical levels research development expenditures reversal liability accrual bruker biosciences reversed liability accrual 19 million year ended december 31 2003 third quarter 2001 bruker daltonics reserve 19 million liquidated damages pursuant contract uk ministry defense mod disputed applicability liquidated damages believed owed additional development funding mod fiscal year ended december 31 2003 swiss german subsidiaries delivered product met specifications contract understanding mod pursue claims liquidated damages previously paid pursuant contract pursue claims recovery additional research development expenses incurred connection contract therefore reserve 19 million liquidated damages reversed second quarter 2003 special charges special charges year ended december 31 2003 117 million compared 20 million 2002 fiscal year ended december 31 2003 incurred 117 million merger related charges including cash charges merger transaction costs 64 million cash restructuring charges 09 million incurred conjunction consolidation manufacturing sites 2003 merger related costs also included noncash charges writeoff acquired inprocess research development 25 million goodwill intangibles writeoff 12 million impairment charges 07 million related acquired assets bruker daltonics incurred 29 million special charges mainly merger transaction costs bruker axs incurred 88 million remaining special charges connection merger interest income expense net interest income expense year ended december 31 2003 10 million compared 93 million 2002 difference relates primarily 109 million charge incurred 2002 relating writedown investments certain proteomics content companies addition part increase due appreciation fair value derivative financial instruments increases offset part lower interest income declined result lower interest earned cash shortterm investments 2003 lower gains foreign currency transactions loss disposal equipment minority interest consolidated subsidiaries minority interest consolidated subsidiaries year ended december 31 2003 853000 compared 212000 2002 minority interest subsidiaries represents minority shareholders proportionate share net income loss fiscal year ended december 31 2003 2002 twelve months ended december 31 2003 2002 minority interest relates primarily proportionate share net loss minority shareholders 31 bruker axs inc first six months 2003 year 2002 well 25 baltic scientific since acquisition april 2003 49 incoatec gmbh since acquisition february 2002 provision income taxes provision income taxes year ended december 31 2003 97 million compared 28 million 2002 effective tax rate 112 year ended december 31 2003 compared 77 2002 income tax provision determined applying estimated effective tax rate income taxes estimated effective income tax rate based companys pretax income permanent booktax differences tax credits significant variation customary effective tax rate approximately 38 due valuation allowance 96 million recorded deferred tax assets full valuation allowance recorded deferred tax assets us due cumulative losses incurred us recent years addition record tax benefit 64 million merger related charges including acquired research development merger transaction costs restructuring charges writeoff goodwill intangible assets impairment acquired assets 2003 cumulative effect change accounting principle adopted sfas 142 goodwill intangible assets first quarter fiscal 2002 transitional provisions sfas 142 tested goodwill intangible assets indefinite useful lives impairment january 1 2002 pursuant method prescribed sfas 142 completed transitional impairment tests third quarter 2002 resulted recording impairment loss 10 million 06 million net tax accordance transitional provisions sfas 142 impairment loss recorded first quarter 2002 cumulative effect change accounting principle goodwill impairment loss related bruker nonius reporting unit bruker axs acquired april 2001 changes market economic conditions since date acquisition resulted impairment goodwill allocated bruker nonius year ended december 31 2002 compared year ended december 31 2001 net revenue bruker daltonics net revenue increased 237 million 255 2002 compared 2001 increase approximately 46 million 50 resulted currency fluctuations increase total product revenue related continuing growth life science product lines 2002 also saw significant growth nbc detection system sales due large cbms contract excess 100 million us army life science systems revenue nbc detection systems revenue aftermarket revenue percentage product revenue 70 15 respectively 2002 compared 74 10 16 respectively 2001 bruker axs net revenue increased 217 million 263 2002 compared 2001 increase approximately 83 million related xray diffraction systems specifically markets acceptance d8 discover cc d4 endeavor accompanied strong sales existing d8 advance addition s4 pioneer xray fluorescence system introduced fourth quarter 2001 resulted increase sales 47 million approximately 47 million increase sales related acquisition mac science remainder increase due primarily 32 million increase aftermarket sales aftermarket sales consist extended warranty service agreements replacement parts accessories software packages upgrades repair calls support services training currency fluctuations net sales fiscal year ended december 31 2002 favorable impact 34 million 41 revenues analytical xray systems aftermarket sales percentage product revenue 76 24 respectively 2002 compared 73 27 respectively 2001 cost product revenue bruker daltonics cost product revenue increased 123 million 282 2002 compared 2001 increase attributable increase inventory reserve approximately 700000 increase reserve mainly related items within slower growth product lines including nbc detection business excluding charge 2002 cost product revenue would approximately 475 bruker axs cost product revenue increased 121 million 236 2002 compared 2001 increase due overall growth system sales addition approximately 28 million increase due acquisition mac science currency fluctuations increased cost sales approximately 21 million compared prior year gross margin sales 395 2002 compared 382 2001 improvement gross margin driven particularly improved performance apex proteum single crystal diffraction product lines addition redesign cost initiatives improved margins xray diffraction systems particularly d8 products sales marketing bruker daltonics sales marketing expense increased 51 million 235 2002 compared 2001 increase relates primarily significant new product introductions first second quarters 2002 cost associated rollout products general increase business decline percentage product revenues related increasingly effective leveraging selling marketing expenses increase product revenues bruker axs sales marketing expense increased 45 million 271 2002 compared 2001 increase primarily due increase sales commissions employee costs due higher sales levels addition approximately 09 million increase related acquisition mac science currency fluctuations increased marketing selling expenses 08 million general administrative bruker daltonics general administrative expense increased 10 million 167 2002 compared 2001 although general administrative expenses percentage product revenue decreased general administrative expenses remained relatively consistent overall increased sales growth bruker daltonics increase total amount general administrative expenses relates increase costs incurred 2002 associated several business development projects bruker axs general administrative expense increased approximately 30 million 560 2002 compared 2001 increase due approximately 17 million costs related public company including insurance legal fees filing fees costs addition approximately 05 million increase related acquisition mac science currency fluctuations increased general administrative expenses 02 million research development bruker daltonics research development expense increased approximately 23 million 123 2002 compared 2001 overall dollar increase relates development certain new projects incorporated product line throughout 2003 although research development expense increased research development expense percentage product revenue decreased decline research development expense percentage product revenues line business strategy due primarily increased product revenue bruker axs research development expense increased approximately 22 million 279 2002 compared 2001 approximately 17 million increase due expansion research development projects specifically material purchases projects addition research development expenses increased 05 million due acquisition mac science currency fluctuations increased research development expenses 03 million percentage net sales research development expenses increased 95 year ended december 31 2002 94 year ended december 31 2001 project track research development expenditures project selective basis example identify research development expenditures iprd able estimate expenditure requirements complete research development projects currently process expect future research development expenditures consistent historical levels research development expenditures special charges special charges 20 million 2002 compared 32 million 2001 bruker daltonics special charges 2002 consist 700000 charge increase contract reserve cost completing existing contract uk ministry defense well 500000 charge related restructuring charge primarily related workforce reduction approximately 50 employees charge consisted primarily employee severance professional fees outplacement services second quarter 2002 company booked approximately 15 million anticipated costs recorded credit approximately 10 million reserve third fourth quarters 2002 reflect revised estimate actual employee severance costs 2002 also 10 million credit relating reversal previously established reserve patent litigation thermo finnigan reserve reduced 10 million 2002 result final settlement litigation addition bruker daltonics reported third quarter 2001 recorded loss provision charge 15 million connection liquidated damages pursuant mod contract december 31 2001 balance 17 million due foreign currency adjustments discussed previously issues resolved charge offset litigation credit 19 million bruker axs third quarter 2002 implemented restructuring program reduce costs improve productivity eliminating redundant positions streamlining production initiating cost reduction programs operating areas result recorded restructuring charge approximately 18 million 10 million net tax total restructuring charge approximately 05 million related involuntary voluntary employee termination benefits personnel reductions operating areas restructuring program reduced workforce approximately 19 employees approximately 5 total workforce united states germany united kingdom restructuring charge also included approximately 07 million writeoff property equipment result ceasing production facility located united kingdom beginning fourth quarter 2002 products produced united kingdom produced production facility germany addition approximately 05 million restructuring charge consisted penalties terminating contracts outsourced inventory information technology services provide internally remaining 01 million consisted engineering inventory written result termination research development project 2001 bruker axs wrote 36 million inprocess research development costs related acquisition bruker nonius interest income expense net interest income expense year ended december 31 2002 93 million compared 23 million 2001 increase expenses relates 109 million writedown investments three nonaffiliated proteomics companies well foreign currency exchange loss year 15 million year earned interest income approximately 18 million paid approximately 13 million interest expense interest income shortterm investments declined 2002 due use cash complete expansion united states germany facilities well due reduced rate return minority interest consolidated subsidiaries minority interest consolidated subsidiaries 212000 427000 statement operations year ended december 31 2002 2001 primarily represents minority public shareholders proportionate share net loss 31 bruker axs 2002 2001 well 49 incoatec gmbh since february 2002 provision income taxes provision income taxes increased 14 million 986 28 million compared 14 million 2001 effective tax rate 77 year ended december 31 2002 38 2001 income tax provision determined applying estimated effective tax rate income taxes estimated effective income tax rate based companys pretax income permanent booktax differences tax credits significant variation customary effective tax rate approximately 38 primarily due recording valuation allowance deferred tax assets writedown investments companies foreign tax credits cumulative effect change accounting principle adopted sfas 142 goodwill intangible assets first quarter fiscal 2002 transitional provisions sfas 142 tested goodwill intangible assets indefinite useful lives impairment january 1 2002 pursuant method prescribed sfas 142 completed transitional impairment tests third quarter 2002 resulted recording impairment loss 10 million 06 million net tax accordance transitional provisions sfas 142 impairment loss recorded first quarter 2002 cumulative effect change accounting principle goodwill impairment loss related bruker nonius reporting unit bruker axs acquired april 2001 changes market economic conditions since date acquisition resulted impairment goodwill allocated bruker nonius liquidity capital resources presently anticipate existing capital resources meet operating investing needs least end 2004 december 31 2003 cash equivalents 626 million working capital 1439 million historically financed growth combination debt financing issuance common stock december 31 2003 company approximately 222 million net operating loss carryforwards available reduce future taxable income losses various expiration dates 2023 company also research development tax credits approximately 27 million available offset future tax liabilities expire various dates 2023 fiscal year ended december 31 2003 net cash used operating activities 61 million improved comparison net cash 107 million used operating activities fiscal year ended december 31 2002 primarily due accounts receivable inventory growing slower rate sales volume made improvements cash collection efforts accounts receivable efficiently managed inventories reducing lead times improvements accounts receivable inventories offset decreases current liabilities primarily income taxes payable contingent liabilities customer advances use cash year ended december 31 2002 primarily due increases accounts receivable inventories related sales growth year ended december 31 2001 used 136 million cash flow operations use cash primarily due increases accounts receivable inventories increases partially offset increased accounts payable current liabilities year ended december 31 2003 cash flow used investing activities totaled 104 million compared 173 million cash generated year ended december 31 2002 used 55 million cash fiscal year ended december 31 2003 capital expenditures principally related improvements existing assets 2004 expect continue make capital investments focus enhancing efficiency operations supporting growth 2003 also used 55 million cash purchase businesses minority interest related merger bruker axs inc cash flow used financing activities totaled 81 million year ended december 31 2003 compared 190 million cash generated year ended december 31 2002 used 108 million cash payment shareholders connection bruker axs inc merger december 2002 entered demand revolving line credit citizens bank united states amount 25 million line secured portions inventory receivables equipment united states used support working capital expiration date also maintain revolving lines credit approximately 304 million german banks japanese banks german japanese lines credits unsecured december 31 2003 approximately 164 million outstanding us german japanese lines credit bruker axs interest rate swap january 1 2003 designated effective hedge accounting purposes bruker axs pays 46 fixed rate interest receives variable rate interest based bond market association municipal swap index contract 22 million notional value decreases conjunction irb payment schedule swap irb agreements terminate december 2013 shortterm longterm notes payable outstanding balances aggregating 286 million december 31 2003 interest rates notes payable range 100 510 connection outstanding debt required maintain certain financial ratios meet financial criteria additionally subject variety restrictive covenants require bank consent met december 31 2003 latest measurement date compliance financial covenants 2002 repurchased 457200 shares bruker daltonics inc common stock 192422 shares bruker axs inc common stock average price 510 393 respectively accordance terms stock repurchase plans bruker axs inc share number postmerger number gives effect merger share exchange ratio stock repurchase plan announced august 26 2002 authorizes us repurchase one million shares common stock fiscal year ended december 31 2003 repurchase shares july 2003 increased outstanding shares 315 million 860 million due merger bruker axs conjunction merger paid 163 million bruker axs shareholders elected receive 25 outstanding shares cash see note 5 details regarding merger future capital uses requirements depend numerous factors including success selling existing products progress research development ability introduce sell new products sales marketing expenses need expand production capacity costs associated possible acquisitions expenses associated unforeseen litigation regulatory changes competition technological developments market estimate future capital expenditures approximately 55 million 2004 contractual obligations commitments obligations commitments make future payments contracts debt lease agreements contingent commitments included following table december 31 2003 thousands disclosures regarding obligations located financial statements included annual report form 10k transactions related parties affiliated common shareholders several entities use bruker name pursuant omnibus sharing agreement affiliates entered sharing agreements affiliates provide sharing specified intellectual property rights services facilities related items sales related parties subsidiaries bruker biosciences included consolidated financial statements related parties affiliated sales offices countries distribution network sales primarily resale products sales related parties commercially reasonable arms length conditions pricing sales amounted 130 million 166 million 93 million years ended december 31 2003 2002 2001 respectively addition made purchases products affiliated entities 71 million 53 million 35 million years ended december 31 2003 2002 2001 respectively share various general administrative expenses items including umbrella insurance policies accounting services leases various related parties general administrative expenses amounted 14 million 12 million 16 million years ended december 31 2003 2002 2001 respectively company investments three nonaffiliated companies company recognized sales companies geneprot inc cengent therapeutics affinium pharmaceuticals inc approximately 21 million 0 34000 respectively 2003 510000 0 194000 respectively 2002 60 million 300000 400000 respectively 2001 believe sales made arms length conditions normal course business made purchases companies 2003 2002 2001 november 28 2002 issued 109800 shares restricted common stock par value 001 per share dr dieter koch managing director bruker daltonik gmbh time director bruker daltonics inc valued approximately 593000 cash 593000 exchange minority interest bruker saxonia analytik gmbh majorityowned subsidiary bruker daltonik gmbh shares common stock issued pursuant exemption registration requirements securities act 1933 amended afforded section 42 act company paid 14 million 849000 10 million law firm one directors partner quantitative qualitative disclosures market risk potentially exposed market risk associated changes foreign exchange interest rates selectively use financial instruments reduce related market risks instrument treated hedge effective offsetting impact volatility underlying exposure also entered instruments effective derivatives requirements sfas 133 therefore instruments designated hedges transactions authorized executed pursuant policies procedures analytical techniques used manage monitor foreign exchange interest rate risk include market valuation impact foreign currencies sell products many countries substantial portion sales costs expenses denominated foreign currencies principally euro 2003 us dollar continued weaken euro significantly increased consolidated revenue growth 305 million 138 expressed us dollars first three months 2002 us dollar strengthening euro however trend reversed second half 2002 us dollar weakened euro therefore year ended december 31 2002 fluctuations foreign currencies minimal impact consolidated revenue growth rate expressed us dollars may time hedge specifically identified cash flows foreign currencies using forward contracts foreign currency activity historically material maturities forward exchange contracts generally coincide settlement dates related transactions realized unrealized gains losses contracts recognized period gains losses hedged items december 31 2003 2002 foreign currency forward contracts outstanding additionally material nonfunctional currency denominated financial instruments would expose us foreign exchange risk outstanding december 31 2003 2002 historically realized foreign exchange gains losses material realized foreign exchange gains losses approximately 12 million 15 million 263000 fiscal year ended december 31 2003 2002 2001 respectively expand internationally evaluate currency risks may continue enter foreign exchange contracts time mitigate foreign currency exposure entered foreigndenominated debt obligations currency effects debt obligations reflected income expense line statement operations also foreigndenominated intercompany borrowing arrangements bruker axs gmbh subsidiary germany impacted transaction gains losses intercompany borrowing arrangements bruker nonius subsidiary netherlands affected accumulated comprehensive income 10 increase decrease respective foreign exchange rate bruker nonius subsidiary netherlands would result change accumulated comprehensive income loss approximately 11 million 09 million respectively 10 increase decrease respective foreign exchange rate germany would result transaction gain loss approximately 05 million 04 million respectively impact interest rates exposure related adverse movements interest rates derived primarily outstanding floating rate debt instruments indexed shortterm market rates cash equivalents objective managing exposure interest rates decrease volatility changes interest rates might earnings cash flows achieve objective use fixed rate agreement adjust portion debt determined management subject variable interest rates us entered interest rate swap arrangement limit interest rate exposure 22 million industrial revenue bond fixed rate 46 pay 46 fixed rate interest receive variable rate interest based bond market association municipal swap index 22 million notional amount net interest payments receipts recorded adjustments interest expense addition instrument recorded fair market value balance sheet changes fair market value recorded current earnings fair value instrument liability approximately 109000 133000 net tax december 31 2003 december 31 2002 respectively april 2002 entered two derivative financial instruments cross currency interest rate swap interest rate swap cross currency interest rate swap 2 million euro secures fixed interest rate 175 per annum january 4 2012 interest rate swap 3 million euro reduces 6month euribor rate 180 per annum january 4 2007 entered financial instruments manage exposure interest rates foreign exchange risk fiscal year ending december 31 1999 entered three financial instruments interest rate cap interest rate swap cross currency interest rate swap entering financial instruments obtained right borrow money lower rates interest continue hold financial instruments elect exercise options borrow money instruments become effective hedge instruments considered speculative markedtomarket fair value instruments appreciated depreciated 466000 264000 fiscal year ended december 31 2003 2002 respectively fair value instruments asset liability approximately 151000 december 31 2003 315000 december 31 2002 10 increase decrease average cost variable rate debt would result material change pretax interest expense inflation believe inflation material impact business operating results periods presented recent accounting pronouncements january 2003 financial accounting standards board fasb issued fasb interpretation 46 consolidation variable interest entities interpretation arb 51 fin 46 fin 46 requires certain variable interest entities consolidated primary beneficiary entity equity investors entity characteristics controlling financial interest sufficient equity risk entity finance activities without additional subordinated financial support parties fin 46 effective new variable interest entities created acquired january 31 2003 variable interest entities created acquired prior february 1 2003 provisions fin 46 originally required applied first interim annual period beginning june 15 2003 however october 2003 fasb deferred effective date fin 46 end first interim annual period ending december 15 2003 arrangements involving special purpose entities entered prior february 1 2003 arrangements within scope fin 46 subject provisions beginning 2004 company adopted fin 46 required material impact consolidated financial position results operations company believe adoption remaining provisions fin 46 2004 material impact financial position results operations factors affecting business operating results financial condition following risk factors considered conjunction information included report may include forwardlooking statements involve risks uncertainties addition risk factors discussed elsewhere report identify following risk factors could affect actual results cause actual results differ materially forwardlooking statements may face challenges integration could result lower expected synergies merger bruker axs face number challenges merging operations bruker daltonics bruker axs merged july 2003 although affiliates companies historically operated businesses autonomously currently working integrate certain functions facilitate communication cooperation following factors critical successfully complete integration •effectively coordinating consolidating geographically separate organizations integrating personnel different business backgrounds corporate cultures •coordinating previously autonomous departments accounting finance administrative functions expanding integrating information management systems •minimizing disruption integration businesses able successfully integrate two businesses may able realize cost savings benefits expect result merger goodwill intangible assets subject impairment result merger recorded significant goodwill intangible assets must continually evaluated potential impairment assess realizability goodwill intangible assets annually well whenever events changes circumstances indicate assets may impaired events circumstances generally include operating losses significant decline earnings associated acquired business ability realize value goodwill depend future cash flows business addition well integrate business products fail achieve sustain sufficient market acceptance across broad intended range applications life sciences generate expected revenue business strategy depends ability successfully commercialize broad range products based mass spectrometry xray technology use variety life science applications recently commercially launched many current products sale markets many products achieved limited sales commercial success life science products depends obtaining continued expanding market acceptance mass spectrometry xray tools pharmaceutical biotechnology proteomics companies academic government research laboratoriesamong others across wide range applications covered product offerings may fail achieve sustain substantial market acceptance products across full range intended life science applications one principal intended life science applications failure could decrease sales revenue succeed must convince substantial numbers pharmaceutical biotechnology companies laboratories replace existing techniques mass spectrometry xray techniques employing systems limited funding available capital acquisitions customers well customers internal purchasing approval policies could hinder market acceptance products intended life science customers may reluctant make substantial capital investment generally needed acquire products incur training costs involved replacing existing systems products also may able convince intended life science customers systems attractive costeffective alternative technologies systems acquisition analysis management molecular information factors products may fail gain sustain market acceptance products compete markets subject rapid technological change products based range mass spectrometry xray technologies one could made obsolete new technology market life science discovery tools characterized rapid technological change frequent new product introductions rapidly changing technology could make life science product lines obsolete unless able continually improve existing products develop new products substantially life science products based mass spectrometry xray technology particularly vulnerable technological advances would make either mass spectrometry xrays obsolete basis bioanalytical systems life science markets meet evolving needs customers must rapidly continually enhance current planned products services develop introduce new products services addition product lines based complex technologies subject rapid change new technologies developed introduced marketplace may difficulty keeping abreast rapid changes affecting different markets serve intend serve fail develop introduce products timely manner response changing technology market demands requirements customers product sales may decline could experience significant losses unable recover significant development costs one products product lines business results operations financial condition may suffer offer plan continue offer broad product line incur expect continue incur substantial expenses development new products enhanced versions existing products business model calls us derive significant portion revenues year products exist previous two years however may experience difficulties may delay prevent successful development introduction marketing new products product enhancements speed technological change life science related markets serve may prevent us successfully marketing products length time required recover often significant development costs fail recover development costs one products product lines business results operations financial condition could harmed proteomics market grow expected may meet growth expectations expect proteomics market fuel growth significant portion business invested expect continue invest significant time resources development new products market new still evolving market grow become established may realize expected profit research development expenditures market products grow expected growth rate could decline substantially could material adverse impact business results operations financial condition address substantial competitive pressures revenues profitability may suffer face substantial competition face substantial competition expect competition markets increase currently principal competition comes established companies providing products using existing technologies including mass spectrometry xray technology nbc detection technologies perform many functions market products companies also may choose enter field future addition technologies indirectly compete funding technologies products provided affiliates bruker biospin competition creates potential actual perceived conflicts interest competitors may develop market products effective commercially attractive current future products may render products obsolete many competitors experience life sciences market substantially greater financial operational marketing technical resources could give competitive edge areas research development production marketing distribution ability compete successfully depend part ability develop proprietary products reach market timely manner technologically superior less expensive costeffective currently marketed products operations dependent upon limited number suppliers contract manufacturers currently purchase components used mass spectrometry xray systems limited number outside sources reliance limited number suppliers could result time delays associated redesigning product due inability obtain adequate supply required components reduced control pricing quality timely delivery factors could adversely affect revenues profitability example currently purchase key components used mass spectrometry xray systems certain suppliers particular bruker axs obtains sophisticated chip use ccd detectors fairchild imaging bruker axs knowledge source chip size quality additionally bruker daltonics purchases approximately 90 magnets single supplier magnex also obtains certain key components manufacture ion traps agilent sole supplier components scarcity components may unable obtain adequate supply components may required pay higher prices purchase components lesser quality delay interruption supply components could impair ability manufacture deliver products harm reputation cause reduction revenues addition increase cost components use products could make products less competitive lower margins may able obtain sufficient quantities required components substantially terms additionally consolidations among suppliers could result sole source suppliers us future business could harmed collaborations fail advance product development demand products depend part upon extent collaborations pharmaceutical biotechnology proteomics companies successful developing helping us develop new products new applications existing products addition collaborate academic institutions government research laboratories product development limited control resources collaborator may devote products present future collaborators may perform obligations expected fail enter maintain appropriate collaboration agreements events occur may able develop new products could materially impede ability generate revenue profits lose strategic partners marketing efforts could impaired substantial portion sales selected products consists sales third parties incorporate products systems third parties responsible marketing sales systems little control marketing sales activities use resources present future strategic partners may purchase sufficient quantities products us perform appropriate marketing sales activities addition unable maintain relationships strategic partners business may suffer example agreement pursuant bruker daltonics manufactures ion trap mass spectrometers agilent technologies expire end 2005 either party gives notice nonrenewal prior end september 2005 agreement automatically renews oneyear periods 2010 unless subsequent notice given sales agilent represented approximately 57 revenues 2003 failure renew strategic collaboration agilent may negative impact bruker daltonics product development distribution failures present future strategic partners inability maintain enter new arrangements strategic partners product distribution could materially impede growth business ability generate sufficient revenue unable make successful acquisitions part growth strategy integrate acquisitions business development may suffer strategy includes potentially expanding technology base selected strategic acquisitions fail effect acquisitions technology base may expand quickly efficiently possible without complementary growth selected acquisitions ability keep evolving needs market meet future performance goals could adversely affected additionally fail effectively integrate acquired businesses technologies existing business failure could adversely affect business addition risks applicable life science products nbc detection products subject number additional risks including lengthy product development contract negotiation periods certain risks inherent longterm government contracts nbc detection products subject many risks associated life science products including vulnerability rapid technological change dependence mass spectrometry technologies substantial competition addition nbc detection products generally sold government agencies longterm contracts generally involve lengthy precontract negotiations product development may required devote substantial working capital resources prior obtaining product orders result may incur substantial costs recognize revenue products moreover return larger longerterm contracts customers products often demand stringent acceptance criteria may also cause delays ability recognize revenue sales products furthermore may able accurately predict advance costs fulfill obligations longterm contracts fail accurately predict costs due inflation factors could incur significant losses single longterm contract nbc detection products may represent material portion total business volume loss contract could material adverse effect results operations failure increase business obtain another government contract one would cause revenue decline also presence absence contracts may cause substantial variation results operations fiscal periods result results operations given fiscal period may predictive results subsequent fiscal periods resulting uncertainty may adverse impact stock price general health care spending patterns decline ability generate revenue may suffer dependent directly indirectly upon general health care spending patterns particularly research development budgets pharmaceutical biotechnology industries well upon financial condition various governments government agencies since inception academic collaborators customers benefited various governmental contracts research grants whether academic collaborators continue able attract grants depends quality products also general spending patterns public institutions exists risk potential decrease level governmental spending allocated scientific medical research could substantially reduce even eliminate grants well decrease demand products academic medical research customers reduction capital resources government funding customers could reduce sales impede ability generate revenue significant portion sales capital purchases customers spending policies customers could significant effect demand products policies based wide variety factors including resources available make purchases spending priorities among various types equipment policies regarding spending recessionary periods changes political climate changes capital spending changes capital budgets customers could significantly reduce demand products capital resources biotechnology corporate customers may limited availability equity debt financing significant decline research development expenditures life science customers could significantly decrease sales addition make substantial portion sales nonprofit government entities dependent government support scientific research decline support could decrease ability customers purchase products subject existing potential additional regulation impose burdens operations narrow markets products subject directly indirectly adverse impact existing potential future government regulation operations markets example exportation products particularly nbc detection products subject strict regulatory control number jurisdictions failure satisfy export control criteria obtain necessary clearances could delay prevent shipment products could adversely affect revenues profitability moreover life sciences industry market principal products historically heavily regulated example laws several jurisdictions restricting research genetic engineering operate narrow markets given evolving nature industry legislative bodies regulatory authorities may adopt additional regulation adversely affects market opportunities additionally ethical concerns surrounding use genetic information gene therapy genetically modified organisms become widespread may less demand products business also directly affected wide variety government regulations applicable business enterprises generally companies operating life sciences industry particular failure comply regulations obtain maintain necessary permits licenses could result variety fines censures interruption business operations may negative impact ability generate revenues success depends ability operate without infringing misappropriating proprietary rights others commercial success depends avoiding infringement parties patents proprietary rights well avoiding breach licenses relating technologies products given may patents unaware particularly us patent applications confidential avoidance patent infringement may difficult various thirdparties hold patents may relate technology may found future infringe patents proprietary rights third parties either products currently marketing developing new products may develop future third party holding rights patent successfully asserts infringement claim respect current future products may prevented manufacturing marketing infringing product country countries covered patent infringe unless obtain license patent holder may able obtain license commercially reasonable terms especially patent holder competitor addition even obtain license may nonexclusive permit others practice technology licensed us also may required pay substantial damages patent holder event infringement circumstances us damages could include damages equal triple actual damages patent holder incurs supplied infringing products third parties marketing licensed third parties manufacture use market infringing products may obligated indemnify third parties damages may required pay patent holder losses third parties may sustain result lost sales license payments required make patent holder successful infringement action brought us may also adversely affect marketing infringing product markets covered infringement action well marketing products based similar technology furthermore suffer adverse consequences successful infringement action us even action subsequently reversed appeal nullified another action resolved settlement patent holder damages remedies awarded may significant result successful infringement action us may harm business unable effectively protect intellectual property third parties may use technology would impair ability compete markets continued success depend significant part ability obtain maintain meaningful patent protection products throughout world rely patents protect significant part intellectual property enhance competitive position however presently pending future patent applications may issue patents patent previously issued us may challenged invalidated held unenforceable circumvented furthermore claims patents issued may issued us future may sufficiently broad prevent third parties producing competing products similar products addition laws various foreign countries compete may protect intellectual property extent laws us failure obtain adequate patent protection proprietary technology could materially impair ability commercially competitive addition patent protection also rely protection trade secrets knowhow confidential proprietary information maintain confidentiality trade secrets proprietary information generally seek enter confidentiality agreements employees consultants strategic partners upon commencement relationship us however may obtain agreements circumstances event unauthorized use disclosure information agreements even obtained may provide meaningful protection trade secrets confidential information addition adequate remedies may exist event unauthorized use disclosure information loss exposure trade secrets proprietary information would impair competitive advantages could material adverse affect operating results financial condition future growth prospects furthermore others may future independently develop substantially similar superior knowhow technology may involved lawsuits protect enforce patents brought us could expensive time consuming order protect enforce patent rights may initiate patent litigation third parties may similarly sued others may also become subject interference proceedings conducted patent trademark offices various countries determine priority inventions defense prosecution necessary intellectual property suits interference proceedings related legal administrative proceedings costly diverts technical management personnel normal responsibilities may prevail suits adverse determination litigation defense proceedings could put patents risk invalidated interpreted narrowly could put patent applications risk issuing furthermore substantial amount discovery required connection intellectual property litigation risk confidential information could compromised disclosure type litigation addition course kind litigation could public announcements results hearings motions interim proceedings developments litigation securities analysts investors perceive results negative could substantial negative effect trading price common stock agreed share name portions intellectual property rights distribution channels entities common control could result loss name lock price products may sell entities may best price available products maintain sharing agreement 13 affiliated entities requires us share portions intellectual property existed february 28 2000 distribution channels affiliated companies affiliates also share bruker name many affiliates could lose right use bruker name declare bankruptcy b interfere another partys use name c take material action materially detracts goodwill associated name suffer major loss reputation industry marketplace loss bruker name could result loss goodwill brand loyalty sales products addition agreed maintain price products purchased sold affiliates period twelve years subject yearly adjustments equal increase consumer price index manufacture sale products could lead product liability claims could substantial liability manufacture sale products exposes us product liability claims products cause injury found otherwise unsuitable manufacturing marketing sale customer use particular one nbc detection products malfunctions could lead civilian military casualties time unrest exposing us increased potential highprofile liability successful product liability claim brought us excess outside coverage insurance coverage could material adverse effect business financial condition results operations may able maintain product liability insurance acceptable terms insurance may provide adequate coverage potential liabilities responding claims relating improper handling storage disposal hazardous chemicals radioactive biological materials use could time consuming costly use controlled hazardous radioactive materials business generate wastes regulated hazardous wastes united states federal massachusetts california wisconsin state environmental atomic energy regulatory laws equivalent provisions law jurisdictions research manufacturing facilities located use substances materials subject stringent periodically changing regulation impose costly compliance obligations us potential adversely affect manufacturing activities risk accidental contamination injury materials cannot completely eliminated accident substances occurs could held liable damages result addition incurring cleanup costs liabilities substantial additionally accident could damage research manufacturing facilities resulting delays increased costs dependent upon various key personnel must recruit additional qualified personnel number management positions success highly dependent continued services key management particularly chief executive officer frank h laukien well technical scientific personnel management employees may voluntarily terminate employment us time upon short notice specifically drmartin haase presently serves senior vice president director well president chief executive officer bruker axs announced leave company personal reasons end april 2004 although continue serve board directors end 2004 plan fill management positions vacated dr haase hiring additional personnel dr haases responsibilities fulfilled various existing management employees loss services dr haase member senior management technical scientific staff may significantly delay prevent achievement product development business objectives future success also depend ability identify recruit retain additional qualified scientific technical managerial personnel competition qualified personnel intense particularly areas information technology engineering science process hiring suitably qualified personnel often lengthy unable hire retain sufficient number qualified employees ability conduct expand business could seriously reduced chief executive officer maintains relationships various affiliates may impact management us chief executive officer frank h laukien phd currently 10 years management officer director certain affiliates spends substantial amount time rendering services affiliates although dr laukien spends majority time attending business involvement affiliates reduces time attention devote management dr laukien beneficially owns directly indirectly 10 stock 10 stock several affiliated companies collaborate affiliates product development portion customer base also business affiliates believe agreements affiliates arms length commercial conditions pricing however dr laukiens relationship affiliated companies could create actual perceived conflict interest could negatively impact business financial condition results operations cash flows may able maintain grow sales service staff meet demand products services future revenue profitability depend part ability maintain team marketing service personnel products technical nature believe marketing sales support staff must scientific technical expertise experience competition employees skills intense may able continue attract retain sufficient qualified sales service people may able grow maintain efficient effective sales marketing support department company grows fail continue attract retain qualified people business could suffer plan significant growth risk able manage growth success depend expansion operations effective growth management place increased demands management operational financial resources manage growth must expand facilities augment operational financial management systems hire train additional qualified personnel failure manage growth effectively could impair ability generate revenue could cause expenses increase rapidly revenue resulting operating losses derive significant portion revenue international sales subject risks business foreign countries international sales account expected continue account significant portion total revenues international operations continue subject variety risks associated conducting business internationally many beyond control risks may adversely affect ability achieve maintain profitability ability sell products internationally include •changes foreign currency exchange rates •changes regulatory requirements •legislation regulation including tariffs relating import export high technology products •the imposition government controls •political economic instability including international hostilities acts terrorism governmental restrictions inflation trade relationships military political alliances •costs risks deploying systems foreign countries •limited intellectual property rights •the burden complying wide variety complex foreign laws treaties impact factors difficult predict one factors could adversely affect operations future may lose money exchange foreign currency received international sales united states dollars significant portion business conducted currencies united states dollar reporting currency result currency fluctuations among united states dollar currencies business caused continue cause foreign currency transaction gains losses recognize foreign currency gains losses arising operations period incurred addition currency fluctuations could cause price products less competitive principal competitors products currency fluctuations increase decrease cost structures relative competitors could lessen demand products affect competitive position cannot predict effects exchange rate fluctuations upon future operating results number currencies involved variability currency exposures potential volatility currency exchange rates various international tax risks could adversely affect earnings subject international tax risks distributions earnings payments received subsidiaries may subject withholding taxes imposed countries operating formed foreign countries income tax treaties united states countries subsidiaries incorporated could subject high rates withholding taxes distributions payments could also subject taxed twice income related operations nontreaty countries unable reduce taxable income one operating company losses incurred another operating company located another country may higher foreign effective income tax rate companies industry amount credit may claim united states federal income tax foreign income taxes subject many limitations may significantly restrict ability claim credit foreign taxes pay armed hostilities could constrain ability conduct business internationally could also disrupt united states operations current world unrest united states responses may lead acts terrorism civil disturbances united states elsewhere may contribute economic instability united states attacks armed conflicts may affect physical facilities suppliers customers could impact domestic international sales supply chain production capability insurance premiums ability purchase insurance ability deliver products customers consequences risks unpredictable longterm effect upon us uncertain unpredictability fluctuation quarterly results may adversely affect trading price common stock revenues results operations past may future vary quarter due number factors many outside control may cause stock price fluctuate primary factors may affect us include following •the timing sales products services •the timing recognizing revenue deferred revenue united states gaap •changes pricing policies pricing policies competitors •increases sales marketing product development administration expenses •the mix services provided us thirdparty contractors •our ability attain maintain quality levels products •costs related acquisitions technology businesses historically experienced decrease revenue first quarter fiscal year relative prior fourth quarter believe due customers budgeting cycles rely quartertoquarter comparisons results operations indication future performance likely future quarters results operations may expectations public market analysts investors event price common stock may fall face potential volatility stock price public market common stock since august 2000 market price common stock may fluctuate substantially response various factors many beyond control including •quarterly fluctuations results operations described •our ability successfully commercialize products •technological innovations new commercial products us competitors •developments concerning government regulations proprietary rights could affect potential growth markets •material changes relationships viability strategic business partners •market reaction trends revenues expenses especially research development •changes earnings estimates analysts •volatility uncertainty capital markets general •loss key personnel •changes accounting principles •lack trading volume stock •fluctuation within life science sector •sales common stock existing stockholders particularly large institutional investors cannot hold stock traded less 5 per share •economic political conditions market price common stock may also affected ability meet analysts expectations failure meet expectations even slightly could adverse effect market price common stock addition stock market nasdaq national market life science stocks particular subject extreme price volume fluctuations volatility significant effect market prices securities issued many companies reasons unrelated operating performance companies past companies experienced volatility market price securities subjects securities class action litigation instigated us could result substantial costs diversion managements attention resources could significantly harm business financial condition operating results future sales stock may impact market price sales substantial numbers shares common stock public market perception significant sales likely could adversely affect market price common stock cannot predict effect market sales large number shares would market price common stock existing stockholders significant influence us march 1 2004 majority stockholders owned aggregate approximately 75 outstanding common stock result stockholders able exercise substantial influence matters requiring stockholder approval including election directors approval significant corporate transactions could effect delaying preventing change control company make transactions difficult impossible accomplish without support stockholders companies may difficulty acquiring us even would benefit stockholders due provisions corporate charter bylaws option plans stockholder rights agreement employment agreements well delaware law provisions amended restated certificate incorporation amended restated bylaws stockholder rights agreement delaware law could make difficult companies acquire us even would benefit stockholders amended restated certificate incorporation bylaws contain following provisions among others may inhibit acquisition company third party •a staggered board directors stockholders elect minority board year •advance notification procedures matters brought stockholder meetings •a limitation may call stockholder meetings •the ability board directors issue 5000000 shares preferred stock without stockholder vote item 7aitem 7 managements discussion analysis financial condition results operations overview bruker biosciences bruker biosciences corporation bruker biosciences company parent company bruker daltonics inc bruker daltonics bruker axs inc bruker axs july 2003 bruker daltonics merged bruker axs company common control bruker biosciences surviving corporation merger historical consolidated financial statements prior merger prepared combining historical results bruker daltonics bruker axs bruker daltonics leading developer provider innovative life science tools based mass spectrometry bruker axs leading developer provider life science advanced materials research tools based xray technology maintain major technical demonstration centers europe north america japan diverse customer base includes pharmaceutical biotechnology proteomics companies academic institutions semiconductor industries government agencies business strategy includes focusing innovative product solution development continuing expand global distribution customer support capabilities bruker daltonics performance bruker daltonics business driven products lifescience mass spectrometry nuclear biological chemical nbc detection 2004 revenue growth bruker daltonics including foreign currency translation modest bruker daltonics experienced favorable customer reception new benchtop esitof system well clinprot™ solution biomarker discovery clinical proteomics however revenues second third quarter 2004 lower expected result delays shipments installations new products delays customers placed orders bruker daltonics yet ready systems installed october 2004 introduced several new products major introductions next generation highend ultraflex ii toftof system provides additional research capabilities expression clinical proteomics well prespotted anchor chip malditof expression proteomics early 2005 introduced additional new products including among others microtofq hctultra apollo ii ion funnel electrospray ionization source expect new product introductions contribute revenue growth future periods bruker axs analytical xray performance bruker axs business driven products single crystal xray diffraction scd polycrystalline xray diffraction xrd xray flourescence xrf well thermal analyzers 2003 bruker axs experienced softness xray system sales primarily life sciences scd sales due weak market conditions well intense competitive pressures 2004 sales improved considerably due elemental composition xrf thermal analyzer sales well aftermarket sales 2004 early 2005 bruker axs introduced series new products life sciences scd materials research xrd order regain growth marketplace life sciences scd introduced microstar™ high brilliancy xray source materials research xrd introduced new d8 superspeed™ solutions integrated highpower xray source technology vantec1™ xray detector technology provide higher speed sensitivity compared available products market new vantec2000 twodimensional xray detector although products took longer expected reach market 2004 majority new products shipping end 2004 contributed q4 2004 revenue growth expect new products contribute revenue growth future periods critical accounting policies estimates discussion analysis financial condition results operations based upon consolidated financial statements prepared accordance accounting principles generally accepted united states america preparation financial statements requires make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments including related revenue recognition allowance doubtful accounts inventories goodwill longlived assets warranty costs income taxes contingencies restructuring base estimates judgments historical experience current market economic conditions observance industry trends assumptions believe reasonable form basis making judgments carrying value assets liabilities readily apparent sources actual results could differ estimates believe following critical accounting policies important portrayal financial condition require subjective judgment •revenue recognition recognize revenue system sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectibility resulting receivable reasonably assured title risk loss generally transferred customer upon receipt signed customer acceptance form system shipped installed customer trained result timing customer acceptance readiness could cause reported revenues differ materially expectations products sold independent distributor strategic distribution partner unconsolidated affiliated distributor assumes responsibility installation recognize system sale product shipped title risk loss transferred distributors price protection rights return however products warranted free defect period one year arrangements multiple elements recognize revenue element based fair value element provided criteria revenue recognition met fair value element provided multiple element arrangements typically determined referencing historical pricing policies element sold separately changes ability establish fair value element multiple element arrangements could affect timing revenue recognition revenue accessories parts recognized upon shipment service revenue recognized services performed •allowance doubtful accounts maintain allowances doubtful accounts estimated losses resulting inability customers pay amounts due financial condition customers deteriorate reducing ability make payments additional allowances would required resulting charge operations •inventories stated lower cost market cost determined firstin firstout method maintain allowance excess obsolete inventory reflect expected unsaleable unrefundable inventory based evaluation slow moving products ultimate usage demand varies significantly expected usage demand additional writedowns may required resulting charge operations •goodwill intangible assets investments companies longlived assets perform evaluation whether goodwill impaired annually events occur circumstances change would likely reduce fair value reporting unit carrying amount fair value determined using market comparables similar businesses forecasts discounted future cash flows also review intangible assets investments companies longlived assets indication potential impairment exists significant reduction cash flows associated assets fair value longlived assets decline reduced operating performance market declines indicators impairment charge operations impairment may necessary •warranty costs normally provide oneyear parts labor warranty purchase equipment anticipated cost oneyear warranty accrued upon recognition sale included current liability balance sheet although facilities undergo quality assurance testing procedures throughout production process warranty obligation affected product failure rates material usage service delivery costs incurred correcting product failure although actual warranty costs historically consistent expectations extent warranty claim activity costs associated servicing claims differ estimates revisions warranty accrual may required •income taxes estimate degree tax assets loss carryforwards result benefit based expected profitability tax jurisdiction provide valuation allowance tax assets loss carryforwards believe likely go unused becomes likely tax asset loss carryforward used reserve provided reverse related valuation allowance actual future taxable income tax jurisdiction differ estimates additional allowances reversals reserves may necessary •contingencies estimate losses contingencies provide reserve losses probable estimable ultimate losses contingencies litigation differ estimates adjustments reserves may required company made adjustments previously issued consolidated financial statements first three quarters 2004 years end december 31 2003 2002 adjustments reflect reclassifications made certain costs historically classified sales marketing research development expense cost product sales years ended december 31 2003 2002 aggregate 65 million 55 million respectively writedown demonstration inventory net realizable value reclassified sales marketing research development expense cost product sales addition years ended december 31 2003 2002 30 million 16 million respectively service costs historically classified sales marketing expense reclassified cost service sales adjustments caused expenses sales marketing research development affected periods lower previously reported caused cost sales affected periods higher previously reported adjustments adversely affected gross margins impact operating income net income loss adjustments reflected accompanying managements discussion analysis financial condition results operations results operations year ended december 31 2004 compared year ended december 31 2003 company made adjustments previously issued consolidated financial statements year ended december 31 2003 adjustments reflected following tables discussions within managements discussion analysis financial condition results operations additional information adjustments please see page 25 net sales following table presents net sales change net sales net sales growth reportable segment years ended december 31 2004 2003 dollars thousands aincludes sales 21 million 13 million years ended december 31 2004 2003 respectively related grant revenue received research development projects bruker daltonics net sales increased 58 million 40 1526 million year ended december 31 2004 compared 1467 million year ended december 31 2003 included change net sales approximately 103 million impact foreign exchange excluding effect foreign exchange net sales would decreased 29 net decrease sales excluding effect foreign exchange result increasing competition pricing pressures partially offset increase units sold yearoveryear grant revenues generated various projects earlystage research development projects funded german united states governments life science systems nbc detection systems aftermarket sales percentage bruker daltonics product service sales follows years ended december 31 2004 2003 bruker axs net sales increased 187 million 164 1326 million year ended december 31 2004 compared 1139 million year ended december 31 2003 included change net sales approximately 71 million impact foreign exchange excluding effect foreign exchange net sales would increased 102 net increase 102 sales excluding effect foreign exchange driven continued growth materials research life science product lines shipment installation new product introductions announced early 2004 accelerated year well continued strong aftermarket sales xray systems aftermarket sales percentage bruker axs product service sales follows years ended december 31 2004 2003 cost sales following table presents cost product service sales gross profit margins reportable segment years ended december 31 2004 2003 dollars thousands bruker daltonics cost product service sales year ended december 31 2004 839 million gross profit margin 442 compared 834 million gross profit margin 427 year ended december 31 2003 increase gross profit margins primarily due completion unprofitable contract uk ministry defense second half 2004 partially offset increase writedown demonstration inventories net realizable value yearoveryear bruker axs cost product service sales year ended december 31 2004 828 million gross profit margin 376 compared 709 million gross profit margin 378 year ended december 31 2003 slight decrease gross profit margins due certain manufacturing efficiencies realized 2004 offset quality costs including warranty expenses associated new product introductions 2004 increase writedown demonstration inventories net realizable value sales marketing following table presents sales marketing expense sales marketing expense percentage product service sales reportable segment years ended december 31 2004 2003 dollars thousands bruker daltonics sales marketing expense year ended december 31 2004 increased 270 million 180 product service sales 257 million 177 product service sales year ended december 31 2003 increase sales marketing percentage product service sales primarily attributable investments sales marketing initiatives lower anticipated sales 2004 bruker axs sales marketing expense year ended december 31 2004 increased 290 million 218 product service sales 260 million 228 product service sales year ended december 31 2003 decrease sales marketing percentage product service sales primarily attributable leveraging fixed costs result increased sales 2004 compared 2003 partially offset increased sales marketing personnel japan austria 2004 general administrative following table presents general administrative expense general administrative expense percentage product service sales reportable segment years ended december 31 2004 2003 dollars thousands bruker daltonics general administrative expense year ended december 31 2004 decreased 75 million 50 product service sales 81 million 56 product service sales year ended december 31 2003 decrease general administrative expenses percentage product service sales primarily due improved cost controls established second half 2003 benefits realized 2004 reclassification 2004 certain costs associated public company captured corporate bruker axs general administrative expense year ended december 31 2004 increased 94 million 71 product service sales 88 million 77 product service sales year ended december 31 2003 decrease general administrative expense percentage product service sales primarily due leveraging fixed costs result higher revenues 2004 versus 2003 partially offset unfavorable currency fluctuations increased costs associated establishing new international locations year corporate general administrative expense year ended december 31 2004 increased 34 million 04 million year ended december 31 2003 corporate general administrative expenses represent expenses associated public company allocated reportable segments including legal fees audit consulting fees filing fees increase expenses primarily attributable inclusion corporate related costs separately 2004 allocated segments first half 2003 additional accounting consulting fees associated implementation work related sarbanesoxley requirements research development following table presents research development expense research development expense percentage product revenue service sales reportable segment years ended december 31 2004 2003 dollars thousands bruker daltonics research development expense year ended december 31 2004 increased 301 million 200 product service sales 259 million 178 product service sales year ended december 31 2003 increase research development expense percentage product service sales primarily attributable strengthening euro plus incremental investments research development projects resulted several new product introductions early 2005 •the microflex lt™a compact benchtop malditof mass spectrometer clinical proteomics routine analysis peptides proteins large molecules •microtofq™a compact benchtop system offers resolution 15k full sensitivity •hctultra™a system provides improved ion trap performance terms sensitivity speed mass accuracy bruker axs research development expenses year ended december 31 2004 increased 132 million 99 product service sales 113 million 99 product service sales year ended december 31 2003 consistent research development expense percentage product service sales primarily due strengthening euro offset fixed cost leverage result higher revenues 2004 versus 2003 investments research development resulted several recent product introductions including •microstarha new xray source technology rotating anode generators protein crystallography particular •vantec2000™a new 2d detector based proprietary mikrogap™ technology track research development expenditures project selective basis able estimate expenditure requirements complete research development projects currently process expect future research development expenditures consistent historical levels research development expenditures reversal liability accrual third quarter 2001 bruker daltonics established reserve 19 million possible imposition estimated liquidated damages pursuant contract uk ministry defense mod accrual represented projected additional costs rework retesting contract due various technical problems associated meeting contractual requirements second quarter 2003 companys swiss german subsidiaries delivered product mod met specifications contract upon delivery product mod agreed pursue claims liquidated damages previously paid pursuant contract bruker daltonics agreed pursue claims recovery additional research development expenses incurred connection contract result reserves associated mod contract 19 million reversed second quarter 2003 special charges fiscal year ended december 31 2003 incurred 117 million merger related charges including cash charges merger transaction costs 64 million cash restructuring charges 09 million incurred conjunction consolidation manufacturing sites 2003 merger related costs also included noncash charges writeoff acquired inprocess research development 25 million goodwill intangibles writeoff 12 million impairment charges 07 million related acquired assets bruker daltonics incurred 29 million special charges mainly merger transaction costs bruker axs incurred 88 million remaining special charges connection merger interest income expense net interest income expense year ended december 31 2004 38 million compared 10 million year ended december 31 2003 difference relates primarily charges 23 million 2004 related writeoff impaired investments increase interest expense loss foreign currency transactions 2004 versus gain 2003 expense increases partially offset higher interest income earned cash shortterm investments 2004 compared 2003 provision income taxes income tax provision year ended december 31 2004 29 million compared 97 million year ended december 31 2003 effective tax rate 59 year ended december 31 2004 compared 112 2003 2004 effective tax rate reflects tax provision nonus entities since benefit recognized losses incurred us maintain full valuation allowance us net operating losses evidence exists likely losscarryforward amounts utilized offset us taxable income tax rate may change time amount mix income taxes outside us changes effective tax rate calculated using projected annual pretax income loss affected impact changes valuation allowance well changes mix pretax income losses among jurisdictions varying statutory tax rates credits minority interest consolidated subsidiaries minority interest consolidated subsidiaries year ended december 31 2004 01 million compared loss 09 million 2003 december 31 2004 2003 minority interest relates primarily proportionate share net loss minority shareholders owned 31 bruker axs first six months 2003 well 755 baltic scientific owned minority shareholders since acquisition april 2003 49 incoatec gmbh since acquisition february 2002 year ended december 31 2003 compared year ended december 31 2002 company made adjustments previously issued consolidated financial statements years ended december 31 2003 2002 adjustments reflected following tables discussions within managements discussion analysis financial condition results operations additional information adjustments please see page 25 net sales following table presents net sales change net sales net sales growth reportable segment years ended december 31 2003 2002 dollars thousands aincludes sales 13 million 02 million years ended december 31 2003 2002 respectively related grant revenue received research development projects bruker daltonics net sales increased 304 million 261 2003 compared 2002 increase approximately 177 million 152 resulted currency fluctuations organic growth 109 primarily due increase mass spectrometry system sales particularly within ion trap tof product lines aftermarket business consumables service contracts also experienced increase 11 million grant revenue result timing receipts various projects earlystage research development projects funded grants german government increases partially offset decline nbc detection business life science systems nbc detection systems aftermarket sales percentage bruker daltonics product service sales follows year ended december 31 2003 2002 bruker axs net sales increased 96 million 92 2003 compared 2002 increase approximately 129 million 123 resulted currency fluctuations excluding currency effects bruker axs net sales declined 31 decline net sales excluding currency effects driven decline scd system sales decline partially offset increases xrf system thermal analyzer aftermarket revenues aftermarket sales consist extended warranties service agreements replacement parts accessories software packages upgrades repair calls support services training xray systems aftermarket sales percentage bruker axs product service sales follows years ended december 31 2003 2002 cost sales following table presents cost product service sales gross profit margins reportable segment years ended december 31 2003 2002 dollars thousands bruker daltonics cost product service sales year ended december 31 2003 834 million gross profit margin 427 compared 622 million gross profit margin 465 year ended december 31 2002 decrease gross profit margins attributable unprofitable contract uk ministry defense mod resulted product sales 29 million cost product sales 28 million remainder decrease due change mix sales third party customers distributors bruker axs cost product service sales year ended december 31 2003 709 million gross profit margin 378 compared 639 million gross profit margin 387 year ended december 31 2002 improvement gross profit margins due lower installation warranty costs sales lower cost distributors well improved productivity related aftermarket sales offsetting part cost product sales improvements 2003 writeoff 10 million inventory resulting restructuring xray life science business cost product service sales percentage product service sales also increased xray life science systems due overcapacity production operations sales marketing following table presents sales marketing expense sales marketing expense percentage product service reportable segment years ended december 31 2003 2002 dollars thousands bruker daltonics sales marketing expense year ended december 31 2003 increased 257 million 177 product service sales 209 million 180 product service sales year ended december 31 2002 decrease percentage product service sales due higher revenue base resulting fixed cost leverage partially offset costs incurred commissions higher sales increase headcount bruker axs sales marketing expense year ended december 31 2003 increased 260 million 228 product service sales 208 million 199 product service sales year ended december 31 2002 increase primarily due unfavorable currency effects increase also due higher commissions distributors representatives due increased sales channels general administrative following table presents general administrative expense general administrative expense percentage product service sales reportable segment years ended december 31 2003 2002 dollars thousands bruker daltonics general administrative expense year ended december 31 2003 increased 81 million 56 product service sales 70 million 60 product service sales year ended december 31 2002 increase 11 million due primarily additional overhead costs two new facilities us germany completed end 2002 bruker axs general administrative expense year ended december 31 2003 increased 88 million 77 product service sales 83 million 79 product service sales year ended december 31 2002 increase attributable increased amortization expense acquired intangible assets partially offset part elimination public company costs second half year result july 1 2003 merger corporate charges 04 million 2003 costs related public company costs legal fees audit fees directors officers insurance research development following table presents research development expense research development expense percentage product service sales reportable segment years ended december 31 2003 2002 dollars thousands bruker daltonics research development expense year ended december 31 2003 increased 259 million 178 product service sales 204 million 176 product service sales year ended december 31 2002 increase attributable primarily increased investment research development expect result new product introductions 2004 2005 large research development project funded part research development grant germany also contributed increase bruker daltonics receives income 50 actual expenses incurred behalf grant recorded sales consolidated statement operations grant expected continue 2005 netting grant revenue received 2003 total research development expense year bruker daltonics research development expense percent product revenue would 172 bruker axs research development expenses year ended december 31 2003 increased 113 million 99 product service sales 97 million 93 product service sales year ended december 31 2002 increase relates primarily currency effects additionally increase licensing fees paid thirdparty software developer increase offset part reduction headcount timing purchasing materials track research development expenditures project selective basis able estimate expenditure requirements complete research development projects currently process expect future research development expenditures consistent historical levels research development expenditures reversal liability accrual bruker biosciences reversed liability accrual 19 million year ended december 31 2003 third quarter 2001 bruker daltonics reserve 19 million liquidated damages pursuant contract uk ministry defense mod disputed applicability liquidated damages believed owed additional development funding mod fiscal year ended december 31 2003 swiss german subsidiaries delivered product met specifications contract understanding mod pursue claims liquidated damages previously paid pursuant contract pursue claims recovery additional research development expenses incurred connection contract therefore reserve 19 million liquidated damages reversed second quarter 2003 special charges special charges year ended december 31 2003 117 million compared 20 million 2002 fiscal year ended december 31 2003 incurred 117 million merger related charges including cash charges merger transaction costs 64 million cash restructuring charges 09 million incurred conjunction consolidation manufacturing sites 2003 merger related costs also included noncash charges writeoff acquired inprocess research development 25 million goodwill intangibles writeoff 12 million impairment charges 07 million related acquired assets bruker daltonics incurred 29 million special charges mainly merger transaction costs bruker axs incurred 88 million remaining special charges connection merger interest income expense net interest income expense year ended december 31 2003 10 million compared 93 million 2002 difference relates primarily 109 million charge incurred 2002 relating writedown investments certain proteomics content companies addition part increase due appreciation fair value derivative financial instruments increases offset part lower interest income declined result lower interest earned cash shortterm investments 2003 lower gains foreign currency transactions loss disposal equipment minority interest consolidated subsidiaries minority interest consolidated subsidiaries year ended december 31 2003 loss 09 million compared loss 02 million 2002 minority interest subsidiaries represents minority shareholders proportionate share net income loss fiscal year ended december 31 2003 2002 twelve months ended december 31 2003 2002 minority interest relates primarily proportionate share net loss minority shareholders 31 bruker axs inc first six months 2003 year 2002 well 25 baltic scientific since acquisition april 2003 49 incoatec gmbh since acquisition february 2002 provision income taxes provision income taxes year ended december 31 2003 97 million compared 28 million 2002 effective tax rate 112 year ended december 31 2003 compared 77 2002 income tax provision determined applying estimated effective tax rate income taxes estimated effective income tax rate based companys pretax income permanent booktax differences tax credits significant variation customary effective tax rate approximately 38 due valuation allowance 96 million recorded deferred tax assets full valuation allowance recorded deferred tax assets us due cumulative losses incurred us recent years addition record tax benefit 64 million merger related charges deductible tax reporting purposes including acquired research development merger transaction costs restructuring charges writeoff goodwill intangible assets impairment acquired assets 2003 cumulative effect change accounting principle adopted sfas 142 goodwill intangible assets first quarter fiscal 2002 transitional provisions sfas 142 tested goodwill intangible assets indefinite useful lives impairment january 1 2002 pursuant method prescribed sfas 142 completed transitional impairment tests third quarter 2002 resulted recording impairment loss 10 million 06 million net tax accordance transitional provisions sfas 142 impairment loss recorded first quarter 2002 cumulative effect change accounting principle goodwill impairment loss related bruker nonius reporting unit bruker axs acquired april 2001 changes market economic conditions since date acquisition resulted impairment goodwill allocated bruker nonius liquidity capital resources currently anticipate existing cash shortterm investments sufficient support operating investing needs least next twelve months cash requirements periods beyond next twelve months depend profitability ability manage working capital requirements growth rate historically financed growth combination debt financings issuances common stock recently april 28 2004 company group selling stockholders completed public offering generated net proceeds approximately 144 million company see note 15 condensed consolidated financial statements also currently evaluating whether repatriating earnings american jobs creation act 2004 beneficial company future assurance additional financing alternatives available us required available obtained terms favorable us december 31 2004 company approximately 298 million net operating loss carryforwards available reduce future us taxable income losses various expiration dates 2024 company also research development tax credits approximately 27 million available offset future us tax liabilities expire various dates 2024 year ended december 31 2004 net cash used operating activities 09 million compared net cash used operating activities 61 million year ended december 31 2003 decrease cash used operating activities primarily attributable improved operating results 2004 compared 2003 year ended december 31 2004 investing activities used 15 million cash compared net cash used investing activities 407 million year ended december 31 2003 cash used investing activities year ended december 31 2004 attributable primarily approximately 73 million capital expenditures partially offset redemptions shortterm investments 2005 expect continue make capital investments focusing enhancing efficiency operations internal controls supporting anticipated growth year ended december 31 2004 financing activities provided 68 million cash compared use cash 81 million year ended december 31 2003 increase cash provided financing activities year ended december 31 2004 attributable completion public offering common stock april 28 2004 generated net proceeds approximately 144 million company offset debt repayments 2003 paid 108 million certain shareholders connection merger 2002 repurchased 457200 shares bruker daltonics inc common stock 192422 shares bruker axs inc common stock average price 510 393 respectively accordance terms stock repurchase plans bruker axs inc share number postmerger number gives effect merger share exchange ratio stock repurchase plan announced august 26 2002 authorizes us repurchase one million shares common stock fiscal years ended december 31 2003 december 31 2004 repurchase shares july 2003 increased outstanding shares 315 million 860 million due merger bruker axs conjunction merger paid 163 million bruker axs shareholders elected receive 25 outstanding shares cash see note 3 details regarding merger demand revolving line credit citizens bank united states amount 25 million line credit secured portions inventory receivables equipment united states used support working capital requirements expires june 2005 december 31 2004 22 million us line credit available also maintain revolving lines credit totaling approximately 286 million various german japanese banks german japanese lines credits unsecured december 31 2004 approximately 102 million outstanding german japanese lines credit addition lines credit shortterm longterm notes payable outstanding balances aggregating 298 million december 31 2004 interest rates obligations range 100 510 entered interest rate swap hedge variability cash flows related changes interest rates borrowings variable debt obligations pay 46 fixed rate interest receive variable rate interest based bond market association municipal swap index interest rate swap notional value 22 million decreases conjunction irb payment schedule interest rate swap irb agreements terminate december 2013 following table summarizes maturities significant financial obligations december 31 2004 thousands connection outstanding debt required maintain certain financial ratios meet financial criteria additionally subject variety restrictive covenants require bank consent met december 31 2004 latest measurement date compliance financial covenants transactions related parties affiliated common shareholders several entities use bruker name pursuant omnibus sharing agreement affiliates entered sharing agreements affiliates provide sharing specified intellectual property rights services facilities related items december 31 2004 2003 company payables related parties 30 million 62 million respectively december 31 2004 2003 company receivables related parties 95 million 46 million respectively payment terms balances related parties similar third party customers sales related parties subsidiaries bruker biosciences included consolidated financial statements related parties affiliated sales offices countries distribution network sales primarily resale products sales purchases related parties intended commercially reasonable arms length terms conditions pricing sales amounted 148 million 130 million 166 million years ended december 31 2004 2003 2002 respectively addition made purchases products services affiliated entities 55 million 71 million 53 million years ended december 31 2004 2003 2002 respectively share various general administrative expenses items including umbrella insurance policies accounting services leases various related parties general administrative expenses amounted 13 million 14 million 12 million years ended december 31 2004 2003 2002 respectively company investments three nonaffiliated companies company recognized sales companies geneprot inc cengent therapeutics affinium pharmaceuticals inc 0 40000 respectively 2004 21 million 0 respectively 2003 05 million 0 02 million respectively 2002 company believes sales recorded arms length conditions normal course business made purchases companies years ended december 31 2004 2003 2002 november 28 2002 issued 109800 shares restricted common stock par value 001 per share dr dieter koch managing director bruker daltonik gmbh whollyowned subsidiary bruker daltonics time director bruker daltonics inc valued approximately 06 million cash 06 million exchange minority interest bruker saxonia analytik gmbh majorityowned subsidiary bruker daltonik gmbh years ended december 31 2004 2003 2002 company paid 05 million 14 million 08 million law firm one directors partner quantitative qualitative disclosures market risk potentially exposed market risk associated changes foreign exchange interest rates selectively use financial instruments reduce related market risks instrument treated hedge effective offsetting impact volatility underlying exposure also entered instruments effective derivatives requirements sfas 133 therefore instruments designated hedges transactions authorized executed pursuant policies procedures analytical techniques used manage monitor foreign exchange interest rate risk include market valuations sensitivity analysis company regularly invests excess cash overnight repurchase agreements interestbearing investmentgrade securities hold duration term respective instrument subject changes shortterm interest rates company believes market risk arising holding financial instruments minimal companys exposure market risks associated changes interest rates relates primarily increase decrease amount interest income earned investment portfolio company ensures safety preservation invested funds limiting default risks market risk reinvestment risk company mitigates default risk investing investment grade securities declines interest rates time however reduce companys interest income impact foreign currencies sell products many countries substantial portion sales expenses denominated foreign currencies principally euro 2004 us dollar continued weaken euro compared 2003 increased consolidated revenue growth year ended december 31 2004 166 million approximately 6 expressed us dollars may time hedge specifically identified cash flows foreign currencies using forward contracts foreign currency activity historically material maturities forward exchange contracts entered generally would coincide settlement dates related transactions realized unrealized gains losses contracts would recognized period gains losses hedged items december 31 2004 foreign currency forward contracts outstanding realized foreign exchange gains losses approximately 08 million 12 million years ended december 31 2004 2003 respectively continue expand internationally evaluate currency risks may enter foreign exchange contracts consistent basis time circumstances require mitigate foreign currency exposure entered foreigndenominated debt obligations currency effects debt obligations reflected interest income expense net consolidated statement operations also foreigndenominated intercompany borrowing arrangements bruker daltonik gmbh subsidiary germany bruker daltonics gmbh subsidiary switzerland bruker axs gmbh subsidiary germany impacted transaction gains losses intercompany borrowing arrangements bruker nonius subsidiary netherlands affected accumulated comprehensive income loss 10 increase decrease respective foreign exchange rate bruker daltonik gmbh subsidiary germany would result change accumulated comprehensive income loss approximately 09 million 10 increase decrease respective foreign exchange rate bruker daltonics gmbh subsidiary switzerland would result change accumulated comprehensive income loss approximately 06 million 10 increase decrease respective foreign exchange rate bruker nonius subsidiary netherlands would result change accumulated comprehensive income loss approximately 12 million 10 million respectively 10 increase decrease respective foreign exchange rate bruker axs subsidiary germany would result transaction gain loss approximately 07 million 05 million respectively impact interest rates exposure related adverse movements interest rates derived primarily outstanding floating rate debt instruments indexed shortterm market rates cash equivalents objective managing exposure interest rates decrease volatility changes interest rates might earnings cash flows achieve objective use fixed rate agreement adjust portion debt subject variable interest rates united states entered interest rate swap arrangement limit interest rate exposure 22 million industrial revenue bond fixed rate 46 pay 46 fixed rate interest receive variable rate interest based bond market association municipal swap index 22 million notional amount net interest payments receipts recorded adjustments interest expense addition instrument recorded fair market value balance sheet changes fair market value recorded current earnings since arrangement considered effective hedge december 31 2004 fair value instrument approximately 01 million net tax recorded liability balance sheet 2002 entered two derivative financial instruments cross currency interest rate swap interest rate swap cross currency interest rate swap 20 million euro secures fixed interest rate 175 per annum january 4 2012 interest rate swap 30 million euro reduces 6month euribor rate 180 per annum january 4 2007 entered financial instruments manage exposure interest rates foreign exchange risk year ended december 31 1999 entered three financial instruments interest rate cap interest rate swap cross currency interest rate swap entering financial instruments obtained right borrow money lower rates interest continue hold financial instruments elect exercise options borrow money instruments become effective hedge instruments considered speculative markedtomarket interest income expense net consolidated statement operations fair value instruments depreciated 01 million 05 million years ended december 31 2004 2003 respectively december 31 2004 fair value instruments approximately 01 net tax recorded liability balance sheet 10 increase decrease average cost variable rate debt would result material change pretax interest expense inflation believe inflation material impact business operating results periods presented recent accounting pronouncements january 2003 fasb issued fasb interpretation fin 46r consolidation variable interest entities interpretation provides guidance identification financial reporting variable interest entities variable interest entities lack characteristics controlling financial interest lack sufficient equity finance activities without additional subordinated financial support fin 46r requires company consolidate variable interest entity company obligated absorb majority entitys expected losses entitled receive majority entitys residual returns adoption fin 46r effective january 1 2004 material impact companys consolidated financial statements november 2004 fasb issued sfas 151 inventory costs statement amends guidance arb 43 chapter 4 inventory pricing clarify accounting abnormal amounts idle facility expense freight handling costs wasted material spoilage addition statement requires allocation fixed production overhead costs conversion based normal capacity production facilities provisions statement effective company beginning fiscal year ending 2005 currently evaluating impact new standard believe material impact financial position results operations cash flows december 2004 fasb issued sfas 123 revised 2004 sharebased payment sfas 123r addresses accounting sharebased payment transactions company receives employee services exchange equity instruments company b liabilities based fair value companys equity instruments may settled issuance equity instruments sfas 123r addresses forms sharebased payment awards including shares issued employee stock purchase plans stock options restricted stock appreciation rights sfas 123r eliminates ability account sharebased compensation transactions using apb opinion 25 accounting stock issued employees provided statement 123 originally issued permitted sfas 123r company currently accounts sharebased payments employees using opinion 25s intrinsic value method generally recognizes compensation cost employee stock options accordingly adoption sfas 123r fair value method significant impact results operations although impact overall financial position impact adoption sfas 123r cannot predicted time depend levels sharebased payments granted future however adopted sfas 123r prior periods impact would approximated amounts calculated using sfas 123 described disclosure pro forma net loss net loss per share note 2 consolidated financial statements factors affecting business operating results financial condition following risk factors considered conjunction information included report may include forwardlooking statements involve risks uncertainties addition risk factors discussed elsewhere report identify following risk factors could affect actual results cause actual results differ materially forwardlooking statements may face challenges integration could result lower expected synergies merger bruker axs face number challenges merging operations bruker daltonics bruker axs merged july 2003 although affiliates companies historically operated businesses autonomously currently working integrate certain functions facilitate communication cooperation following factors critical successfully complete integration •effectively coordinating consolidating geographically separate organizations integrating personnel different business backgrounds corporate cultures •coordinating previously autonomous departments accounting finance sales marketing distribution administrative functions expanding integrating information management systems •minimizing disruption integration businesses able successfully integrate two businesses may able realize cost savings benefits expect result merger goodwill intangible assets subject impairment result merger recorded significant goodwill intangible assets must continually evaluated potential impairment assess realizability goodwill intangible assets annually well whenever events changes circumstances indicate assets may impaired events circumstances generally include operating losses significant decline earnings associated acquired business ability realize value goodwill depend future cash flows business addition well integrate business products fail achieve sustain sufficient market acceptance across broad intended range applications generate expected revenue business strategy depends ability successfully commercialize broad range products based mass spectrometry xray technology use variety life science applications recently commercially launched many current products sale markets many products achieved limited sales commercial success life science products depends obtaining continued expanding market acceptance mass spectrometry xray tools pharmaceutical biotechnology proteomics companies academic government research laboratories among others across wide range applications covered product offerings may fail achieve sustain substantial market acceptance products across full range intended life science applications one principal intended life science applications failure could decrease sales revenue succeed must convince substantial numbers pharmaceutical biotechnology companies laboratories replace existing techniques mass spectrometry xray techniques employing systems limited funding available capital acquisitions customers well customers internal purchasing approval policies could hinder market acceptance products intended life science customers may reluctant make substantial capital investment generally needed acquire products incur training costs involved replacing existing systems products also may able convince intended life science customers systems attractive costeffective alternative technologies systems acquisition analysis management molecular information factors products may fail gain sustain market acceptance products compete markets subject rapid technological change products based range mass spectrometry xray technologies one could made obsolete new technology market life science discovery tools characterized rapid technological change frequent new product introductions rapidly changing technology could make life science product lines obsolete unless able continually improve existing products develop new products substantially life science products based mass spectrometry xray technology particularly vulnerable technological advances would make either mass spectrometry xrays obsolete basis bioanalytical systems life science markets meet evolving needs customers must rapidly continually enhance current planned products services develop introduce new products services addition product lines based complex technologies subject rapid change new technologies developed introduced marketplace may difficulty keeping abreast rapid changes affecting different markets serve intend serve fail develop introduce products timely manner response changing technology market demands requirements customers product sales may decline could experience significant losses unable recover significant development costs one products product lines business results operations financial condition may suffer offer plan continue offer broad product line incur expect continue incur substantial expenses development new products enhanced versions existing products business model calls us derive significant portion revenues year products exist previous two years however may experience difficulties may delay prevent successful development introduction marketing new products product enhancements speed technological change life science related markets serve may prevent us successfully marketing products length time required recover often significant development costs fail recover development costs one products product lines business results operations financial condition could harmed clinical proteomics metabolomics markets grow expected may meet growth expectations expect clinical proteomics metabolomics markets fuel growth significant portion business invested expect continue invest significant time resources development new products market new still evolving market grow become established may realize expected profit research development expenditures market products grow expected growth rate could decline substantially could material adverse impact business results operations financial condition address substantial competitive pressures revenues profitability may suffer face substantial competition face substantial competition expect competition markets increase currently principal competition comes established companies providing products using existing technologies including mass spectrometry xray technology nbc detection technologies perform many functions market products companies also may choose enter field future addition technologies indirectly compete funding technologies products provided affiliates bruker biospin competition creates potential actual perceived conflicts interest competitors may develop market products effective commercially attractive current future products may render products obsolete many competitors experience life sciences market substantially greater financial operational marketing technical resources could give competitive edge areas research development production marketing distribution ability compete successfully depend part ability develop proprietary products reach market timely manner technologically superior less expensive costeffective currently marketed products operations dependent upon limited number suppliers contract manufacturers currently purchase components used mass spectrometry xray systems limited number outside sources reliance limited number suppliers could result time delays associated redesigning product due inability obtain adequate supply required components reduced control pricing quality timely delivery factors could adversely affect revenues profitability example currently purchase key components used mass spectrometry xray systems certain suppliers particular bruker axs obtains sophisticated chip use ccd detectors fairchild imaging bruker axs knowledge source chip size quality additionally bruker daltonics purchases approximately 90 magnets single supplier magnex also obtains certain key components manufacture ion traps agilent sole supplier components scarcity components may unable obtain adequate supply components may required pay higher prices purchase components lesser quality delay interruption supply components could impair ability manufacture deliver products harm reputation cause reduction revenues addition increase cost components use products could make products less competitive lower margins may able obtain sufficient quantities required components substantially terms additionally consolidations among suppliers could result sole source suppliers us future business could harmed collaborations fail advance product development demand products depend part upon extent collaborations pharmaceutical biotechnology proteomics companies successful developing helping us develop new products new applications existing products addition collaborate academic institutions government research laboratories product development limited control resources collaborator may devote products present future collaborators may perform obligations expected fail enter maintain appropriate collaboration agreements events occur may able develop new products could materially impede ability generate revenue profits lose strategic partners marketing efforts could impaired substantial portion sales selected products consists sales third parties incorporate products systems third parties responsible marketing sales systems little control marketing sales activities use resources present future strategic partners may purchase sufficient quantities products us perform appropriate marketing sales activities addition unable maintain relationships strategic partners business may suffer failures present future strategic partners inability maintain enter new arrangements strategic partners product distribution could materially impede growth business ability generate sufficient revenue unable make successful acquisitions part growth strategy integrate acquisitions business development may suffer strategy includes potentially expanding technology base selected strategic acquisitions fail effect acquisitions technology base may expand quickly efficiently possible without complementary growth selected acquisitions ability keep evolving needs market meet future performance goals could adversely affected additionally fail effectively integrate acquired businesses technologies existing business failure could adversely affect business addition risks applicable life science products nbc detection products subject number additional risks including lengthy product development contract negotiation periods certain risks inherent longterm government contracts nbc detection products subject many risks associated life science products including vulnerability rapid technological change dependence mass spectrometry technologies substantial competition addition nbc detection products generally sold government agencies longterm contracts generally involve lengthy precontract negotiations product development may required devote substantial working capital resources prior obtaining product orders result may incur substantial costs recognize revenue products moreover return larger longerterm contracts customers products often demand stringent acceptance criteria may also cause delays ability recognize revenue sales products furthermore may able accurately predict advance costs fulfill obligations longterm contracts fail accurately predict costs due inflation factors could incur significant losses single longterm contract nbc detection products may represent material portion total business volume loss contract could material adverse effect results operations failure increase business obtain another government contract one would cause revenue decline also presence absence contracts may cause substantial variation results operations fiscal periods result results operations given fiscal period may predictive results subsequent fiscal periods resulting uncertainty may adverse impact stock price general health care spending patterns decline ability generate revenue may suffer dependent directly indirectly upon general health care spending patterns particularly research development budgets pharmaceutical biotechnology industries well upon financial condition various governments government agencies since inception academic collaborators customers benefited various governmental contracts research grants whether academic collaborators continue able attract grants depends quality products also general spending patterns public institutions exists risk potential decrease level governmental spending allocated scientific medical research could substantially reduce even eliminate grants well decrease demand products academic medical research customers reduction capital resources government funding customers could reduce sales impede ability generate revenue significant portion sales capital purchases customers spending policies customers could significant effect demand products policies based wide variety factors including resources available make purchases spending priorities among various types equipment policies regarding spending recessionary periods changes political climate changes capital spending changes capital budgets customers could significantly reduce demand products capital resources biotechnology corporate customers may limited availability equity debt financing significant decline research development expenditures life science customers could significantly decrease sales addition make substantial portion sales nonprofit government entities dependent government support scientific research decline support could decrease ability customers purchase products subject existing potential additional regulation impose burdens operations narrow markets products subject directly indirectly adverse impact existing potential future government regulation operations markets example exportation products particularly nbc detection products subject strict regulatory control number jurisdictions failure satisfy export control criteria obtain necessary clearances could delay prevent shipment products could adversely affect revenues profitability moreover life sciences industry market principal products historically heavily regulated example laws several jurisdictions restricting research genetic engineering operate narrow markets given evolving nature industry legislative bodies regulatory authorities may adopt additional regulation adversely affects market opportunities additionally ethical concerns surrounding use genetic information gene therapy genetically modified organisms become widespread may less demand products business also directly affected wide variety government regulations applicable business enterprises generally companies operating life sciences industry particular failure comply regulations obtain maintain necessary permits licenses could result variety fines censures interruption business operations may negative impact ability generate revenues addition compliance existing regulations sarbanesoxley act 2002 may material adverse impact us section 404 sarbanesoxley required evaluate determine effectiveness internal control structure procedures financial reporting compliance legislation may divert managements attention resources cause us incur significant expense identified material weaknesses internal controls fail correct weaknesses may able accurately report financial results result current potential stockholders could lose confidence financial reporting would harm business trading price stock effective internal controls necessary us provide reliable financial reports cannot provide reliable financial reports business operating results could harmed past discovered may future discover areas internal controls need improvement example march 2005 companys management determined company maintained entitylevel significant subsidiary effective control environment due lack financial resources accounting function significant subsidiary ensure transactions account analyses reconciliations performed conjunction financial statement close process adequately performed reviewed sufficient controls significant subsidiary application labor overhead end period inventory balances sufficient controls reconciliation physical existence certain units systems related inventory balance books records significant subsidiary result weaknesses postclosing adjustments reflected accompanying financial statements year ended december 31 2004 quarterly periods included therein effect decreasing accounts receivable inventory revenue cost product sales increasing inventory cost product sales ineffective control application generally accepted accounting principles relation complex nonroutine transactions financial reporting process could result material misstatement annual interim financial statements would prevented detected result management concluded company maintain effective internal control financial reporting december 31 2004 based criteria set forth committee sponsoring organizations treadway commission internal controlintegrated framework companys management identified steps necessary address material weakness described begun execute remediation plans discussed section 9a controls procedures report companys management believes corrective actions implemented address material weaknesses described near longterm failure implement maintain improvements internal control financial reporting difficulties encountered implementation improvements internal control financial reporting could cause us fail meet reporting obligations failure improve internal controls address identified weaknesses could also cause investors lose confidence reported financial information could negative impact trading price stock success depends ability operate without infringing misappropriating proprietary rights others commercial success depends avoiding infringement parties patents proprietary rights well avoiding breach licenses relating technologies products given may patents unaware particularly us patent applications confidential avoidance patent infringement may difficult various thirdparties hold patents may relate technology may found future infringe patents proprietary rights third parties either products currently marketing developing new products may develop future third party holding rights patent successfully asserts infringement claim respect current future products may prevented manufacturing marketing infringing product country countries covered patent infringe unless obtain license patent holder may able obtain license commercially reasonable terms especially patent holder competitor addition even obtain license may nonexclusive permit others practice technology licensed us also may required pay substantial damages patent holder event infringement circumstances us damages could include damages equal triple actual damages patent holder incurs supplied infringing products third parties marketing licensed third parties manufacture use market infringing products may obligated indemnify third parties damages may required pay patent holder losses third parties may sustain result lost sales license payments required make patent holder successful infringement action brought us may also adversely affect marketing infringing product markets covered infringement action well marketing products based similar technology furthermore suffer adverse consequences successful infringement action us even action subsequently reversed appeal nullified another action resolved settlement patent holder damages remedies awarded may significant result successful infringement action us may harm business unable effectively protect intellectual property third parties may use technology would impair ability compete markets continued success depend significant part ability obtain maintain meaningful patent protection products throughout world rely patents protect significant part intellectual property enhance competitive position however presently pending future patent applications may issue patents patent previously issued us may challenged invalidated held unenforceable circumvented furthermore claims patents issued may issued us future may sufficiently broad prevent third parties producing competing products similar products addition laws various foreign countries compete may protect intellectual property extent laws united states failure obtain adequate patent protection proprietary technology could materially impair ability commercially competitive addition patent protection also rely protection trade secrets knowhow confidential proprietary information maintain confidentiality trade secrets proprietary information generally seek enter confidentiality agreements employees consultants strategic partners upon commencement relationship us however may obtain agreements circumstances event unauthorized use disclosure information agreements even obtained may provide meaningful protection trade secrets confidential information addition adequate remedies may exist event unauthorized use disclosure information loss exposure trade secrets proprietary information would impair competitive advantages could material adverse affect operating results financial condition future growth prospects furthermore others may future independently develop substantially similar superior knowhow technology may involved lawsuits protect enforce patents brought us could expensive time consuming order protect enforce patent rights may initiate patent litigation third parties may similarly sued others may also become subject interference proceedings conducted patent trademark offices various countries determine priority inventions defense prosecution necessary intellectual property suits interference proceedings related legal administrative proceedings costly diverts technical management personnel normal responsibilities may prevail suits adverse determination litigation defense proceedings could put patents risk invalidated interpreted narrowly could put patent applications risk issuing furthermore substantial amount discovery required connection intellectual property litigation risk confidential information could compromised disclosure type litigation addition course kind litigation could public announcements results hearings motions interim proceedings developments litigation securities analysts investors perceive results negative could substantial negative effect trading price common stock agreed share name portions intellectual property rights distribution channels entities common control could result loss name lock price products may sell entities may best price available products maintain sharing agreement 13 affiliated entities requires us share portions intellectual property existed february 28 2000 distribution channels affiliated companies affiliates also share bruker name many affiliates could lose right use bruker name declare bankruptcy b interfere another partys use name c take material action materially detracts goodwill associated name suffer major loss reputation industry marketplace loss bruker name could result loss goodwill brand loyalty sales products addition agreed maintain price products purchased sold affiliates period twelve years subject yearly adjustments equal increase consumer price index manufacture sale products could lead product liability claims could substantial liability manufacture sale products exposes us product liability claims products cause injury found otherwise unsuitable manufacturing marketing sale customer use particular one nbc detection products malfunctions could lead civilian military casualties time unrest exposing us increased potential highprofile liability successful product liability claim brought us excess outside coverage insurance coverage could material adverse effect business financial condition results operations may able maintain product liability insurance acceptable terms insurance may provide adequate coverage potential liabilities responding claims relating improper handling storage disposal hazardous chemicals radioactive biological materials use could time consuming costly use controlled hazardous radioactive materials business generate wastes regulated hazardous wastes united states federal massachusetts california wisconsin state environmental atomic energy regulatory laws equivalent provisions law jurisdictions research manufacturing facilities located use substances materials subject stringent periodically changing regulation impose costly compliance obligations us potential adversely affect manufacturing activities risk accidental contamination injury materials cannot completely eliminated accident substances occurs could held liable damages result addition incurring cleanup costs liabilities substantial additionally accident could damage research manufacturing facilities resulting delays increased costs dependent upon various key personnel must recruit additional qualified personnel number management positions success highly dependent continued services key management particularly chief executive officer frank h laukien well technical scientific personnel management employees may voluntarily terminate employment us time upon short notice specifically dr martin haase served senior vice president director well president chief executive officer bruker axs left company personal reasons end april 2004 although continued serve board directors end 2004 filled management positions vacated dr haase hiring additional personnel dr haases responsibilities fulfilled various existing management employees addition ms laura francis served chief financial officer treasurer well chief financial officer bruker axs also left company personal reasons end august 2004 september 2004 hired william j knight chief financial officer treasurer loss services dr haase ms francis member senior management technical scientific staff may significantly delay prevent achievement product development business objectives future success also depend ability identify recruit retain additional qualified scientific technical managerial personnel competition qualified personnel intense particularly areas information technology engineering science process hiring suitably qualified personnel often lengthy unable hire retain sufficient number qualified employees ability conduct expand business could seriously reduced chief executive officer maintains relationships various affiliates may impact management us chief executive officer frank h laukien phd currently 10 years management officer director certain affiliates spends substantial amount time rendering services affiliates although dr laukien spends majority time attending business involvement affiliates reduces time attention devote management dr laukien beneficially owns directly indirectly 10 stock 10 stock several affiliated companies collaborate affiliates product development portion customer base also business affiliates believe agreements affiliates arms length commercial conditions pricing however dr laukiens relationship affiliated companies could create actual perceived conflict interest could negatively impact business financial condition results operations cash flows may able maintain sales service staff meet demand products services need expand direct marketing sales force well service support staff future revenue profitability depend part ability maintain team marketing service personnel products technical nature believe marketing sales support staff must scientific technical expertise experience competition employees skills intense may able continue attract retain sufficient qualified sales service people may able maintain develop efficient effective sales marketing support department fail continue attract retain qualified people business could suffer plan significant growth risk able manage growth success depend expansion operations effective growth management place increased demands management operational financial resources manage growth must expand facilities augment operational financial management systems hire train additional qualified personnel failure manage growth effectively could impair ability generate revenue could cause expenses increase rapidly revenue resulting operating losses derive significant portion revenue international sales subject risks business foreign countries international sales account expected continue account significant portion total revenues international operations continue subject variety risks associated conducting business internationally many beyond control risks may adversely affect ability achieve maintain profitability ability sell products internationally include •changes foreign currency exchange rates •changes regulatory requirements •legislation regulation including tariffs relating import export high technology products •the imposition government controls •political economic instability including international hostilities acts terrorism governmental restrictions inflation trade relationships military political alliances •costs risks deploying systems foreign countries •limited intellectual property rights •the burden complying wide variety complex foreign laws treaties impact factors difficult predict one factors could adversely affect operations future may lose money exchange foreign currency received international sales us dollars significant portion business conducted currencies us dollar reporting currency result currency fluctuations among us dollar currencies business caused continue cause foreign currency transaction gains losses recognize foreign currency gains losses arising operations period incurred addition currency fluctuations could cause price products less competitive principal competitors products currency fluctuations increase decrease cost structure relative competitors could lessen demand products affect competitive position cannot predict effects exchange rate fluctuations upon future operating results number currencies involved variability currency exposures potential volatility currency exchange rates various international tax risks could adversely affect earnings subject international tax risks distributions earnings payments received subsidiaries may subject withholding taxes imposed countries operating formed foreign countries income tax treaties united states countries subsidiaries incorporated could subject high rates withholding taxes distributions payments could also subject taxed twice income related operations nontreaty countries unable reduce taxable income one operating company losses incurred another operating company located another country may higher foreign effective income tax rate companies industry amount credit may claim united states federal income tax foreign income taxes subject many limitations may significantly restrict ability claim credit foreign taxes pay armed hostilities could constrain ability conduct business internationally could also disrupt united states operations current world unrest united states responses may lead acts terrorism civil disturbances united states elsewhere may contribute economic instability united states attacks armed conflicts may affect physical facilities suppliers customers could impact domestic international sales supply chain production capability insurance premiums ability purchase insurance ability deliver products customers consequences risks unpredictable longterm effect upon us uncertain unpredictability fluctuation quarterly results may adversely affect trading price common stock revenues results operations past may future vary quarter due number factors many outside control may cause stock price fluctuate primary factors may affect us include following •the timing sales products services •the timing recognizing revenue deferred revenue us gaap •changes pricing policies pricing policies competitors •increases sales marketing product development administration expenses •the mix services provided us thirdparty contractors •our ability attain maintain quality levels products •costs related acquisitions technology businesses historically experienced decrease revenue first quarter fiscal year relative prior fourth quarter believe due customers budgeting cycles rely quartertoquarter comparisons results operations indication future performance likely future quarters results operations may expectations public market analysts investors event price common stock may fall face potential volatility stock price public market common stock since august 2000 market price common stock may fluctuate substantially response various factors many beyond control including •quarterly fluctuations results operations described •our ability successfully commercialize products •technological innovations new commercial products us competitors •developments concerning government regulations proprietary rights could affect potential growth markets •material changes relationships viability strategic business partners •market reaction trends revenues expenses especially research development •changes earnings estimates analysts •volatility uncertainty capital markets general •loss key personnel •changes accounting principles •lack trading volume stock •fluctuation within life science sector •sales common stock existing stockholders particularly large institutional investors cannot hold stock traded less 5 per share •economic political conditions market price common stock may also affected ability meet analysts expectations failure meet expectations even slightly could adverse effect market price common stock addition stock market nasdaq national market life science stocks particular subject extreme price volume fluctuations volatility significant effect market prices securities issued many companies reasons unrelated operating performance companies past companies experienced volatility market price securities subjects securities class action litigation instigated us could result substantial costs diversion managements attention resources could significantly harm business financial condition operating results future sales stock may impact market price sales substantial numbers shares common stock public market perception significant sales likely could adversely affect market price common stock cannot predict effect market sales large number shares would market price common stock existing stockholders significant influence us march 1 2005 majority stockholders owned aggregate approximately 58 outstanding common stock result stockholders able exercise substantial influence matters requiring stockholder approval including election directors approval significant corporate transactions could effect delaying preventing change control company make transactions difficult impossible accomplish without support stockholders companies may difficulty acquiring us even would benefit stockholders due provisions corporate charter bylaws well delaware law provisions amended restated certificate incorporation bylaws well delaware law could make difficult companies acquire us even would benefit stockholders amended restated certificate incorporation bylaws contain following provisions among others may inhibit acquisition company third party •a staggered board directors stockholders elect minority board year •advance notification procedures matters brought stockholder meetings •a limitation may call stockholder meetings •the ability board directors issue 5000000 shares preferred stock without stockholder vote item 7aitem 7 management’s discussion analysis financial condition results operations following management’s discussion analysis financial condition results operations mda describes principal factors affecting results operations financial condition changes financial condition well critical accounting policies estimates mda organized follows · executive overview section provides general description history business brief discussion reportable segments significant recent developments business opportunities challenges risks may impact business future · critical accounting policies estimates section discusses accounting estimates considered important financial condition results operations require us exercise subjective complex judgments application significant accounting policies including critical accounting policies estimates summarized note 2 consolidated financial statements item 8 report · results operations section provides analysis significant line items consolidated statement operations years ended december 31 2005 compared 2004 years ended december 31 2004 compared 2003 · liquidity capital resources section provides analysis liquidity cash flow discussion outstanding debt commitments · transactions related parties section summarizes transactions affiliates common shareholders also use bruker name executive overview bruker biosciences corporation whollyowned subsidiaries design manufacture market service proprietary life science systems based mass spectrometry core technology platforms xray technologies also manufacture distribute broad range field analytical systems nuclear biological chemical nbc detection report financial results basis two reportable segments bruker daltonics bruker axs bruker daltonics leading manufacturer innovative mass spectrometrybased instruments accessories used pharmaceutical biotechnology proteomics molecular diagnostics companies academic institutions government agencies research also integrated used along analytical instruments bruker daltonics also manufactures distributes broad range field analytical systems nbc detection bruker axs primarily engages business manufacturing distributing advanced instrumentation automated solutions based xray technology purpose addressing needs customers discovery new drugs drug targets advanced materials well industrial qaqc applications typical customers bruker axs’ products solutions include biotechnology pharmaceutical companies semiconductor industries chemical cement petroleum companies raw material manufacturers academic government research institutions maintain major technical centers europe north america japan sales offices located throughout world corporate headquarters located billerica massachusetts diverse customer base includes among others pharmaceutical biotechnology companies academic institutions semiconductor industries government agencies business strategy capitalize proven ability innovate generate rapid revenue growth organically acquisitions believe commitment even significant leader within markets serve enable us maintain industrystandard revenue growth rates industrystandard growth rates combined continued improvements gross profit margins increased leverage research development sales marketing distribution investments general administrative expenses expected enhance operating margins improve earnings future 2005 revenues grew approximately 5 2976 million 2844 million 2004 compared 9 revenue growth 2004 actual growth rate 2005 inline expectations due demand certain pharmaceutical biotechnology customers lower historical levels expectations 2005 partially offset healthy demand products solutions industrial customers well academic medical research government agency customers 2005 commitment reach profitability achieved improved gross profit margins 412 419 reduced operating expenses percentage revenue decreasing 420 2004 387 2005 improvements resulted net income 36 million 2005 compared net loss 78 million 2004 also generated strong cash flows operations 2005 approximately 42 million compared use cash operations approximately 1 million 2004 achieved improved earnings increased focus balance sheet management resulting significant reductions inventory increases customer deposits believe continued investments research development efforts incremental sales marketing efforts global manufacturing distribution logistics networks contribute top bottomline growth going forward achieve business goal maintaining industrystandard growth also completed several acquisitions provide us products solutions complement existing technologies expand market segments available us recently november 2005 acquired roentec ag roentec xray microanalysis instrumentation company based berlin germany xray microanalysis business princeton gammatech instruments inc pgt company located rocky hill new jersey roentec pgt together comprise new bruker axs microanalysis group products analyze chemical composition materials investigation electron microscopes systems used wide range applications including nanotechnology advanced materials research well materials analysis quality control typical customers include industrial customers academia government research facilities critical accounting policies estimates discussion analysis financial condition results operations based upon consolidated financial statements prepared accordance accounting principles generally accepted united states america preparation financial statements requires make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments including related revenue recognition allowance doubtful accounts inventories goodwill longlived assets warranty costs income taxes contingencies restructuring base estimates judgments historical experience current market economic conditions observance industry trends assumptions believe reasonable form basis making judgments carrying value assets liabilities readily apparent sources actual results could differ estimates believe following critical accounting policies important portrayal financial condition require subjective judgment · revenue recognition recognize revenue system sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectibility resulting receivable reasonably assured title risk loss generally transferred customer upon receipt signed customer acceptance form system shipped installed customer trained result timing customer acceptance readiness could cause reported revenues differ materially expectations products sold independent distributor strategic distribution partner unconsolidated affiliated distributor assumes responsibility installation recognize system sale product shipped title risk loss transferred distributors price protection rights return however products warranted free defect period one year revenue deferred cash received significant portion fee due one year delivery installation acceptance system arrangements multiple elements recognize revenue element based fair value element provided criteria revenue recognition met fair value element provided multiple element arrangements typically determined referencing historical pricing policies element sold separately changes ability establish fair value element multiple element arrangements could affect timing revenue recognition revenue accessories parts recognized upon shipment service revenue recognized services performed · warranty costs normally provide oneyear parts labor warranty purchase equipment anticipated cost oneyear warranty accrued upon recognition sale included current liability balance sheet although facilities undergo quality assurance testing procedures throughout production process warranty obligation affected product failure rates material usage service delivery costs incurred correcting product failure although actual warranty costs historically consistent expectations extent warranty claim activity costs associated servicing claims differ estimates revisions warranty accrual may required · inventories stated lower cost market cost determined firstin firstout method maintain allowance excess obsolete inventory reflect expected unsaleable unrefundable inventory based evaluation slow moving products ultimate usage demand varies significantly expected usage demand additional writedowns may required resulting charge operations · goodwill intangible assets investments companies longlived assets perform evaluation whether goodwill impaired annually events occur circumstances change would likely reduce fair value reporting unit carrying amount fair value determined using market comparables similar businesses forecasts discounted future cash flows also review intangible assets investments companies longlived assets indication potential impairment exists significant reduction cash flows associated assets fair value longlived assets decline reduced operating performance market declines indicators impairment charge operations impairment may necessary · allowance doubtful accounts maintain allowances doubtful accounts estimated losses resulting inability customers pay amounts due financial condition customers deteriorate reducing ability make payments additional allowances would required resulting charge operations · income taxes estimate degree tax assets loss carryforwards result benefit based expected profitability tax jurisdiction provide valuation allowance tax assets loss carryforwards believe likely go unused becomes likely tax asset loss carryforward used reserve provided reverse related valuation allowance actual future taxable income tax jurisdiction differ estimates additional allowances reversals reserves may necessary results operations year ended december 31 2005 compared year ended december 31 2004 revenue following table presents revenue change revenue growth reportable segment years ended december 31 2005 2004 dollars thousands represents product service revenues reportable segments bruker daltonics bruker daltonics’ revenue increased 88 million 57 1614 million year ended december 31 2005 compared 1526 million comparable period 2004 impact foreign exchange material increase revenue result increased demand nbc detection systems increased demand life sciences systems certain industrial customers well academic medical research government agency customers partially offset decrease demand pharmaceutical biotechnology customers overall pricing pressures due increased competition revenues years ended december 31 2005 2004 include grant revenues various projects earlystage research development projects funded german government life science systems nbc detection systems aftermarket revenue percentage bruker daltonics’ product service revenue follows years ended december 31 2005 2004 dollars thousands bruker axs bruker axs’ revenue increased 47 million 36 1374 million year ended december 31 2005 compared 1326 million comparable period 2004 impact foreign exchange material increase revenue attributable growth xrd materials research systems revenue partially offset declines scd life science xrf elemental composition systems revenue system revenue relates primarily distribution products manufactured bruker axs xray systems aftermarket revenue percentage bruker axs’ product service revenue follows years ended december 31 2005 2004 dollars thousands cost revenue following table presents cost product service revenue gross profit margins product service revenue reportable segment years ended december 31 2005 2004 dollars thousands b represents cost products services reportable segments bruker daltonics’ cost product service revenue year ended december 31 2005 889 million gross profit margin 442 compared cost product service revenue 839 million gross profit margin 442 comparable period 2004 consistent margins yearoveryear result increase sales volume highmargin nbc detection systems various ongoing gross profit margin improvement programs better capacity utilization result increased revenues yearoveryear offset pricing pressures life science systems due increased competition additional inventory reserves required 2005 bruker axs’ cost product service revenue year ended december 31 2005 838 million gross profit margin 390 compared cost product service revenue 828 million gross profit margin 376 comparable period 2004 increase gross profit margins primarily attributable various ongoing gross profit margin improvement programs reduced warranty expenses quality improvement initiatives impact certain products introduced 2004 2005 partially offset lower margins derived system revenues increased 2005 compared 2004 additional reserves required excess service inventories 2005 sales marketing following table presents sales marketing expense sales marketing expense percentage product service revenue reportable segment years ended december 31 2005 2004 dollars thousands bruker daltonics’ sales marketing expense year ended december 31 2005 decreased 238 million 150 product service revenue 270 million 180 product service revenue comparable period 2004 decrease sales marketing expense primarily attributable increased revenue year ended december 31 2005 compared comparable period 2004 benefits realized cost control initiatives implemented late 2004 partially offset increased commissions higher revenues yearoveryear bruker axs’ sales marketing expense year ended december 31 2005 decreased 276 million 201 product service revenue 290 million 218 product service revenue comparable period 2004 decrease sales marketing expense primarily attributable increased revenue year ended december 31 2005 compared comparable period 2004 benefits realized cost control initiatives implemented late 2004 partially offset increased commissions higher revenues yearoveryear general administrative following table presents general administrative expense general administrative expense percentage product service revenue reportable segment years ended december 31 2005 2004 dollars thousands bruker daltonics’ general administrative expense year ended december 31 2005 increased 89 million 56 product service revenue 75 million 50 product service revenue comparable period 2004 increase general administrative expenses primarily due increased professional service fees associated audit sarbanesoxley requirements increase bad debt reserves year ended december 31 2005 bruker axs’ general administrative expense year ended december 31 2005 increased 108 million 79 product service revenue 94 million 71 product service revenue comparable period 2004 increase general administrative expenses primarily attributable increased professional service fees associated audit sarbanesoxley requirements partially offset cost control initiatives implemented late 2004 corporate general administrative expense year ended december 31 2005 decreased 27 million 34 million comparable period 2004 corporate general administrative expenses represent expenses associated public company allocated reportable segments including legal fees audit consulting fees salaries filing fees decrease expenses primarily attributable certain salaries accounting audit consulting fees classified corporate expenses year ended december 31 2004 allocated reportable segments research development following table presents research development expense research development expense percentage product service revenue reportable segment years ended december 31 2005 2004 dollars thousands bruker daltonics’ research development expense year ended december 31 2005 decreased 273 million 171 product service revenue 301 million 200 product service revenue comparable period 2004 decrease research development expenses primarily attributable benefits realized cost control initiatives implemented late 2004 decrease material purchases year ended december 31 2005 compared comparable period 2004 bruker axs’ research development expense year ended december 31 2005 increased 141 million 103 product service revenue 132 million 99 product service revenue comparable period 2004 increase research development expense primarily related purchase materials associated completing prototype potential new product expected introduced within next year partially offset increased revenue year ended december 31 2005 compared comparable period 2004 interest income expense net interest income expense net year ended december 31 2005 13 million compared 38 million comparable period 2004 year ended december 31 2005 major components within interest income expense net interest income 08 million gains foreign currency transactions 02 million year ended december 31 2004 major components within interest income expense net writeoff investments amount 23 million losses foreign currency transactions 08 million net interest expense 06 million provision income taxes income tax provision year ended december 31 2005 83 million compared income tax provision 29 million comparable period 2004 year ended december 31 2005 2004 company’s effective tax rate approximately 69 59 respectively reflects tax provision nonus entities since benefit recognized losses incurred us maintain full valuation allowance us net operating losses evidence exists likely loss carryforward amounts utilized offset us taxable income tax rate may change time amount mix income taxes outside us changes effective tax rate calculated using projected annual pretax income loss affected research development tax credits expected level tax benefits impact changes valuation allowance well changes mix pretax income losses among jurisdictions varying statutory tax rates credits minority interest consolidated subsidiaries minority interest consolidated subsidiaries years ended december 31 2005 2004 approximately 01 million minority interest subsidiaries represents minority shareholders’ proportionate share net loss subsidiaries years ended december 31 2005 2004 years ended december 31 2005 2004 minority interest relates two majorityowned subsidiaries incoatec gmbh baltic scientific instruments ltd year ended december 31 2004 compared year ended december 31 2003 revenue following table presents revenue change revenue growth reportable segment years ended december 31 2004 2003 dollars thousands represents service revenues reportable segments bruker daltonics’ revenue increased 58 million 40 1526 million year ended december 31 2004 compared 1467 million year ended december 31 2003 included change revenue approximately 103 million impact foreign exchange excluding effect foreign exchange revenue would decreased 29 decrease revenue excluding effect foreign exchange result increasing competition pricing pressures partially offset increase life science units sold yearoveryear increased aftermarket revenues grant revenues generated various projects earlystage research development projects funded german united states governments life science systems nbc detection systems aftermarket revenue percentage bruker daltonics’ product service revenue follows years ended december 31 2004 2003 dollars thousands bruker axs’ revenue increased 187 million 164 1326 million year ended december 31 2004 compared 1139 million year ended december 31 2003 included change revenue approximately 71 million impact foreign exchange excluding effect foreign exchange revenue would increased 102 increase 102 revenue excluding effect foreign exchange driven continued growth materials research life science product lines shipment installation new product introductions announced early 2004 accelerated year well continued strong aftermarket revenue xray systems aftermarket revenue percentage bruker axs’ product service revenue follows years ended december 31 2004 2003 dollars thousands cost sales following table presents cost product service revenue gross profit margins product service revenue reportable segment years ended december 31 2004 2003 dollars thousands b represents cost services reportable segments bruker daltonics’ cost product service revenue year ended december 31 2004 839 million gross profit margin 442 compared 834 million gross profit margin 427 year ended december 31 2003 increase gross profit margins primarily due completion unprofitable contract uk ministry defense second half 2004 partially offset increase writedown demonstration inventories net realizable value yearoveryear bruker axs’ cost product service revenue year ended december 31 2004 828 million gross profit margin 376 compared 709 million gross profit margin 378 year ended december 31 2003 slight decrease gross profit margins due certain manufacturing efficiencies realized 2004 offset quality costs including warranty expenses associated new product introductions 2004 increase writedown demonstration inventories net realizable value sales marketing following table presents sales marketing expense sales marketing expense percentage product service revenue reportable segment years ended december 31 2004 2003 dollars thousands bruker daltonics’ sales marketing expense year ended december 31 2004 increased 270 million 180 product service revenue 257 million 177 product service revenue year ended december 31 2003 increase sales marketing expense primarily attributable investments sales marketing initiatives lower anticipated revenues 2004 bruker axs’ sales marketing expense year ended december 31 2004 increased 290 million 218 product service revenue 260 million 228 product service revenue year ended december 31 2003 decrease sales marketing expense percentage product service revenue primarily attributable leveraging fixed costs result increased revenue 2004 compared 2003 partially offset increased sales marketing personnel japan austria 2004 general administrative following table presents general administrative expense general administrative expense percentage product service revenue reportable segment years ended december 31 2004 2003 dollars thousands bruker daltonics’ general administrative expense year ended december 31 2004 decreased 75 million 50 product service revenue 81 million 56 product service revenue year ended december 31 2003 decrease general administrative expense primarily due improved cost controls established second half 2003 benefits realized 2004 reclassification 2004 certain costs associated public company captured corporate bruker axs’ general administrative expense year ended december 31 2004 increased 94 million 71 product service revenue 88 million 77 product service revenue year ended december 31 2003 decrease general administrative expense percentage product service revenue primarily due leveraging fixed costs result higher revenues 2004 versus 2003 partially offset unfavorable currency fluctuations increased costs associated establishing new international locations year corporate general administrative expense year ended december 31 2004 increased 34 million 04 million year ended december 31 2003 corporate general administrative expenses represent expenses associated public company allocated reportable segments including legal fees audit consulting fees filing fees increase expenses primarily attributable inclusion corporate related costs separately 2004 recorded directly within reportable segments first half 2003 additional accounting consulting fees associated implementation work related sarbanesoxley requirements research development following table presents research development expense research development expense percentage product revenue service revenue reportable segment years ended december 31 2004 2003 dollars thousands bruker daltonics’ research development expense year ended december 31 2004 increased 301 million 200 product service revenue 259 million 178 product service revenue year ended december 31 2003 increase research development expense primarily attributable strengthening euro plus incremental investments research development projects resulted several new product introductions early 2005 including microflex lt™ microtofq™ hctultra™ bruker axs’ research development expenses year ended december 31 2004 increased 132 million 99 product service revenue 113 million 99 product service revenue year ended december 31 2003 consistent research development expense percentage product service revenue primarily due strengthening euro offset fixed cost leverage result higher revenues 2004 versus 2003 investments research development resulted several recent product introductions including microstarh vantec2000™ reversal liability accrual third quarter 2001 bruker daltonics established reserve 19 million possible imposition estimated liquidated damages pursuant contract uk ministry defense “mod” accrual represented projected additional costs rework retesting contract due various technical problems associated meeting contractual requirements second quarter 2003 company’s swiss german subsidiaries delivered product mod met specifications contract upon delivery product mod agreed pursue claims liquidated damages previously paid pursuant contract bruker daltonics agreed pursue claims recovery additional research development expenses incurred connection contract result reserves associated mod contract 19 million reversed second quarter 2003 special charges fiscal year ended december 31 2003 incurred 117 million merger related charges including cash charges merger transaction costs 64 million cash restructuring charges 09 million incurred conjunction consolidation manufacturing sites 2003 merger related costs also included noncash charges writeoff acquired inprocess research development 25 million goodwill intangibles writeoff 12 million impairment charges 07 million related acquired assets bruker daltonics incurred 29 million special charges mainly merger transaction costs bruker axs incurred 88 million remaining special charges connection merger interest income expense net interest income expense year ended december 31 2004 38 million compared 10 million year ended december 31 2003 difference relates primarily charges 23 million 2004 related writeoff impaired investments increase interest expense loss foreign currency transactions 2004 versus gain 2003 expense increases partially offset higher interest income earned cash shortterm investments 2004 compared 2003 provision income taxes income tax provision year ended december 31 2004 29 million compared 97 million year ended december 31 2003 effective tax rate 59 year ended december 31 2004 compared 112 2003 2004 effective tax rate reflects tax provision nonus entities since benefit recognized losses incurred us maintain full valuation allowance us net operating losses evidence exists likely losscarryforward amounts utilized offset us taxable income tax rate may change time amount mix income taxes outside us changes effective tax rate calculated using projected annual pretax income loss affected impact changes valuation allowance well changes mix pretax income losses among jurisdictions varying statutory tax rates credits minority interest consolidated subsidiaries minority interest consolidated subsidiaries year ended december 31 2004 01 million compared loss 09 million 2003 december 31 2004 2003 minority interest relates primarily proportionate share net loss minority shareholders owned 31 bruker axs first six months 2003 well 755 baltic scientific owned minority shareholders since acquisition april 2003 49 incoatec gmbh since acquisition february 2002 liquidity capital resources currently anticipate existing cash shortterm investments sufficient support operating investing needs least next twelve months depends profitability ability manage working capital requirements future cash requirements could also affected potential future acquisitions may consider historically financed growth combination debt financings issuances common stock recently april 28 2004 company group selling stockholders completed public offering generated net proceeds approximately 144 million company see note 13 condensed consolidated financial statements future assurance additional financing alternatives available us required available obtained terms favorable us year ended december 31 2005 net cash provided operating activities 422 million compared net cash used operating activities 09 million year ended december 31 2004 increase cash provided operating activities primarily attributable improved operating results 2005 compared 2004 increased focus balance sheet management resulting significant reduction inventory increase customer deposits year ended december 31 2005 investing activities used 104 million cash compared net cash used investing activities 15 million year ended december 31 2004 cash used investing activities year ended december 31 2005 attributable primarily approximately 56 million acquisitions net cash acquired 32 million capital expenditures 2006 expect continue make capital investments focusing enhancing efficiency operations internal controls supporting anticipated growth year ended december 31 2005 financing activities used 72 million cash compared providing 68 million cash year ended december 31 2004 use cash 2005 related debt repayments approximately 76 million cash provided financing activities 2004 attributable completion public offering common stock april 28 2004 generated net proceeds approximately 144 million company offset debt repayments approximately 76 million january 17 2006 company acquired socabim sas socabim privatelyheld company focused advanced xray analysis software materials research based paris france initial aggregate purchase price approximately 85 million paid issuance 267302 restricted shares common stock company socabim’s two largest shareholders aggregate value approximately 13 million date issuance aggregate 72 million paid socabim selling shareholders cash hand additional consideration amount approximately 19 million total may paid 2009 based future performance socabim invest excess cash shortterm marketable debt securities order increase rate return returns generated cash equivalents specifically shortterm investments december 31 2005 generally available redemption auction process every 25 35 days initial purchase investments considered cash equivalents financial reporting purposes due shortterm nature investments believe instruments impact overall liquidity position demand revolving line credit citizens bank united states amount 25 million line credit secured portions inventory receivables equipment united states used support working capital requirements expires june 2006 december 31 2005 full amount us line credit available also maintain revolving lines credit totaling approximately 320 million various german japanese banks german japanese lines credits unsecured december 31 2005 approximately 69 million outstanding german japanese lines credit addition lines credit shortterm longterm notes payable outstanding balances aggregating 225 million december 31 2005 interest rates obligations range 100 465 entered interest rate swap hedge variability cash flows related changes interest rates borrowings variable debt obligations pay 46 fixed rate interest receive variable rate interest based bond market association municipal swap index interest rate swap notional value 20 million decreases conjunction irb payment schedule interest rate swap irb agreements terminate december 2013 following table summarizes maturities significant financial obligations december 31 2005 thousands connection outstanding debt required maintain certain financial ratios meet financial criteria additionally subject variety restrictive covenants require bank consent met december 31 2005 latest measurement date company compliance required debt service coverage ratio associated irb february 10 2006 company received holder debt limited waiver quarterly measurement period ending december 31 2005 december 31 2005 company approximately 31 million net operating loss carryforwards available reduce future us taxable income losses various expiration dates 2025 company also research development tax credits approximately 35 million available offset future us tax liabilities expire various dates 2025 transactions related parties company affiliated common shareholders several entities use bruker name company affiliates entered sharing agreement provides sharing specified intellectual property rights services facilities related items december 31 2005 2004 company payables related parties 39 million 30 million respectively december 31 2005 2004 company receivables related parties 49 million 95 million respectively payment terms balances related parties similar third party customers sales related parties subsidiaries bruker biosciences corporation included revenues consolidated financial statements related parties represent affiliated sales offices countries company distribution network sales primarily resale company’s products sales amounted 121 million 148 million 130 million years ended december 31 2005 2004 2003 respectively addition company purchased products services amounted 99 million 55 million 71 million affiliated entities year ended december 31 2005 2004 2003 respectively company shares various general administrative expenses items including umbrella insurance policies accounting services leases various related parties general administrative expenses amounted 14 million 13 million 14 million years ended december 31 2005 2004 2003 respectively company investments three nonaffiliated companies company recognized revenue sale one companies amount 21 million 2003 three years ended december 31 2003 purchasing sales activities occurred company nonaffiliated companies years ended december 31 2005 2004 2003 company paid 05 million 05 million 14 million law firm one directors partner years ended december 31 2005 2004 2003 company paid approximately 48500 24300 26700 financial services firm one directors partner item 7aitem 7 management’s discussion analysis financial condition results operations following management’s discussion analysis mda describes principal factors affecting results operations financial condition changes financial condition well critical accounting policies estimates mda organized follows · executive overview section provides general description history business brief discussion reportable segments significant recent developments business opportunities challenges risks may impact business future · critical accounting policies estimates section discusses accounting estimates considered important financial condition results operations require us exercise subjective complex judgments application significant accounting policies including critical accounting policies estimates summarized note 2 consolidated financial statements item 8 report form 10k · results operations section provides analysis significant line items consolidated statement operations year ended december 31 2006 compared 2005 year ended december 31 2005 compared 2004 · liquidity capital resources section provides analysis liquidity cash flow discussion outstanding debt commitments · transactions related parties section summarizes transactions entities also use bruker name affiliated common shareholders executive overview july 1 2006 company completed acquisition bruker optics company bruker optics majority owned five affiliated stockholders prior acquisition result acquisition bruker optics company considered business combination companies common control accounted manner similar poolingofinterests accordingly acquisition bruker optics relates portion common ownership approximately 96 accounted historical carrying values portion common ownership five affiliated stockholders approximately 4 accounted using purchase method accounting fair value pro rata basis excess purchase price interest common control fair value related net assets acquired accounted goodwill intangible assets acquisition essentially considered pooling interests onetime transaction costs expensed incurred rather added goodwill year ended december 31 2006 company incurred expensed acquisition related charges totaling 57 million consisted investment banking legal accounting fees compensation earned special committee company’s board directors bruker optics officer antitrust regulation filing fees historical financial statements within mda presented companies always combined bruker biosciences whollyowned subsidiaries design manufacture market service proprietary life science materials research systems based mass spectrometry core technology platforms xray technologies optical emission spectroscopy oes molecular spectroscopy technologies also manufacture distribute broad range field analytical systems chemical biological radiological nuclear cbrn detection currently report financial results basis three reportable segments bruker daltonics bruker axs bruker optics since bruker optics acquisition management changed way manage business currently reevaluating internal reporting structure may require change segment reporting future evaluation expected completed first half 2007 bruker daltonics leading manufacturer innovative mass spectrometrybased instruments accessories used pharmaceutical biotechnology proteomics molecular diagnostics companies academic institutions government agencies research also integrated used along analytical instruments bruker daltonics also manufactures distributes broad range field analytical systems cbrn detection bruker axs primarily engages business manufacturing distributing advanced instrumentation automated solutions based xray technology sparkoes purpose addressing needs customers discovery new drugs drug targets advanced materials well industrial qaqc applications typical customers bruker axs’ products solutions include biotechnology pharmaceutical companies semiconductor industries chemical cement metals petroleum companies raw material manufacturers academic government research institutions bruker optics leading developer manufacturer provider research analytical process analysis instruments solutions based infrared raman molecular spectroscopy technology typical customers bruker optics’ products solutions include pharmaceutical biotechnology companies cement petroleum companies food beverage agricultural industries academic government research institutions maintain major technical manufacturing centers europe north america japan sales offices located throughout world corporate headquarters located billerica massachusetts business strategy capitalize proven ability innovate generate rapid revenue growth organically acquisitions revenue growth strategy combined continued improvements gross profit margins increased leverage research development sales marketing distribution investments general administrative expenses expected enhance operating margins improve earnings future year ended december 31 2006 revenues grew approximately 17 4358 million revenue growth approximately 13 organic remaining 4 due acquisitions continue focus improving profitability gross profit margins product service revenues improved 442 2005 456 2006 reflecting improvements realized ongoing gross profit margin improvement programs contributions recent acquisitions continue invest sales marketing initiatives primarily headcount increases resulted sales marketing expenses percentage product service revenue increase yearoveryear expect investments result increased revenues future periods ongoing cost control initiatives resulted decreases general administrative research development expenses percentage product service revenue 2006 compared 2005 addition bruker optics increased diversified market presence technology base product line global distribution customer support capabilities believe addition bruker optics help increase ‘critical mass’ many markets serve create revenue synergies diversify customer revenue base expand product service offerings provide us revenue growth opportunities accelerate drive improve margins net income operating cash flow acquisition bruker optics also provides us access new market segments applications particularly pharmaceutical process analytical technologies pharmaforensics well food beverage feed agricultural analysis july 18 2006 acquired keymaster provide us access fast growing handheld portable xray analysis market believe technologies keymaster developed markets serves highly complimentary core businesses september 6 2006 acquired quantron complement existing stationary xray fluorescence xrf systems metal foundries well new handheld xrf product line believe quantron’s sparkoes systems technology strengthen industrial analysis business bruker axs january 1 2006 adopted statement financial accounting standards sfas 123r sharebased payment standard revised measurement valuation recognition financial accounting reporting standards equitybased compensation plans contained sfas 123 accounting stock based compensation standard required companies expense value employee stock options similar equitybased compensation awards based fair value recognition provisions determined date grant adopted sfas 123r using modified prospective transition method required application accounting standard january 1 2006 effective date standard us accordance modified prospective transition method consolidated financial statements prior periods restated reflect include impact sfas 123r effect implementing sfas 123 r typically material overall results operations specific line items within consolidated statement operations result referenced often within discussions results operations accompanying mda year ended december 31 2006 11 million net tax stockbased compensation expense allocated follows thousands critical accounting policies estimates discussion analysis financial condition results operations based upon consolidated financial statements prepared accordance accounting principles generally accepted united states america preparation financial statements requires make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments including related revenue recognition allowance doubtful accounts inventories goodwill longlived assets warranty costs income taxes base estimates judgments historical experience current market economic conditions industry trends assumptions believe reasonable form basis making judgments carrying value assets liabilities readily apparent sources actual results could differ estimates believe following critical accounting policies important portrayal financial condition require subjective judgment · revenue recognition recognize revenue system sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectibility resulting receivable reasonably assured title risk loss generally transferred customer upon receipt signed customer acceptance form system shipped installed customer trained result timing customer acceptance readiness could cause reported revenues differ materially expectations products sold independent distributor strategic distribution partner unconsolidated affiliated distributor assumes responsibility installation recognize system sale product shipped title risk loss transferred distributors price protection rights return however products typically warranted free defect period one year revenue deferred cash received significant portion fee due one year delivery installation acceptance system arrangements multiple elements recognize revenue element based fair value element provided criteria revenue recognition met fair value element provided multiple element arrangements typically determined referencing historical pricing policies element sold separately changes ability establish fair value element multiple element arrangements could affect timing revenue recognition revenue accessories parts recognized upon shipment service revenue recognized services performed · warranty costs normally provide oneyear parts labor warranty purchase equipment anticipated cost oneyear warranty accrued upon recognition sale included current liability balance sheet although facilities undergo quality assurance testing procedures throughout production process warranty obligation affected product failure rates material usage service delivery costs incurred correcting product failure although actual warranty costs historically consistent expectations extent warranty claim activity costs associated servicing claims differ estimates revisions warranty accrual may required · inventories stated lower cost market cost determined firstin firstout method majority subsidiaries averagecost certain international location maintain allowance excess obsolete inventory reflect expected unsaleable unrefundable inventory based evaluation slow moving products ultimate usage demand varies significantly expected usage demand additional writedowns may required resulting charge operations · goodwill intangible assets longlived assets perform evaluation whether goodwill impaired annually events occur circumstances change would likely reduce fair value reporting unit carrying amount fair value determined using market comparables similar businesses forecasts discounted future cash flows also review intangible assets longlived assets indication potential impairment exists significant reduction cash flows associated assets fair value longlived assets decline reduced operating performance market declines indicators impairment charge operations impairment may necessary · allowance doubtful accounts maintain allowances doubtful accounts estimated losses resulting inability customers pay amounts due financial condition customers deteriorate reducing ability make payments additional allowances would required resulting charge operations · income taxes estimate degree tax assets loss carryforwards result benefit based expected profitability tax jurisdiction provide valuation allowance tax assets loss carryforwards believe likely go unused becomes likely tax asset loss carryforward used reserve provided reverse related valuation allowance actual future taxable income tax jurisdiction differ estimates additional allowances reversals reserves may necessary results operations year ended december 31 2006 compared year ended december 31 2005 revenue following table presents revenue changes revenue growth reportable segment years ended december 31 2006 2005 dollars thousands represents product service revenues reportable segments bruker daltonics bruker daltonics’ revenue decreased 16 million 10 1597 million year ended december 31 2006 compared 1614 million comparable period 2005 impact foreign exchange material decrease revenue result higher life science system revenues yearoveryear offset lower sales cbrn systems 2006 compared 2005 lower grant revenue lower aftermarket revenues includes accessory sales consumables training services included revenue 2006 2005 grant revenues various projects earlystage research development projects funded german united states governments life science systems cbrn detection systems aftermarket revenue percentage bruker daltonics’ product service revenue follows years ended december 31 2006 2005 dollars thousands bruker axs bruker axs’ revenue increased 421 million 307 1795 million year ended december 31 2006 compared 1374 million comparable period 2005 impact foreign exchange material increase revenue attributable businesses acquired last five quarters increase materials research system sales systems aftermarket revenue excluding acquisitions revenue growth rate 203 system revenue relates primarily distribution products manufactured bruker axs xray oes systems aftermarket revenue percentage bruker axs’ product service revenue follows years ended december 31 2006 2005 dollars thousands bruker optics bruker optics’ revenue increased 268 million 341 1055 million year ended december 31 2006 compared 787 million comparable period 2005 included change revenue approximately 16 million impact foreign exchange excluding effect foreign exchange revenue increased 320 increase revenue excluding effect foreign exchange result increase molecular spectroscopy system revenues especially europe pacific rim well recognition 87 million revenue 2006 new contract chinese state food drug administration “sfda” system revenue relates primarily distribution products manufactured bruker optics molecular spectroscopy systems aftermarket revenue percentage bruker optics’ product service revenue follows years ended december 31 2006 2005 dollars thousands cost revenue following table presents cost product service revenue gross profit margins product service revenue reportable segment years ended december 31 2006 2005 dollars thousands represents cost products services reportable segments bruker daltonics’ cost product service revenue year ended december 31 2006 917 million resulting gross profit margin 422 compared cost product service revenue 889 million gross profit margin 442 comparable period 2005 decrease gross profit margin primarily attributable lower cbrn detection system revenues yearoveryear bruker axs’ cost product service revenue year ended december 31 2006 1036 million resulting gross profit margin 423 compared cost product service revenue 838 million gross profit margin 390 comparable period 2005 increase gross profit margin primarily attributable higher margin businesses acquired last five quarters better capacity utilization result increased revenue yearoveryear realization benefits various ongoing gross profit margin improvement programs partially offset lower gross profit margins realized system revenue bruker optics’ cost product service revenue year ended december 31 2006 505 million resulting gross profit margin 521 compared cost product service revenue 383 million gross profit margin 512 comparable period 2005 increase gross profit margin primarily attributable higher margins realized chinese sfda systems better capacity utilization result increased revenues yearoveryear sales marketing following table presents sales marketing expense sales marketing expense percentage product service revenue reportable segment years ended december 31 2006 2005 dollars thousands bruker daltonics’ sales marketing expense year ended december 31 2006 increased 259 million 163 product service revenue 238 million 150 product service revenue comparable period 2005 increase sales marketing expense attributable incremental investments various sales marketing initiatives primarily headcount related bruker axs’ sales marketing expense year ended december 31 2006 increased 353 million 197 product service revenue 276 million 201 product service revenue comparable period 2005 increase sales marketing expense primarily attributable increased headcount related acquisitions past five quarters incremental investments various sales marketing initiatives bruker optics’ sales marketing expense year ended december 31 2006 increased 228 million 216 product service revenue 190 million 242 product service revenue comparable period 2005 increase sales marketing expense primarily attributable increased headcount higher commissions increased revenues yearoveryear decrease sales marketing expense percentage product service revenue attributable leveraging sales marketing infrastructure higher revenues yearoveryear general administrative following table presents general administrative expense general administrative expense percentage product service revenue reportable segment years ended december 31 2006 2005 dollars thousands bruker daltonics’ general administrative expense year ended december 31 2006 decreased 80 million 51 product service revenue 89 million 56 product service revenue comparable period 2005 decrease general administrative expenses primarily attributable lower bad debt expenses yearoveryear benefits ongoing cost reduction initiatives bruker axs’ general administrative expenses year ended december 31 2006 increased 129 million 72 product service revenue 108 million 79 product service revenue comparable period 2005 increase general administrative expenses primarily due increased headcount intangible asset amortization related acquisitions completed past five quarters bruker optics’ general administrative expenses year ended december 31 2006 increased 44 million 42 product service revenue 32 million 41 product service revenue comparable period 2005 increase general administrative expenses primarily due expansion business allocated corporate general administrative expenses associated public company corporate general administrative expense year ended december 31 2006 increased 37 million 27 million comparable period 2005 corporate general administrative expenses represent expenses associated public company allocated reportable segments including legal fees audit consulting fees salaries filing fees increase expenses primarily attributable stockbased compensation charges 2006 required recorded 2005 increased headcount yearoveryear partially offset ongoing cost reduction initiatives research development following table presents research development expense research development expense percentage product service revenue reportable segment years ended december 31 2006 2005 dollars thousands bruker daltonics’ research development expense year ended december 31 2006 decreased 247 million 156 product service revenue 273 million 171 product service revenue comparable period 2005 decrease research development expense primarily attributable decrease material purchases year ended december 31 2006 compared comparable period 2005 reduction headcount yearoveryear bruker axs’ research development expense year ended december 31 2006 increased 177 million 99 product service revenue 141 million 103 product service revenue comparable period 2005 increase research development expense primarily attributable increase headcount resulting acquisitions completed past five quarters increased material purchases 2006 compared 2005 bruker optics’ research development expense year ended december 31 2006 increased 76 million 72 product service revenue 61 million 78 product service revenue comparable period 2005 increase research development expense primarily attributable development activities associated dispersive raman product line enhanced product development activities increase material purchases headcount 2006 compared 2005 acquisition related charges april 18 2006 company announced entered definitive agreement acquire stock molecular spectroscopy company bruker optics acquisition bruker optics approved company’s shareholders june 29 2006 subsequently completed july 1 2006 since acquisition represented business combination companies common control due majority ownership individuals company bruker optics acquisition accounted manner similar poolingofinterest result transaction costs expensed incurred rather included purchase price allocation 2006 company incurred expensed acquisition related charges totaling 57 million consisted investment banking legal accounting fees compensation earned special committee company’s board directors antitrust regulation filing fees interest income expense net interest income expense net year ended december 31 2006 38 million compared 08 million comparable period 2005 year ended december 31 2006 major components within interest income expense net appreciation fair value derivative financial instruments 47 million rental income 02 million losses foreign currency transactions 16 million year ended december 31 2005 major components within interest income expense net depreciation fair value derivative financial instruments 27 million net interest income 05 million gains foreign currency transactions 13 million provision income taxes income tax provision year ended december 31 2006 159 million effective tax rate 46 compared income tax provision 119 million year ended december 31 2005 effective tax rate 55 effective tax rate reflects tax provision nonus entities since benefit recognized losses incurred us maintain full valuation allowance us net operating losses evidence exists likely loss carry forward amounts utilized offset us taxable income tax rate may change time amount mix income taxes outside us changes effective tax rate calculated using projected annual pretax income loss affected research development tax credits expected level tax benefits impact changes valuation allowance well changes mix pretax income losses among jurisdictions varying statutory tax rates credits minority interest consolidated subsidiaries minority interest consolidated subsidiaries year ended december 31 2006 8000 compared 40000 2005 minority interest subsidiaries represents minority shareholders’ proportionate share net income subsidiaries years ended december 31 2006 2005 years ended december 31 2006 2005 minority interest relates two majorityowned subsidiaries incoatec gmbh baltic scientific instruments ltd year ended december 31 2005 compared year ended december 31 2004 revenue following table presents revenue changes revenue growth reportable segment years ended december 31 2005 2004 dollars thousands represents product service revenues reportable segments bruker daltonics bruker daltonics’ revenue increased 88 million 57 1614 million year ended december 31 2005 compared 1526 million comparable period 2004 impact foreign exchange material increase revenue result increased demand cbrn detection systems increased demand life sciences systems industrial customers well academic medical research government agency customers partially offset decrease demand pharmaceutical biotechnology customers overall pricing pressures due increased competition revenues years ended december 31 2005 2004 include grant revenues various projects earlystage research development projects funded german government life science systems cbrn detection systems aftermarket revenue percentage bruker daltonics’ product service revenue follows years ended december 31 2005 2004 dollars thousands bruker axs bruker axs’ revenue increased 47 million 36 1374 million year ended december 31 2005 compared 1326 million comparable period 2004 impact foreign exchange material increase revenue attributable growth xrd materials research systems revenue partially offset declines scd life science xrf elemental composition systems revenue system revenue relates primarily distribution products manufactured bruker axs xray systems aftermarket revenue percentage bruker axs’ product service revenue follows years ended december 31 2005 2004 dollars thousands bruker optics bruker optics’ revenue increased 45 million 61 787 million year ended december 31 2005 compared 742 million 2004 included change revenue favorable effect approximately 10 million impact foreign exchange excluding effect foreign exchange revenue would increased 47 revenue growth driven primarily increase north american business across markets offset partially production delivery delays due implementation erp system german production site revenues years ended december 31 2005 2004 include grant revenues 03 million 02 million respectively various projects earlystage research development projects funded german government molecular spectroscopy systems aftermarket revenue percentage bruker optics’ product service revenue follows years ended december 31 2005 2004 dollars thousands cost revenue following table presents cost product service revenue gross profit margins product service revenue reportable segment years ended december 31 2005 2004 dollars thousands b represents cost products services reportable segments bruker daltonics’ cost product service revenue year ended december 31 2005 889 million gross profit margin 442 compared cost product service revenue 839 million gross profit margin 442 comparable period 2004 consistent margins yearoveryear result increase sales volume highmargin cbrn detection systems various ongoing gross profit margin improvement programs better capacity utilization result increased revenues yearoveryear offset pricing pressures life science systems due increased competition additional inventory reserves required 2005 bruker axs’ cost product service revenue year ended december 31 2005 838 million gross profit margin 390 compared cost product service revenue 828 million gross profit margin 376 comparable period 2004 increase gross profit margins primarily attributable various ongoing gross profit margin improvement programs reduced warranty expenses quality improvement initiatives impact certain products introduced 2004 2005 partially offset lower margins derived system revenues increased 2005 compared 2004 additional reserves 2005 required excess service inventories bruker optics’ cost product service revenue year ended december 31 2005 383 million gross profit margin 512 compared cost product service revenue 418 million gross profit margin 436 2004 increase gross profit margin primarily attributable increased sales higher margin products benefits realized various ongoing gross profit margin improvement programs reduced warranty expenses quality improvement initiatives favorably affected certain products introduced 2004 2005 improvements partially offset additional reserves established excess service inventories 2005 sales marketing following table presents sales marketing expense sales marketing expense percentage product service revenue reportable segment years ended december 31 2005 2004 dollars thousands bruker daltonics’ sales marketing expense year ended december 31 2005 decreased 238 million 150 product service revenue 270 million 180 product service revenue comparable period 2004 decrease sales marketing expense percentage product service revenue primarily attributable increased revenue year ended december 31 2005 compared comparable period 2004 benefits realized cost control initiatives implemented late 2004 partially offset increased commissions higher revenues yearoveryear bruker axs’ sales marketing expense year ended december 31 2005 decreased 276 million 201 product service revenue 290 million 218 product service revenue comparable period 2004 decrease sales marketing expense percentage product service revenue primarily attributable increased revenue year ended december 31 2005 compared comparable period 2004 benefits realized cost control initiatives implemented late 2004 partially offset increased commissions higher revenues yearoveryear bruker optics’ sales marketing expense year ended december 31 2005 increased 190 million 242 product service revenue 167 million 226 product service revenue 2004 increase sales marketing expense percentage product service revenue primarily attributable incremental sales marketing investments 2005 intended target future market opportunities bruker optics’ products general administrative following table presents general administrative expense general administrative expense percentage product service revenue reportable segment years ended december 31 2005 2004 dollars thousands bruker daltonics’ general administrative expense year ended december 31 2005 increased 89 million 56 product service revenue 75 million 50 product service revenue comparable period 2004 increase general administrative expenses primarily due increased professional service fees associated audit sarbanesoxley requirements increase bad debt reserves year ended december 31 2005 bruker axs’ general administrative expense year ended december 31 2005 increased 108 million 79 product service revenue 94 million 71 product service revenue comparable period 2004 increase general administrative expenses primarily attributable increased professional service fees associated audit sarbanesoxley requirements partially offset cost control initiatives implemented late 2004 bruker optics’ general administrative expense year ended december 31 2005 increased 32 million 41 product service revenue 28 million 38 product service revenue 2004 increase general administrative expenses primarily due general increase business activities presence around globe corporate general administrative expenses represent expenses associated public company allocated reportable segments including legal fees audit consulting fees salaries filing fees corporate general administrative expense year ended december 31 2005 decreased 27 million 34 million comparable period 2004 decrease expenses primarily attributable various salaries accounting audit consulting fees classified corporate expenses year ended december 31 2004 allocated reportable segments research development following table presents research development expense research development expense percentage product service revenue reportable segment years ended december 31 2005 2004 dollars thousands bruker daltonics’ research development expense year ended december 31 2005 decreased 273 million 171 product service revenue 301 million 200 product service revenue comparable period 2004 decrease research development expenses primarily attributable benefits realized cost control initiatives implemented late 2004 decrease material purchases year ended december 31 2005 compared comparable period 2004 bruker axs’ research development expense year ended december 31 2005 increased 141 million 103 product service revenue 132 million 99 product service revenue comparable period 2004 increase research development expense primarily related purchase materials associated completing prototype potential new product expected introduced within next year partially offset increased revenue year ended december 31 2005 compared comparable period 2004 bruker optics’ research development expense year ended december 31 2005 increased 61 million 78 product service revenue 51 million 69 product service revenue 2004 increase research development expense percentage product service revenue primarily related development activities united states associated dispersive raman product line enhanced product development activities germany year ended december 31 2005 compared 2004 interest income expense net interest income expense net year ended december 31 2005 08 million compared 48 million comparable period 2004 year ended december 31 2005 major components interest income expense net depreciation fair value derivative financial instruments 27 million net interest income 05 million gains foreign currency transactions 13 million year ended december 31 2004 major components interest income expense net writeoff investments amount 23 million losses foreign currency transactions 14 million net interest expense 11 million provision income taxes income tax provision year ended december 31 2005 119 million compared income tax provision 55 million comparable period 2004 year ended december 31 2005 company’s effective tax rate approximately 55 reflects tax provision nonus entities us entities taxable income included consolidated us tax return us entities operating losses benefit recognized losses incurred us entities cumulative operating loss carryforwards maintain full valuation allowance us net operating losses evidence exists likely loss carryforward amounts utilized offset us taxable income tax rate may change time amount mix income taxes outside us changes effective tax rate calculated using projected annual pretax income loss affected research development tax credits expected level tax benefits impact changes valuation allowance well changes mix pretax income losses among jurisdictions varying statutory tax rates credits minority interest consolidated subsidiaries minority interest subsidiaries represents minority shareholders’ proportionate share net income subsidiaries minority interest consolidated subsidiaries years ended december 31 2005 2004 approximately 01 million years ended december 31 2005 2004 minority interest relates two majorityowned subsidiaries incoatec gmbh baltic scientific instruments ltd liquidity capital resources currently anticipate existing cash sufficient support operating investing needs least next twelve months depends profitability ability manage working capital requirements future cash requirements could also affected potential acquisitions may consider historically financed growth combination debt financings issuances common stock recently february 12 2007 group selling stockholders completed public offering generated net proceeds approximately 170 million us future assurance additional financing alternatives available us required available obtained terms favorable us year ended december 31 2006 net cash provided operating activities 377 million compared net cash provided operating activities 497 million year ended december 31 2005 decrease cash generated operating activities primarily attributable increase inventory balances partially offset improved operating results 2006 increase accounts payable customer deposits year ended december 31 2006 investing activities provided 123 million cash compared net cash used investing activities 120 million year ended december 31 2005 cash provided investing activities year ended december 31 2006 attributable primarily 465 million sales short term investments offset approximately 264 million used acquisitions net cash acquired 76 million capital expenditures 2007 expect continue make capital investments focusing enhancing efficiency operations internal controls supporting anticipated growth january 17 2006 acquired socabim sas privatelyheld company focused advanced xray analysis software materials research based paris france initial aggregate purchase price approximately 88 million paid issuance 267302 restricted shares common stock socabim’s two largest shareholders aggregate value approximately 13 million date issuance aggregate 75 million paid socabim selling shareholders cash hand additional cash consideration amount approximately 15 million total may paid 2009 based future performance socabim july 18 2006 acquired capital stock keymaster technologies delaware corporation located kennewick washington accordance stock purchase agreement paid aggregate 10 million cash consideration stockholders keymaster september 6 2006 acquired capital stock quantron sparkoes company based kleve germany accordance stock purchase agreement closing paid aggregate approximately 63 million consideration sellers approximately 50 million paid cash approximately 13 million paid issuance aggregate 202223 restricted unregistered shares common stock quantron’s two largest shareholders pursuant earnout provisions stock purchase agreement aggregate 47 million additional cash consideration may paid 2009 based future performance quantron connection november 2005 acquisition roentec ag additional consideration amount approximately 20 million may paid roentec’s former management employee consultant shareholders based 2006 2007 revenue performance roentec payments required comprised either option 50 restricted stock 50 cash 100 cash 2006 company intends pay additional consideration cash year ended december 31 2006 financing activities used 644 million cash compared use 110 million cash year ended december 31 2005 use cash 2006 primarily due 740 million paid certain shareholders connection bruker optics acquisition offset 122 million increased proceeds shortterm borrowings although 740 million part bruker optics purchase price purchase accounting treatment companies common control resulted payments recorded within financing activities deemed dividend december 31 2006 demand line credit citizens bank united states maximum available amount 400 million line credit secured pledge bank 100 capital stock company’s whollyowned domestic subsidiaries also pledged portion stock certain foreign subsidiaries december 31 2006 290 million us line credit available also maintain revolving lines credit totaling approximately 353 million various german japanese french banks german japanese french lines credits unsecured december 31 2006 approximately 84 million aggregate outstanding lines credit addition lines credit shortterm longterm notes payable outstanding balances aggregating 253 million december 31 2006 interest rates obligations range 18 801 entered interest rate swap hedge variability cash flows related changes interest rates borrowings variable debt obligations pay 46 fixed rate interest receive variable rate interest based securities industry financial markets municipal swap index interest rate swap notional value 17 million decreases conjunction state wisconsin industrial revenue bonds irb payment schedule interest rate swap irb agreements terminate december 2013 following table summarizes maturities significant financial obligations december 31 2006 thousands connection outstanding debt required maintain financial ratios meet financial criteria additionally subject variety restrictive covenants require bank consent met december 31 2006 latest measurement date compliance required debt service coverage ratio associated irb january 30 2007 received holder debt limited waiver quarterly measurement period ending december 31 2006 december 31 2006 approximately 109 million net operating loss carryforwards available reduce future us taxable income losses various expiration dates 2025 also foreign tax credits approximately 99 million expire 2016 research development tax credits approximately 31 million available offset future us tax liabilities expire various dates 2025 transactions related parties affiliated common shareholders several entities use bruker name entered sharing agreement certain affiliates provides sharing specified intellectual property rights services facilities related items december 31 2006 2005 payables related parties 59 million 62 million respectively december 31 2006 2005 receivables related parties 90 million 65 million respectively payment terms balances related parties similar third party customers sales related parties subsidiaries included revenues consolidated financial statements related parties maintain sales offices countries distribution network sales primarily resale products sales amounted 108 million 142 million 190 million years ended december 31 2006 2005 2004 respectively addition purchased products services amounted 194 million 158 million 127 million affiliated entities year ended december 31 2006 2005 2004 respectively share various general administrative expenses items including umbrella insurance policies accounting services leases various related parties general administrative expenses amounted 37 million 28 million 26 million years ended december 31 2006 2005 2004 respectively years ended december 31 2006 2005 2004 paid 13 million 05 million 05 million law firm one directors partner years ended december 31 2006 2005 2004 paid approximately 147000 48500 24300 financial services firm one directors partner bruker optics rents various office space principal stockholder lease agreements years ended december 31 2006 2005 2004 stockholder paid 03 million estimated equal estimated fair market value less cost capital improvements provided bruker optics 2004 bruker optics subleased portion office space affiliate 2006 2005 2004 received 31500 01 million rental income included charges utilities occupancy cost rental income recorded reduction rent utilities building maintenance expenses item 7aitem 7 managements discussion analysis financial condition results operations overview following managements discussion analysis financial condition results operations mda describes principal factors affecting results operations financial condition changes financial condition well critical accounting policies estimates mda organized follows •executive overview section provides general description history business brief discussion reportable segments significant recent developments business opportunities challenges risks may impact business future •critical accounting policies section discusses accounting estimates considered important financial condition results operations require us exercise subjective complex judgments application significant accounting policies including critical accounting policies estimates summarized note 2 consolidated financial statements item 8 report form 10k •results operations section provides analysis significant line items consolidated statement operations year ended december 31 2008 compared year ended december 31 2007 year ended december 31 2007 compared year ended december 31 2006 •liquidity capital resources section provides analysis liquidity cash flow discussion outstanding debt commitments •transactions related parties section summarizes transactions principal shareholders directors •recent accounting pronouncements section provides information new accounting standards issued adoption yet required executive overview business overview bruker corporation whollyowned subsidiaries design manufacture market service proprietary life science materials research systems based core technology platforms including xray technologies magnetic resonance technologies mass spectrometry technologies optical emission spectroscopy infrared raman molecular spectroscopy technologies also manufacture distribute broad range field analytical systems chemical biological radiological nuclear cbrn detection also develop manufacture low temperature high temperature wires use advanced magnet technology energy applications maintain major technical manufacturing centers europe north america japan sales offices located throughout world corporate headquarters located billerica massachusetts february 26 2008 completed acquisition bruker biospin company bruker biospin majority owned six affiliated stockholders prior acquisition result acquisition bruker biospin considered combination companies common control accounted historical carrying values historical consolidated balance sheets statements operations statements cash flows notes consolidated financial statements restated combining historical audited consolidated financial statements bruker corporation bruker biospin addition transaction accounted acquisition businesses common control onetime transaction costs expensed incurred business strategy capitalize ability innovate generate rapid revenue growth organically acquisitions revenue growth strategy combined anticipated improvements gross profit margins increased leverage research development sales marketing distribution investments general administrative expenses expected enhance operating margins improve earnings future addition bruker biospin enhanced position leading supplier life science materials research systems technologies bruker biospin particularly complementary accuratemass electrospray timeofflight mass spectrometers singlecrystal diffraction xray spectrometers expected create revenue synergies provide opportunities supply customers equipment packages broader range applications value believe addition bruker biospin also enhances distribution americas europe asia sales service infrastructure provide revenue growth opportunities accelerate drive improve margins net income operating cash flows following acquisition bruker biospin changed internal reporting structure better reflect way manage measure performance business new reporting structure organized four operating segments representing four divisions bruker axs bruker daltonics bruker optics bruker biospin bruker axs business manufacturing distributing advanced xray oesspark instrumentation used nondestructive molecular elemental analysis bruker daltonics business manufacturing distributing mass spectrometry instruments integrated used along analytical instruments bruker optics business manufacturing distributing research analytical process analysis instruments solutions based infrared raman molecular spectroscopy technologies bruker biospin business manufacturing distributing enabling life science tools based magnetic resonance technology bruker biospin also includes bruker advanced supercon develops produces low temperature superconducting lts wires used primarily magnetic resonance technologies highenergy physics nuclear fusion research magnet applications high temperature superconducting hts wires use energy applications combined bruker axs bruker daltonics bruker optics operating segments bioscience reporting segment similar economic characteristics product processes services types classes customers methods distribution regulatory environments management reports results based following reportable segments •bioscience operations segment include design manufacture distribution advanced instrumentation automated solutions based xray technology oesspark technology mass spectrometry technology infrared raman molecular spectroscopy technology typical customers bioscience segment include pharmaceutical biotechnology proteomics molecular diagnostic companies academic institutions government agencies semiconductor companies chemical cement metals petroleum companies raw material manufacturers food beverage agricultural companies •biospin operations segment include design manufacture distribution enabling life science tools based core technology magnetic resonance well manufacturing development low temperature superconducting high temperature superconducting wires use advanced magnet technology energy applications typical customers biospin segment include pharmaceutical biotechnology companies academic institutions government agencies financial overview year ended december 31 2008 revenue increased 747 million 72 11071 million compared 10324 million comparable period 2007 included change revenue approximately 395 million impact foreign exchange excluding effect foreign exchange revenue increased 352 million 34 income operations year ended december 31 2008 1082 million resulting operating margin 98 compared income operations 1377 million resulting operating margin 133 comparable period 2007 gross profit margin year ended december 31 2008 456 compared 461 comparable period 2007 lower gross margins driven primarily mix products sold pricing pressure certain product lines additionally increases operating expenses related primarily higher sales marketing expenses higher research development expenses contributed lower operating margins higher costs result increased headcounts support planned revenue growth new product development higher material costs associated number new products recently released scheduled released next six months changes foreign currency exchange rates primarily euro also contributed significantly increase operating expenses majority research development performed europe income operations 2008 managements expectations result began implementing cost savings programs throughout organization actions included voluntary salary decreases toplevel management 2009 selected staff reductions hiring salary freezes cutbacks discretionary spending objective programs refocus gross margin improvement programs reduce operating interest expenses reduce exposure changes foreign currency exchange rates fourth quarter 2008 recorded 23 million restructuring charges connection initiatives year ended december 31 2008 recorded net losses foreign currency transactions 112 million compared net losses 39 million comparable period 2007 foreign exchange losses 122 million incurred first three months 2008 driven remeasurement certain foreign currency denominated assets principally cash intercompany receivables shortterm intercompany loan functional currency affected entities losses first quarter 2008 resulted weakening us dollar euro relative swiss franc approximately 11 3 respectively closing date bruker biospin acquisition end first quarter 2008 since first quarter 2008 recorded cumulative gains foreign currency transactions 10 million implemented certain programs reduce exposure changes foreign currencies specifically settling intercompany balances timely manner reducing certain foreign currency denominated assets considering additional actions including expanded use forward contracts within transactional hedging program could implemented first half 2009 connection acquisition bruker biospin borrowed 3510 million new credit facility first quarter 2008 repaid approximately 1870 million acquisitionrelated debt 2008 incurred approximately 117 million interest expense year ended december 31 2008 89 million related acquisitionrelated debt incurred approximately 23 million interest expense year ended december 31 2007 none related acquisitionrelated debt effective tax rate year ended december 31 2008 300 compared effective tax rate 309 comparable period 2007 changes effective tax rate generally driven amount mix income locations outside us recognize benefit losses incur us however 2008 recorded 95 million net tax benefits related primarily reversing certain valuation allowances deferred tax assets result reaching morelikelythannot threshold recognizing certain tax receivables tax benefits described offset 13 million income taxes incurred connection liquidation entity within biospin segment addition acquisitionrelated costs generate significant tax benefits us incurred primarily us foreign currency exchange losses generate significant tax benefits us occurred foreign locations relatively low statutory tax rates 2007 recorded 101 million net tax benefits related primarily new tax legislation germany net income year ended december 31 2008 649 million 039 per diluted share compared net income 989 million 060 per diluted share 2007 critical accounting policies discussion analysis financial condition results operations based upon consolidated financial statements prepared accordance accounting principles generally accepted united states america preparation financial statements requires make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments including related revenue recognition allowance doubtful accounts inventories goodwill longlived assets warranty costs income taxes base estimates judgments historical experience current market economic conditions industry trends assumptions believe reasonable form basis making judgments carrying value assets liabilities readily apparent sources actual results could differ estimates believe following critical accounting policies important portrayal financial condition require subjective judgment revenue recognition recognize revenue system sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectibility resulting receivable reasonably assured title risk loss generally transferred customer upon receipt signed customer acceptance form system shipped installed customer trained result timing customer acceptance readiness could cause reported revenues differ materially expectations products sold independent distributor strategic distribution partner assumes responsibility installation recognize system sale product shipped title risk loss transferred distributors price protection rights return however products typically warranted free defect period one year revenue deferred cash received significant portion fee due one year delivery installation acceptance system arrangements multiple elements recognize revenue element based fair value element provided criteria revenue recognition met fair value element provided multiple element arrangements typically determined referencing historical pricing policies element sold separately changes ability establish fair value element multiple element arrangements could affect timing revenue recognition revenue accessories parts recognized upon shipment service revenue recognized services performed grant revenue recognized complete services required grant warranty costs normally provide one year parts labor warranty purchase equipment anticipated cost warranty accrued upon recognition sale included current liability balance sheet although facilities undergo quality assurance testing procedures throughout production process warranty obligation affected product failure rates material usage service delivery costs incurred correcting product failure although actual warranty costs historically consistent expectations extent warranty claim activity costs associated servicing claims differ estimates revisions warranty accrual may required inventories stated lower cost market costs determined firstin firstout method majority subsidiaries average cost certain international subsidiaries maintain allowance excess obsolete inventory reflect expected nonsaleable nonrefundable inventory based evaluation slow moving products ultimate usage demand varies significantly expected usage demand additional writedowns may required resulting charge operations derivative financial instruments derivative instruments recorded assets liabilities fair value calculated estimate future cash flows subsequent changes derivatives fair value recognized income unless specific hedge accounting criteria met changes fair value derivative highly effective designated cash flow hedge recognized accumulated comprehensive income forecasted transaction occurs becomes probable forecasted transaction occur perform assessment inception hedge quarterly basis thereafter determine whether derivatives highly effective offsetting changes value hedged items changes fair value resulting hedge ineffectiveness immediately recognized income expense goodwill intangible assets longlived assets evaluate whether goodwill indefinite lived intangible assets impaired annually events occur circumstances change goodwill impaired fair value reporting unit less carrying amount fair value determined using discounted future cash flows also review longlived intangible assets indication potential impairment exists significant reduction undiscounted cash flows associated assets fair value longlived assets decline reduced operating performance market declines indicators impairment charge operations impairment may necessary allowance doubtful accounts maintain allowances doubtful accounts estimated losses resulting inability customers pay amounts due financial condition customers deteriorate reducing ability make payments additional allowances would required resulting charge operations income taxes estimate degree tax assets loss carryforwards result benefit based expected profitability tax jurisdiction provide valuation allowance tax assets loss carryforwards believe likely go unused becomes likely tax asset loss carryforward used reserve provided reverse related valuation allowance actual future taxable income tax jurisdiction differs estimates additional allowances reversals reserves may necessary results operations year ended december 31 2008 compared year ended december 31 2007 consolidated results following table presents results years ended december 31 2008 2007 dollars millions except per share data revenue increased 747 million 72 11071 million year ended december 31 2008 compared 10324 million comparable period 2007 included change revenue approximately 395 million impact foreign exchange excluding effect foreign exchange revenue increased 34 increase revenue excluding effect foreign exchange attributable higher revenues bioscience segment offset part lower revenues biospin segment increase revenues bioscience segment attributable increase system aftermarket revenues across core technologies decrease revenues biospin segment result lower aftermarket revenues system wire revenues biospin segment excluding effect foreign exchange flat 2008 compared 2007 cost revenue cost product service revenue year ended december 31 2008 6021 million resulting gross profit margin 456 compared cost product service revenue 5568 million resulting gross profit margin 461 comparable period 2007 lower gross margins driven primarily mix products sold pricing pressure certain product lines increases headcount support planned revenue growth also contributed higher cost revenue lower gross profits sales marketing sales marketing expense year ended december 31 2008 increased 1838 million 167 product service revenue 1601 million 156 product service revenue comparable period 2007 increase sales marketing expenses attributable increases headcount support planned revenue growth additionally changes foreign currency exchange rates primarily euro also contributed increase sales marketing expense general administrative general administrative expense year ended december 31 2008 increased 707 million 64 product service revenue 596 million 58 product service revenue comparable period 2007 increase general administrative expenses primarily result bruker biospin becoming part publiclytraded company lesser degree acquisitions made 2008 research development research development expense year ended december 31 2008 increased 1338 million 121 product service revenue 1108 million 108 product service revenue comparable period 2007 increase research development expenses attributable primarily increases headcount higher material costs associated development number new products recently released scheduled released next six months additionally changes foreign currency exchange rates primarily euro also contributed increase research development expense majority research development performed europe acquisitionrelated charges december 3 2007 announced entered definitive agreement acquire stock bruker biospin acquisition bruker biospin approved shareholders february 25 2008 completed february 26 2008 acquisition represented combination companies common control due majority ownership bruker corporation bruker biospin individuals result transaction costs expensed incurred year ended december 31 2008 incurred expensed acquisitionrelated charges totaling 62 million consisted primarily investment banking fees legal fees accounting fees year ended december 31 2007 incurred expensed acquisitionrelated charges totaling 74 million consisted primarily legal fees investment banking fees accounting fees compensation earned special committee board directors antitrust regulation filing fees restructuring charges income operations 2008 managements expectations result began implementing cost savings programs throughout organization fourth quarter 2008 recorded 23 million restructuring charges primarily connection restructuring certain operations netherlands approximately 22 million restructuring charges relate involuntary severance program affected approximately 30 employees balance restructuring charge relates termination certain leases impact program reduce number employees sales marketing research development consolidate focus selling developments efforts single crystal diffraction products expect incur additional costs connection restructuring operations netherlands interest income expense net interest income expense net year ended december 31 2008 150 million compared 58 million comparable period 2007 year ended december 31 2008 major components within interest income expense net realized unrealized losses foreign currency transactions 112 million net interest expense 68 million year ended december 31 2007 major components within interest income expense net interest income 81 million offset losses foreign currency transactions 39 million foreign exchange losses 122 million incurred first three months 2008 driven remeasurement certain foreign currency denominated assets principally cash intercompany receivables shortterm intercompany loan functional currency affected entities increase interest expense 2008 compared 2007 relates 3510 million borrowed new credit facility first quarter 2008 used finance acquisition bruker biospin incurred approximately 117 million interest expense year ended december 31 2008 89 million related acquisitionrelated debt also earned less interest income 2008 compared 2007 result lower average cash balances lower rates return cash equivalents provision income taxes income tax provision year ended december 31 2008 280 million compared income tax provision 443 million comparable period 2007 representing effective tax rates 300 309 respectively tax rate may change time amount mix income taxes outside us changes addition amount mix income taxes outside united states income tax provision impacted discrete items nonrecurring nature discrete items nature resulted net tax benefit 95 million year ended december 31 2008 related primarily reversing certain valuation allowances result reaching morelikelythannot threshold recognizing certain tax receivables tax benefits described offset 13 million income taxes incurred connection liquidation tax ineffective entity within biospin segment addition acquisitionrelated costs generate significant tax benefits us incurred primarily us foreign currency exchange losses generate significant tax benefits us occurred foreign locations relatively low statutory tax rates discrete items year ended december 31 2007 resulted net benefit 101 million related primarily new tax legislation germany minority interest consolidated subsidiaries minority interest consolidated subsidiaries years ended december 31 2008 2007 03 million minority interest subsidiaries represents minority shareholders proportionate share net income subsidiaries minority interest relates two majorityowned indirect subsidiaries incoatec gmbh bruker baltic ltd net income net income year ended december 31 2008 649 million 039 per diluted share compared net income 989 million 060 per diluted share 2007 segment results revenue following table presents revenue change revenue growth reportable segment years ended december 31 2008 2007 dollars millions arepresents product service revenue reportable segments bioscience segment revenues bioscience segment revenue increased 781 million 141 6332 million year ended december 31 2008 compared 5551 million comparable period 2007 included change revenue approximately 112 million impact foreign exchange excluding effect foreign exchange revenue increased 121 increase revenue excluding effect foreign exchange attributable increases system revenue segments core technologies particularly xray technologies infrared raman molecular spectroscopy technologies cbrn detection systems addition increase service revenue resulted higher aftermarket revenues system revenue year ended december 31 2007 includes 79 million revenue molecular spectroscopy systems sold chinese state food drug administration order completed 2007 recognize system revenue order 2008 system revenue system revenue aftermarket revenue percentage total bioscience segment revenue follows years ended december 31 2008 2007 dollars millions system revenues bioscience segment include xray systems mass spectrometry systems cbrn detection systems molecular spectroscopy systems system revenues bioscience segment relate primarily distribution products manufactured bioscience segment aftermarket revenues bioscience segment include accessory sales consumables training services biospin segment revenues biospin segment revenue increased 46 million 09 5280 million year ended december 31 2008 compared 5234 million comparable period 2007 included change revenue approximately 268 million impact foreign exchange excluding effect foreign exchange revenue decreased 42 decrease revenue excluding effect foreign exchange attributable lower aftermarket revenues resulting primarily lower accessory sales 2007 biospin segment number large accessory sales recur 2008 system revenues product lines generally flat 2008 compared 2007 nature magnetic resonance products sold biospin segment particularly complexity instruments coupled relatively low volumes high selling prices biospin segment revenues generally subject high degree volatility comparing two periods system wire revenue system revenue aftermarket revenue percentage total biospin segment revenue follows years ended december 31 2008 2007 dollars millions system wire revenues biospin segment include nuclear magnetic resonance systems magnetic resonance imaging systems electron paramagnetic resonance systems minispec systems power supplies low temperature superconducting high temperature superconducting wire business system revenues biospin segment relate primarily distribution products manufactured biospin segment aftermarket revenues biospin segment include accessory sales consumables training services income operations following table presents income operations operating margins revenue reportable segment years ended december 31 2008 2007 dollars millions arepresents corporate costs allocated reportable segments bioscience segment income operations year ended december 31 2008 494 million resulting operating margin 78 compared income operations 592 million resulting operating margin 107 comparable period 2007 income operations bioscience segment decreased despite increase revenues result lower gross margins percentage revenue higher operating expenses year ended december 31 2008 compared year ended december 31 2007 lower gross margins driven primarily mix products sold pricing pressure certain product lines increase operating expenses relates primarily sales marketing expenses research development expenses higher costs result increased headcounts support planned revenue growth new product development higher commissions associated increase revenue higher material costs associated number new products recently released scheduled released next six months changes foreign currency exchange rates primarily euro also contributed increase operating expenses majority research development bioscience segment performed europe biospin segment income operations year ended december 31 2008 741 million resulting operating margin 140 compared income operations 896 million operating margin 171 2007 biospin segment income operations decreased despite essentially flat revenues slight improvement gross margin percentage revenue result higher operating expenses year ended december 31 2008 compared year ended december 31 2007 improvement gross margin percentage total revenue primarily result improved factory utilization lesser degree mix products sold however increase gross margin offset higher operating expenses related primarily sales marketing expenses research development expenses costs result increased headcounts support planned revenue growth new product development higher material costs associated number new products recently released scheduled released next six months changes foreign currency exchange rates primarily euro also contributed increase operating expenses majority research development biospin segment performed europe year ended december 31 2007 compared year ended december 31 2006 consolidated results following table presents results years ended december 31 2007 2006 dollars millions except per share data revenue increased 1810 million 213 10324 million year ended december 31 2007 compared 8514 million 2006 included change revenue approximately 487 million impact foreign exchange excluding effect foreign exchange revenue increased 155 increase revenue excluding effect foreign exchange attributable core technologies bioscience biospin segments particular increase revenues attributed xray technologies bioscience segment magnetic resonance technologies biospin segment increases aftermarket revenues related primarily services provided initial warranty period also contributed increase revenue cost revenue cost product service revenue year ended december 31 2007 5568 million resulting gross profit margin 461 compared cost product service revenue 4509 million resulting gross profit margin 470 2006 gross margin percentage revenue decreased despite increase revenues result mix products sold year lower gross profit margins relate biospin segment gross profit margins bioscience segment improved slightly 2007 compared 2006 sales marketing sales marketing expense year ended december 31 2007 increased 1601 million 156 product service revenue 1340 million 158 product service revenue 2006 increase sales marketing expenses attributable increases headcount support certain sales marketing initiatives acquisitions completed second half 2006 additionally higher commissions related increase revenue changes foreign currency exchange rates primarily euro also contributed increase sales marketing expense general administrative general administrative expense year ended december 31 2007 increased 596 million 58 product service revenue 520 million 61 product service revenue 2006 increase general administrative expenses attributable increases headcount related acquisitions completed second half 2006 increase amortization expense related intangible assets acquired connection acquisitions addition incurred tax consulting fees connection specific project 2007 research development research development expense year ended december 31 2007 increased 1108 million 108 product service revenue 1026 million 121 product service revenue 2006 increase research development expenses attributable increases headcount related acquisitions completed second half 2006 additionally changes foreign currency exchange rates primarily euro also contributed increase research development expense acquisitionrelated charges december 3 2007 announced entered definitive agreement acquire stock bruker biospin acquisition bruker biospin approved shareholders february 25 2008 completed february 26 2008 acquisition represented combination companies common control due majority ownership bruker corporation bruker biospin individuals result transaction costs expensed incurred year ended december 31 2007 incurred expensed acquisitionrelated charges totaling 74 million consisted primarily legal fees investment banking fees accounting fees compensation earned special committee board directors antitrust regulation filing fees april 18 2006 announced entered definitive agreement acquire stock bruker optics acquisition bruker optics approved shareholders june 29 2006 completed july 1 2006 acquisition represented combination companies common control due majority ownership bruker corporation bruker biospin individuals result transaction costs expensed incurred year ended december 31 2006 incurred expensed acquisitionrelated charges totaling 56 million consisted primarily investment banking fees legal fees accounting fees compensation earned special committee board directors antitrust regulation filing fees interest income expense net interest income expense net year ended december 31 2007 58 million compared 47 million 2006 year ended december 31 2007 major components within interest income expense net interest income 81 million offset losses foreign currency transactions 39 million year ended december 31 2006 major components within interest income expense net appreciation fair value derivative instruments 68 million net interest income 56 million offset losses foreign currency transactions 84 million provision income taxes income tax provision year ended december 31 2007 443 million compared income tax provision 366 million 2006 representing effective tax rates 309 330 respectively tax rate may change time amount mix income taxes outside us changes addition amount mix income taxes outside united states income tax provision impacted discrete items nonrecurring nature discrete items nature resulted net tax benefit 101 million year ended december 31 2007 related primarily new tax legislation germany significant items nature impacted income tax provision year ended december 31 2006 minority interest consolidated subsidiaries minority interest consolidated subsidiaries years ended december 31 2007 2006 03 million 00 million respectively minority interest subsidiaries represents minority shareholders proportionate share net income subsidiaries minority interest relates two majorityowned indirect subsidiaries incoatec gmbh bruker baltic ltd net income net income year ended december 31 2007 989 million 060 per diluted share compared net income 744 million 046 per diluted share 2006 segment results revenue following table presents revenue change revenue growth reportable segment years ended december 31 2007 2006 dollars millions arepresents product service revenue reportable segments bioscience segment revenues bioscience segment revenue increased 1103 million 248 5551 million year ended december 31 2007 compared 4448 million 2006 included change revenue approximately 281 million impact foreign exchange excluding effect foreign exchange revenue increased 185 increase revenue excluding effect foreign exchange attributable increases system revenue segments core technologies particularly xray mass spectrometry cbrn detection infrared raman molecular spectroscopy addition acquisitions made second half 2006 represented approximately 29 revenue growth system revenue system revenue aftermarket revenue percentage total bioscience segment revenue follows years ended december 31 2007 2006 dollars millions system revenues bioscience segment include xray systems mass spectrometry systems cbrn detection systems molecular spectroscopy systems system revenues bioscience segment relate primarily distribution products manufactured bioscience segment aftermarket revenues bioscience segment include accessory sales consumables training services biospin segment revenues biospin segment revenue increased 764 million 171 5234 million year ended december 31 2007 compared 4470 million 2006 included change revenue approximately 206 million impact foreign exchange excluding effect foreign exchange revenue increased 125 increase revenue excluding effect foreign exchange attributable increases system revenue segments core technology principally magnetic resonance imaging systems nuclear magnetic resonance systems higher aftermarket revenues resulting number large accessory sales also contributed increase revenues nature magnetic resonance products sold biospin segment particularly complexity instruments coupled relatively low volumes high selling prices biospin segment revenues generally subject high degree volatility comparing two periods system wire revenue system revenue aftermarket revenue percentage total biospin segment revenue follows years ended december 31 2007 2006 dollars millions system wire revenues biospin segment include nuclear magnetic resonance systems magnetic resonance imaging systems electron paramagnetic resonance systems minispec systems power supplies low temperature superconducting high temperature superconducting wire business system revenues biospin segment relate primarily distribution products manufactured biospin segment aftermarket revenues biospin segment include accessory sales consumables training services income operations following table presents income operations operating margins revenue reportable segment years ended december 31 2007 2006 dollars millions arepresents corporate costs allocated reportable segments bioscience segment income operations year ended december 31 2007 592 million resulting operating margin 107 compared income operations 407 million resulting operating margin 92 2006 income operations bioscience segment increased result higher revenues described slight improvement gross margin percentage revenue offset part higher operating expenses improvement gross margin result improved factory utilization mix products sold increase operating expenses relates primarily sales marketing expenses research development expenses higher costs result increased headcounts support investments certain sales marketing initiatives acquisitions completed second half 2006 higher commissions associated increase revenue changes foreign currency exchange rates primarily euro majority research development bioscience segment performed europe biospin segment income operations year ended december 31 2007 896 million resulting operating margin 171 compared income operations 767 million operating margin 172 2006 income operations biospin segment increased result higher revenues described offset part decrease gross margin percentage revenue gross margins decreased despite increase revenues result mix system wire products sold addition increase system revenue also contributed decrease margin products typically lower margins core systems aftermarket revenues liquidity capital resources currently anticipate existing cash credit facilities sufficient support operating investing needs least next twelve months depends profitability ability manage working capital requirements future cash requirements also affected acquisitions may consider historically financed growth combination debt financings issuances common stock future assurances additional financing alternatives available us required available obtained terms favorable us year ended december 31 2008 net cash provided operating activities 1069 million compared net cash provided operating activities 1076 million year ended december 31 2007 change cash operating activities attributable primarily lower net income year ended december 31 2008 offset changes operating assets liabilities year ended december 31 2008 net cash used investing activities 477 million compared net cash used investing activities 311 million year ended december 31 2007 cash used investing activities year ended december 31 2008 attributable 474 million capital expenditures 114 million used acquisitions acquisitionrelated costs uses partially offset 98 million proceeds sale investments increase expenditures year ended december 31 2008 compared 2007 related primarily expansion facility ettlingen germany completed third quarter 2008 cash used investing activities year ended december 31 2007 attributable primarily 262 million capital expenditures year ended december 31 2008 net cash used financing activities 2351 million compared net cash used financing activities 833 million year ended december 31 2007 cash used financing activities year ended december 31 2008 attributable 3860 million paid certain shareholders bruker biospin connection acquisition bruker biospin 234 million withholding taxes paid connection dividend declared bruker biospin prior acquisition uses offset part 1730 million net borrowings related primarily credit agreement cash used financing activities year ended december 31 2007 attributable 854 million dividends paid bruker biospin prior acquisition 175 million net borrowings various longterm shortterm arrangements cash used financing activities 2007 offset 196 million net proceeds offering common stock february 26 2008 completed acquisition bruker biospin 9140 million acquisition bruker biospin financed 57544872 shares unregistered common stock valued 5260 million based trailing 10 day trading average closing price 914 per share two days prior signing transaction agreements 3510 million cash obtained new credit facility refer credit agreement balance cash hand credit agreement syndication lenders provides revolving credit line maximum commitment 2300 million term loan facility 1500 million outstanding principal term loan payable quarterly installments december 2012 borrowings credit agreement bear interest option either higher prime rate federal funds rate plus 050 ii adjusted libor plus margins ranging 040 125 facility fee ranging 010 020 december 31 2008 weightedaverage interest rate borrowings outstanding credit agreement approximately 39 borrowings credit agreement secured pledge banks 100 capital stock whollyowned domestic subsidiaries 65 capital stock certain whollyowned direct indirect foreign subsidiaries credit agreement also requires maintain certain financial ratios related maximum leverage minimum interest coverage defined credit agreement addition financial ratios credit agreement restricts among things ability following make certain payments incur additional debt incur certain liens make certain investments including derivative agreements merge consolidate sell transfer substantially assets enter certain transactions affiliates december 31 2008 latest measurement date compliance covenants credit agreement december 31 2008 outstanding debt totaling 2238 million consisting 1965 million outstanding credit agreement including 1444 million drawn term loan 521 million revolving loans 158 million outstanding longterm debt arrangements 62 million outstanding revolving lines credit 53 million capital lease obligations december 31 2008 classified 356 million 521 million borrowed revolving credit line credit agreement longterm expect repay amount next twelve months december 31 2007 outstanding debt totaling 442 million consisting 280 million outstanding longterm debt arrangements 132 million outstanding revolving lines credit 30 million capital lease obligations amounts outstanding longterm debt arrangements december 31 2008 include collateralized uncollateralized arrangements various financial institutions germany japan terms arrangements also include fixed variable interest rates ranging 20 80 december 31 2008 amounts outstanding revolving lines credit various financial institutions united states germany switzerland japan france aggregate maximum borrowing amounts approximately 3009 million december 31 2008 consideration outstanding letters credit drawn revolving lines credit availability approximately 1805 million revolving lines credit december 31 2008 revolving lines credit generally uncollateralized bear interest variable rates ranging 150 975 december 31 2008 effective february 26 2008 terminated 750 million line credit united states replaced revolving credit available credit agreement december 31 2008 approximately 102 million net operating loss carryforwards available reduce future us taxable income losses various expiration dates 2028 also us tax credits approximately 194 million available offset future tax liabilities expire various dates credits include foreign tax credits 176 million expiring various years 2018 research development tax credits 18 million expiring various dates 2025 operating losses tax credit carryforwards may subject limitations provisions internal revenue code following table summarizes maturities significant financial obligations december 31 2008 millions uncertain tax contingencies positions taken expected taken income tax return may result additional payments tax authorities amount preceding table includes interest penalties accrued related positions december 31 2008 total amount uncertain tax contingencies included 13 years column able reasonably estimate timing potential future payments tax authority agrees tax position taken expected taken applicable statute limitations expires additional payments necessary transactions related parties bruker optics bruker biospin lease certain office space principal shareholders years ended december 31 2008 2007 2006 shareholders paid approximately 18 million 15 million 14 million respectively estimated equal fair market value years ended december 31 2008 2007 2006 incurred expenses 23 million 17 million 13 million respectively law firm one directors partner years ended december 31 2008 2007 2006 incurred expenses 09 million 13 million 09 million respectively financial services firm one directors partner recent accounting pronouncements march 2008 financial accounting standards board fasb issued statement financial accounting standards sfas 161 disclosures derivative instruments hedging activitiesan amendment fasb statement 133 sfas 161 sfas 161 requires enhanced disclosures entitys derivative hedging activities thereby improves transparency financial reporting sfas 161 effective fiscal years beginning november 15 2008 expect adoption sfas 161 material impact results operations financial position cash flows december 2007 fasb issued sfas 160 noncontrolling interests consolidated financial statementsan amendment arb 51 sfas 160 statement establishes new accounting reporting standards minority interest subsidiary deconsolidation subsidiary sfas 160 effective beginning fiscal 2009 early adoption prohibited expect adoption sfas 160 material impact results operations financial position cash flows december 2007 fasb issued sfas 141r business combinations sfas 141r statement significantly change accounting business combinations sfas 141r acquiring entity required recognize assets acquired liabilities assumed transaction acquisition date fair value certain limited exceptions addition sfas 141r change accounting treatment acquisition costs inprocess research development restructuring costs associated business combinations changes deferred tax asset valuation allowances income tax uncertainties acquisition date sfas 141r also includes significant number new disclosure requirements early adoption sfas 141r prohibited required apply sfas 141r acquisitions occur january 1 2009 item 7aitem 7 managements discussion analysis financial condition results operations following managements discussion analysis financial condition results operations mda describes principal factors affecting results operations financial condition changes financial condition well critical accounting policies estimates mda organized follows •executive overview section provides general description history business brief discussion reportable segments significant recent developments business opportunities challenges risks may impact business future •critical accounting policies section discusses accounting estimates considered important financial condition results operations require us exercise subjective complex judgments application significant accounting policies including critical accounting policies estimates summarized note 2 consolidated financial statements item 8 report form 10k •results operations section provides analysis significant line items consolidated statement operations year ended december 31 2009 compared year ended december 31 2008 year ended december 31 2008 compared year ended december 31 2007 •liquidity capital resources section provides analysis liquidity cash flow discussion outstanding debt commitments •transactions related parties section summarizes transactions principal shareholders directors •recent accounting pronouncements section provides information new accounting standards issued adoption yet required executive overview business overview bruker corporation whollyowned subsidiaries design manufacture service market proprietary life science materials research systems based core technology platforms including xray technologies magnetic resonance technologies mass spectrometry technologies optical emission spectroscopy infrared raman molecular spectroscopy technologies sell broad range field analytical systems chemical biological radiological nuclear explosive cbrne detection also develop manufacture low temperature high temperature superconducting wire products superconducting wire superconducting devices use advanced magnet technology physics research energy applications diverse customer base includes life science pharmaceutical biotechnology molecular diagnostic research companies academic institutions advanced materials semiconductor industries government agencies maintain major technical manufacturing centers europe north america japan sales offices located throughout world corporate headquarters located billerica massachusetts business strategy capitalize ability innovate generate rapid revenue performance organically acquisitions revenue growth strategy combined anticipated improvements gross profit margins increased leverage research development sales marketing distribution investments general administrative expenses expected enhance operating margins improve earnings future february 26 2008 completed acquisition bruker biospin company bruker biospin majority owned six affiliated shareholders prior acquisition result acquisition bruker biospin considered combination companies common control accounted historical carrying values historical consolidated balance sheets statements operations statements cash flows notes consolidated financial statements restated combining historical consolidated financial statements bruker corporation bruker biospin addition bruker biospin enhanced scientific instruments business thus furthered position leading supplier life science materials research systems technologies bruker biospin particularly complementary accuratemass electrospray timeofflight mass spectrometers singlecrystal diffraction xray spectrometers created revenue synergies provided opportunities supply customers equipment packages broader range applications value addition bruker biospin also enhanced distribution scientific instruments americas europe asia sales service infrastructure organized five operating segments representing five divisions bruker axs bruker biospin bruker daltonics bruker optics bruker energy supercon technologies bruker axs business manufacturing distributing advanced xray sparkoptical emission spectroscopy atomic force microscopy instrumentation used nondestructive molecular elemental analysis bruker biospin business manufacturing distributing enabling life science tools based magnetic resonance technology bruker daltonics business manufacturing distributing mass spectrometry instruments integrated used along analytical instruments cbrne detection products bruker optics business manufacturing distributing research analytical process analysis instruments solutions based infrared raman molecular spectroscopy technologies bruker energy supercon technologies business developing producing low temperature superconducting high temperature superconducting wires use advanced magnet technology energy applications well linear accelerators accelerator cavities insertion devices superconducting fault current limiters accelerator components specialty superconducting magnets physics energy research variety scientific applications combined bruker axs bruker biospin bruker daltonics bruker optics operating segments scientific instruments reporting segment similar economic characteristics product processes services types classes customers methods distribution regulatory environments management reports results based following segments •scientific instruments operations segment include design manufacture distribution advanced instrumentation automated solutions based xray technology sparkoptical emission spectroscopy technology atomic force microscopy magnetic resonance technology mass spectrometry technology infrared raman molecular spectroscopy technology typical customers scientific instruments segment include pharmaceutical biotechnology diagnostic companies academic institutions medical schools nonprofit organizations clinical microbiology laboratories government departments agencies nanotechnology semiconductor chemical cement metals petroleum companies food beverage agricultural analysis companies laboratories •energy supercon technologies operations segment include development production low temperature superconducting high temperature superconducting wires use advanced magnet technology energy applications well electron ion linear accelerators superconducting normal conducting accelerator cavities accelerator components insertion devices prototype superconducting fault current limiters prototype crystal growth magnets highly specialized manufacturing services physics energy research variety scientific applications typical customers energy supercon technologies segment include companies medical power energy processing industries private public research development laboratories fields fundamental applied sciences energy research academic institutions government agencies financial overview year ended december 31 2009 revenue increased 74 million 07 11145 million compared 11071 million comparable period 2008 included change revenue reduction approximately 147 million impact foreign exchange due strengthening us dollar versus euro foreign currencies excluding effect foreign exchange revenue increased 221 million 20 revenues scientific instruments segment increased modestly currency adjusted basis increasing 17 million 02 10758 million revenue scientific instruments segment reflects higher sales mass spectrometry systems offset lower sales xray optical emission spectroscopy systems mix products sold scientific instruments segment reflects increase revenues academic government customers offset lower sales industrial customers attribute increases spending academic government customers new product introductions stimulus packages implemented governments various countries including us germany japan china expect continue receive stimulusrelated orders 2010 orders recognized revenue first half 2011 attribute overall decreases spending industrial customers worldwide recession however revenues industrial customers improved quarteroverquarter sequentially third fourth quarters 2009 believe reflects gradual turnaround recent trends markets cautiously optimistic industrial markets serve continue improve 2010 continue closely monitor apparent recovery markets income operations year ended december 31 2009 1367 million resulting operating margin 123 compared income operations 1082 million resulting operating margin 98 comparable period 2008 operating margin 2009 includes 02 million acquisitionrelated charges operating margin 2008 includes 62 million acquisitionrelated charges excluding effect acquisitionrelated charges income operations increased 225 million increase operating margin primarily result improvement gross profit margins lower operating expenses gross profit margin year ended december 31 2009 465 compared 456 comparable period 2008 higher gross profit margins newly introduced mass spectrometry products combined productivity initiatives benefits cost cutting changes foreign currency exchange rates allowed us improve gross profit margins without significant increase volume reduced operating expenses various cost reduction programs changes foreign currency exchange rates also favorably impacted operating expenses incurred approximately 75 million interest expense year ended december 31 2009 compared 117 million comparable period 2008 total interest expense incurred year ended december 31 2009 approximately 61 million related credit facility entered first quarter 2008 initially borrowed 3510 million credit facility order finance acquisition bruker biospin 2009 repaid approximately 645 million amounts outstanding credit agreement inception credit agreement reduced net amount outstanding approximately 2197 million year ended december 31 2009 recorded net losses foreign currency transactions 19 million compared net losses 112 million comparable period 2008 incurred 122 million foreign exchange losses first three months 2008 driven remeasurement certain foreign currency denominated assets principally cash intercompany receivables shortterm intercompany loan functional currency affected entities effective tax rate year ended december 31 2009 373 compared 300 2008 tax rate vary yeartoyear amount mix income taxes outside us changes tax rate also varies result discrete items nonrecurring nature second half 2009 repatriated cash certain foreign locations us order reduce outstanding debt credit agreement repatriation certain transactions taxable united states resulted approximately 43 million tax expense excluding amount tax rate year 2009 would 339 additionally tax rate 2008 includes tax benefits 108 million related reversing certain valuation allowances reaching morelikelythannot threshold recognizing certain tax receivables tax benefits recorded 2008 described offset 13 million income taxes incurred connection liquidation legal entity within scientific instruments segment excluding 95 million net tax benefits described tax rate year 2008 would 402 net income attributable shareholders bruker corporation year ended december 31 2009 812 million 049 per diluted share compared 649 million 039 per diluted share comparable period 2008 critical accounting policies discussion analysis financial condition results operations based upon consolidated financial statements prepared accordance accounting principles generally accepted united states america preparation financial statements requires make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments including related revenue recognition income taxes allowance doubtful accounts inventories goodwill intangible assets longlived assets warranty costs derivative financial instruments base estimates judgments historical experience current market economic conditions industry trends assumptions believe reasonable form basis making judgments carrying value assets liabilities readily apparent sources actual results could differ estimates believe following critical accounting policies important portrayal financial position results operations require subjective judgment revenue recognition recognize revenue system sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectability resulting receivable reasonably assured title risk loss generally transferred customer upon receipt signed customer acceptance form system shipped installed customer trained result timing customer acceptance readiness could cause reported revenues differ materially expectations products sold independent distributor strategic distribution partner assumes responsibility installation recognize system sale product shipped title risk loss transferred distributor distributors price protection rights return however products typically warranted free defect period one year revenue deferred cash received collectability reasonably assured significant portion fee due one year delivery installation acceptance system arrangements multiple elements recognize revenue element based relative fair value elements provided criteria revenue recognition met fair value element provided multiple element arrangements typically determined referencing prices charged element sold separately objective reliable evidence fair value undelivered items arrangement evidence delivered items use residual method allocate arrangement consideration changes ability establish fair value element multiple element arrangements could affect timing revenue recognition revenue accessories parts recognized upon shipment service revenue recognized services performed also contracts apply percentageofcompletion method revenue recognition application percentageofcompletion method requires us make reasonable estimates extent progress toward completion contract total costs incur contract changes estimates could affect timing revenue recognition grant revenue recognized complete services required grant income taxes determination income tax expense requires us make certain estimates judgments concerning calculation deferred tax assets liabilities well deductions carryforwards credits available reduce taxable income deferred tax assets liabilities arise differences timing recognition revenue expenses financial statement tax purposes deferred tax assets liabilities measured using tax rates effect year temporary differences expected settled estimate degree tax assets loss carryforwards result benefit based expected profitability tax jurisdiction provide valuation allowance tax assets loss carryforwards believe likely go unused becomes likely tax asset loss carryforward used reserve provided reverse related valuation allowance actual future taxable income tax jurisdiction differs estimates additional allowances reversals reserves may necessary addition recognize benefits tax positions believe likely sustained upon review taxing authority knowledge relevant information reevaluate uncertain tax positions quarterly basis changes positions result tax audits tax laws facts circumstances could result additional charges operations allowance doubtful accounts maintain allowances doubtful accounts estimated losses resulting inability customers pay amounts due financial condition customers deteriorate reducing ability make payments additional allowances would required resulting charge operations inventories stated lower cost market costs determined firstin firstout method majority subsidiaries average cost certain international subsidiaries record provisions account excess obsolete inventory reflect expected nonsaleable nonrefundable inventory based evaluation slow moving products inventories also include demonstration units located demonstration laboratories installed sites potential customers consider demonstration units available sale reduce carrying value demonstration inventories differences cost estimated net realizable value taking consideration usage preceding twelve months expected demand technological obsolescence information including physical condition unit ultimate usage demand varies significantly expected usage demand additional writedowns may required resulting additional charges operations goodwill intangible assets longlived assets evaluate whether goodwill impaired annually events occur circumstances change test goodwill impairment reporting unit level operating segment one level operating segment performance test involves twostep process first step impairment test involves comparing fair values applicable reporting units aggregate carrying values including goodwill generally determine fair value reporting units using income approach methodology valuation includes discounted cash flow method estimating fair value reporting units requires significant judgments management future cash flows carrying amount reporting unit exceeds fair value reporting unit perform second step goodwill impairment test measure amount impairment second step goodwill impairment test compare implied fair value reporting units goodwill carrying value goodwill also review finitelived intangible assets longlived assets indication potential impairment exists significant reduction undiscounted cash flows associated assets fair value longlived assets decline reduced operating performance market declines indicators impairment charge operations impairment may necessary warranty costs normally provide one year parts labor warranty purchase equipment anticipated cost warranty accrued upon recognition sale based historical warranty rates assumptions future warranty claims warranty accrual included current liability consolidated balance sheets although products undergo quality assurance testing procedures throughout production process warranty obligation affected product failure rates material usage service delivery costs incurred correcting product failure although actual warranty costs historically consistent expectations extent warranty claim activity costs associated servicing claims differ estimates revisions warranty accrual may required derivative financial instruments derivative instruments recorded assets liabilities fair value calculated estimate future cash flows subsequent changes derivatives fair value recognized income unless specific hedge accounting criteria met changes fair value derivative highly effective designated cash flow hedge recognized accumulated comprehensive income forecasted transaction occurs becomes probable forecasted transaction occur perform assessment inception hedge quarterly basis thereafter determine whether derivatives highly effective offsetting changes value hedged items changes fair value resulting hedge ineffectiveness immediately recognized income expense results operations year ended december 31 2009 compared year ended december 31 2008 consolidated results following table presents results years ended december 31 2009 2008 dollars millions except per share data revenue increased 74 million 07 11145 million year ended december 31 2009 compared 11071 million comparable period 2008 included change revenue reduction approximately 147 million impact foreign exchange due strengthening us dollar versus euro foreign currencies excluding effect foreign exchange revenue increased 20 revenues scientific instruments segment increased modestly currency adjusted basis increasing 17 million 02 revenue scientific instruments segment reflects higher sales mass spectrometry systems offset lower sales xray optical emission spectroscopy systems mix products sold scientific instruments segment reflects increase revenues academic government customers offset lower sales industrial customers attribute increases spending academic government customers new product introductions stimulus packages implemented governments various countries including us germany japan china attribute overall decreases spending industrial customers worldwide recession revenues energy supercon technologies segment increased currency adjusted basis 179 million 411 increase revenue excluding effect foreign exchange attributable acquisition research instruments business offset part lower demand certain types superconducting wire cost revenue cost product service revenue year ended december 31 2009 5959 million resulting gross profit margin 465 compared cost product service revenue 6021 million resulting gross profit margin 456 comparable period 2008 higher gross profit margins certain nuclear magnetic resonance products newly introduced mass spectrometry products combined productivity initiatives benefits cost cutting changes foreign currency exchange rates allowed us improve gross profit margins without significant increase volume product mix initiatives designed increase gross profits drove increase gross profit margins installation 1 gigahertz nuclear magnetic resonance spectrometer fourth quarter 2009 also contributed approximately 06 yearoveryear improvement gross profit margin high degree risk associated 1 gigahertz project majority costs incurred connection project charged research development expense incurred rather capitalized inventory result sale carried gross profit margins significantly higher nuclear magnetic resonance spectrometers sales marketing sales marketing expense year ended december 31 2009 increased 1858 million 168 product service revenue 1838 million 167 product service revenue comparable period 2008 increase sales marketing expenses attributable increases headcount support planned revenue growth result certain acquisitions increases sales marketing expenses offset part cost saving initiatives changes foreign currency exchange rates primarily euro general administrative general administrative expense year ended december 31 2009 decreased 695 million 63 product service revenue 707 million 64 product service revenue comparable period 2008 decrease general administrative expenses primarily function various cost saving initiatives lesser degree changes foreign currency exchange rates primarily euro research development research development expense year ended december 31 2009 decreased 1264 million 114 product service revenue 1338 million 121 product service revenue comparable period 2008 decrease research development expenses attributable primarily changes foreign currency exchange rates primarily euro majority research development performed europe cost saving initiatives certain areas research development organization also contributed decrease however also continued make incremental investments research development believe generate future growth restructuring charges income operations 2008 managements expectations result began implementing cost savings programs throughout organization fourth quarter 2008 recorded 23 million restructuring charges primarily connection restructuring certain operations netherlands approximately 22 million restructuring charges related involuntary severance program affected approximately 30 employees balance restructuring charge related termination certain leases impact program reduced number employees sales marketing research development consolidated focused selling development efforts single crystal xray diffraction products acquisitionrelated charges net bargain purchase acquisitionrelated charges 02 million recorded 2009 relate entirely energy supercon technologies segment consist bargain purchase gain 13 million recorded connection acquisition research instruments business varian medical systems inc offset 08 million transaction costs incurred connection acquisition 07 million impairment charges associated fixed assets used production certain superconducting wire acquisitionrelated charges 62 million recorded 2008 relate entirely scientific instruments segment consist transaction costs incurred connection acquisition bruker biospin acquisition bruker biospin represented combination companies common control due majority ownership bruker corporation bruker biospin individuals result transaction costs expensed incurred interest income expense net interest income expense net year ended december 31 2009 76 million compared 150 million comparable period 2008 year ended december 31 2009 major components within interest income expense net consisted net interest expense 65 million realized unrealized losses foreign currency transactions 19 million year ended december 31 2008 major components within interest income expense net realized unrealized losses foreign currency transactions 112 million net interest expense 68 million losses foreign currency transactions 2008 resulted remeasurement certain foreign currency denominated assets principally cash intercompany receivables shortterm intercompany loan functional currency affected entities implemented various programs reduce exposure remeasurement foreign currencies programs contributed decrease realized unrealized losses foreign currency transactions provision income taxes income tax provision year ended december 31 2009 481 million compared income tax provision 280 million comparable period 2008 representing effective tax rates 373 300 respectively tax rate may change time amount mix income taxes outside us changes addition amount mix income taxes outside united states income tax provision impacted discrete items nonrecurring nature discrete items nature resulted tax expense 43 million year ended december 31 2009 related cash repatriated certain foreign locations us order reduce outstanding debt well certain transactions taxable us excluding amount tax rate 2009 would 339 discrete items impacting provision income taxes 2008 included tax benefits 108 million related primarily reversing certain valuation allowances reaching morelikelythannot threshold recognizing certain tax receivables tax benefits described offset 13 million income taxes incurred connection liquidation tax ineffective entity within scientific instruments segment addition acquisitionrelated costs generate significant tax benefits us incurred primarily us foreign currency exchange losses generate significant tax benefits us occurred foreign locations relatively low statutory tax rates excluding amounts tax rate 2008 would 402 net income loss attributable noncontrolling interests net income loss attributable noncontrolling interests year ended december 31 2009 02 million compared 03 million comparable period 2008 net loss attributable noncontrolling interests 2009 represents minority shareholders proportionate share net income loss recorded five majorityowned indirect subsidiaries bruker baltic ltd bruker labmate pvt ltd incoatec gmbh perch solutions oy scientific instruments segment ri research instruments gmbh included energy supercon technologies segment net income attributable noncontrolling interests 2008 relates minority shareholders proportionate share net income recorded two majorityowned indirect subsidiaries bruker baltic ltd incoatec gmbh net income attributable bruker corporation net income year ended december 31 2009 812 million 049 per diluted share compared net income 649 million 039 per diluted share 2008 segment results revenue following table presents revenue change revenue growth reportable segment years ended december 31 2009 2008 dollars millions arepresents product service revenue reportable segments scientific instruments segment revenues scientific instruments segment revenue decreased 114 million 11 10627 million year ended december 31 2009 compared 10741 million comparable period 2008 included change revenue reduction approximately 131 million impact foreign exchange due strengthening us dollar versus euro foreign currencies excluding effect foreign exchange revenue increased 02 revenue scientific instruments segment reflects higher sales mass spectrometry systems offset lower sales xray optical emission spectroscopy systems mix products sold scientific instruments segment reflects increase revenues academic government customers offset lower sales industrial customers attribute increases spending academic government customers new product introductions stimulus packages implemented governments various countries including us germany japan china attribute overall decreases spending industrial customers worldwide recession system revenue aftermarket revenue percentage total scientific instruments segment revenue follows years ended december 31 2009 2008 dollars millions system revenues scientific instruments segment include xray systems sparkoptical emission spectroscopy systems atomic force microscopy systems nuclear magnetic resonance systems magnetic resonance imaging systems electron paramagnetic imaging systems mass spectrometry systems cbrne detection systems molecular spectroscopy systems aftermarket revenues scientific instruments segment include accessory sales consumables training services energy supercon technologies segment revenues energy supercon technologies segment revenue increased 163 million 375 598 million year ended december 31 2009 compared 435 million comparable period 2008 included change revenue reduction approximately 16 million impact foreign exchange due strengthening us dollar versus euro foreign currencies excluding effect foreign exchange revenue increased 411 increase revenue excluding effect foreign exchange attributable acquisition research instruments business accel instruments gmbh varian medical systems inc second quarter 2009 offset part lower demand certain types superconducting wire system wire revenue aftermarket revenue percentage total energy supercon technologies segment revenue follows years ended december 31 2009 2008 dollars millions system wire revenues energy supercon technologies segment include low high temperature superconducting wire electron ion linear accelerators superconducting normal conducting accelerator cavities insertion devices superconducting fault current limiters accelerator components specialty superconducting magnets physics energy research variety scientific applications aftermarket revenues energy supercon technologies segment include services accessory sales income loss operations following table presents income loss operations operating margins revenue reportable segment years ended december 31 2009 2008 dollars millions arepresents corporate costs eliminations allocated reportable segments scientific instruments segment income operations year ended december 31 2009 1417 million resulting operating margin 133 compared income operations 1162 million resulting operating margin 108 comparable period 2008 income operations scientific instruments segment increased result improvement gross profit margins lower operating expenses 2009 gross profit margin percentage revenue scientific instruments segment increased 479 469 comparable period 2008 higher gross profit margins certain nuclear magnetic resonance products newly introduced mass spectrometry products combined productivity initiatives benefits cost cutting changes foreign currency exchange rates allowed us improve gross profit margins without significant increase volume product mix initiatives designed increase gross profits drove increase gross profit margins installation 1 gigahertz nuclear magnetic resonance spectrometer fourth quarter 2009 also contributed yearoveryear improvement high degree risk associated project magnitude majority costs incurred connection project charged research development expense incurred rather capitalized inventory result sale carried gross profit margins significantly higher nuclear magnetic resonance spectrometers scientific instruments segment operating expenses excluding acquisitionrelated charges percentage product service revenue year ended december 31 2009 decreased 346 355 comparable period 2008 decrease operating expenses result cost saving initiatives changes foreign currency exchange rates decreases offset part incremental investments marketspecific development efforts believe generate future growth energy supercon technologies segment loss operations year ended december 31 2009 63 million resulting operating margin 105 compared loss operations 82 million resulting operating margin 189 comparable period 2008 decrease loss operations result higher revenues described improvement gross profit margin percentage revenue year ended december 31 2008 compared year ended december 31 2007 consolidated results following table presents results years ended december 31 2008 2007 dollars millions except per share data revenue increased 747 million 72 11071 million year ended december 31 2008 compared 10324 million comparable period 2007 included change revenue increase approximately 395 million impact foreign exchange due weakening us dollar versus euro foreign currencies revenues scientific instruments segment increased currency adjusted basis 368 million 37 revenue scientific instruments segment reflects higher sales xray systems optical emission spectroscopy systems cbrne detection systems increases scientific instruments segment offset lower aftermarket revenues resulted number large accessories sold 2007 reoccur 2008 revenues energy supercon technologies segment increased currency adjusted basis 27 million 72 increase revenue excluding effect foreign exchange attributable changes demand certain types superconducting wire cost revenue cost product service revenue year ended december 31 2008 6021 million resulting gross profit margin 456 compared cost product service revenue 5568 million resulting gross profit margin 461 comparable period 2007 lower gross margins driven primarily mix products sold pricing pressure certain product lines increases headcount support planned revenue growth also contributed higher cost revenue lower gross profits sales marketing sales marketing expense year ended december 31 2008 increased 1838 million 167 product service revenue 1601 million 156 product service revenue comparable period 2007 increase sales marketing expenses attributable increases headcount support planned revenue growth additionally changes foreign currency exchange rates primarily euro also contributed increase sales marketing expense general administrative general administrative expense year ended december 31 2008 increased 707 million 64 product service revenue 596 million 58 product service revenue comparable period 2007 increase general administrative expenses primarily result bruker biospin becoming part publiclytraded company lesser degree acquisitions made 2008 research development research development expense year ended december 31 2008 increased 1338 million 121 product service revenue 1108 million 108 product service revenue comparable period 2007 increase research development expenses attributable primarily increases headcount higher material costs associated development number new products recently released scheduled released next six months additionally changes foreign currency exchange rates primarily euro also contributed increase research development expense majority research development performed europe restructuring charges income operations 2008 managements expectations result began implementing cost savings programs throughout organization recorded 23 million restructuring charges primarily connection restructuring certain operations netherlands approximately 22 million restructuring charges related involuntary severance program affected approximately 30 employees balance restructuring charge related termination certain leases impact program reduced number employees sales marketing research development consolidated focused selling development efforts single crystal xray diffraction products acquisitionrelated charges december 3 2007 announced entered definitive agreement acquire stock bruker biospin acquisition bruker biospin approved shareholders february 25 2008 completed february 26 2008 acquisition represented combination companies common control due majority ownership bruker corporation bruker biospin individuals year ended december 31 2008 incurred expensed acquisitionrelated charges totaling 62 million consisted primarily investment banking legal accounting fees year ended december 31 2007 incurred expensed acquisitionrelated charges totaling 74 million consisted primarily legal investment banking accounting fees compensation earned special committee board directors antitrust regulation filing fees interest income expense net interest income expense net year ended december 31 2008 150 million compared 58 million comparable period 2007 year ended december 31 2008 major components within interest income expense net realized unrealized losses foreign currency transactions 112 million net interest expense 68 million year ended december 31 2007 major components within interest income expense net interest income 81 million offset losses foreign currency transactions 39 million foreign exchange losses 122 million incurred first three months 2008 driven remeasurement certain foreign currency denominated assets principally cash intercompany receivables shortterm intercompany loan functional currency affected entities increase interest expense 2008 compared 2007 relates 3510 million borrowed new credit facility first quarter 2008 used finance acquisition bruker biospin incurred approximately 117 million interest expense year ended december 31 2008 89 million related acquisitionrelated debt also earned less interest income 2008 compared 2007 result lower average cash balances lower rates return cash equivalents provision income taxes income tax provision year ended december 31 2008 280 million compared income tax provision 443 million comparable period 2007 representing effective tax rates 300 309 respectively tax rate may change time amount mix income taxes outside us changes addition amount mix income taxes outside united states income tax provision impacted discrete items nonrecurring nature discrete items nature resulted net tax benefit 95 million year ended december 31 2008 related primarily reversing certain valuation allowances reaching morelikelythannot threshold recognizing certain tax receivables gross tax benefits 108 million offset part 13 million income taxes incurred connection liquidation tax ineffective entity within scientific instruments segment addition acquisitionrelated costs generate significant tax benefits us incurred primarily us foreign currency exchange losses generate significant tax benefits us occurred foreign locations relatively low statutory tax rates excluding discrete items effective tax rate 2008 would 402 discrete items year ended december 31 2007 resulted net benefit 101 million related primarily new tax legislation germany excluding discrete items effective tax rate 2007 would 379 net income attributable noncontrolling interests net income attributable noncontrolling interests years ended december 31 2008 2007 03 million net income attributable noncontrolling interests 2008 2007 represents minority shareholders proportionate share net loss recorded two majorityowned indirect subsidiaries bruker baltic ltd incoatec gmbh scientific instruments segment net income attributable bruker corporation net income year ended december 31 2008 649 million 039 per diluted share compared net income 989 million 060 per diluted share 2007 segment results revenue following table presents revenue change revenue growth reportable segment years ended december 31 2008 2007 dollars millions arepresents product service revenue reportable segments scientific instruments segment revenues scientific instruments segment revenue increased 732 million 73 10741 million year ended december 31 2008 compared 10009 million comparable period 2007 included change revenue increase approximately 364 million impact foreign exchange due weakening us dollar versus euro foreign currencies excluding effect foreign exchange revenue increased 37 revenue scientific instruments segment reflects higher sales xray systems optical emission spectroscopy systems cbrne detection systems increases scientific instruments segment offset lower aftermarket revenues decrease aftermarket sales relates number large accessories sold 2007 reoccur 2008 system revenue aftermarket revenue percentage total scientific instruments segment revenue follows years ended december 31 2008 2007 dollars millions system revenues scientific instruments segment include xray systems sparkoptical emission spectroscopy systems atomic force microscopy systems nuclear magnetic resonance systems magnetic resonance imaging systems electron paramagnetic imaging systems mass spectrometry systems cbrne detection systems molecular spectroscopy systems aftermarket revenues scientific instruments segment include accessory sales consumables training services energy supercon technologies segment revenues energy supercon technologies segment revenue increased 58 million 154 435 million year ended december 31 2008 compared 377 million comparable period 2007 included change revenue increase approximately 31 million impact foreign exchange due weakening us dollar versus euro foreign currencies excluding effect foreign exchange revenue increased 72 increase revenue excluding effect foreign exchange attributable changes demand certain types superconducting wire system wire revenue aftermarket revenue percentage total energy supercon technologies segment revenue follows years ended december 31 2008 2007 dollars millions system wire revenues energy supercon technologies segment include low high temperature superconducting wire electron ion linear accelerators superconducting normal conducting accelerator cavities insertion devices superconducting fault current limiters accelerator components specialty superconducting magnets physics energy research variety scientific applications aftermarket revenues energy supercon technologies segment include services accessory sales income loss operations following table presents income loss operations operating margins revenue reportable segment years ended december 31 2008 2007 dollars millions arepresents corporate costs eliminations allocated reportable segments scientific instruments segment income operations year ended december 31 2008 1162 million resulting operating margin 108 compared income operations 1428 million resulting operating margin 143 comparable period 2007 income operations scientific instruments segment decreased despite increase revenues result lower gross margins percentage revenue higher operating expenses year ended december 31 2008 year ended december 31 2008 gross profit margin percentage revenue scientific instruments decreased 469 471 comparable period 2007 lower gross margins driven primarily mix products sold pricing pressure certain product lines scientific instruments segment operating expenses excluding acquisitionrelated charges percentage product service revenue year ended december 31 2008 increased 355 325 comparable period 2007 increase operating expenses relates primarily selling marketing expenses research development expenses higher operating expenses result increased headcounts support planned revenue growth new product development higher commissions associated increase revenue higher material costs associated number new products released first half 2009 changes foreign currency exchange rates primarily euro also contributed increase operating expenses energy supercon technologies segment loss operations year ended december 31 2008 82 million resulting operating margin 189 compared loss operations 51 million resulting operating margin 135 comparable period 2007 liquidity capital resources currently anticipate existing cash credit facilities sufficient support operating investing needs least next twelve months depends profitability ability manage working capital requirements future cash requirements also affected acquisitions may make future historically financed growth cash flow generation combination debt financings issuances common stock future assurances additional financing alternatives available us required available obtained terms favorable us year ended december 31 2009 net cash provided operating activities 1498 million resulting primarily 810 million consolidated net income 365 million net changes working capital year ended december 31 2008 net cash provided operating activities 1069 million resulting primarily 652 million consolidated net income 102 million net changes working capital year ended december 31 2009 net cash used investing activities 182 million compared net cash used investing activities 491 million year ended december 31 2008 cash used investing activities year ended december 31 2009 attributable primarily 163 million capital expenditures 19 million used acquisitions cash used investing activities year ended december 31 2008 attributable primarily 474 million capital expenditures 114 million used acquisitions acquisitionrelated costs uses partially offset 98 million proceeds sale investments decrease capital expenditures year ended december 31 2009 compared 2008 relates part delay certain discretionary capital projects economic uncertainties impacting global economy much 2009 addition capital spending 2008 included amounts related expansion facility ettlingen germany completed third quarter 2008 currently expect capital spending 200 million 300 million 2010 year ended december 31 2009 net cash used financing activities 841 million compared net cash used financing activities 2337 million year ended december 31 2008 cash used financing activities year ended december 31 2009 attributable 847 million net debt repayments various longterm shortterm arrangements cash used financing activities year ended december 31 2008 attributable 3860 million paid certain shareholders bruker biospin connection acquisition 234 million withholding taxes paid connection dividend declared bruker biospin prior acquisition uses offset part 1730 million net borrowings related primarily credit agreement december 31 2009 outstanding debt totaling 1377 million consisting 1313 million outstanding term loan component credit agreement 03 million outstanding longterm debt arrangements 01 million outstanding revolving lines credit 60 million capital lease obligations december 31 2008 outstanding debt totaling 2238 million consisting 1965 million outstanding credit agreement including 1444 million outstanding term loan component 521 million revolving loans 158 million outstanding longterm debt arrangements 62 million outstanding revolving lines credit 53 million capital lease obligations december 31 2008 classified 356 million 521 million borrowed revolving credit line credit agreement longterm expectation would repay amount 2009 february 26 2008 completed acquisition bruker biospin 9140 million acquisition bruker biospin financed 57544872 shares unregistered common stock valued 5260 million based trailing 10day trading average closing price 914 per share two days prior signing transaction agreements 3510 million cash obtained new credit facility refer credit agreement balance cash hand credit agreement syndication lenders provides revolving credit line maximum commitment 2300 million term loan facility 1500 million outstanding principal term loan payable quarterly installments december 2012 borrowings credit agreement bear interest option either higher prime rate federal funds rate plus 050 ii adjusted libor plus margins ranging 040 125 facility fee ranging 010 020 december 31 2009 weighted average interest rate borrowings term facility credit agreement approximately 27 borrowings credit agreement secured pledge banks 100 capital stock whollyowned domestic subsidiaries 65 capital stock certain whollyowned direct indirect foreign subsidiaries credit agreement also requires maintain certain financial ratios related maximum leverage minimum interest coverage defined credit agreement specifically leverage ratio cannot exceed 30 interest coverage ratio cannot less 30 addition financial ratios credit agreement restricts among things ability following make certain payments incur additional debt incur certain liens make certain investments including derivative agreements merge consolidate sell transfer substantially assets enter certain transactions affiliates failure comply restrictions covenants may result event default applicable debt instrument could permit acceleration debt instrument require us prepay debt scheduled due date december 31 2009 latest measurement date compliance covenants credit agreement leverage ratio 07 interest coverage ratio 179 longterm debt arrangements december 31 2009 consist collateralized arrangement financial institution germany fixed interest rate 295 term arrangement 2010 revolving loans various financial institutions located primarily germany switzerland france following summary maximum commitments net amounts available company revolving loans december 31 2009 millions december 31 2009 approximately 41 million net operating loss carryforwards available reduce future us taxable income however losses limited terms use company also approximately 490 million german trade tax net operating losses carried forward indefinitely us tax credits approximately 44 million available offset future tax liabilities expire various dates us tax credits include foreign tax credits 25 million expiring various years 2019 research development tax credits 18 million expiring various dates 2025 credits 01 million operating losses tax credit carryforwards may subject limitations provisions internal revenue code following table summarizes maturities significant financial obligations december 31 2009 millions uncertain tax contingencies positions taken expected taken income tax return may result additional payments tax authorities total amount uncertain tax contingencies included 13 years column able reasonably estimate timing potential future payments tax authority agrees tax position taken expected taken applicable statute limitations expires additional payments necessary transactions related parties lease certain office space certain principal shareholders years ended december 31 2009 2008 2007 shareholders paid approximately 21 million 18 million 15 million respectively estimated equal fair market value years ended december 31 2009 2008 2007 incurred expenses 11 million 23 million 17 million respectively law firm one directors partner years ended december 31 2009 2008 2007 incurred expenses 06 million 09 million 13 million respectively financial services firm one directors partner recent accounting pronouncements june 2009 financial accounting standards board fasb issued accounting standards codification topic 105 generally accepted accounting principles codification topic 105 effective fiscal years interim periods ending september 15 2009 codification topic 105 intended improve financial reporting identifying fasb accounting standards codification rules interpretive releases securities exchange commission sec authority federal securities laws sole sources authoritative accounting principles used preparing financial statements presented conformity accounting principles generally accepted united states america sec registrants adoption codification topic 105 material impact results operations financial position cash flows january 2010 fasb issued accounting standards update 201006 fair value measurements disclosures topic 820improving disclosures fair value measurements accounting standards update 201006 require new disclosures transfers levels 1 2 fair value hierarchy activity including purchases sales issuances settlements level 3 fair value measurements requirements accounting standards update 201006 effective interim annual periods beginning december 15 2009 except disclosures purchases sales issuances settlements level 3 fair value measurements effective interim annual periods beginning december 15 2010 currently assessing impact additional disclosure requirements results operations financial position adopt requirements september 2009 emerging issues task force reached consensus fasb accounting standards update 200914 software topic 985certain revenue arrangements include software elements fasb accounting standards updates 200914 changes accounting model revenue arrangements include tangible products software elements guidance tangible products containing software components nonsoftware components function together deliver tangible products essential functionality excluded software revenue guidance subtopic 985605 softwarerevenue recognition addition hardware components tangible product containing software components always excluded software revenue guidance fasb accounting standards updates 200914 effective prospectively revenue arrangements entered materially modified fiscal years beginning june 15 2010 however early adoption permitted currently assessing impact update results operations financial position adopt requirements september 2009 emerging issues task force reached consensus fasb accounting standards update 200913 revenue recognition topic 605multipledeliverable revenue arrangements fasb accounting standards update 200913 addresses accounting multipledeliverable arrangements enable vendors account products services separately rather combined unit specifically guidance amends criteria subtopic 60525 revenue recognitionmultipleelement arrangements separating consideration multipledeliverable arrangements guidance establishes selling price hierarchy determining selling price deliverable based vendorspecific objective evidence b thirdparty evidence c estimates guidance also eliminates residual method allocation requires arrangement consideration allocated inception arrangement deliverables using relative selling price method addition guidance significantly expands required disclosures related vendors multipledeliverable revenue arrangements fasb accounting standards update 200913 effective prospectively revenue arrangements entered materially modified fiscal years beginning june 15 2010 however early adoption permitted currently assessing impact update results operations financial position adopt requirements item 7aitem 7 managements discussion analysis financial condition results operations following managements discussion analysis financial condition results operations mda describes principal factors affecting results operations financial condition changes financial condition well critical accounting policies estimates mda organized follows •executive overview section provides general description history business brief discussion reportable segments significant recent developments business opportunities challenges risks may impact business future •critical accounting policies section discusses accounting estimates considered important financial condition results operations require us exercise subjective complex judgments application significant accounting policies including critical accounting policies estimates summarized note 2 consolidated financial statements item 8 report form 10k •results operations section provides analysis significant line items consolidated statement income year ended december 31 2010 compared year ended december 31 2009 year ended december 31 2009 compared year ended december 31 2008 •liquidity capital resources section provides analysis liquidity cash flow discussion outstanding debt commitments •transactions related parties section summarizes transactions principal shareholders directors •recent accounting pronouncements section provides information new accounting standards issued adoption yet required executive overview business overview bruker corporation whollyowned subsidiaries design manufacture service market proprietary life science materials research systems based technology platforms including magnetic resonance technologies mass spectrometry technologies gas chromatography technologies xray technologies sparkoptical emission spectroscopy atomic force microscopy stylus optical metrology technology infrared raman molecular spectroscopy technologies sell broad range field analytical systems chemical biological radiological nuclear explosive cbrne detection also develop manufacture low temperature high temperature superconducting wire products superconducting wire superconducting devices use advanced magnet technology physics research energy applications diverse customer base includes life science pharmaceutical biotechnology molecular diagnostic research companies academic institutions advanced materials semiconductor industries government agencies maintain major technical manufacturing centers europe north america japan sales offices located throughout world corporate headquarters located billerica massachusetts business strategy capitalize ability innovate generate rapid revenue growth organically acquisitions revenue growth strategy combined anticipated improvements gross profit margins increased leverage research development sales marketing distribution investments general administrative expenses expected enhance operating margins improve profitability future 2010 completed acquisition veeco metrology inc scanning probe microscopy optical industrial metrology business nano surfaces business certain assets liabilities varians inductively coupled plasma mass spectrometry instruments business laboratory gas chromatography instruments business gas chromatography triplequadrupole mass spectrometry instruments business chemical analysis business businesses complement existing atomic force microscopy mass spectrometry products expand offerings industrial applied markets acquisitions also provide opportunities supply customers equipment packages broader range applications value 2008 completed acquisition bruker biospin bruker corporation bruker biospin majority owned six affiliated shareholders prior acquisition result acquisition bruker biospin considered combination companies common control accounted historical carrying values addition bruker biospin enhanced scientific instruments business thus furthered position leading supplier life science materials research systems technologies bruker biospin particularly complementary accuratemass electrospray timeofflight mass spectrometers singlecrystal diffraction xray spectrometers addition bruker biospin created revenue synergies improved sales service infrastructure enhanced distribution scientific instruments americas europe asia organized five operating segments representing five divisions bruker biospin bruker daltonics bruker mat bruker optics bruker energy supercon technologies bruker biospin business designing manufacturing distributing enabling life science tools based magnetic resonance technology bruker daltonics business manufacturing distributing mass spectrometry instruments integrated used along analytical instruments cbrne detection products bruker mat includes operations bruker axs nano surfaces business acquired 2010 bruker mat operating segment formerly referred bruker axs renamed reflect growth product lines focused materials identification characterization beyond bruker axs advanced xray instrumentation specifically bruker mat business manufacturing distributing advanced xray sparkoptical emission spectroscopy atomic force microscopy stylus optical metrology instrumentation used nondestructive molecular elemental analysis bruker optics business manufacturing distributing research analytical process analysis instruments solutions based infrared raman molecular spectroscopy technologies bruker energy supercon technologies business developing producing superconducting materials devices growing markets renewable energy infrastructure healthcare big science research combine bruker biospin bruker daltonics bruker mat bruker optics operating segments scientific instruments reporting segment similar economic characteristics product processes services types classes customers methods distribution regulatory environments management reports results based following segments •scientific instruments operations segment include design manufacture distribution advanced instrumentation automated solutions based magnetic resonance technology mass spectrometry technology gas chromatography technology xray technology sparkoptical emission spectroscopy technology atomic force microscopy technology stylus optical metrology technology infrared raman molecular spectroscopy technology typical customers scientific instruments segment include pharmaceutical biotechnology molecular diagnostic companies academic institutions medical schools nonprofit organizations clinical microbiology laboratories government departments agencies nanotechnology semiconductor chemical cement metals petroleum companies food beverage agricultural analysis companies laboratories •energy supercon technologies operations segment include design manufacture marketing superconducting materials primarily metallic low temperature superconductors use magnetic resonance imaging nuclear magnetic resonance fusion energy research ceramic high temperature superconductors use fusion energy research applications typical customers energy supercon technologies segment include companies medical industry private public research development laboratories fields fundamental applied sciences energy research academic institutions government agencies energy supercon technologies segment also developing superconductors superconductingenabled devices applications power energy well industrial processing industries financial overview year ended december 31 2010 revenue increased 1904 million 171 13049 million compared 11145 million comparable period 2009 included change revenue reduction approximately 181 million impact foreign exchange due strengthening us dollar versus euro foreign currencies increase approximately 671 million attributable recent acquisitions excluding effect foreign exchange recent acquisitions revenue increased 1414 million 127 increase revenue adjusted basis attributable scientific instruments segment increased 1153 million 108 energy supercon technologies segment increased 288 million 482 revenue scientific instruments segment reflects increase sales core technologies particularly magnetic resonance xray mass spectrometry revenue energy supercon technologies segment increased due higher demand low temperature superconducting wire mix products sold scientific instruments segment 2010 reflects increased demand academic government industrial customers attribute increase sales magnetic resonance mass spectrometry products spending academic government customers new product introductions last twelve eighteen months stimulus packages implemented governments various countries including us germany japan china improvement revenues industrial customers reflects ongoing economic improvement end markets general spending patterns industrial customers negatively impacted global recession first half 2009 second half 2009 global economy started improve began see indicators improvement industrial markets experienced increase demand industrial customers 2010 remain optimistic industrial markets serve continue improve additionally many european governments announced intentions reduce overall spending number key european markets including germany france uk announced research spending remain stable grow cases based recent announcements governments recent announcements european union believe funding majority products markets remain stable grow key european markets income operations year ended december 31 2010 1557 million resulting operating margin 119 compared income operations 1367 million resulting operating margin 123 comparable period 2009 included income operations various charges cost revenue amortization intangible assets charges related primarily recent acquisitions excluding effect charges operating margins increased 134 2010 compared 125 2009 increase operating margin adjusted basis primarily result higher revenue described corresponding improvement gross profit margins gross profit margin year ended december 31 2010 464 compared 465 comparable period 2009 however excluding effect recent acquisitions gross profit margins increased 470 2010 compared 465 2009 increase revenue also allowed us leverage selling general administrative costs research development costs decreased 336 revenue year ended december 31 2010 compared 341 revenue comparable period 2009 higher gross profit margins year ended december 31 2010 resulted primarily higher revenues changes product mix specifically increase revenues highend instrumentation including newly introduced products designed carry higher gross margins previous generations products increase revenue also allowed us better utilize production facilities leverage fixed production costs weakening euro favorably impacts gross profit margins majority production performed europe also contributed improvement gross profit margin incurred approximately 56 million interest expense year ended december 31 2010 compared 75 million comparable period 2009 total interest expense incurred year ended december 31 2010 approximately 50 million related credit facility entered first quarter 2008 october 2010 borrowed 1676 million revolving portion credit agreement finance acquisition working capital requirements nano surfaces business subsequent acquisition nano surfaces business borrowed additional 179 million general working capital requirements currently evaluating longterm financing options replace 1855 million borrowed revolving loan effective tax rate year ended december 31 2010 355 compared 373 2009 tax rate vary yeartoyear amount mix income taxes outside us changes tax rate also varies result discrete items nonrecurring nature 2010 increased reserves certain ongoing tax audits 28 million 2009 repatriated cash certain foreign locations us order reduce outstanding debt credit agreement repatriation certain transactions taxable united states resulted approximately 43 million tax expense net income attributable shareholders bruker corporation year ended december 31 2010 954 million 058 per diluted share compared 812 million 049 per diluted share comparable period 2009 critical accounting policies discussion analysis financial condition results operations based upon consolidated financial statements prepared accordance accounting principles generally accepted united states america preparation financial statements requires make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments including related revenue recognition income taxes allowance doubtful accounts inventories goodwill intangible assets longlived assets warranty costs derivative financial instruments base estimates judgments historical experience current market economic conditions industry trends assumptions believe reasonable form basis making judgments carrying value assets liabilities readily apparent sources actual results could differ estimates believe following critical accounting policies important portrayal financial position results operations require subjective judgment revenue recognition recognize revenue system sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectability resulting receivable reasonably assured title risk loss generally transferred customer upon receipt signed customer acceptance form system shipped installed customer trained result timing customer acceptance readiness could cause reported revenues differ materially expectations products sold independent distributor strategic distribution partner assumes responsibility installation recognize system sale product shipped title risk loss transferred distributor distributors price protection rights return however products typically warranted free defect period one year revenue deferred cash received collectability reasonably assured significant portion fee due one year delivery installation acceptance system arrangements multiple elements recognize revenue element based relative fair value elements provided criteria revenue recognition met fair value element provided multiple element arrangements typically determined referencing prices charged element sold separately objective reliable evidence fair value undelivered items arrangement evidence delivered items use residual method allocate arrangement consideration changes ability establish fair value element multiple element arrangements could affect timing revenue recognition revenue accessories parts recognized upon shipment service revenue recognized services performed also contracts apply percentageofcompletion model revenue recognition application percentageofcompletion method requires us make reasonable estimates extent progress toward completion contract total costs incur contract changes estimates could affect timing revenue recognition income taxes determination income tax expense requires us make certain estimates judgments concerning calculation deferred tax assets liabilities well deductions carryforwards credits available reduce taxable income deferred tax assets liabilities arise differences timing recognition revenue expenses financial statement tax purposes deferred tax assets liabilities measured using tax rates effect year temporary differences expected settled estimate degree tax assets loss carryforwards result benefit based expected profitability tax jurisdiction provide valuation allowance tax assets loss carryforwards believe likely go unused becomes likely tax asset loss carryforward used reserve provided reverse related valuation allowance actual future taxable income tax jurisdiction differs estimates additional allowances reversals reserves may necessary addition recognize benefits tax positions believe likely sustained upon review taxing authority knowledge relevant information reevaluate uncertain tax positions quarterly basis changes positions result tax audits tax laws facts circumstances could result additional charges operations allowance doubtful accounts maintain allowances doubtful accounts estimated losses resulting inability customers pay amounts due financial condition customers deteriorate reducing ability make payments additional allowances would required resulting charge operations inventories stated lower cost market costs determined firstin firstout method majority subsidiaries average cost certain international subsidiaries record provisions account excess obsolete inventory reflect expected nonsaleable nonrefundable inventory based evaluation slow moving products inventories also include demonstration units located demonstration laboratories installed sites potential customers consider demonstration units available sale reduce carrying value demonstration inventories differences cost estimated net realizable value taking consideration usage preceding twelve months expected demand technological obsolescence information including physical condition unit ultimate usage demand varies significantly expected usage demand additional writedowns may required resulting additional charges operations goodwill intangible assets longlived assets evaluate whether goodwill impaired annually events occur circumstances change test goodwill impairment reporting unit level operating segment one level operating segment performance test involves twostep process first step impairment test involves comparing fair values applicable reporting units aggregate carrying values including goodwill generally determine fair value reporting units using income approach methodology valuation includes discounted cash flow method estimating fair value reporting units requires significant judgments management future cash flows carrying amount reporting unit exceeds fair value reporting unit perform second step goodwill impairment test measure amount impairment second step goodwill impairment test compare implied fair value reporting units goodwill carrying value goodwill also review finitelived intangible assets longlived assets indications potential impairment exists significant reduction undiscounted cash flows associated assets fair value longlived assets decline reduced operating performance market declines indicators impairment charge operations impairment may necessary warranty costs normally provide one year parts labor warranty purchase equipment anticipated cost warranty accrued upon recognition sale based historical warranty rates assumptions future warranty claims warranty accrual included current liability consolidated balance sheets although products undergo quality assurance testing procedures throughout production process warranty obligation affected product failure rates material usage service delivery costs incurred correcting product failure although actual warranty costs historically consistent expectations extent warranty claim activity costs associated servicing claims differ estimates revisions warranty accrual may required derivative financial instruments derivative instruments recorded assets liabilities fair value calculated estimate future cash flows subsequent changes derivatives fair value recognized income unless specific hedge accounting criteria met changes fair value derivative highly effective designated cash flow hedge recognized accumulated comprehensive income forecasted transaction occurs becomes probable forecasted transaction occur perform assessment inception hedge quarterly basis thereafter determine whether derivatives highly effective offsetting changes value hedged items changes fair value resulting hedge ineffectiveness immediately recognized income expense results operations year ended december 31 2010 compared year ended december 31 2009 consolidated results following table presents results years ended december 31 2010 2009 dollars millions except per share data revenue increased 1904 million 171 13049 million year ended december 31 2010 compared 11145 million comparable period 2009 included change revenue reduction approximately 181 million impact foreign exchange due strengthening us dollar versus euro foreign currencies increase approximately 671 million attributable recent acquisitions excluding effect foreign exchange recent acquisitions revenue increased 1414 million 127 increase revenue adjusted basis attributable scientific instruments segment increased 1153 million 108 energy supercon technologies segment increased 288 million 482 revenue scientific instruments segment reflects increase sales core technologies particularly magnetic resonance xray mass spectrometry revenue energy supercon technologies segment increased due higher demand low temperature superconducting wire mix products sold scientific instruments segment 2010 reflects increased demand academic government industrial customers attribute increase sales magnetic resonance mass spectrometry products spending academic government customers new product introductions last twelve eighteen months stimulus packages implemented governments various countries including us germany japan china improvement revenues industrial customers reflects ongoing economic improvement end markets general spending patterns industrial customers negatively impacted global recession first half 2009 second half 2009 global economy improved began see indicators improvement industrial markets serve experienced increase demand industrial customers 2010 additionally many european governments announced intentions reduce overall spending number key european markets including germany france uk announced research spending remain stable grow cases based recent announcements governments recent announcements european union believe funding majority products markets remain stable grow key european markets cost revenue cost product service revenue year ended december 31 2010 6989 million resulting gross profit margin 464 compared cost product service revenue 5959 million resulting gross profit margin 465 comparable period 2009 increase cost revenue primarily function higher revenues described cost revenue 2010 includes charges 72 million representing difference fair value historical costs inventories acquired nano surfaces chemical analysis businesses excluding charges gross profit margin 2010 470 similar charges cost revenue 2009 higher gross profit margins adjusted basis resulted changes product mix specifically increase revenues highend instrumentation including newly introduced products designed carry higher gross margins previous generations products weakening euro favorably impacts gross profit margins majority production performed europe increase revenue also allowed us better utilize production facilities leverage fixed production costs also reduced production costs various cost saving initiatives strict cost control manufacturing facilities selling general administrative selling general administrative expense year ended december 31 2010 increased 2973 million 228 revenue 2533 million 227 revenue comparable period 2009 increase selling general administrative expenses attributable increases headcount acquisitions nano surfaces chemical analysis businesses increases headcount support planned revenue growth existing businesses increases headcount offset part changes foreign currency exchange rates primarily weakening euro favorably impacts selling general administrative expenses majority selling marketing employees located europe research development research development expense year ended december 31 2010 increased 1414 million 108 revenue 1264 million 113 revenue comparable period 2009 increase research development expenses attributable increases headcount acquisitions nano surfaces chemical analysis businesses increases headcount material costs support future product introductions existing businesses increases research development expenses offset part changes foreign currency exchange rates primarily weakening euro favorably impacts research development expenses majority research development performed europe amortization acquisitionrelated intangibles amortization expense acquisitionrelated intangible assets year ended december 31 2010 increased 58 million 18 million comparable period 2009 increase amortization acquisitionrelated intangible assets relates intangible assets acquired connection purchase nano surfaces chemical analysis businesses charges net charges net 58 million recorded 2010 consist charges recorded entirely scientific instruments segment charges recorded 2010 consist 46 million acquisitionrelated costs 02 million restructuring charges loss 10 million recorded connection divestiture business acquisitionrelated costs recorded 2010 relate acquisitions nano surfaces chemical analysis businesses consist costs incurred transition service arrangements entered sellers transaction costs including legal accounting fees expect transition costs recur end transition services agreements restructuring charges related primarily severance incurred connection closing production facility herzogenrath germany loss sale investment associated investment bruker baltic ltd manufacturing site located riga lativa engaged production certain components used xray product lines restructuring charges loss investment incurred part broader corporate strategy reducing costs consolidating critical production knowhow certain key production sites charges net 04 million recorded 2009 consist 02 million charges recorded scientific instruments segment 02 million charges recorded energy supercon technologies segment charge recorded scientific instruments segment consists entirely restructuring charges relates additional amounts recorded connection restructuring program began fourth quarter 2008 approximately 30 employees located netherlands left company charges recorded energy supercon technologies segment consist 08 million transaction costs incurred connection acquisition research instruments business varian medical systems inc 07 million impairment charges associated fixed assets used production certain superconducting wire offset part bargain purchase gain 13 million recorded connection acquisition research instruments business interest income expense net interest income expense net year ended december 31 2010 56 million compared 76 million comparable period 2009 year ended december 31 2010 major components within interest income expense net consisted net interest expense 47 million realized unrealized losses foreign currency transactions 15 million year ended december 31 2009 major components within interest income expense net consisted net interest expense 65 million realized unrealized losses foreign currency transactions 19 million decrease interest expense function lower average outstanding debt balances throughout 2010 losses foreign currency exchange rates primarily function changes exchange rates euro swiss franc us dollar provision income taxes income tax provision year ended december 31 2010 533 million compared income tax provision 481 million comparable period 2009 representing effective tax rates 355 373 respectively tax rate may change time amount mix income taxes outside us changes addition amount mix income taxes outside united states income tax provision impacted discrete items nonrecurring nature discrete items nature resulted tax expense 28 million 43 million years ended december 31 2010 2009 respectively amounts recorded 2010 relate additional amounts accrued connection ongoing tax audits germany switzerland discrete amounts recorded 2009 related cash repatriated certain foreign locations us order reduce outstanding debt well certain transactions taxable us net income loss attributable noncontrolling interests net income loss attributable noncontrolling interests year ended december 31 2010 14 million compared 02 million comparable period 2009 net income loss attributable noncontrolling interests represents minority shareholders proportionate share net income loss recorded majorityowned indirect subsidiaries net income attributable bruker corporation net income year ended december 31 2010 954 million 058 per diluted share compared net income 812 million 049 per diluted share 2009 segment results revenue following table presents revenue change revenue growth reportable segment years ended december 31 2010 2009 dollars millions arepresents product service revenue reportable segments scientific instruments segment revenues scientific instruments segment revenue increased 1624 million 153 12251 million year ended december 31 2010 compared 10627 million comparable period 2009 included change revenue reduction approximately 132 million impact foreign exchange due strengthening us dollar versus euro foreign currencies increase approximately 603 million attributable acquisitions nano surfaces chemical analysis businesses excluding effect foreign exchange acquisitions revenue increased 1153 million 108 increase revenue adjusted basis attributable increase sales core technologies particularly magnetic resonance xray mass spectrometry mix products sold scientific instruments segment 2010 reflects increased demand academic government industrial customers attribute increase sales magnetic resonance mass spectrometry products spending academic government customers new product introductions last twelve eighteen months stimulus packages implemented governments various countries including us germany japan china also seen increased demand industrial customers economic conditions improved system revenue aftermarket revenue percentage total scientific instruments segment revenue follows years ended december 31 2010 2009 dollars millions system revenue scientific instruments segment includes nuclear magnetic resonance systems magnetic resonance imaging systems electron paramagnetic imaging systems mass spectrometry systems gas chromatography systems cbrne detection systems xray systems sparkoptical emission spectroscopy systems atomic force microscopy systems stylus optical metrology systems molecular spectroscopy systems aftermarket revenues scientific instruments segment include accessory sales consumables training services energy supercon technologies segment revenues energy supercon technologies segment revenues increased 307 million 513 905 million year ended december 31 2010 compared 598 million comparable period 2009 included change revenue reduction approximately 49 million impact foreign exchange due strengthening us dollar versus euro foreign currencies increase approximately 68 million attributable acquisition research instruments business excluding effect foreign exchange acquisition revenue increased 288 million 482 increase revenue adjusted basis attributable higher demand low temperature superconducting wire system wire revenue aftermarket revenue percentage total energy supercon technologies segment revenue follows years ended december 31 2010 2009 dollars millions system wire revenue energy supercon technologies segment includes low high temperature superconducting wire superconducting devices including magnets linear accelerators radio frequency cavities aftermarket revenues energy supercon technologies segment consist primarily sales cuponaltm bimetallic nonsuperconducting material sell power transport industries income loss operations following table presents income loss operations operating margins revenue reportable segment years ended december 31 2010 2009 dollars millions arepresents corporate costs eliminations allocated reportable segments scientific instruments segment income operations year ended december 31 2010 1605 million resulting operating margin 131 compared income operations 1417 million resulting operating margin 133 comparable period 2009 income operations 2010 includes 162 million charges related acquisition nano surfaces chemical analysis businesses charges include 72 million recorded cost revenue represents difference fair value historical costs inventories acquired acquisitions sold 2010 46 million acquisitionrelated costs 44 million recorded amortization acquisitionrelated intangibles excluding costs income operations scientific instruments segment would 1767 million operating margin 144 income operations adjusted basis improved result higher revenues described improvement gross profit margins year ended december 31 2010 gross profit margin percentage revenue scientific instruments segment increased 483 479 comparable period 2009 higher gross profit margins resulted primarily changes product mix specifically increase revenues highend instrumentation including newly introduced products designed carry higher gross margins previous generations products weakening euro favorably impacts gross profit margins majority production performed europe increase revenue also allowed us better utilize production facilities leverage fixed production costs also reduced production costs various cost saving initiatives year ended december 31 2010 selling general administrative expenses research development expenses scientific instruments segment increased 4197 million 343 segment revenue 3656 million 344 segment revenue comparable period 2009 increase function incremental investments sales marketing activities research development activities believe generate future growth well increases operating expenses related acquisitions completed 2010 changes foreign currency exchange rates partially offset increase operating expenses energy supercon technologies segment loss operations year ended december 31 2010 26 million resulting operating margin 29 compared loss operations 63 million resulting operating margin 105 comparable period 2009 increase operating margin primarily result higher revenue described corresponding improvements gross margin year ended december 31 2009 compared year ended december 31 2008 consolidated results following table presents results years ended december 31 2009 2008 dollars millions except per share data revenue increased 74 million 07 11145 million year ended december 31 2009 compared 11071 million comparable period 2008 included change revenue reduction approximately 147 million impact foreign exchange due strengthening us dollar versus euro foreign currencies excluding effect foreign exchange revenue increased 20 revenues scientific instruments segment increased modestly currency adjusted basis increasing 17 million 02 revenue scientific instruments segment reflects higher sales mass spectrometry systems offset lower sales xray optical emission spectroscopy systems revenues energy supercon technologies segment increased currency adjusted basis 179 million 411 increase revenue excluding effect foreign exchange attributable acquisition research instruments business offset part lower demand certain types superconducting wire mix products sold scientific instruments segment reflects increase revenues academic government customers offset lower sales industrial customers attribute increases spending academic government customers new product introductions stimulus packages implemented governments various countries including us germany japan china attribute overall decreases spending industrial customers worldwide recession cost revenue cost product service revenue year ended december 31 2009 5959 million resulting gross profit margin 465 compared cost product service revenue 6021 million resulting gross profit margin 456 comparable period 2008 higher gross profit margins certain nuclear magnetic resonance products newly introduced mass spectrometry products combined productivity initiatives benefits cost cutting changes foreign currency exchange rates allowed us improve gross profit margins without significant increase volume product mix initiatives designed increase gross profits drove increase gross profit margins installation 1 gigahertz nuclear magnetic resonance spectrometer fourth quarter 2009 also contributed approximately 06 yearoveryear improvement gross profit margin high degree risk associated 1 gigahertz project majority costs incurred connection project charged research development expense incurred rather capitalized inventory result sale carried gross profit margins significantly higher nuclear magnetic resonance spectrometers selling general administrative selling general administrative expense year ended december 31 2009 increased 2533 million 227 revenue 2527 million 228 revenue comparable period 2008 increase selling general administrative expenses attributable increases headcount support planned revenue growth result certain acquisitions increases sales marketing expenses offset part various cost saving initiatives changes foreign currency exchange rates primarily weakening euro also offset cost increases majority selling marketing employees located europe research development research development expense year ended december 31 2009 decreased 1264 million 114 product service revenue 1338 million 121 product service revenue comparable period 2008 decrease research development expenses attributable primarily changes foreign currency exchange rates primarily weakening euro majority research development performed europe cost saving initiatives certain areas research development organization also contributed decrease however also continued make incremental investments research development believe generate future growth amortization acquisitionrelated intangibles amortization expense acquisitionrelated intangible assets years ended december 31 2009 2008 18 million charges net charges net 04 million recorded 2009 consist 02 million charges recorded scientific instruments segment 02 million charges recorded energy supercon technologies segment charge recorded scientific instruments segment consists entirely restructuring charges relates additional amounts recorded connection restructuring program began fourth quarter 2008 approximately 30 employees located netherlands left company charges recorded energy supercon technologies segment consist 08 million transaction costs incurred connection acquisition research instruments business varian medical systems inc 07 million impairment charges associated fixed assets used production certain superconducting wire offset part bargain purchase gain 13 million recorded connection acquisition research instruments business charges net 85 million recorded 2008 related entirely scientific instruments segment charges consist 62 million transaction costs incurred connection acquisition bruker biospin 23 million restructuring charges transaction costs incurred connection acquisition bruker biospin expensed acquisition represented combination companies common control due majority ownership bruker corporation bruker biospin individuals restructuring charges incurred related primarily involuntary severance program affecting 30 employees netherlands actions taken netherlands reduced number employees sales marketing research development consolidated focused selling development efforts single crystal xray diffraction products interest income expense net interest income expense net year ended december 31 2009 76 million compared 150 million comparable period 2008 year ended december 31 2009 major components within interest income expense net consisted net interest expense 65 million realized unrealized losses foreign currency transactions 19 million year ended december 31 2008 major components within interest income expense net realized unrealized losses foreign currency transactions 112 million net interest expense 68 million losses foreign currency transactions 2008 resulted remeasurement certain foreign currency denominated assets principally cash intercompany receivables shortterm intercompany loan functional currency affected entities implemented various programs reduce exposure remeasurement foreign currencies programs contributed decrease realized unrealized losses foreign currency transactions provision income taxes income tax provision year ended december 31 2009 481 million compared income tax provision 280 million comparable period 2008 representing effective tax rates 373 300 respectively tax rate may change time amount mix income taxes outside us changes addition amount mix income taxes outside united states income tax provision impacted discrete items nonrecurring nature discrete items resulted tax expense 43 million year ended december 31 2009 related cash repatriated certain foreign locations us order reduce outstanding debt well certain transactions taxable us excluding amount tax rate 2009 would 339 discrete items impacting provision income taxes 2008 included tax benefits 108 million related primarily reversing certain valuation allowances reaching morelikelythannot threshold recognizing certain tax receivables tax benefits described offset 13 million income taxes incurred connection liquidation tax ineffective entity within scientific instruments segment addition acquisitionrelated costs generate significant tax benefits us incurred primarily us foreign currency exchange losses generate significant tax benefits us occurred foreign locations relatively low statutory tax rates excluding amounts tax rate 2008 would 402 net income loss attributable noncontrolling interests net income loss attributable noncontrolling interests year ended december 31 2009 02 million compared 03 million comparable period 2008 net income loss attributable noncontrolling interests represents minority shareholders proportionate share net income loss recorded majorityowned indirect subsidiaries net income attributable bruker corporation net income year ended december 31 2009 812 million 049 per diluted share compared net income 649 million 039 per diluted share 2008 segment results revenue following table presents revenue change revenue growth reportable segment years ended december 31 2009 2008 dollars millions arepresents product service revenue reportable segments scientific instruments segment revenues scientific instruments segment revenue decreased 114 million 11 10627 million year ended december 31 2009 compared 10741 million comparable period 2008 included change revenue reduction approximately 131 million impact foreign exchange due strengthening us dollar versus euro foreign currencies excluding effect foreign exchange revenue increased 02 revenue scientific instruments segment reflects higher sales mass spectrometry systems offset lower sales xray optical emission spectroscopy systems mix products sold scientific instruments segment reflects increase revenues academic government customers offset lower sales industrial customers attribute increases spending academic government customers new product introductions stimulus packages implemented governments various countries including us germany japan china attribute overall decreases spending industrial customers worldwide recession system revenue aftermarket revenue percentage total scientific instruments segment revenue follows years ended december 31 2009 2008 dollars millions system revenue scientific instruments segment includes xray systems sparkoptical emission spectroscopy systems atomic force microscopy systems nuclear magnetic resonance systems magnetic resonance imaging systems electron paramagnetic imaging systems mass spectrometry systems cbrne detection systems molecular spectroscopy systems aftermarket revenues scientific instruments segment include accessory sales consumables training services energy supercon technologies segment revenues energy supercon technologies segment revenue increased 163 million 375 598 million year ended december 31 2009 compared 435 million comparable period 2008 included change revenue reduction approximately 16 million impact foreign exchange due strengthening us dollar versus euro foreign currencies excluding effect foreign exchange revenue increased 411 increase revenue excluding effect foreign exchange attributable acquisition research instruments business 2009 offset part lower demand certain types superconducting wire system wire revenue aftermarket revenue percentage total energy supercon technologies segment revenue follows years ended december 31 2009 2008 dollars millions system wire revenue energy supercon technologies segment includes low high temperature superconducting wire superconducting devices including magnets linear accelerators radio frequency cavities aftermarket revenues energy supercon technologies segment consist primarily sales cuponaltm bimetallic nonsuperconducting material sell power transport industries income loss operations following table presents income loss operations operating margins revenue reportable segment years ended december 31 2009 2008 dollars millions arepresents corporate costs eliminations allocated reportable segments scientific instruments segment income operations year ended december 31 2009 1417 million resulting operating margin 133 compared income operations 1162 million resulting operating margin 108 comparable period 2008 income operations scientific instruments segment increased result improvement gross profit margins lower operating expenses 2009 gross profit margin percentage revenue scientific instruments segment increased 479 469 comparable period 2008 higher gross profit margins certain nuclear magnetic resonance products newly introduced mass spectrometry products combined productivity initiatives benefits cost cutting changes foreign currency exchange rates allowed us improve gross profit margins without significant increase volume product mix initiatives designed increase gross profits drove increase gross profit margins installation 1 gigahertz nuclear magnetic resonance spectrometer fourth quarter 2009 also contributed yearoveryear improvement high degree risk associated project magnitude majority costs incurred connection project charged research development expense incurred rather capitalized inventory result sale carried gross profit margins significantly higher nuclear magnetic resonance spectrometers selling general administrative costs research development costs scientific instruments segment decreased 344 revenue year ended december 31 2009 351 revenue comparable period 2008 decrease selling general administrative costs research development costs percentage revenue result various cost saving initiatives changes foreign currency exchange rates offset part incremental investments marketspecific development efforts believe generate future growth energy supercon technologies segment loss operations year ended december 31 2009 63 million resulting operating margin 105 compared loss operations 82 million resulting operating margin 189 comparable period 2008 decrease loss operations result higher revenues described improvement gross profit margin percentage revenue liquidity capital resources currently anticipate existing cash credit facilities sufficient support operating investing needs least next twelve months depends profitability ability manage working capital requirements future cash requirements also affected acquisitions may make future historically financed growth cash flow generation combination debt financings issuances common stock future assurances additional financing alternatives available us required available obtained terms favorable us year ended december 31 2010 net cash provided operating activities 1561 million resulting primarily 968 million consolidated net income year ended december 31 2009 net cash provided operating activities 1498 million resulting primarily 810 million consolidated net income year ended december 31 2010 net cash used investing activities 2990 million compared net cash used investing activities 182 million year ended december 31 2009 cash used investing activities year ended december 31 2010 attributable primarily 2698 million used acquisitions 319 million capital expenditures cash used investing activities year ended december 31 2009 attributable primarily 163 million capital expenditures 19 million used acquisitions currently anticipate capital spending 45 million 50 million 2011 year ended december 31 2010 net cash provided financing activities 1683 million compared net cash used financing activities 841 million year ended december 31 2009 cash provided financing activities year ended december 31 2010 attributable 1634 million net borrowings various longterm shortterm arrangements net borrowings primarily function 1676 million borrowed revolving loan component credit agreement used fund acquisition nano surfaces business cash used financing activities year ended december 31 2009 attributable 847 million net debt repayments various longterm shortterm arrangements december 31 2010 outstanding debt totaling 3010 million consisting 1106 million outstanding term loan component credit agreement 1855 million outstanding revolving loan component credit agreement 49 million capital lease obligations december 31 2009 outstanding debt totaling 1377 million consisting 1313 million outstanding term loan component credit agreement 03 million outstanding longterm debt arrangements 01 million outstanding revolving lines credit 60 million capital lease obligations february 26 2008 entered credit facility refer credit agreement credit agreement syndication lenders provides revolving credit line maximum commitment 2300 million term loan facility 1500 million outstanding principal term loan payable quarterly installments december 2012 borrowings credit agreement bear interest option either higher prime rate federal funds rate plus 050 ii adjusted libor plus margins ranging 040 125 facility fee ranging 010 020 december 31 2010 weighted average interest rate borrowings term facility credit agreement approximately 26 borrowings credit agreement secured pledge banks 100 capital stock whollyowned domestic subsidiaries 65 capital stock certain whollyowned direct indirect foreign subsidiaries credit agreement also requires maintain certain financial ratios related maximum leverage minimum interest coverage defined credit agreement specifically leverage ratio cannot exceed 30 interest coverage ratio cannot less 30 addition financial ratios credit agreement restricts among things ability following make certain payments incur additional debt incur certain liens make certain investments including derivative agreements merge consolidate sell transfer substantially assets enter certain transactions affiliates failure comply restrictions covenants may result event default applicable debt instrument could permit acceleration debt instrument require us prepay debt scheduled due date december 31 2010 latest measurement date compliance covenants credit agreement leverage ratio 14 interest coverage ratio 291 revolving loans various financial institutions located primarily germany switzerland france following summary maximum commitments net amounts available company revolving loans december 31 2010 dollars millions currently considering various longterm financing alternatives replace outstanding borrowings revolving loan component credit agreement expect agreement place first half 2011 however additional financing alternatives available us available terms favorable us expect would meet obligation combination cash hand future cash flow generation december 31 2010 approximately 76 million net operating loss carryforwards available reduce future us taxable income however losses limited terms use company also approximately 456 million german trade tax net operating losses carried forward indefinitely us tax credits approximately 57 million available offset future tax liabilities expire various dates us tax credits filing 2009 us federal tax return include research development tax credits 56 million expiring various dates 2025 credits 01 million operating losses tax credit carryforwards may subject limitations provisions internal revenue code following table summarizes maturities significant financial obligations december 31 2010 dollars millions uncertain tax contingencies positions taken expected taken income tax return may result additional payments tax authorities total amount uncertain tax contingencies included 13 years column able reasonably estimate timing potential future payments tax authority agrees tax position taken expected taken applicable statute limitations expires additional payments necessary transactions related parties lease certain office space certain principal shareholders years ended december 31 2010 2009 2008 shareholders paid approximately 24 million 21 million 18 million respectively estimated equal fair market value years ended december 31 2010 2009 2008 incurred expenses 29 million 11 million 23 million respectively law firm one directors partner years ended december 31 2010 2009 2008 incurred expenses 03 million 06 million 09 million respectively financial services firm one directors partner recent accounting pronouncements september 2009 emerging issues task force eitf reached consensus financial accounting standards board fasb accounting standards update asu 200914 software topic 985certain revenue arrangements include software elements fasb asu 200914 changes accounting model revenue arrangements include tangible products software elements guidance tangible products containing software components nonsoftware components function together deliver tangible products essential functionality excluded software revenue guidance subtopic 985605 softwarerevenue recognition addition hardware components tangible product containing software components always excluded software revenue guidance fasb asu 200914 effective prospectively revenue arrangements entered materially modified fiscal years beginning june 15 2010 expect adoption update material impact results operations financial position september 2009 eitf reached consensus fasb asu 200913 revenue recognition topic 605multipledeliverable revenue arrangements fasb asu 200913 addresses accounting multipledeliverable arrangements enable vendors account products services separately rather combined unit specifically guidance amends criteria subtopic 60525 revenue recognitionmultipleelement arrangements separating consideration multipledeliverable arrangements guidance establishes selling price hierarchy determining selling price deliverable based vendorspecific objective evidence b thirdparty evidence c estimates guidance also eliminates residual method allocation requires arrangement consideration allocated inception arrangement deliverables using relative selling price method addition guidance significantly expands required disclosures related vendors multipledeliverable revenue arrangements fasb asu 200913 effective prospectively revenue arrangements entered materially modified fiscal years beginning june 15 2010 expect adoption update material impact results operations financial position item 7aitem 7 managements discussion analysis financial condition results operations following managements discussion analysis financial condition results operations mda describes principal factors affecting results operations financial condition changes financial condition well critical accounting policies estimates mda organized follows •executive overview section provides general description history business brief discussion reportable segments significant recent developments business opportunities challenges risks may impact business future •critical accounting policies section discusses accounting estimates considered important financial condition results operations require us exercise subjective complex judgments application significant accounting policies including critical accounting policies estimates summarized note 2 consolidated financial statements item 8 annual report form 10k •results operations section provides analysis significant line items consolidated statement income year ended december 31 2011 compared year ended december 31 2010 year ended december 31 2010 compared year ended december 31 2009 •liquidity capital resources section provides analysis liquidity cash flow discussion outstanding debt commitments •transactions related parties section summarizes transactions principal shareholders directors •recent accounting pronouncements section provides information new accounting standards issued adoption yet required executive overview business overview bruker corporation whollyowned subsidiaries design manufacture service market proprietary life science materials research systems based technology platforms including magnetic resonance technologies mass spectrometry technologies gas chromatography technologies xray technologies sparkoptical emission spectroscopy atomic force microscopy stylus optical metrology technology infrared raman molecular spectroscopy technologies sell broad range field analytical systems chemical biological radiological nuclear explosive cbrne detection also develop manufacture low temperature high temperature superconducting wire products superconducting wire superconducting devices use advanced magnet technology physics research energy applications diverse customer base includes life science pharmaceutical biotechnology molecular diagnostic research companies academic institutions advanced materials semiconductor industries government agencies corporate headquarters located billerica massachusetts maintain major technical manufacturing centers europe north america japan sales offices located throughout world business strategy capitalize ability innovate generate rapid revenue growth organically acquisitions revenue growth strategy combined anticipated improvements gross profit margins increased leverage research development sales marketing distribution investments general administrative expenses expected enhance operating margins improve profitability future organized five operating segments bruker biospin bruker daltonics bruker mat bruker optics bruker energy supercon technologies bruker biospin business designing manufacturing distributing life science tools based magnetic resonance technology bruker daltonics business designing manufacturing distributing mass spectrometry gas chromatography instruments solutions life sciences including proteomics metabolomics clinical research applications mass spectrometry gas chromatography instruments also provide solutions applied markets include food safety environmental analysis fuel analysis bruker daltonics also designs manufactures distributes various analytical instruments cbrne detection bruker mat business designing manufacturing distributing advanced xray combustion analysis atomic force microscopy stylus optical metrology instrumentation used molecular materials elemental analysis bruker optics business designing manufacturing distributing research analytical process analysis instruments solutions based infrared raman molecular spectroscopy technologies bruker energy supercon technologies business developing producing superconducting materials devices based primarily metallic low temperature superconductors ceramic high temperature superconductors applications renewable energy infrastructure medical imaging life science analytics big science research typically consists large scale projects funded government group governments financial reporting purposes combine bruker biospin bruker daltonics bruker mat bruker optics operating segments scientific instruments reporting segment similar economic characteristics product processes services types classes customers methods distribution regulatory environments management reports financial results based following segments •scientific instruments operations segment include design manufacture distribution advanced instrumentation automated solutions based magnetic resonance technology mass spectrometry technology gas chromatography technology xray technology sparkoptical emission spectroscopy technology atomic force microscopy technology stylus optical metrology technology infrared raman molecular spectroscopy technology typical customers scientific instruments segment include pharmaceutical biotechnology molecular diagnostic companies academic institutions medical schools nonprofit organizations clinical microbiology laboratories government departments agencies nanotechnology semiconductor chemical cement metals petroleum companies food beverage agricultural analysis companies laboratories •energy supercon technologies operations segment include design manufacture marketing superconducting materials primarily metallic low temperature superconductors use magnetic resonance imaging nuclear magnetic resonance fusion energy research applications ceramic high temperature superconductors primarily fusion energy research applications typical customers energy supercon technologies segment include companies medical industry private public research development laboratories fields fundamental applied sciences energy research academic institutions government agencies energy supercon technologies segment also developing superconductors superconductingenabled devices applications power energy well industrial processing industries financial overview year ended december 31 2011 revenue increased 3468 million 266 16517 million compared 13049 million year ended december 31 2010 included change revenue increase approximately 789 million impact foreign exchange due weakening us dollar versus euro swiss franc foreign currencies increase approximately 1485 million attributable recent acquisitions excluding effects foreign exchange recent acquisitions revenue increased 1194 million 92 increase revenue adjusted basis attributable scientific instruments segment increased 1058 million 86 energy supercon technologies segment increased 179 million 198 revenue scientific instruments segment reflects increase sales many core technologies particularly xray elemental analysis magnetic resonance mass spectrometry molecular spectroscopy products mix products sold scientific instruments segment 2011 reflects increased demand academic government industrial customers attribute increase sales academic government customers increased spending customers new product introductions stimulus packages implemented governments various countries particularly us continue closely monitor spending patterns governments academic customers believe funding products remain stable grow key markets improvement revenues industrial customers reflects continued growth end markets new product introductions revenues energy supercon technologies segment increased due higher demand low temperature superconducting wire income operations year ended december 31 2011 1556 million resulting operating margin 94 compared income operations 1557 million resulting operating margin 119 year ended december 31 2010 included income operations various charges inventory amortization acquisitionrelated intangible assets acquisitionrelated costs deferred offering costs writtenoff legal professional services fees related internal fcpa investigation totaling aggregate 405 million 222 million 2011 2010 respectively excluding charges operating margins 119 2011 136 2010 operating margins decreased despite growth revenues gross profits mix products sold higher operating expenses gross profit year ended december 31 2011 7525 million compared 6040 million year ended december 31 2010 gross profit margin year ended december 31 2011 456 compared 463 year ended december 31 2010 however excluding effect inventory reserves related certain specialty magnets effects recently completed acquisitions including amortization expense totaling aggregate 151 million 43 million 2011 2010 respectively gross profit margins decreased 470 2011 compared 474 2010 gross profit margins 2011 benefitted higher revenues described sales newly introduced products designed carry higher gross margins previous generations products addition acquisition nano surfaces business positive impact gross profit margins 2011 however mix products sold including gas chromatography inductively coupled plasma products negatively impacted gross profit margins chemical analysis business contributed lower gross profit margins due higher planned production costs caused part costs lost production time associated relocating factories former varian inc sites facilities changes foreign currency exchange rates primarily strengthening euro swiss franc also contributed increase majority production facilities located europe selling general administrative expenses research development expenses increased 5838 million 353 revenue 2011 4425 million 339 revenue 2010 increase selling general administrative expenses research development expenses 2011 attributable increases headcount recent acquisitions increases headcount support planned revenue growth existing businesses also incurred higher commission expenses result increases new orders revenues changes foreign currency exchange rates primarily strengthening euro swiss franc also contributed increase majority employees located europe focused controlling costs implementing selective cost saving programs goal reducing operating expenses improving operating margins 2012 incurred approximately 73 million interest expense year ended december 31 2011 compared 56 million year ended december 31 2010 increase interest expense relates primarily increases amounts borrowed revolving portion credit agreement increase outstanding revolving loans attributable 1676 million borrowed october 2010 finance acquisition shortterm working capital requirements nano surfaces business additional 310 million borrowed september 2011 finance acquisition tribology business general corporate purposes may 2011 entered amendment restatement credit agreement amended credit agreement increased maximum commitment revolving credit line 2500 million extended maturity date revolving line credit may 2016 addition january 2012 entered note purchase agreement group accredited institutional investors note purchase agreement issued sold 2400 million senior notes consisted 200 million senior notes due january 18 2017 150 million senior notes due january 18 2019 1050 million senior notes due january 18 2022 1000 million senior notes due january 18 2024 used portion net proceeds senior notes reduce amounts outstanding revolving credit facility intend use remainder general corporate purposes effective tax rate 2011 354 compared 355 2010 provision income taxes 2011 includes approximately 63 million tax expense additional reserves recorded connection ongoing tax audits germany switzerland 2010 recorded reserves 28 million related tax audit switzerland change effective tax rate excluding increase reserves tax audits relates primarily reversing certain valuation allowances united states net income attributable shareholders bruker corporation year ended december 31 2011 923 million 055 per diluted share compared 954 million 058 per diluted share year ended december 31 2010 critical accounting policies discussion analysis financial condition results operations based upon consolidated financial statements prepared accordance accounting principles generally accepted united states america preparation financial statements requires make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments including related revenue recognition expensing capitalization research developments costs software stockbased compensation expense restructuring related charges income taxes including recoverability deferred tax assets allowances doubtful accounts reserves excess obsolete inventories estimated fair values longlived assets used evaluate recoverability intangible assets goodwill expected future cash flows used evaluate recoverability intangible assets longlived assets warranty costs derivative financial instruments contingent liabilities base estimates judgments historical experience current market economic conditions industry trends assumptions believe reasonable form basis making judgments carrying value assets liabilities readily apparent sources actual results could differ estimates believe following critical accounting policies important portrayal financial position results operations require subjective judgment revenue recognition recognize revenue system sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectability resulting receivable reasonably assured title risk loss generally transferred customer upon receipt signed customer acceptance form system shipped installed customer trained result timing customer acceptance readiness could cause reported revenues differ materially expectations products sold independent distributor strategic distribution partner assumes responsibility installation recognize system sale product shipped title risk loss transferred distributor distributors price protection rights return however products typically warranted free defect period one year revenue deferred cash received collectability reasonably assured significant portion fee due one year delivery installation acceptance system arrangements multiple elements allocate revenue element based relative fair value element using relative selling price method fair value element based vendor specific objective evidence available vendor specific objective evidence available use evidence thirdparties thirdparty evidence available use managements best estimate selling price revenue accessories parts recognized upon shipment service revenue recognized services performed also contracts apply percentageofcompletion model revenue recognition milestone method revenue recognition application percentageofcompletion method requires us make reasonable estimates extent progress toward completion contract total costs incur contract changes estimates could affect timing revenue recognition income taxes determination income tax expense requires us make certain estimates judgments concerning calculation deferred tax assets liabilities well deductions carryforwards credits available reduce taxable income deferred tax assets liabilities arise differences timing recognition revenue expenses financial statement tax purposes deferred tax assets liabilities measured using tax rates effect year temporary differences expected settled estimate degree tax assets loss carryforwards result benefit based expected profitability tax jurisdiction provide valuation allowance tax assets loss carryforwards believe likely go unused becomes likely tax asset loss carryforward used reserve provided reverse related valuation allowance actual future taxable income tax jurisdiction differs estimates additional allowances reversals reserves may necessary addition recognize benefits tax positions believe likely sustained upon review taxing authority knowledge relevant information reevaluate uncertain tax positions quarterly basis changes positions result tax audits tax laws facts circumstances could result additional charges operations allowance doubtful accounts maintain allowances doubtful accounts estimated losses resulting inability customers pay amounts due financial condition customers deteriorate reducing ability make payments additional allowances would required resulting charge operations inventories stated lower cost market costs determined firstin firstout method majority subsidiaries average cost certain international subsidiaries record provisions account excess obsolete inventory reflect expected nonsaleable nonrefundable inventory based evaluation slow moving products inventories also include demonstration units located demonstration laboratories installed sites potential customers consider demonstration units available sale reduce carrying value demonstration inventories differences cost estimated net realizable value taking consideration usage preceding twelve months expected demand technological obsolescence information including physical condition unit ultimate usage demand varies significantly expected usage demand additional writedowns may required resulting additional charges operations goodwill intangible assets longlived assets evaluate whether goodwill impaired annually events occur circumstances change test goodwill impairment reporting unit level operating segment one level operating segment 2011 amendment goodwill impairment guidance issued provides entities option perform qualitative assessment determine whether impairment testing necessary performing twostep test previously required qualitative assessment requires significant judgments management macroeconomic conditions including entitys operating environment industry market considerations entityspecific events related financial performance loss key personnel events could impact reporting unit adopted provisions amendment annual test impairment december 31 2011 concluded based qualitative assessment testing required future conclude testing required impairment test involves twostep process first step involves comparing fair values applicable reporting units aggregate carrying values including goodwill generally determine fair value reporting units using income approach methodology valuation includes discounted cash flow method estimating fair value reporting units requires significant judgments management future cash flows carrying amount reporting unit exceeds fair value reporting unit perform second step goodwill impairment test measure amount impairment second step goodwill impairment test compare implied fair value reporting units goodwill carrying value goodwill also review finitelived intangible assets longlived assets indications potential impairment exist significant reduction undiscounted cash flows associated assets fair value longlived assets decline reduced operating performance market declines indicators impairment charge operations impairment may necessary warranty costs normally provide one year parts labor warranty purchase equipment anticipated cost warranty accrued upon recognition sale based historical warranty rates assumptions future warranty claims warranty accrual included current liability consolidated balance sheets although products undergo quality assurance testing procedures throughout production process warranty obligation affected product failure rates material usage service delivery costs incurred correcting product failure although actual warranty costs historically consistent expectations extent warranty claim activity costs associated servicing claims differ estimates revisions warranty accrual may required derivative financial instruments derivative instruments recorded assets liabilities fair value calculated estimate future cash flows subsequent changes derivatives fair value recognized income unless specific hedge accounting criteria met changes fair value derivative highly effective designated cash flow hedge recognized accumulated comprehensive income forecasted transaction occurs becomes probable forecasted transaction occur perform assessment inception hedge quarterly basis thereafter determine whether derivatives highly effective offsetting changes value hedged items changes fair value resulting hedge ineffectiveness immediately recognized income expense results operations year ended december 31 2011 compared year ended december 31 2010 consolidated results following table presents results years ended december 31 2011 2010 dollars millions except per share data revenue increased 3468 million 266 16517 million year ended december 31 2011 compared 13049 million year ended december 31 2010 included change revenue increase approximately 789 million impact foreign exchange due weakening us dollar versus euro foreign currencies increase approximately 1485 million attributable recent acquisitions excluding effect foreign exchange recent acquisitions revenue increased 1194 million 92 increase revenue adjusted basis attributable scientific instruments segment increased 1058 million 86 energy supercon technologies segment increased 179 million 198 revenue scientific instruments segment reflects increase sales many core technologies revenue energy supercon technologies segment increased due higher demand low temperature superconducting wire revenue scientific instruments segment reflects increase sales many core technologies particularly xray elemental analysis magnetic resonance mass spectrometry molecular spectroscopy products mix products sold scientific instruments segment 2011 reflects increased demand academic government industrial customers attribute increase sales mass spectrometry magnetic resonance products spending academic government customers new product introductions stimulus packages implemented governments various countries particularly us many european governments announced intentions reduce overall spending number key european markets including germany france uk announced research spending remain stable grow cases based announcements governments european union believe funding majority products markets remain stable grow key european markets improvement revenues industrial customers reflects ongoing economic improvement end markets remain optimistic industrial markets serve continue improve cost revenue cost revenue year ended december 31 2011 8992 million resulting gross profit margin 456 compared cost product service revenue 7009 million resulting gross profit margin 463 year ended december 31 2010 increase cost revenue primarily function higher material costs result higher revenues described however increase costs also attributable increases headcount recent acquisitions increases headcount support current production requirements chemical analysis business also contributed increase cost revenue costs associated relocating factories former varian inc sites facilities changes foreign currency exchange rates primarily strengthening euro swiss franc also contributed increase cost revenue majority production facilities located europe recorded 151 million amortization expense cost revenue associated technologyrelated intangible assets additional 45 million representing difference fair value historical cost inventories acquired business combinations sold 2011 cost revenue 2011 also includes 46 million inventory reserves rework certain specialty magnets meet customer specifications 2010 recorded 43 million amortization expense cost revenue 72 million related fair value inventories acquired recent acquisitions 34 million related specialty magnets meet customer specifications selling general administrative selling general administrative expense year ended december 31 2011 increased 4066 million 246 revenue 3011 million 231 revenue year ended december 31 2010 increase selling general administrative expenses attributable increases headcount recent acquisitions primarily nano surfaces chemical analysis businesses increases headcount support planned revenue growth existing businesses addition increase new order bookings revenue 2011 resulted higher commission expense changes foreign currency exchange rates primarily strengthening euro also negatively impacted selling general administrative expenses majority selling marketing employees located europe research development research development expense year ended december 31 2011 increased 1772 million 107 revenue 1414 million 108 revenue year ended december 31 2010 increase research development expenses attributable increases headcount recent acquisitions increases headcount material costs support future product introductions existing businesses increase research development expenses also attributable changes foreign currency exchange rates primarily strengthening euro negatively impact research development expenses majority research development performed europe writeoff deferred offering costs september 2010 announced plans sell minority ownership position best subsidiary initial public offering capital stock best result economic market factors timing best initial public offering uncertain although best remains registration current uncertainty timing future offering wroteoff deferred offering costs totaling 34 million third quarter 2011 charges net 97 million recorded 2011 consist charges recorded entirely scientific instruments segment charges recorded 2011 consist 42 million acquisitionrelated costs associated nano surfaces business chemical analysis business acquisitions completed year acquisitionrelated costs consist costs incurred transition service arrangements entered sellers nano surfaces chemical analysis businesses transaction costs including legal accounting fees transition services agreements expired 2011 expect costs recur charges net year ended december 31 2011 also includes 43 million legal professional service fees associated internal investigation china operations bruker optics charges net 58 million recorded 2010 consist charges recorded entirely scientific instruments segment charges recorded 2010 consist 46 million acquisitionrelated costs 02 million restructuring charges loss 10 million recorded connection divestiture business acquisitionrelated costs recorded 2010 relate acquisitions nano surfaces chemical analysis businesses consist costs incurred transition service arrangements entered sellers transaction costs including legal accounting fees restructuring charges related primarily severance incurred connection closing production facility herzogenrath germany loss sale investment associated investment bruker baltic ltd manufacturing site located riga latvia engaged production certain components used xray product lines restructuring charges loss investment incurred part broader corporate strategy reducing costs consolidating critical production knowhow certain key production sites interest income expense net interest income expense net year ended december 31 2011 101 million compared 56 million year ended december 31 2010 year ended december 31 2011 major components within interest income expense net consisted net interest expense 63 million realized unrealized losses foreign currency transactions 44 million year ended december 31 2010 major components within interest income expense net consisted net interest expense 47 million realized unrealized losses foreign currency transactions 15 million increase interest expense primarily function higher average outstanding debt balances throughout 2011 lesser degree increase average interest rates pay outstanding borrowings losses foreign currency exchange rates primarily function changes exchange rates euro swiss franc us dollar provision income taxes income tax provision year ended december 31 2011 515 million compared income tax provision 533 million year ended december 31 2010 representing effective tax rates 354 355 respectively tax rate may change time amount mix income taxes outside us changes addition amount mix income taxes outside united states income tax provision impacted discrete items nonrecurring nature discrete items nature resulted tax expense 63 million 28 million years ended december 31 2011 2010 respectively discrete items recorded 2011 2010 relate additional amounts accrued connection ongoing tax audits germany switzerland change effective tax rate excluding increase reserves tax audits relates primarily reversing certain valuation allowances united states able release portion valuation allowance deferred tax assets united states deferred tax liabilities arising identified intangible assets acquired connection tribology hplc businesses maintain full valuation allowance deferred tax assets united states deferred tax liabilities recorded connection acquisitions represents source future taxable income allows us utilize portion deferred tax assets net income attributable noncontrolling interests net income attributable noncontrolling interests year ended december 31 2011 17 million compared 14 million year ended december 31 2010 net income attributable noncontrolling interests represents minority shareholders proportionate share net income recorded majorityowned indirect subsidiaries net income attributable bruker corporation net income year ended december 31 2011 923 million 055 per diluted share compared net income 954 million 058 per diluted share 2010 segment results revenue following table presents revenue change revenue growth reportable segment years ended december 31 2011 2010 dollars millions arepresents product service revenue reportable segments scientific instruments segment revenues scientific instruments segment revenue increased 3290 million 269 15541 million year ended december 31 2011 compared 12251 million year ended december 31 2010 included change revenue increase approximately 747 million impact foreign exchange due weakening us dollar versus euro foreign currencies increase approximately 1485 million attributable recent acquisitions excluding effect foreign exchange acquisitions revenue increased 1058 million 86 increase revenue adjusted basis attributable increase many core technologies particularly xray elemental analysis magnetic resonance mass spectrometry molecular spectroscopy mix products sold scientific instruments segment 2011 reflects increased demand academic government industrial customers system revenue aftermarket revenue percentage total scientific instruments segment revenue follows years ended december 31 2011 2010 dollars millions system revenue scientific instruments segment includes nuclear magnetic resonance systems magnetic resonance imaging systems electron paramagnetic imaging systems mass spectrometry systems gas chromatography systems cbrne detection systems xray systems sparkoptical emission spectroscopy systems atomic force microscopy systems stylus optical metrology systems molecular spectroscopy systems aftermarket revenues scientific instruments segment include accessory sales consumables training services energy supercon technologies segment revenues energy supercon technologies segment revenues increased 229 million 253 1134 million year ended december 31 2011 compared 905 million year ended december 31 2010 included change revenue increase approximately 50 million impact foreign exchange due weakening us dollar versus euro foreign currencies excluding effect foreign exchange revenue increased 179 million 198 increase revenue adjusted basis attributable higher demand low temperature superconducting wire system wire revenue aftermarket revenue percentage total energy supercon technologies segment revenue follows years ended december 31 2011 2010 dollars millions system wire revenue energy supercon technologies segment includes low high temperature superconducting wire superconducting devices including magnets linear accelerators radio frequency cavities aftermarket revenues energy supercon technologies segment consist primarily sales cuponaltm bimetallic nonsuperconducting material sell power transport industries grant revenue income loss operations following table presents income loss operations operating margins revenue reportable segment years ended december 31 2011 2010 dollars millions arepresents corporate costs eliminations allocated reportable segments scientific instruments income operations year ended december 31 2011 1628 million resulting operating margin 105 compared income operations 1605 million resulting operating margin 131 year ended december 31 2010 income operations includes 368 million 219 million years ended december 31 2011 2010 respectively various charges inventory amortization acquisitionrelated intangible assets charges excluding costs income operations scientific instruments segment would 1996 million 1824 million resulting operating margins 128 149 respectively years ended december 31 2011 2010 respectively operating margins decreased despite increase revenue lower gross profit margins increases operating expenses significant components charges inventory amortization expense charges described 2011 include 178 million amortization expense 46 million inventory provisions rework certain specialty magnets meet customer specification 45 million representing difference fair value historical costs inventories acquired business combinations sold period 43 million legal professional fees related internal fcpa investigation 42 million acquisitionrelated costs 13 million restructuring costs significant components charges inventory amortization expense charges 2010 include 55 million amortization expense 34 million inventory provisions rework certain specialty magnets 72 million representing difference fair value historical costs inventories acquired business combinations 46 million acquisitionrelated costs gross profit margin scientific instruments segment year ended december 31 2011 472 compared 482 year ended december 31 2010 lower gross profit margins 2011 driven part 148 million amortization expense 46 million inventory provisions rework certain specialty magnets 45 million representing difference fair value historical costs inventories acquired business combinations sold 2011 03 million restructuring costs compared 40 million amortization expense 34 million inventory provisions rework certain specialty magnets 72 million related difference fair value historical costs inventories acquired business combinations 2010 excluding costs gross profit margin scientific instruments segment 487 compared 494 year ended december 31 2010 lower gross profit margins adjusted basis year ended december 31 2011 resulted primarily changes product mix particularly gas chromatography inductively coupled plasma products negatively impacted gross profit margins chemical analysis business contributed lower gross profit margins due higher planned production costs caused part costs lost production time associated relocating factories former varian inc sites facilities changes foreign currency exchange rates primarily strengthening euro swiss franc also contributed decrease majority production facilities located europe 2011 selling general administrative expenses research development expenses scientific instruments segment increased 5608 million 361 segment revenue 4237 million 346 segment revenue year ended december 31 2010 increase function incremental investments sales marketing activities research development activities believe generate future growth well increases operating expenses related recently completed acquisitions changes foreign currency exchange rates primarily strengthening euro swiss franc also contributed increase majority employees located europe energy supercon technologies segment loss operations year ended december 31 2011 41 million resulting operating margin 36 compared loss operations 26 million resulting operating margin 29 year ended december 31 2010 income operations year ended december 31 2011 includes 34 million deferred offering costs written third quarter 2011 uncertainty timing future public offering best capital stock excluding deferred offering costs loss operations energy supercon technologies segment would 07 million operating margin 06 year ended december 31 2011 improvement operating margin adjusted basis primarily result higher revenue described higher gross profit margins offset part higher operating expenses increase operating expenses function incremental investments research development activities selling marketing activities believe generate future growth year ended december 31 2010 compared year ended december 31 2009 consolidated results following table presents results years ended december 31 2010 2009 dollars millions except per share data revenue increased 1904 million 171 13049 million year ended december 31 2010 compared 11145 million year ended december 31 2009 included change revenue reduction approximately 181 million impact foreign exchange due strengthening us dollar versus euro foreign currencies increase approximately 671 million attributable acquisitions excluding effect foreign exchange acquisitions revenue increased 1414 million 127 increase revenue adjusted basis attributable scientific instruments segment increased 1153 million 108 energy supercon technologies segment increased 288 million 482 revenue scientific instruments segment reflects increase sales core technologies particularly magnetic resonance xray mass spectrometry revenue energy supercon technologies segment increased due higher demand low temperature superconducting wire mix products sold scientific instruments segment 2010 reflects increased demand academic government industrial customers attribute increase sales magnetic resonance mass spectrometry products spending academic government customers new product introductions stimulus packages implemented governments various countries including us germany japan china improvement revenues industrial customers reflects economic improvement end markets general spending patterns industrial customers negatively impacted global recession first half 2009 second half 2009 global economy improved began see indicators improvement industrial markets serve experienced increase demand industrial customers 2010 cost revenue cost product service revenue year ended december 31 2010 7009 million resulting gross profit margin 463 compared cost product service revenue 5970 million resulting gross profit margin 464 year ended december 31 2009 increase cost revenue primarily function higher revenues described cost revenue 2010 includes charges 72 million representing difference fair value historical costs inventories acquired nano surfaces chemical analysis businesses 34 million inventory reserves related certain specialty magnets meet customer specifications similar charges cost revenue 2009 higher gross profit margins adjusted basis resulted changes product mix specifically increase revenues highend instrumentation including new products designed carry higher gross margins previous generations products weakening euro favorably impacts gross profit margins majority production performed europe increase revenue also allowed us better utilize production facilities leverage fixed production costs also reduced production costs various cost saving initiatives strict cost controls manufacturing facilities selling general administrative selling general administrative expense year ended december 31 2010 increased 3011 million 231 revenue 2540 million 228 revenue year ended december 31 2009 increase selling general administrative expenses attributable increases headcount acquisitions nano surfaces chemical analysis businesses increases headcount support planned revenue growth existing businesses increases headcount offset part changes foreign currency exchange rates primarily weakening euro favorably impacts selling general administrative expenses majority selling marketing employees located europe research development research development expense year ended december 31 2010 increased 1414 million 108 revenue 1264 million 113 revenue year ended december 31 2009 increase research development expenses attributable increases headcount acquisitions nano surfaces chemical analysis businesses increases headcount material costs support new product introductions existing businesses increases research development expenses offset part changes foreign currency exchange rates primarily weakening euro favorably impacts research development expenses majority research development performed europe charges net charges net 58 million recorded 2010 consist charges recorded entirely scientific instruments segment charges recorded 2010 consist 46 million acquisitionrelated costs 02 million restructuring charges loss 10 million recorded connection divestiture business acquisitionrelated costs recorded 2010 relate acquisitions nano surfaces chemical analysis businesses consist costs incurred transition service arrangements entered sellers transaction costs including legal accounting fees restructuring charges related primarily severance incurred connection closing production facility herzogenrath germany loss sale investment associated investment bruker baltic ltd manufacturing site located riga latvia engaged production certain components used xray product lines restructuring charges loss investment incurred part broader corporate strategy reducing costs consolidating critical production knowhow certain key production sites charges net 04 million recorded 2009 consist 02 million charges recorded scientific instruments segment 02 million charges recorded energy supercon technologies segment charge recorded scientific instruments segment consists entirely restructuring charges relates additional amounts recorded connection restructuring program began fourth quarter 2008 approximately 30 employees located netherlands left company charges recorded energy supercon technologies segment consist 08 million transaction costs incurred connection acquisition research instruments business varian medical systems inc 07 million impairment charges associated fixed assets used production certain superconducting wire offset part bargain purchase gain 13 million recorded connection acquisition research instruments business interest income expense net interest income expense net year ended december 31 2010 56 million compared 76 million year ended december 31 2009 year ended december 31 2010 major components within interest income expense net consisted net interest expense 47 million realized unrealized losses foreign currency transactions 15 million year ended december 31 2009 major components within interest income expense net consisted net interest expense 65 million realized unrealized losses foreign currency transactions 19 million decrease interest expense function lower average outstanding debt balances throughout 2010 losses foreign currency exchange rates primarily function changes exchange rates euro swiss franc us dollar provision income taxes income tax provision year ended december 31 2010 533 million compared income tax provision 481 million year ended december 31 2009 representing effective tax rates 355 373 respectively tax rate may change time amount mix income taxes outside us changes addition amount mix income taxes outside united states income tax provision impacted discrete items nonrecurring nature discrete items nature resulted tax expense 28 million 43 million years ended december 31 2010 2009 respectively amounts recorded 2010 relate additional amounts accrued connection ongoing tax audits germany switzerland discrete amounts recorded 2009 related cash repatriated certain foreign locations us order reduce outstanding debt well certain transactions taxable us net income loss attributable noncontrolling interests net income loss attributable noncontrolling interests year ended december 31 2010 14 million compared 02 million year ended december 31 2009 net income loss attributable noncontrolling interests represents minority shareholders proportionate share net income loss recorded majorityowned indirect subsidiaries net income attributable bruker corporation net income year ended december 31 2010 954 million 058 per diluted share compared net income 812 million 049 per diluted share 2009 segment results revenue following table presents revenue change revenue growth reportable segment years ended december 31 2010 2009 dollars millions arepresents product service revenue reportable segments scientific instruments segment revenues scientific instruments segment revenue increased 1624 million 153 12251 million year ended december 31 2010 compared 10627 million year ended december 31 2009 included change revenue reduction approximately 132 million impact foreign exchange due strengthening us dollar versus euro foreign currencies increase approximately 603 million attributable acquisitions nano surfaces chemical analysis businesses excluding effect foreign exchange acquisitions revenue increased 1153 million 108 increase revenue adjusted basis attributable increase sales core technologies particularly magnetic resonance xray mass spectrometry mix products sold scientific instruments segment 2010 reflects increased demand academic government industrial customers attribute increase sales magnetic resonance mass spectrometry products spending academic government customers new product introductions stimulus packages implemented governments various countries including us germany japan china demand industrial customers also increased economic conditions improved system revenue aftermarket revenue percentage total scientific instruments segment revenue follows years ended december 31 2010 2009 dollars millions system revenue scientific instruments segment includes nuclear magnetic resonance systems magnetic resonance imaging systems electron paramagnetic imaging systems mass spectrometry systems gas chromatography systems cbrne detection systems xray systems sparkoptical emission spectroscopy systems atomic force microscopy systems stylus optical metrology systems molecular spectroscopy systems aftermarket revenues scientific instruments segment include accessory sales consumables training services energy supercon technologies segment revenues energy supercon technologies segment revenues increased 307 million 513 905 million year ended december 31 2010 compared 598 million year ended december 31 2009 included change revenue reduction approximately 49 million impact foreign exchange due strengthening us dollar versus euro foreign currencies increase approximately 68 million attributable acquisition research instruments business excluding effect foreign exchange acquisition revenue increased 288 million 482 increase revenue adjusted basis attributable higher demand low temperature superconducting wire system wire revenue aftermarket revenue percentage total energy supercon technologies segment revenue follows years ended december 31 2010 2009 dollars millions system wire revenue energy supercon technologies segment includes low high temperature superconducting wire superconducting devices including magnets linear accelerators radio frequency cavities aftermarket revenues energy supercon technologies segment consist primarily sales cuponaltm bimetallic nonsuperconducting material sell power transport industries grant revenue income loss operations following table presents income loss operations operating margins revenue reportable segment years ended december 31 2010 2009 dollars millions arepresents corporate costs eliminations allocated reportable segments scientific instruments segment income operations year ended december 31 2010 1605 million resulting operating margin 131 compared income operations 1417 million resulting operating margin 133 year ended december 31 2009 income operations 2010 includes 219 million charges related primarily acquisition nano surfaces chemical analysis businesses charges include 72 million recorded cost revenue represents difference fair value historical costs inventories acquired acquisitions sold 2010 46 million acquisitionrelated costs remaining charge relates 55 million recorded amortization acquisitionrelated intangibles 34 million inventory provisions rework certain specialty magnets meet customer specifications excluding costs income operations scientific instruments segment would 1824 million operating margin 149 income operations adjusted basis improved result higher revenues described improvement gross profit margins year ended december 31 2010 gross profit margin percentage revenue scientific instruments segment increased 482 478 year ended december 31 2009 higher gross profit margins resulted primarily changes product mix specifically increase revenues highend instrumentation including new products designed carry higher gross margins previous generations products weakening euro favorably impacts gross profit margins majority production performed europe increase revenue also allowed us better utilize production facilities leverage fixed production costs also reduced production costs various cost saving initiatives year ended december 31 2010 selling general administrative expenses research development expenses scientific instruments segment increased 4237 million 346 segment revenue 3665 million 345 segment revenue year ended december 31 2009 increase function incremental investments sales marketing activities research development activities well increases operating expenses related acquisitions completed 2010 changes foreign currency exchange rates partially offset increase operating expenses energy supercon technologies segment loss operations year ended december 31 2010 26 million resulting operating margin 29 compared loss operations 63 million resulting operating margin 105 year ended december 31 2009 increase operating margin primarily result higher revenue described corresponding improvements gross margin liquidity capital resources currently anticipate existing cash equivalents credit facilities sufficient support operating investing needs least next twelve months future cash requirements also affected acquisitions may make future historically financed growth cash flow generation combination debt financings issuances common stock future assurances additional financing alternatives available us required available obtained terms favorable us year ended december 31 2011 net cash provided operating activities 877 million resulting primarily 1897 million consolidated net income adjusted noncash items offset part 1020 million increases working capital year ended december 31 2010 net cash provided operating activities 1561 million resulting primarily 1625 million consolidated net income offset part 64 million increases working capital increase working capital year ended december 31 2011 primarily function higher receivable inventory levels offset part increase customer deposits changes working capital attributable growth business year ended december 31 2011 net cash used investing activities 687 million compared net cash used investing activities 2990 million year ended december 31 2010 cash used investing activities year ended december 31 2011 attributable primarily 544 million capital expenditures 143 million used acquisitions cash used investing activities year ended december 31 2010 attributable primarily 2698 million used acquisitions 292 million net capital expenditures currently anticipate capital spending approximately 500 million 2012 year ended december 31 2011 net cash provided financing activities 33 million compared net cash provided financing activities 1683 million year ended december 31 2010 cash provided financing activities year ended december 31 2011 attributable 33 million net proceeds issuance common stock cash provided financing activities year ended december 31 2010 primarily function 1850 million borrowed revolving loan component credit agreement used fund acquisition nano surfaces business cash provided amounts borrowed revolving loan component credit agreement offset part 216 million debt repayments december 31 2011 outstanding debt totaling 3031 million consisting 825 million outstanding term loan component credit facilities 2165 million outstanding revolving loan component credit facilities 41 million capital lease obligations december 31 2010 outstanding debt totaling 3010 million consisting 1106 million outstanding term loan component credit facilities 1855 million outstanding revolving loan component credit facilities 49 million capital lease obligations february 26 2008 entered credit agreement refer credit agreement syndicate lenders provided revolving credit line maximum commitment 2300 million term loan facility 1500 million outstanding principal term loan payable quarterly installments december 2012 borrowings credit agreement accrued interest option either higher prime rate federal funds rate plus 050 ii adjusted libor plus margins ranging 040 125 facility fee ranging 010 020 may 2011 entered amendment restatement credit agreement amended credit agreement amended credit agreement increases maximum commitment revolving credit line 2500 million extends maturity date may 2016 borrowings revolving credit line amended credit agreement accrue interest option either higher prime rate ii federal funds rate plus 050 iii adjusted libor plus 100 iv libor plus margins ranging 080 165 facility fee ranging 020 035 amended credit agreement impact maturity pricing existing term loan december 31 2011 weighted average interest rate borrowings term facility amended credit agreement approximately 28 borrowings amended credit agreement secured guarantees certain material subsidiaries defined amended credit agreement bruker energy supercon technologies inc amended credit agreement also requires maintain certain financial ratios related maximum leverage minimum interest coverage defined amended credit agreement specifically leverage ratio cannot exceed 30 interest coverage ratio cannot less 30 addition financial ratios amended credit agreement restricts among things ability following make certain payments incur additional debt incur certain liens make certain investments including derivative agreements merge consolidate sell transfer substantially assets enter certain transactions affiliates failure comply restrictions covenants may result event default applicable debt instrument could permit acceleration debt instrument require us prepay debt scheduled due date december 31 2011 latest measurement date compliance covenants amended credit agreement leverage ratio 12 interest coverage ratio 224 revolving loans various financial institutions located primarily germany switzerland france following summary maximum commitments net amounts available company revolving loans december 31 2011 dollars millions 2011 considered various longterm financing alternatives replace outstanding borrowings revolving loan component amended credit agreement january 2012 entered note purchase agreement group accredited institutional investors note purchase agreement issued sold 2400 million senior notes consist following •200 million 316 series 2012a senior notes due january 18 2017 •150 million 374 series 2012a senior notes due january 18 2019 •1050 million 431 series 2012a senior notes due january 18 2022 •1000 million 446 series 2012a senior notes due january 18 2024 used portion net proceeds senior notes reduce outstanding indebtedness revolving credit facilities intend use remainder general corporate purposes currently expect incur approximately 135 million interest expense 2012 december 31 2011 approximately 02 million us net operating loss carryforwards available reduce future taxable income expire various times 2021 approximately 443 million german trade tax net operating losses carried forward indefinitely also us tax credits approximately 141 million available offset future tax liabilities expire various dates credits include research development tax credits 96 million expiring various times 2031 foreign tax credits 45 million expiring various times throughout 2021 us operating loss tax credit carryforwards may subject limitations provisions internal revenue code following table summarizes maturities significant financial obligations december 31 2011 dollars millions uncertain tax contingencies positions taken expected taken income tax return may result additional payments tax authorities total amount uncertain tax contingencies included 13 years column able reasonably estimate timing potential future payments tax authority agrees tax position taken expected taken applicable statute limitations expires additional payments necessary transactions related parties lease certain office space certain principal shareholders certain also members board directors years ended december 31 2011 2010 2009 shareholders paid approximately 24 million 24 million 21 million respectively estimated equal fair market value rentals years ended december 31 2011 2010 2009 incurred expenses 32 million 29 million 11 million respectively law firm one members board directors partner years ended december 31 2011 2010 2009 incurred expenses 05 million 03 million 06 million respectively financial services firm one members board directors partner recent accounting pronouncements september 2011 financial accounting standards board fasb amended accounting standards codification asc 350 intangiblesgoodwill amendment intended reduce cost complexity annual goodwill impairment test providing entities option perform qualitative assessment determine whether impairment testing necessary amended provisions effective reporting periods beginning december 15 2011 however early adoption permitted entitys financial statements recent annual interim period yet issued adopted provisions amendment annual test impairment december 31 2011 however amendment impacts testing steps therefore adoption impact consolidated financial position results operations cash flows june 2011 fasb amended asc 220 comprehensive income amendment issued enhance comparability entities report gaap international financial reporting standards ifrs provide consistent method presenting nonowner transactions affect entitys equity amendment requires companies present components net income comprehensive income either one continuous statement two separate consecutive statements eliminates option report comprehensive income components part statement changes shareholders equity amended provisions effective fiscal years interim periods within years beginning december 15 2011 early adoption permitted full retrospective application required amendment impacts presentation disclosure therefore adoption impact consolidated financial position results operations cash flows may 2011 fasb issued accounting standards update asu 201104 fair value measurement topic 820 amendments achieve common fair value measurement disclosure requirements us gaap ifrs asu 201104 amendments update apply reporting entities required permitted measure disclose fair value asset liability instrument classified reporting entitys shareholders equity financial statements asu 201104 extend use fair value accounting provides guidance applied use already required permitted standards within us gaap ifrs asu 201104 changes wording used describe many requirements us gaap measuring fair value disclosing information fair value measurements additionally asu 201104 clarifies fasbs intent application existing fair value measurements amendments update applied prospectively public entities amendments effective interim annual periods beginning december 15 2011 early application public entities permitted expect provisions asu 201104 material effect financial position results operations cash flows september 2009 emerging issues task force eitf reached consensus financial accounting standards board fasb accounting standards update asu 200914 software topic 985certain revenue arrangements include software elements fasb asu 200914 changes accounting model revenue arrangements include tangible products software elements guidance tangible products containing software components nonsoftware components function together deliver tangible products essential functionality excluded software revenue guidance subtopic 985605 softwarerevenue recognition addition hardware components tangible product containing software components always excluded software revenue guidance adoption update first quarter 2011 material impact results operations cash flows financial position september 2009 eitf reached consensus fasb asu 200913 revenue recognition topic 605multipledeliverable revenue arrangements fasb asu 200913 addresses accounting multipledeliverable arrangements enable vendors account products services separately rather combined unit specifically guidance amends criteria subtopic 60525 revenue recognitionmultipleelement arrangements separating consideration multipledeliverable arrangements guidance establishes selling price hierarchy determining selling price deliverable based vendorspecific objective evidence b thirdparty evidence c estimates guidance also eliminates residual method allocation requires arrangement consideration allocated inception arrangement deliverables using relative selling price method addition guidance significantly expands required disclosures related vendors multipledeliverable revenue arrangements adoption update first quarter 2011 material impact results operations cash flows financial position item 7aitem 7 managements discussion analysis financial condition results operations following managements discussion analysis financial condition results operations mda describes principal factors affecting results operations financial condition changes financial condition well critical accounting policies estimates mda organized follows •executive overview section provides general description history business brief discussion reportable segments significant recent developments business opportunities challenges risks may impact business future •critical accounting policies section discusses accounting estimates considered important financial condition results operations require us exercise subjective complex judgments application significant accounting policies including critical accounting policies estimates summarized note 2 consolidated financial statements item 8 annual report form 10k •results operations section provides analysis significant line items consolidated statement income year ended december 31 2012 compared year ended december 31 2011 year ended december 31 2011 compared year ended december 31 2010 •liquidity capital resources section provides analysis liquidity cash flow discussion outstanding debt commitments •transactions related parties section summarizes transactions principal shareholders directors •recent accounting pronouncements section provides information new accounting standards issued adoption yet required executive overview business overview bruker corporation whollyowned subsidiaries design manufacture service market proprietary life science materials research systems based technology platforms including magnetic resonance technologies mass spectrometry technologies gas chromatography technologies infrared raman molecular spectroscopy technologies xray technologies sparkoptical emission spectroscopy atomic force microscopy stylus optical metrology technology sell broad range field analytical systems chemical biological radiological nuclear explosive cbrne detection also develop manufacture low temperature high temperature superconducting wire products superconducting wire superconducting devices use advanced magnet technology physics research energy applications diverse customer base includes life science pharmaceutical biotechnology molecular diagnostic research companies academic institutions advanced materials semiconductor industries government agencies corporate headquarters located billerica massachusetts maintain major technical manufacturing centers europe north america japan sales offices located throughout world business strategy capitalize ability innovate generate rapid revenue growth organically acquisitions revenue growth strategy combined anticipated improvements gross profit margins increased leverage research development sales marketing distribution investments general administrative expenses expected enhance operating margins improve profitability future organized four operating segments bruker biospin group bruker calid group bruker mat group bruker energy supercon technologies division bruker biospin group business designing manufacturing distributing enabling life science tools based magnetic resonance technology bruker calid group combines bruker daltonics bruker chemical applied markets cam bruker detection bruker optics divisions business designing manufacturing distributing mass spectrometry chromatography instruments solutions life sciences including proteomics metabolomics clinical research applications mass spectrometry chromatography instruments also provide solutions applied markets include food safety environmental analysis petrochemical analysis bruker calid also designs manufactures distributes various analytical instruments cbrne detection research well analytical research process analysis instruments solutions based infrared raman molecular spectroscopy technologies bruker mat group combines bruker axs bruker nano surfaces bruker nano analysitics bruker elemental divisions business manufacturing distributing advanced xray sparkoptical emission spectroscopy atomic force microscopy stylus optical metrology instrumentation used nondestructive molecular materials elemental analysis bruker energy supercon technologies division business developing producing low temperature superconductor high temperature superconductor materials use advanced magnet technology energy applications well linear accelerators accelerator cavities insertion devices accelerator components specialty superconducting magnets physics energy research variety scientific applications financial reporting purposes combine bruker biospin bruker calid bruker mat operating segments scientific instruments reporting segment similar economic characteristics product processes services types classes customers methods distribution regulatory environments management reports financial results based following segments •scientific instruments operations segment include design manufacture distribution advanced instrumentation automated solutions based magnetic resonance technology mass spectrometry technology gas chromatography technology infrared raman molecular spectroscopy technology xray technology sparkoptical emission spectroscopy technology atomic force microscopy technology stylus optical metrology technology typical customers scientific instruments segment include pharmaceutical biotechnology molecular diagnostic companies academic institutions medical schools nonprofit organizations clinical microbiology laboratories government departments agencies nanotechnology semiconductor chemical cement metals petroleum companies food beverage agricultural analysis companies laboratories •energy supercon technologies operations segment include design manufacture marketing superconducting materials primarily metallic low temperature superconductors use magnetic resonance imaging nuclear magnetic resonance fusion energy research applications ceramic high temperature superconductors primarily energy grid magnet applications typical customers energy supercon technologies segment include companies medical industry private public research development laboratories fields fundamental applied sciences energy research academic institutions government agencies energy supercon technologies segment also developing superconductors superconductingenabled devices applications power energy well industrial processing industries financial overview year ended december 31 2012 revenue increased 1397 million 85 17914 million compared 16517 million year ended december 31 2011 included change revenue decrease approximately 768 million impact foreign exchange due strengthening us dollar versus euro foreign currencies increase approximately 198 million attributable recent acquisitions excluding effects foreign exchange recent acquisitions revenue increased 1967 million 119 increase revenue adjusted basis attributable scientific instruments segment increased 1585 million 102 energy supercon technologies segment increased 339 million 299 revenue scientific instruments segment reflects increase sales many core technologies particularly nuclear magnetic resonance mass spectrometry xray products mix products sold scientific instruments segment 2012 reflects increased demand academic government industrial customers attribute increase sales academic government customers increased spending customers new product introductions improvement revenues industrial customers reflects continued growth end markets new product introductions revenues energy supercon technologies segment increased primarily due recognition license revenue sale technology addition revenue benefitted higher demand low temperature superconducting wire though recognized increased revenue 2012 yearoveryear basis began see softening demand particularly europe also noted weakening global industrial applied markets well semiconductor data storage metrology markets uncertain whether recent market conditions continue revenue derived market segments may affected gross profit year ended december 31 2012 8314 million compared 7525 million year ended december 31 2011 gross profit margin year ended december 31 2012 464 compared 456 year ended december 31 2011 excluding effects inventory fixed asset charges amortization acquisitionrelated intangible assets restructuring charges totaling aggregate 219 million 244 million year ended december 31 2012 2011 respectively gross profit margins increased 476 year ended december 31 2012 compared 470 year ended december 31 2011 increase gross profit margins year ended december 31 2012 driven license revenue sale technology energy supercon technologies segment minimal associated cost sales newly introduced products carry higher gross margins previous generations products offsetting items increasing pricing pressures certain markets changes mix products lower gross profit margins cam division due increased production costs selling general administrative expenses research development expenses increased 6377 million 356 revenue 2012 5838 million 353 revenue 2011 increase selling general administrative expenses research development expenses 2012 attributable increases headcount support planned revenue growth existing businesses recent acquisitions changes foreign currency exchange rates primarily strengthening us dollar euro foreign currencies partially offset increase majority employees located europe focused controlling costs implementing selective cost saving programs goal reducing operating expenses improving operating margins 2013 recorded impairment charge amount 238 million year ended december 31 2012 comprising goodwill definitelived intangible assets 14 million 164 million respectively related cam division impairment charge 60 million longlived assets reduce carrying value estimated fair value income operations year ended december 31 2012 1560 million resulting operating margin 87 compared income operations 1556 million resulting operating margin 94 year ended december 31 2011 decrease operating margin largely due impairment assets noted partially offset recognition license revenue sale technology energy supercon technologies segment included income operations various charges inventory writedowns amortization acquisitionrelated intangible assets acquisitionrelated costs impairment goodwill intangible assets longterm assets deferred offering costs expensed legal professional services fees related internal investigation review operations china restructuring relocation costs totaling aggregate 630 million 412 million 2012 2011 respectively excluding charges operating margins 122 2012 119 2011 increase adjusted operating margins year ended december 31 2012 compared prior year due revenue growth noted particular recognition license revenue energy supercon technologies segment offset pricing pressures experienced certain markets changes mix products sold higher operating expenses effective tax rate 2012 435 compared 354 2011 increase effective tax rate primarily due impairment charges noted unbenefitted certain jurisdictions net income attributable shareholders bruker corporation year ended december 31 2012 775 million 046 per diluted share compared 923 million 055 per diluted share year ended december 31 2011 decrease year ended december 31 2012 due increases operating expenses including impairment goodwill intangibles longlived assets higher spending nonrecurring items higher net interest expense partially offset revenue growth higher gross margins critical accounting policies discussion analysis financial condition results operations based upon consolidated financial statements prepared accordance accounting principles generally accepted united states america preparation financial statements requires make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments including related revenue recognition expensing capitalization software development costs stockbased compensation expense restructuring related charges income taxes including recoverability deferred tax assets allowances doubtful accounts reserves excess obsolete inventories estimated fair values longlived assets used evaluate recoverability longlived assets intangible assets goodwill expected future cash flows used evaluate recoverability intangible assets longlived assets warranty costs derivative financial instruments contingent liabilities base estimates judgments historical experience current market economic conditions industry trends assumptions believe reasonable form basis making judgments carrying value assets liabilities readily apparent sources actual results could differ estimates believe following critical accounting policies important portrayal financial position results operations require subjective judgment revenue recognition recognize revenue system sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectability resulting receivable reasonably assured title risk loss generally transferred upon customer acceptance system delivered customer products sold independent distributor strategic distribution partner assumes responsibility installation recognize system sale product shipped title risk loss transferred distributor distributors price protection rights return however products typically warranted free defect period one year revenue deferred cash received collectability reasonably assured price fixed determinable arrangements multiple elements allocate revenue element based relative selling prices relative selling price element based vendor specific objective evidence available vendor specific objective evidence available use evidence thirdparties thirdparty evidence available use managements best estimate selling price typically cannot ascertain thirdparty evidence selling price products services offered qualify separate units accounting recognize revenue upon customer acceptance system shipped installed customer trained result timing customer acceptance readiness could cause reported revenues differ materially expectations revenue accessories parts recognized upon shipment service revenue recognized services performed also contracts apply percentageofcompletion model completed contract model revenue recognition application methods requires us make reasonable estimates extent progress toward completion contract total costs incur contract changes estimates could affect timing revenue recognition income taxes determination income tax expense requires us make certain estimates judgments concerning calculation deferred tax assets liabilities well deductions carryforwards credits available reduce taxable income deferred tax assets liabilities arise differences timing recognition revenue expenses financial statement tax purposes deferred tax assets liabilities measured using tax rates effect year temporary differences expected settled estimate degree tax assets loss carryforwards result benefit based expected profitability tax jurisdiction provide valuation allowance tax assets loss carryforwards believe likely go unused becomes likely tax asset loss carryforward used reserve provided reverse related valuation allowance actual future taxable income tax jurisdiction differs estimates additional allowances reversals reserves may necessary addition recognize benefits tax positions believe likely sustained upon review taxing authority knowledge relevant information reevaluate uncertain tax positions quarterly basis changes positions result tax audits tax laws facts circumstances could result additional charges operations inventories stated lower cost market costs determined firstin firstout method majority subsidiaries average cost certain subsidiaries record provisions account excess obsolete inventory reflect expected nonsaleable nonrefundable inventory based evaluation slow moving products inventories also include demonstration units located demonstration laboratories installed sites potential customers consider demonstration units available sale reduce carrying value demonstration inventories differences cost estimated net realizable value taking consideration usage preceding twelve months expected demand technological obsolescence information including physical condition unit ultimate usage demand varies significantly expected usage demand additional writedowns may required resulting additional charges operations goodwill intangible assets longlived assets evaluate whether goodwill impaired annually events occur circumstances change test goodwill impairment reporting unit level operating segment one level operating segment first step goodwill impairment test involves comparing fair values applicable reporting units aggregate carrying values including goodwill generally determine fair value reporting units using weighting market approach income approach methodologies income approach valuation methodology includes discounted cash flow estimates estimating fair value reporting units requires significant judgment management future cash flows carrying amount reporting unit exceeds fair value reporting unit perform second step goodwill impairment test measure amount impairment second step goodwill impairment test compare implied fair value reporting units goodwill carrying value goodwill december 31 2012 company performed annual goodwill impairment evaluation concluded reporting units fair values exceeded carrying values exception cam division experienced increased deterioration financial performance company therefore performed step two impairment test measure potential impairment concluded impairment charge 14 million required amount represents goodwill allocated cam division recorded within impairment assets accompanying statements income comprehensive income year ended december 31 2012 indefinitelived intangible assets associated cam division impairment indefinitelived intangible assets year ended december 31 2012 also review definitelived intangible assets longlived assets indications potential impairment exist fair value longlived assets decline reduced operating performance market declines indicators impairment charge operations impairment may necessary company determined increased deterioration financial performance cam division discussed indicator requiring evaluation definitelived intangible assets within reporting unit recoverability company performed test based projected future undiscounted cash flows december 31 2012 determined definitelived intangible assets within cam division impaired company recorded impairment charge amount 164 million year ended december 31 2012 reduce carrying value assets estimated fair values impairment charge included within impairment assets accompanying statements income comprehensive income impairment losses recorded related definitelived intangible assets years ended december 31 2011 2010 increased deterioration financial performance cam division discussed also indicator requiring evaluation longlived assets within reporting unit recoverability addition based abandonment project energy supercon technologies reporting unit indicator requiring evaluation longlived assets recoverability company performed test projected future undiscounted cash flows december 31 2012 determined certain longlived assets within cam division energy supercon technologies reporting unit impaired year ended december 31 2012 impairment charge amount 60 million related property plant equipment recorded reduce carrying value assets estimated fair values amount recorded within impairment assets accompanying statements income comprehensive income continue monitor goodwill longlived intangible assets well longlived tangible assets possible future impairment warranty costs normally provide one year parts labor warranty purchase equipment anticipated cost warranty accrued upon recognition sale based historical warranty rates assumptions future warranty claims warranty accrual included current liability consolidated balance sheets although products undergo quality assurance testing procedures throughout production process warranty obligation affected product failure rates material usage service delivery costs incurred correcting product failure although actual warranty costs historically consistent expectations extent warranty claim activity costs associated servicing claims differ estimates revisions warranty accrual may required derivative financial instruments derivative instruments recorded assets liabilities fair value calculated estimate future cash flows subsequent changes derivatives fair value recognized income unless specific hedge accounting criteria met changes fair value derivative highly effective designated cash flow hedge recognized accumulated comprehensive income forecasted transaction occurs becomes probable forecasted transaction occur perform assessment inception hedge quarterly basis thereafter determine whether derivatives highly effective offsetting changes value hedged items changes fair value resulting hedge ineffectiveness immediately recognized income expense results operations year ended december 31 2012 compared year ended december 31 2011 consolidated results following table presents results years ended december 31 2012 2011 dollars millions except per share data revenue year ended december 31 2012 revenue increased 1397 million 85 17914 million compared 16517 million year ended december 31 2011 included change revenue decrease approximately 768 million impact foreign exchange due strengthening us dollar versus euro foreign currencies increase approximately 198 million attributable recent acquisitions excluding effects foreign exchange recent acquisitions revenue increased 1967 million 119 increase revenue adjusted basis attributable scientific instruments segment increased 1585 million 102 energy supercon technologies segment increased 339 million 299 revenue scientific instruments segment reflects increase sales many core technologies particularly nuclear magnetic resonance mass spectrometry xray products mix products sold scientific instruments segment 2012 reflects increased demand academic government industrial customers attribute increase sales academic government customers increased spending customers new product introductions improvement revenues industrial customers reflects continued growth end markets new product introductions revenues energy supercon technologies segment increased primarily due recognition license revenue sale technology addition revenue benefitted higher demand low temperature superconducting wire cost revenue cost revenue year ended december 31 2012 9600 million resulting gross profit margin 464 compared cost revenue 8992 million resulting gross profit margin 456 year ended december 31 2011 increase cost revenue primarily function higher revenues described cost revenue year ended december 31 2012 includes charges 219 million representing difference fair value historical cost inventories acquired business combinations sold period amortization acquisitionrelated intangible assets acquisitionrelated fixed asset charges cost revenue year ended december 31 2011 includes charges 244 million representing inventory allowances rework certain specialty magnets meet customer specifications difference fair value cost inventories acquired business combinations sold period amortization acquisitionrelated intangible assets excluding charges gross profit margin year ended december 31 2012 2011 476 470 respectively higher gross profit margin driven license revenue sale technology energy supercon technologies segment minimal associated cost sales newly introduced products carry higher gross margins previous generations products offsetting items increasing pricing pressures certain markets changes mix products lower gross profit margins cam division due increased production costs selling general administrative selling general administrative expense year ended december 31 2012 increased 4424 million 247 revenue 4066 million 246 revenue year ended december 31 2011 increase selling general administrative expenses driven increases headcount recent acquisitions increases headcount support planned revenue growth existing businesses research development research development expense year ended december 31 2012 increased 1953 million 109 revenue 1772 million 107 revenue year ended december 31 2011 increase research development expenses attributable increases headcount recent acquisitions increases headcount material costs support future product introductions existing businesses impairment assets company recorded impairment assets 238 million year ended december 31 2012 comprising goodwill definitelived intangible asset impairment charges 14 million 164 million respectively relating cam division impairment charge 60 million longlived assets reduce carrying value estimated fair value writeoff deferred offering costs september 2010 announced plans sell minority ownership position best subsidiary initial public offering capital stock best result economic market factors timing best initial public offering uncertain deferred offering costs totaling 34 million expensed third quarter 2011 march 2012 determined proceed initial public offering capital stock best charges net 139 million recorded 2012 consist 111 million legal professional service fees associated internal investigation review operations china 20 million related two factory relocations occurring within energy supercon technologies segment 08 million charges net 97 million recorded 2011 consist charges recorded entirely scientific instruments segment charges recorded 2011 consist 42 million acquisitionrelated costs associated nano surfaces business chemical analysis business acquisitions completed year acquisitionrelated costs consist costs incurred transition service arrangements entered sellers nano surfaces chemical analysis businesses transaction costs including legal accounting fees charges net year ended december 31 2011 also includes 43 million legal professional service fees associated internal investigation review operations china 12 million charges interest income expense net interest income expense net year ended december 31 2012 177 million compared 101 million year ended december 31 2011 year ended december 31 2012 major components within interest income expense net interest expense 134 million foreign currency exchange losses 68 million partially offset 22 million gain sale product line 2012 year ended december 31 2011 major components within interest income expense net consisted net interest expense 63 million foreign currency exchange losses 44 million increase interest expense primarily function higher average outstanding debt balances throughout 2012 increase average interest rates pay outstanding borrowings due entering longerterm debt arrangement 2012 higher interest rates losses foreign currency exchange rates 2012 primarily function changes exchange rates euro swiss franc us dollar provision income taxes income tax provision generally reflects amounts nonus entities maintain full valuation allowance us deferred tax assets including us net operating losses tax credits evidence exists likely loss carryforward credit amounts utilized offset us taxable income tax rate may change time amount mix income taxes outside us changes income tax provision year ended december 31 2012 601 million compared income tax provision 515 million year ended december 31 2011 representing effective tax rates 435 354 respectively increase effective tax rate primarily due impairment charges unbenefited certain jurisdictions net income attributable noncontrolling interests net income attributable noncontrolling interests year ended december 31 2012 07 million compared 17 million year ended december 31 2011 net income attributable noncontrolling interests represents minority shareholders proportionate share net income recorded majorityowned indirect subsidiaries net income attributable bruker corporation net income attributable bruker corporation year ended december 31 2012 775 million 046 per diluted share compared net income 923 million 055 per diluted share 2011 decrease year ended december 31 2012 due increases operating expenses including impairment goodwill intangibles longlived assets higher spending nonrecurring items higher net interest expense partially offset revenue growth higher gross margins segment results revenue following table presents revenue change revenue growth reportable segment years ended december 31 2012 2011 dollars millions arepresents product service revenue reportable segments scientific instruments segment revenues scientific instruments segment revenue increased 1120 million 72 16661 million year ended december 31 2012 compared 15541 million year ended december 31 2011 included change revenue decrease approximately 663 million impact foreign exchange due strengthening us dollar versus euro foreign currencies increase approximately 198 million attributable recent acquisitions excluding effect foreign exchange acquisitions revenue increased 1585 million 102 increase revenue excluding effect foreign exchange acquisitions reflects increase sales many core technologies particularly nuclear magnetic resonance mass spectrometry xray products system revenue aftermarket revenue percentage total scientific instruments segment revenue follows years ended december 31 2012 2011 dollars millions system revenue scientific instruments segment includes nuclear magnetic resonance systems magnetic resonance imaging systems electron paramagnetic imaging systems mass spectrometry systems gas chromatography systems cbrne detection systems xray systems sparkoptical emission spectroscopy systems atomic force microscopy systems stylus optical metrology systems molecular spectroscopy systems aftermarket revenues scientific instruments segment include accessory sales consumables training services energy supercon technologies segment revenues energy supercon technologies segment revenues increased 228 million 201 1362 million year ended december 31 2011 compared 1134 million year ended december 31 2011 included change revenue reduction approximately 111 million impact foreign exchange due strengthening us dollar versus euro foreign currencies excluding effect foreign exchange revenue increased 339 million 299 increase revenue excluding effect foreign exchange primarily attributable license revenue sale technology well higher demand low temperature superconducting wire system wire revenue aftermarket revenue percentage total energy supercon technologies segment revenue follows years ended december 31 2012 2011 dollars millions system wire revenue energy supercon technologies segment includes low high temperature superconducting wire superconducting devices including magnets linear accelerators radio frequency cavities aftermarket revenues energy supercon technologies segment consist primarily license revenue sales cuponal™ bimetallic nonsuperconducting material sell power transport industries grant revenue income loss operations following table presents income loss operations operating margins revenue reportable segment years ended december 31 2012 2011 dollars millions arepresents corporate costs eliminations allocated reportable segments scientific instruments income operations year ended december 31 2012 1408 million resulting operating margin 85 compared income operations 1628 million resulting operating margin 105 year ended december 31 2011 income operations includes 592 million 375 million years ended december 31 2012 2011 respectively various charges inventory amortization acquisitionrelated intangible assets impairment goodwill definitelived intangible assets longlived assets acquisitionrelated fixed asset charges excluding costs income operations scientific instruments segment would 2000 million 2003 million resulting operating margins 120 129 respectively years ended december 31 2012 2011 operating margins declined result increased pricing pressure certain markets product mix higher operating expenses offset part higher revenues gross profit margin scientific instruments segment year ended december 31 2012 475 compared 472 year ended december 31 2011 excluding effects inventory fixed asset charges amortization acquisitionrelated intangible assets restructuring charges totaling aggregate 217 million 241 million years ended december 31 2012 2011 respectively gross profit margins 488 487 respectively years ended december 31 2012 2011 increase gross profit margins driven sales newly introduced products carry higher gross margins previous generations products offsetting increase increasing pricing pressures certain markets changes mix products cam division contributing lower gross profit margins due increased production costs selling general administrative expenses research development expenses year ended december 31 2012 scientific instruments segment increased 6160 million 370 segment revenue 5608 million 361 segment revenue year ended december 31 2011 increase function incremental investments sales marketing activities research development activities well increases operating expenses related acquisitions completed 2011 2012 cost increases primarily relate additional headcount higher sales commission expenses result higher revenues higher material costs company recorded impairment assets within scientific instruments segment 226 million year ended december 31 2012 comprised goodwill definitelived intangible asset impairment charges 14 million 164 million respectively cam division impairment charge 48 million longlived assets reduce carrying value estimated fair value energy supercon technologies income operations year ended december 31 2012 128 million resulting operating margin 94 compared loss operations 41 million resulting operating margin 36 year ended december 31 2011 increase operating margin result higher revenues particular recognition license revenue sale technology partially offset higher operating expenses increase operating expenses function incremental investments sales marketing activities research development activities well impairment assets 12 million recorded year ended december 31 2012 reduce carrying value certain tangible longlived assets estimated fair value year ended december 31 2011 compared year ended december 31 2010 consolidated results following table presents results years ended december 31 2011 2010 dollars millions except per share data revenue increased 3468 million 266 16517 million year ended december 31 2011 compared 13049 million year ended december 31 2010 included change revenue increase approximately 789 million impact foreign exchange due weakening us dollar versus euro foreign currencies increase approximately 1485 million attributable recent acquisitions excluding effect foreign exchange recent acquisitions revenue increased 1194 million 92 increase revenue adjusted basis attributable scientific instruments segment increased 1058 million 86 energy supercon technologies segment increased 179 million 198 revenue scientific instruments segment reflects increase sales many core technologies revenue energy supercon technologies segment increased due higher demand low temperature superconducting wire revenue scientific instruments segment reflects increase sales many core technologies particularly xray elemental analysis magnetic resonance mass spectrometry molecular spectroscopy products mix products sold scientific instruments segment 2011 reflects increased demand academic government industrial customers attribute increase sales mass spectrometry magnetic resonance products spending academic government customers new product introductions stimulus packages implemented governments various countries particularly us improvement revenues industrial customers reflects ongoing economic improvement end markets cost revenue cost revenue year ended december 31 2011 8992 million resulting gross profit margin 456 compared cost product service revenue 7009 million resulting gross profit margin 463 year ended december 31 2010 increase cost revenue primarily function higher material costs result higher revenues described however increase costs also attributable increases headcount recent acquisitions increases headcount support current production requirements chemical analysis business also contributed increase cost revenue costs associated relocating factories former varian inc sites facilities changes foreign currency exchange rates primarily strengthening euro swiss franc also contributed increase cost revenue majority production facilities located europe recorded 151 million amortization expense cost revenue associated technologyrelated intangible assets additional 45 million representing difference fair value historical cost inventories acquired business combinations sold 2011 cost revenue 2011 also includes 46 million inventory reserves rework certain specialty magnets meet customer specifications 2010 recorded 43 million amortization expense cost revenue 72 million related fair value inventories acquired recent acquisitions 34 million related specialty magnets meet customer specifications selling general administrative selling general administrative expense year ended december 31 2011 increased 4066 million 246 revenue 3011 million 231 revenue year ended december 31 2010 increase selling general administrative expenses attributable increases headcount recent acquisitions primarily nano surfaces chemical analysis businesses increases headcount support planned revenue growth existing businesses addition increase new order bookings revenue 2011 resulted higher commission expense changes foreign currency exchange rates primarily strengthening euro also negatively impacted selling general administrative expenses majority selling marketing employees located europe research development research development expense year ended december 31 2011 increased 1772 million 107 revenue 1414 million 108 revenue year ended december 31 2010 increase research development expenses attributable increases headcount recent acquisitions increases headcount material costs support future product introductions existing businesses increase research development expenses also attributable changes foreign currency exchange rates primarily strengthening euro negatively impact research development expenses majority research development performed europe writeoff deferred offering costs september 2010 announced plans sell minority ownership position best subsidiary initial public offering capital stock best result economic market factors timing best initial public offering uncertain deferred offering costs totaling 34 million expensed third quarter 2011 march 2012 determined proceed initial public offering capital stock best charges net 97 million recorded 2011 consist charges recorded entirely scientific instruments segment charges recorded 2011 consist 42 million acquisitionrelated costs associated nano surfaces business chemical analysis business acquisitions completed year acquisitionrelated costs consist costs incurred transition service arrangements entered sellers nano surfaces chemical analysis businesses transaction costs including legal accounting fees transition services agreements expired 2011 expect costs recur charges net year ended december 31 2011 also includes 43 million legal professional service fees associated internal investigation 12 million charges net 58 million recorded 2010 consist charges recorded entirely scientific instruments segment charges recorded 2010 consist 46 million acquisitionrelated costs 02 million restructuring charges loss 10 million recorded connection divestiture business acquisitionrelated costs recorded 2010 relate acquisitions nano surfaces chemical analysis businesses consist costs incurred transition service arrangements entered sellers transaction costs including legal accounting fees restructuring charges related primarily severance incurred connection closing production facility herzogenrath germany loss sale investment associated investment bruker baltic ltd manufacturing site located riga latvia engaged production certain components used xray product lines restructuring charges loss investment incurred part broader corporate strategy reducing costs consolidating critical production knowhow certain key production sites interest income expense net interest income expense net year ended december 31 2011 101 million compared 56 million year ended december 31 2010 year ended december 31 2011 major components within interest income expense net consisted net interest expense 63 million realized unrealized losses foreign currency transactions 44 million year ended december 31 2010 major components within interest income expense net consisted net interest expense 47 million realized unrealized losses foreign currency transactions 15 million increase interest expense primarily function higher average outstanding debt balances throughout 2011 lesser degree increase average interest rates pay outstanding borrowings losses foreign currency exchange rates primarily function changes exchange rates euro swiss franc us dollar provision income taxes income tax provision year ended december 31 2011 515 million compared income tax provision 533 million year ended december 31 2010 representing effective tax rates 354 355 respectively tax rate may change time amount mix income taxes outside us changes addition amount mix income taxes outside united states income tax provision impacted discrete items nonrecurring nature discrete items nature resulted tax expense 63 million 28 million years ended december 31 2011 2010 respectively discrete items recorded 2011 2010 relate additional amounts accrued connection ongoing tax audits germany switzerland change effective tax rate excluding increase reserves tax audits relates primarily reversing certain valuation allowances united states able release portion valuation allowance deferred tax assets united states deferred tax liabilities arising identified intangible assets acquired connection tribology hplc businesses maintain full valuation allowance deferred tax assets united states deferred tax liabilities recorded connection acquisitions represents source future taxable income allows us utilize portion deferred tax assets net income attributable noncontrolling interests net income attributable noncontrolling interests year ended december 31 2011 17 million compared 14 million year ended december 31 2010 net income attributable noncontrolling interests represents minority shareholders proportionate share net income recorded majorityowned indirect subsidiaries net income attributable bruker corporation net income year ended december 31 2011 923 million 055 per diluted share compared net income 954 million 058 per diluted share 2010 segment results revenue following table presents revenue change revenue growth reportable segment years ended december 31 2011 2010 dollars millions arepresents product service revenue reportable segments scientific instruments segment revenues scientific instruments segment revenue increased 3290 million 269 15541 million year ended december 31 2011 compared 12251 million year ended december 31 2010 included change revenue increase approximately 747 million impact foreign exchange due weakening us dollar versus euro foreign currencies increase approximately 1485 million attributable recent acquisitions excluding effect foreign exchange acquisitions revenue increased 1058 million 86 increase revenue adjusted basis attributable increase many core technologies particularly xray elemental analysis magnetic resonance mass spectrometry molecular spectroscopy mix products sold scientific instruments segment 2011 reflects increased demand academic government industrial customers system revenue aftermarket revenue percentage total scientific instruments segment revenue follows years ended december 31 2011 2010 dollars millions system revenue scientific instruments segment includes nuclear magnetic resonance systems magnetic resonance imaging systems electron paramagnetic imaging systems mass spectrometry systems gas chromatography systems cbrne detection systems xray systems sparkoptical emission spectroscopy systems atomic force microscopy systems stylus optical metrology systems molecular spectroscopy systems aftermarket revenues scientific instruments segment include accessory sales consumables training services energy supercon technologies segment revenues energy supercon technologies segment revenues increased 229 million 253 1134 million year ended december 31 2011 compared 905 million year ended december 31 2010 included change revenue increase approximately 50 million impact foreign exchange due weakening us dollar versus euro foreign currencies excluding effect foreign exchange revenue increased 179 million 198 increase revenue adjusted basis attributable higher demand low temperature superconducting wire system wire revenue aftermarket revenue percentage total energy supercon technologies segment revenue follows years ended december 31 2011 2010 dollars millions system wire revenue energy supercon technologies segment includes low high temperature superconducting wire superconducting devices including magnets linear accelerators radio frequency cavities aftermarket revenues energy supercon technologies segment consist primarily sales cuponaltm bimetallic nonsuperconducting material sell power transport industries grant revenue income loss operations following table presents income loss operations operating margins revenue reportable segment years ended december 31 2011 2010 dollars millions arepresents corporate costs eliminations allocated reportable segments scientific instruments income operations year ended december 31 2011 1628 million resulting operating margin 105 compared income operations 1605 million resulting operating margin 131 year ended december 31 2010 income operations includes 375 million 247 million years ended december 31 2011 2010 respectively various charges inventory amortization acquisitionrelated intangible assets charges excluding costs income operations scientific instruments segment would 2003 million 1852 million resulting operating margins 129 151 respectively years ended december 31 2011 2010 respectively operating margins decreased despite increase revenue lower gross profit margins increases operating expenses gross profit margin scientific instruments segment year ended december 31 2011 472 compared 482 year ended december 31 2010 excluding effects inventory fixed asset charges amortization acquisitionrelated intangible assets restructuring charges totaling aggregate 241 million 146 million years ended december 31 2011 2010 respectively gross profit margins 487 494 respectively years ended december 31 2011 2010 decrease gross profit margins resulted primarily changes product mix particularly gas chromatography inductively coupled plasma products negatively impacted gross profit margins chemical analysis business contributed lower gross profit margins due higher planned production costs caused part costs lost production time associated relocating factories former varian inc sites facilities changes foreign currency exchange rates primarily strengthening euro swiss franc also contributed decrease majority production facilities located europe year ended december 31 2011 selling general administrative expenses research development expenses scientific instruments segment increased 5608 million 361 segment revenue 4237 million 346 segment revenue year ended december 31 2010 increase function incremental investments sales marketing activities research development activities believe generate future growth well increases operating expenses related recently completed acquisitions changes foreign currency exchange rates primarily strengthening euro swiss franc also contributed increase majority employees located europe energy supercon technologies segment loss operations year ended december 31 2011 41 million resulting operating margin 36 compared loss operations 26 million resulting operating margin 29 year ended december 31 2010 income operations year ended december 31 2011 includes 34 million deferred offering costs writtenoff third quarter 2011 uncertainty timing future public offering best capital stock excluding deferred offering costs loss operations energy supercon technologies segment would 07 million operating margin 06 year ended december 31 2011 improvement operating margin excluding impact writtenoff deferred offering costs primarily result higher revenue described higher gross profit margins offset part higher operating expenses increase operating expenses function incremental investments research development activities selling marketing activities believe generate future growth liquidity capital resources currently anticipate existing cash credit facilities sufficient support operating investing needs least next twelve months future cash requirements could affected acquisitions may make future historically financed growth cash flow generation combination debt financings issuances common stock future assurances additional financing alternatives available us required available obtained terms favorable us year ended december 31 2012 net cash provided operating activities 1331 million resulting primarily 1914 million consolidated net income adjusted noncash items partially offset 583 million increase working capital recorded impairment assets 238 million year ended december 31 2012 comprising goodwill definitelived intangible asset impairment charges 14 million 164 million respectively cam division impairment charge 60 million longlived assets reduce carrying value estimated fair value increase working capital year ended december 31 2012 primarily result increase inventory build year ended december 31 2011 net cash provided operating activities 877 million resulting primarily 1812 million consolidated net income adjusted noncash items offset part 935 million increases working capital year ended december 31 2012 net cash used investing activities 932 million compared net cash used investing activities 687 million year ended december 31 2011 cash used investing activities year ended december 31 2012 attributable primarily 695 million capital expenditures net 270 million used acquisitions partially offset 33 million received disposal product line cash used investing activities year ended december 31 2011 attributable primarily 544 million capital expenditures net 143 million used acquisitions currently anticipate capital spending approximately 550 million 2013 year ended december 31 2012 net cash provided financing activities 344 million compared net cash provided financing activities 33 million year ended december 31 2011 cash provided financing activities year ended december 31 2012 primarily attributable 2400 million borrowings note purchase agreement described offset part repayments revolving lines credit 2165 million proceeds revolving lines credit 930 million net debt repayments various longterm shortterm arrangements 832 million cash provided financing activities year ended december 31 2011 attributable 33 million net proceeds issuance common stock december 31 2012 december 31 2011 2882 million 2124 million respectively foreign cash equivalents significantly germany switzerland compared total amount cash equivalents december 31 2012 december 31 2011 3106 million 2460 million respectively cash equivalents held foreign subsidiaries needed fund operations us otherwise elect repatriate unremitted earnings foreign subsidiaries form dividends otherwise shares subsidiaries sold transferred would likely subject additional us income taxes net impact available tax credits could result higher effective tax rate future however since significant current investment plans outside us current intent indefinitely reinvest unremitted earnings foreign subsidiaries based current plans anticipated cash needs fund us operations foresee need repatriate earnings foreign subsidiaries december 31 2012 outstanding debt totaling 3372 million consisting 2400 million outstanding note purchase agreement described 930 million outstanding revolving loan component amended credit agreement described 42 million capital lease obligations loans december 31 2011 outstanding debt totaling 3031 million consisting 825 million outstanding term loan component credit facilities 2165 million outstanding revolving loan component credit facilities 41 million capital lease obligations february 2008 entered credit agreement credit agreement syndicate lenders provided revolving credit line maximum commitment 2300 million term loan facility 1500 million outstanding principal term loan payable quarterly installments december 2012 december 31 2012 amounts outstanding term loan borrowings credit agreement accrued interest option either higher prime rate federal funds rate plus 050 ii adjusted libor plus margins ranging 040 125 facility fee ranging 010 020 may 2011 entered amendment restatement credit agreement amended credit agreement amended credit agreement increased maximum commitment revolving credit line 2500 million extended maturity date may 2016 borrowings revolving credit line amended credit agreement accrue interest option either greatest prime rate ii federal funds rate plus 050 iii adjusted libor plus 100 iv libor plus margins ranging 080 165 also facility fee ranging 020 035 amended credit agreement impact maturity pricing term loan matured december 31 2012 borrowings amended credit agreement secured guarantees certain material subsidiaries defined amended credit agreement bruker energy supercon technologies inc amended credit agreement also requires maintain certain financial ratios related maximum leverage minimum interest coverage defined amended credit agreement specifically leverage ratio cannot exceed 30 interest coverage ratio cannot less 30 addition financial ratios amended credit agreement restricts among things ability following make certain payments incur additional debt incur certain liens make certain investments including derivative agreements merge consolidate sell transfer substantially assets enter certain transactions affiliates failure comply restrictions covenants may result event default applicable debt instrument could permit acceleration debt instrument require us prepay debt scheduled due date december 31 2012 latest measurement date compliance covenants amended credit agreement leverage ratio 12 interest coverage ratio 131 revolving loans various financial institutions located primarily germany switzerland france following summary maximum commitments net amounts available company revolving loans december 31 2012 dollars millions january 2012 entered note purchase agreement note purchase agreement group accredited institutional investors note purchase agreement issued sold 2400 million senior notes consist following •200 million 316 series 2012a senior notes due january 18 2017 •150 million 374 series 2012a senior notes due january 18 2019 •1050 million 431 series 2012a senior notes due january 18 2022 •1000 million 446 series 2012a senior notes due january 18 2024 used portion net proceeds senior notes reduce outstanding indebtedness revolving credit facilities intend use remainder general corporate purposes currently expect incur approximately 13 million interest expense 2013 expect incur 20 million 25 million expense related facility exits within cam division bruker energy supercon technologies segment well various outsourcing initiatives december 31 2012 approximately 279 million us net operating loss carryforwards available reduce future state taxable income expire various times 2032 approximately 519 million german trade tax net operating losses carried forward indefinitely also us tax credits approximately 130 million available offset future tax liabilities expire various dates credits include research development tax credits 116 million expiring various times 2032 foreign tax credits 14 million expiring various times 2022 us operating loss tax credit carryforwards may subject limitations provisions internal revenue code following table summarizes maturities significant financial obligations december 31 2012 dollars millions uncertain tax contingencies positions taken expected taken income tax return may result additional payments tax authorities amount less one year attributable tax audit switzerland settled fourth quarter 2012 paid 2013 remaining total amount uncertain tax contingencies included 13 years column able reasonably estimate timing potential future payments tax authority agrees tax position taken expected taken applicable statute limitations expires additional payments necessary transactions related parties lease certain office space certain principal shareholders certain also members board directors years ended december 31 2012 2011 2010 shareholders paid approximately 24 million estimated equal fair market value rentals years ended december 31 2012 2011 2010 incurred expenses 24 million 32 million 29 million respectively law firm one members board directors partner years ended december 31 2012 2011 2010 incurred expenses 04 million 05 million 03 million respectively financial services firm one members board directors partner recent accounting pronouncements february 2013 fasb issued asu 201302 reporting amounts reclassified accumulated comprehensive income standard entities required disclose additional information respect changes accumulated comprehensive income aoci balances component significant items reclassified aoci expanded disclosures presentation changes aoci involve disaggregating total change component comprehensive income well presenting separately component portion change aoci related 1 amounts reclassified income 2 currentperiod comprehensive income additionally amounts reclassified income disclosure one location would required based upon specific aoci component amounts impacting individual income statement line items disclosure income statement line item impacts required components aoci reclassified income entirety disclosures required respect income statement line item impacts would made either notes consolidated financial statements parenthetically face financial statements asu effective fiscal years beginning december 15 2012 adoption amendment 2013 impact consolidated financial position results operations cash flows july 2012 fasb issued asu 201202 intangiblesgoodwill topic 350 testing indefinitelived intangible assets impairment update intended simplify guidance impairment testing indefinitelived intangible assets provides entities option perform qualitative assessment determine whether impairment testing necessary amended provisions effective fiscal years beginning september 15 2012 however early adoption permitted adoption amendment 2013 impact companys consolidated financial position results operations cash flows item 7aitem 7 managements discussion analysis financial condition results operations following managements discussion analysis financial condition results operations mda describes principal factors affecting results operations financial condition changes financial condition well critical accounting policies estimates mda organized follows •executive overview section provides general description history business brief discussion reportable segments significant recent developments business opportunities challenges risks may impact business future •critical accounting policies section discusses accounting estimates considered important financial condition results operations require us exercise subjective complex judgments application significant accounting policies including critical accounting policies estimates summarized note 2 consolidated financial statements item 8 annual report form 10k •results operations section provides analysis significant line items consolidated statement income year ended december 31 2013 compared year ended december 31 2012 year ended december 31 2012 compared year ended december 31 2011 •liquidity capital resources section provides analysis liquidity cash flow discussion outstanding debt commitments •transactions related parties section summarizes transactions principal shareholders directors executive overview business overview bruker corporation whollyowned subsidiaries design manufacture service distribute proprietary life science materials research systems based technology platforms including magnetic resonance technologies mass spectrometry technologies gas chromatography technologies infrared raman molecular spectroscopy technologies xray technologies sparkoptical emission spectroscopy atomic force microscopy stylus optical metrology technology sell broad range field analytical systems chemical biological radiological nuclear explosive cbrne detection also develop manufacture low temperature high temperature superconducting wire products superconducting wire superconducting devices use advanced magnet technology physics research energy applications diverse customer base includes life science pharmaceutical biotechnology molecular diagnostic research companies academic institutions advanced materials semiconductor industries government agencies corporate headquarters located billerica massachusetts maintain major technical manufacturing centers europe north america japan sales offices located throughout world business strategy capitalize ability innovate generate market revenue growth organically acquisitions revenue growth strategy combined anticipated improvements gross profit margins increased leverage research development sales marketing distribution investments general administrative expenses expected enhance operating margins improve profitability future organized four operating segments bruker biospin group bruker calid group bruker mat group bruker energy supercon technologies best division bruker biospin group combines bruker magnetic resonance preclinical imaging divisions designs manufactures distributes enabling life science tools based magnetic resonance technology bruker calid group combines bruker life sciences clinical lsc bruker chemical applied markets cam bruker detection bruker optics divisions designs manufactures distributes mass spectrometry chromatography instruments solutions life sciences including proteomics metabolomics clinical research applications mass spectrometry chromatography instruments also provide solutions applied markets include food safety environmental analysis petrochemical analysis bruker calid also designs manufactures distributes various analytical instruments cbrne detection research well analytical research process analysis instruments solutions based infrared raman molecular spectroscopy technologies bruker mat group includes bruker axs bruker nano surfaces bruker nano analytical bruker elemental divisions designs manufactures distributes advanced xray sparkoptical emission spectroscopy atomic force microscopy stylus optical metrology instrumentation used nondestructive molecular materials elemental analysis best division designs manufactures distributes low temperature superconductor high temperature superconductor materials use advanced magnet technology energy applications well linear accelerators accelerator cavities insertion devices accelerator components specialty superconducting magnets physics energy research variety scientific applications financial reporting purposes aggregate bruker biospin bruker calid bruker mat operating segments scientific instruments bsi reporting segment represents approximately 93 companys revenues year ended december 31 2013 aggregation reflects operating segments similar economic characteristics production processes customer services provided types classes customers methods distribution regulatory environments management reports financial results based following segments •bsi operations bsi segment include design manufacture distribution advanced instrumentation automated solutions based magnetic resonance technology mass spectrometry technology gas chromatography technology infrared raman molecular spectroscopy technology xray technology sparkoptical emission spectroscopy technology atomic force microscopy technology stylus optical metrology technology typical customers bsi segment include pharmaceutical biotechnology molecular diagnostic companies academic institutions medical schools nonprofit organizations clinical microbiology laboratories government departments agencies nanotechnology semiconductor chemical cement metals petroleum companies food beverage agricultural analysis companies laboratories •best operations best segment include design manufacture distribution superconducting materials primarily metallic low temperature superconductors use magnetic resonance imaging nuclear magnetic resonance fusion energy research applications ceramic high temperature superconductors primarily energy grid magnet applications typical customers best segment include companies medical industry private public research development laboratories fields fundamental applied sciences energy research academic institutions government agencies best segment also developing superconductors superconductingenabled devices applications power energy well industrial processing industries financial overview year ended december 31 2013 revenue increased 480 million 27 18394 million compared 17914 million year ended december 31 2012 included change revenue decreases approximately 53 million impact foreign exchange due strengthening us dollar versus japanese yen offset weakening us dollar versus euro approximately 38 million attributable recent acquisitions divestitures excluding effects foreign exchange recent acquisitions divestitures revenue increased 571 million 32 increase revenue adjusted basis attributable bsi segment increased 566 million 34 best segment increased 65 million 48 offset intersegment eliminations revenue bsi segment adjusted basis reflects increased sales bruker biospin bruker calid groups specifically nuclear magnetic resonance products maldi biotyper fourier transform mass spectrometry ftms products sold lsc division improved commercial execution bruker optics division increases partially offset declines bruker mat group specifically atomic force microscopy xray products mix products sold bsi segment 2013 reflects significant quarterly variability demand geographically end market products particular increase demand academic markets especially europe asia offset decreased demand customers industrial microelectronics markets particularly asia uncertain whether recent market conditions continue revenue derived market segments may affected revenues best segment increased due increased sales low temperature superconducting wire well beamline cavity device sales partially offset incremental decline 107 million license revenue recognized sale technology gross profit year ended december 31 2013 8052 million compared 8294 million year ended december 31 2012 gross profit margin year ended december 31 2013 438 compared 463 year ended december 31 2012 excluding effects amortization acquisitionrelated intangible assets acquisitionrelated costs restructuring charges totaling aggregate 273 million 219 million year ended december 31 2013 2012 respectively gross profit margins decreased 453 year ended december 31 2013 compared 475 year ended december 31 2012 decrease gross profit margins year ended december 31 2013 partially due negative effects foreign exchange rates including impact strengthening us dollar versus japanese yen denominated revenues substantially exceeded yen denominated expenses changes value yen compared us dollar significant positive negative affect gross profit margins income operations addition yearoveryear decline amount license revenue recognized sale technology best segment cost revenue decreased gross profit margins finally volume pricing declines bruker mat group negative impact margins selling general administrative expenses research development expenses decreased 6284 million 342 revenue 2013 6357 million 355 revenue 2012 decrease selling general administrative expenses research development expenses 2013 attributable lower discretionary spending including managements decision reduce spending less profitable portions company lower levels research development material consumption effects partially offset increased general administrative spending related certain investments including financial systems improvements recorded impairment charge amount 238 million year ended december 31 2012 comprising goodwill definitelived intangible assets 14 million 164 million respectively related cam division impairment charge 60 million longlived assets reduce carrying value estimated fair value impairment charge recorded year ended december 31 2013 charges net 286 million 2013 compared 139 million 2012 increase charges net primarily due 182 million restructuring costs recorded 2013 related closing facilities implementing outsourcing restructuring initiatives 182 million 159 million within bsi segment 23 million within best segment partially offset decrease legal professional service fees associated internal investigation review operations china income operations year ended december 31 2013 1482 million resulting operating margin 81 compared income operations 1560 million resulting operating margin 87 year ended december 31 2012 included income operations various charges amortization acquisitionrelated intangible assets acquisitionrelated costs impairment goodwill intangible assets longterm assets legal professional services fees related internal investigation review operations china restructuring relocation costs totaling aggregate 573 million 630 million 2013 2012 respectively excluding charges operating margins 112 2013 122 2012 adjusting items decrease operating margins year ended december 31 2013 compared prior year primarily due negative effects foreign exchange rates including impact strengthening us dollar versus japanese yen denominated revenues substantially exceeded yen denominated expenses partially offset lower selling general administrative expenses research development expenses noted continuing focus controlling costs reviewing additional selective cost saving programs reduce expenses improve operating margins 2014 effective tax rate 2013 343 compared 435 2012 decrease effective tax rate primarily due impairment charges noted recorded 2012 tax deduction permitted net income attributable shareholders bruker corporation year ended december 31 2013 801 million 048 per diluted share compared 775 million 046 per diluted share year ended december 31 2012 increase year ended december 31 2013 primarily due higher revenue levels reductions overall operating expenses lower effective tax rate partially offset decline gross profit margins critical accounting policies discussion analysis financial condition results operations based upon consolidated financial statements prepared accordance accounting principles generally accepted united states america preparation financial statements requires make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments including related revenue recognition expensing capitalization software development costs stockbased compensation expense restructuring related charges income taxes including recoverability deferred tax assets allowances doubtful accounts inventory reductions excess obsolete inventories estimated fair values longlived assets used evaluate recoverability longlived assets intangible assets goodwill expected future cash flows used evaluate recoverability intangible assets longlived assets warranty costs derivative financial instruments contingent liabilities base estimates judgments historical experience current market economic conditions industry trends assumptions believe reasonable form basis making judgments carrying value assets liabilities readily apparent sources actual results could differ estimates believe following critical accounting policies important portrayal financial position results operations require subjective judgment revenue recognition recognize revenue system sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectability resulting receivable reasonably assured title risk loss generally transferred upon customer acceptance system delivered customer installed products sold independent distributor strategic distribution partner assumes responsibility installation recognize system sale product shipped title risk loss transferred distributor distributors price protection rights return however products typically warranted free defect period one year revenue deferred cash received collectability reasonably assured price fixed determinable arrangements multiple elements allocate revenue element either using vendor specific objective evidence vsoe thirdparty evidence tpe estimated selling price esp attempt determine fair value using vsoe available use tpe cant determine vsoe tpe use esp typically cannot ascertain tpe products services offered qualify separate units accounting recognize revenue upon customer acceptance system shipped installed customer trained result timing customer acceptance readiness could cause reported revenues differ materially expectations revenue accessories parts recognized upon shipment service revenue recognized services performed also contracts apply percentageofcompletion model completed contract model revenue recognition application percentageofcompletion method requires us make reasonable estimates extent progress toward completion contract total costs incur contract losses recorded immediately estimate contracts ultimately result loss changes estimates could affect timing revenue recognition income taxes determination income tax expense requires us make certain estimates judgments concerning annual effective tax rate calculation deferred tax assets liabilities forecasted profitability subsidiaries certain geographic jurisdictions well deductions carryforwards credits available reduce taxable income deferred tax assets liabilities arise differences timing recognition revenue expenses financial statement tax purposes deferred tax assets liabilities measured using tax rates effect year temporary differences expected settled estimate degree tax assets loss carryforwards result benefit based expected profitability tax jurisdiction provide valuation allowance tax assets loss carryforwards believe likely go unused becomes likely tax asset loss carryforward used reserve provided reverse related valuation allowance actual future taxable income tax jurisdiction differs estimates additional allowances reversals reserves may necessary addition recognize benefits tax positions believe likely sustained upon review taxing authority knowledge relevant information reevaluate uncertain tax positions quarterly basis changes positions result tax audits tax laws facts circumstances could result additional charges credits operations expiration statutes limitations affecting estimates made uncertain tax positions cause higher earnings inventories stated lower cost market costs determined firstin firstout method majority subsidiaries average cost certain subsidiaries record provisions account excess obsolete inventory reflect expected nonsaleable nonrefundable inventory based evaluation slow moving products longer offered sale inventories also include demonstration units located demonstration laboratories installed sites potential customers consider demonstration units available sale reduce carrying value demonstration inventories differences cost estimated net realizable value taking consideration usage preceding twelve months expected demand technological obsolescence information including physical condition unit ultimate usage demand varies significantly expected usage demand additional writedowns may required resulting additional charges operations goodwill intangible assets longlived assets evaluate goodwill impairment annually events occur circumstances change test goodwill impairment reporting unit level operating segment one level operating segment us gaap option performing qualitative assessment determine whether impairment testing necessary performing twostep quantitative assessment qualitative assessment requires significant judgments macroeconomic conditions including entitys operating environment industry market considerations entityspecific events related financial performance loss key personnel events could impact reporting unit result qualitative assessment morelikelythannot fair value reporting unit less carrying amount quantitative impairment test required otherwise testing required quantitative impairment test performed first step involves comparing fair values applicable reporting units aggregate carrying values including goodwill generally determine fair value reporting units using weighting market approach income approach methodologies income approach valuation methodology includes discounted cash flow estimates estimating fair value reporting units requires significant judgment future cash flows carrying amount reporting unit exceeds fair value reporting unit perform second step goodwill impairment test measure amount impairment second step goodwill impairment test compare implied fair value reporting units goodwill carrying value goodwill also review definitelived intangible assets longlived assets indications potential impairment exist fair value longlived assets decline reduced operating performance market declines indicators impairment charge operations impairment may necessary warranty costs normally provide one year parts labor warranty purchase equipment anticipated cost warranty accrued upon recognition sale based historical warranty rates assumptions future warranty claims warranty accrual included current liability consolidated balance sheets although products undergo quality assurance testing procedures throughout production process warranty obligation caused product failure rates material usage service delivery costs incurred correcting product failure although actual warranty costs historically consistent expectations extent warranty claim activity costs associated servicing claims differ estimates changes reserve levels may required results operations year ended december 31 2013 compared year ended december 31 2012 consolidated results following table presents results years ended december 31 2013 2012 dollars millions except per share data revenue year ended december 31 2013 revenue increased 480 million 27 18394 million compared 17914 million year ended december 31 2012 included change revenue decreases approximately 53 million impact foreign exchange due strengthening us dollar versus japanese yen offset weakening us dollar versus euro approximately 38 million attributable recent acquisitions divestitures excluding effects foreign exchange recent acquisitions divestitures revenue increased 571 million 32 increase revenue adjusted basis attributable bsi segment increased 566 million 34 best segment increased 65 million 48 offset intersegment eliminations revenue bsi segment adjusted basis reflects increased sales bruker biospin bruker calid groups particularly nuclear magnetic resonance products maldi biotyper ftms products sold lsc division improved commercial execution bruker optics division increases partially offset reduced sales bruker mat group particularly atomic force microscopy xray products mix products sold bsi segment 2013 reflects significant quarterly variability demand geographically end market products particular increase demand academic markets especially europe asia offset decreased demand customers industrial microelectronics markets particularly asia revenues best segment increased due increased sales low temperature superconducting wire well beamline cavity device sales partially offset incremental decline 107 million license revenue recognized sale technology cost revenue cost revenue year ended december 31 2013 10342 million resulting gross profit margin 438 compared cost revenue 9620 million resulting gross profit margin 463 year ended december 31 2012 increase cost revenue primarily function higher revenues described cost revenue year ended december 31 2013 2012 includes charges 273 million 219 million respectively representing amortization acquisitionrelated intangible assets acquisitionrelated costs restructuring charges 2013 excluding charges gross profit margin year ended december 31 2013 2012 453 475 respectively lower gross profit margin partially due negative effects foreign exchange rates including impact strengthening us dollar versus japanese yen denominated revenues substantially exceeded yen denominated expenses changes value yen compared us dollar significant positive negative effect gross profit margins income operations addition yearoveryear decline amount license revenue recognized sale technology best segment cost revenue decreased gross profit margins finally volume pricing declines bruker mat group negative impact margins selling general administrative selling general administrative expense year ended december 31 2013 decreased 4379 million 238 revenue 4404 million 246 revenue year ended december 31 2012 decrease selling general administrative expenses driven impact lower discretionary spending partially offset increased general administrative spending related certain investments including financial system improvements well expenses due recent acquisitions research development research development expense year ended december 31 2013 decreased 1905 million 104 revenue 1953 million 109 revenue year ended december 31 2012 decrease research development expenses attributable managements decision reduce spending less profitable portions company lower levels material costs impairment assets company recorded impairment assets 238 million year ended december 31 2012 comprising goodwill definitelived intangible asset impairment charges 14 million 164 million respectively relating cam division impairment charge 60 million longlived assets reduce carrying value estimated fair value december 31 2013 company performed annual goodwill indefinitelived intangible impairment evaluation performing qualitative assessment concluded morelikelythannot fair value reporting units greater carrying amount therefore impairment required december 31 2012 company performed annual goodwill indefinitelived intangible impairment evaluation performing quantitative assessment concluded reporting units fair values exceeded carrying values exception cam division experienced increased deterioration financial performance company therefore performed step two impairment test measure potential impairment concluded impairment charge 14 million required represented goodwill allocated cam division indefinitelived intangible assets associated cam division impairment indefinitelived intangible assets year ended december 31 2012 increased deterioration financial performance cam division 2012 discussed indicator requiring evaluation definitelived intangible assets longterm assets within reporting unit recoverability company performed valuation december 31 2012 determined definitelived intangible assets certain longterm assets within cam division impaired company recorded impairment charge amount 212 million year ended december 31 2012 reduce carrying value assets estimated fair values impairment losses recorded related definitelived intangible assets year ended december 31 2013 addition based abandonment project best reporting unit 2012 indicator requiring evaluation longlived assets recoverability company performed valuation december 31 2012 determined certain longlived assets within best reporting unit impaired year ended december 31 2012 impairment charge amount 12 million related property plant equipment recorded reduce carrying value assets estimated fair values continue monitor goodwill longlived intangible assets well longlived tangible assets possible future impairment charges net 286 million recorded 2013 related primarily bsi segment charges consist 182 million restructuring costs including 159 million within bsi segment 23 million within best segment related closing facilities implementing outsourcing restructuring initiatives 61 million legal professional service fees associated internal investigation review operations china 36 million acquisitionrelated costs 07 million related two factory relocations within best segment charges net 139 million recorded 2012 consist 111 million legal professional service fees associated internal investigation review operations china 20 million related two factory relocations within best segment 08 million charges 2014 expect incur 1520 million expense related various outsourcing initiatives restructuring activities implemented 2013 commence 2014 interest income expense net interest income expense net year ended december 31 2013 236 million compared 177 million year ended december 31 2012 year ended december 31 2013 major components within interest income expense net interest expense 124 million realized unrealized losses foreign currency transactions 104 million year ended december 31 2012 major components within interest income expense net interest expense 134 million realized unrealized losses foreign currency transactions 68 million partially offset 22 million gain sale product line 2012 decrease interest expense driven maturity interest rate swap end 2012 realized unrealized losses foreign currency transactions 2013 driven strengthening us dollar euro versus number currencies operate expect incur approximately 14 million interest expense 2014 provision income taxes income tax provision generally reflects amounts nonus entities maintain full valuation allowance us deferred tax assets including us net operating losses tax credits evidence exists likely loss carryforward credit amounts utilized offset us taxable income tax rate may change time amount mix income taxes outside us changes income tax provision year ended december 31 2013 428 million compared income tax provision 601 million year ended december 31 2012 representing effective tax rates 343 435 respectively decrease effective tax rate primarily due impairment charges recorded 2012 tax deduction permitted net income attributable noncontrolling interests net income attributable noncontrolling interests year ended december 31 2013 17 million compared 07 million year ended december 31 2012 net income attributable noncontrolling interests represents minority shareholders proportionate share net income recorded majorityowned indirect subsidiaries net income attributable bruker corporation net income attributable bruker corporation year ended december 31 2013 801 million 048 per diluted share compared net income 775 million 046 per diluted share 2012 increase year ended december 31 2013 primarily due higher revenue levels reductions overall operating expenses lower effective tax rate partially offset decline gross margins segment results revenue following table presents revenue change revenue growth reportable segment years ended december 31 2013 2012 dollars millions arepresents product service revenue reportable segments bsi segment revenues bsi segment revenue increased 434 million 26 17095 million year ended december 31 2013 compared 16661 million year ended december 31 2012 included change revenue decrease approximately 94 million impact changes foreign exchange rates due strengthening us dollar versus japanese yen offset weakening us dollar versus euro decrease approximately 38 million attributable recent acquisitions divestitures excluding effect foreign exchange acquisitions divestitures revenue increased 566 million 34 bruker biospin group experienced increase revenue primarily driven increased sales nuclear magnetic resonance products due strong demand academic customers particularly europe asia bruker calid group also experienced increase revenue driven primarily increases maldi biotyper ftms products sold lsc division improved commercial execution bruker optics division bruker mat group experienced decrease revenue across divisions driven declines atomic force microscopy products xray products resulted lower demand customers industrial microelectronics markets particularly asia system revenue aftermarket revenue percentage total bsi segment revenue follows years ended december 31 2013 2012 dollars millions system revenue bsi segment includes nuclear magnetic resonance systems magnetic resonance imaging systems electron paramagnetic imaging systems mass spectrometry systems gas chromatography systems cbrne detection systems xray systems sparkoptical emission spectroscopy systems atomic force microscopy systems stylus optical metrology systems molecular spectroscopy systems aftermarket revenues bsi segment include accessory sales consumables training services best segment revenues best segment revenues increased 112 million 82 1474 million year ended december 31 2013 compared 1362 million year ended december 31 2012 included change revenue increase approximately 47 million impact foreign exchange due weakening us dollar versus euro foreign currencies excluding effect foreign exchange revenue increased 65 million 48 increase revenue excluding effect foreign exchange primarily attributable increased sales low temperature superconducting wire well beamline cavity devices partially offset 107 million reduction license revenue recognized sale technology system wire revenue aftermarket revenue percentage total best segment revenue follows years ended december 31 2013 2012 dollars millions system wire revenue best segment includes low high temperature superconducting wire superconducting devices including magnets linear accelerators radio frequency cavities aftermarket revenues best segment consist primarily license revenue consumables sales gross profit operating expenses year ended december 31 2013 gross profit margin bsi segment decreased 453 474 versus comparable period 2012 lower gross profit margins resulted primarily negative effects foreign exchange rates including impact strengthening us dollar versus japanese yen volume pricing declines bruker mat group addition restructuring charges recorded year ended december 31 2013 related closing facilities implementing outsourcing restructuring initiatives best segment gross profit margin decreased 215 312 comparable period 2012 primarily due decline recognition license revenue sale technology cost revenue year ended december 31 2013 selling general administrative expenses research development expenses bsi segment decreased 6091 million 356 segment revenue 6140 million 369 segment revenue comparable period 2012 decrease driven impact lower discretionary spending managements decision reduce research development spending less profitable portions business lower levels research development material consumption partially offset higher general administrative spending related certain investments including financial system improvements well expenses due recent acquisitions selling general administrative expenses research development expenses best segment decreased 193 million 131 segment revenue 262 million 192 segment revenue comparable period 2012 decrease attributable lower discretionary spending impact managements decision reduce research development spending less profitable portions business income loss operations following table presents income loss operations operating margins revenue reportable segment years ended december 31 2013 2012 dollars millions arepresents corporate costs eliminations allocated reportable segments bsi segment income operations year ended december 31 2013 1389 million resulting operating margin 81 compared income operations 1408 million resulting operating margin 85 year ended december 31 2012 income operations includes 541 million 592 million years ended december 31 2013 2012 respectively included various charges representing amortization acquisitionrelated intangible assets acquisitionrelated costs impairment goodwill definitelived intangible assets longlived assets restructuring relocation costs excluding costs income operations bsi segment would 1930 million 2000 million resulting operating margins 113 120 respectively years ended december 31 2013 2012 income operations adjusted basis declined primarily result lower gross margins due part negative effects foreign exchange rates including impact strengthening us dollar versus japanese yen denominated revenues substantially exceeded yen denominated expenses declines partially offset higher revenues described company recorded restructuring costs within bsi segment 230 million year ended december 31 2013 related closing facilities implementing outsourcing restructuring initiatives company recorded impairment assets within bsi segment 226 million year ended december 31 2012 comprised goodwill definitelived intangible asset impairment charges 14 million 164 million respectively cam division impairment charge 48 million longlived assets reduce carrying value estimated fair value best segment income operations year ended december 31 2013 95 million resulting operating margin 64 compared income operations 128 million resulting operating margin 94 year ended december 31 2012 decline operating margin primarily result lower levels license revenue sale technology cost revenue 23 million restructuring expenses recorded year ended december 31 2013 factors partially offset lower selling general administrative expenses research development expenses company recorded impairment assets within best segment 12 million year ended december 31 2012 reduce carrying value certain tangible longlived assets estimated fair value year ended december 31 2012 compared year ended december 31 2011 consolidated results following table presents results years ended december 31 2012 2011 dollars millions except per share data revenue year ended december 31 2012 revenue increased 1397 million 85 17914 million compared 16517 million year ended december 31 2011 included change revenue decrease approximately 768 million impact foreign exchange due strengthening us dollar versus euro foreign currencies increase approximately 198 million attributable recent acquisitions excluding effects foreign exchange recent acquisitions revenue increased 1967 million 119 increase revenue adjusted basis attributable bsi segment increased 1585 million 102 best segment increased 339 million 299 revenue bsi segment reflects increase sales many core technologies particularly nuclear magnetic resonance mass spectrometry xray products mix products sold bsi segment 2012 reflects increased demand academic government industrial customers attribute increase sales academic government customers increased spending customers new product introductions improvement revenues industrial customers reflects continued growth end markets new product introductions revenues best segment increased primarily due recognition license revenue sale technology addition revenue benefitted higher demand low temperature superconducting wire cost revenue cost revenue year ended december 31 2012 9620 million resulting gross profit margin 463 compared cost revenue 8992 million resulting gross profit margin 456 year ended december 31 2011 increase cost revenue primarily function higher revenues described cost revenue year ended december 31 2012 includes charges 219 million representing amortization acquisitionrelated intangible assets acquisitionrelated costs cost revenue year ended december 31 2011 includes charges 244 million representing inventory allowances rework certain specialty magnets meet customer specifications amortization acquisitionrelated intangible assets acquisitionrelated costs excluding charges gross profit margin year ended december 31 2012 2011 475 470 respectively higher gross profit margin driven license revenue sale technology best segment cost revenue sales newly introduced products carry higher gross margins previous generations products offsetting items increasing pricing pressures certain markets changes mix products lower gross profit margins cam division due increased production costs selling general administrative selling general administrative expense year ended december 31 2012 increased 4404 million 246 revenue 4066 million 246 revenue year ended december 31 2011 increase selling general administrative expenses dollars driven increases headcount recent acquisitions increases headcount support planned revenue growth existing businesses research development research development expense year ended december 31 2012 increased 1953 million 109 revenue 1772 million 107 revenue year ended december 31 2011 increase research development expenses attributable increases headcount recent acquisitions increases headcount material costs support future product introductions existing businesses impairment assets company recorded impairment assets 238 million year ended december 31 2012 comprising goodwill definitelived intangible asset impairment charges 14 million 164 million respectively relating cam division impairment charge 60 million longlived assets reduce carrying value estimated fair value december 31 2012 company performed annual goodwill indefinitelived intangible impairment evaluation performing quantitative assessment concluded reporting units fair values exceeded carrying values exception cam division experienced increased deterioration financial performance company therefore performed step two impairment test measure potential impairment concluded impairment charge 14 million required represented goodwill allocated cam division indefinitelived intangible assets associated cam division impairment indefinitelived intangible assets year ended december 31 2012 increased deterioration financial performance cam division 2012 discussed indicator requiring evaluation definitelived intangible assets longterm assets within reporting unit recoverability company performed valuation december 31 2012 determined definitelived intangible assets certain longterm assets within cam division impaired company recorded impairment charge amount 212 million year ended december 31 2012 reduce carrying value assets estimated fair values impairment losses recorded related definitelived intangible assets years ended december 31 2013 2011 addition based abandonment project best reporting unit 2012 indicator requiring evaluation longlived assets recoverability company performed valuation december 31 2012 determined certain longlived assets within best reporting unit impaired year ended december 31 2012 impairment charge amount 12 million related property plant equipment recorded reduce carrying value assets estimated fair values writeoff deferred offering costs september 2010 announced plans sell minority ownership position best subsidiary initial public offering capital stock best result economic market factors timing best initial public offering uncertain deferred offering costs totaling 34 million expensed third quarter 2011 march 2012 determined proceed initial public offering capital stock best charges net 139 million recorded 2012 consist 111 million legal professional service fees associated internal investigation review operations china 20 million related two factory relocations occurring within best segment 08 million charges net 97 million recorded 2011 consist charges recorded entirely bsi segment charges recorded 2011 consist 42 million acquisitionrelated costs associated nano surfaces business chemical analysis business acquisitions completed year acquisitionrelated costs consist costs incurred transition service arrangements entered sellers nano surfaces chemical analysis businesses transaction costs including legal accounting fees charges net year ended december 31 2011 also includes 43 million legal professional service fees associated internal investigation review operations china 12 million charges interest income expense net interest income expense net year ended december 31 2012 177 million compared 101 million year ended december 31 2011 year ended december 31 2012 major components within interest income expense net interest expense 134 million realized unrealized losses foreign currency transactions 68 million partially offset 22 million gain sale product line 2012 year ended december 31 2011 major components within interest income expense net consisted net interest expense 63 million realized unrealized losses foreign currency transactions 44 million increase interest expense primarily function higher average outstanding debt balances throughout 2012 increase average interest rates pay outstanding borrowings due entering longerterm debt arrangement 2012 higher interest rates realized unrealized losses foreign currency transactions 2012 primarily function changes exchange rates euro swiss franc us dollar provision income taxes income tax provision generally reflects amounts nonus entities maintain full valuation allowance us deferred tax assets including us net operating losses tax credits evidence exists likely loss carryforward credit amounts utilized offset us taxable income tax rate may change time amount mix income taxes outside us changes income tax provision year ended december 31 2012 601 million compared income tax provision 515 million year ended december 31 2011 representing effective tax rates 435 354 respectively increase effective tax rate primarily due impairment charges tax deduction permitted net income attributable noncontrolling interests net income attributable noncontrolling interests year ended december 31 2012 07 million compared 17 million year ended december 31 2011 net income attributable noncontrolling interests represents minority shareholders proportionate share net income recorded majorityowned indirect subsidiaries net income attributable bruker corporation net income attributable bruker corporation year ended december 31 2012 775 million 046 per diluted share compared net income 923 million 055 per diluted share 2011 decrease year ended december 31 2012 due increases operating expenses including impairment goodwill intangibles longlived assets higher spending nonrecurring items higher net interest expense partially offset revenue growth higher gross margins segment results revenue following table presents revenue change revenue growth reportable segment years ended december 31 2012 2011 dollars millions arepresents product service revenue reportable segments bsi segment revenues bsi segment revenue increased 1120 million 72 16661 million year ended december 31 2012 compared 15541 million year ended december 31 2011 included change revenue decrease approximately 663 million impact foreign exchange due strengthening us dollar versus euro foreign currencies increase approximately 198 million attributable recent acquisitions excluding effect foreign exchange acquisitions revenue increased 1585 million 102 increase revenue excluding effect foreign exchange acquisitions reflects increase sales many core technologies particularly nuclear magnetic resonance mass spectrometry xray products system revenue aftermarket revenue percentage total bsi segment revenue follows years ended december 31 2012 2011 dollars millions system revenue bsi segment includes nuclear magnetic resonance systems magnetic resonance imaging systems electron paramagnetic imaging systems mass spectrometry systems gas chromatography systems cbrne detection systems xray systems sparkoptical emission spectroscopy systems atomic force microscopy systems stylus optical metrology systems molecular spectroscopy systems aftermarket revenues bsi segment include accessory sales consumables training services best segment revenues best segment revenues increased 228 million 201 1362 million year ended december 31 2012 compared 1134 million year ended december 31 2011 included change revenue reduction approximately 111 million impact foreign exchange due strengthening us dollar versus euro foreign currencies excluding effect foreign exchange revenue increased 339 million 299 increase revenue excluding effect foreign exchange primarily attributable license revenue sale technology well higher demand low temperature superconducting wire system wire revenue aftermarket revenue percentage total best segment revenue follows years ended december 31 2012 2011 dollars millions system wire revenue best technologies segment includes low high temperature superconducting wire superconducting devices including magnets linear accelerators radio frequency cavities aftermarket revenues best segment consist primarily license revenue consumable sales gross profit operating expenses year ended december 31 2012 gross profit margin bsi segment increased 474 472 comparable period 2011 excluding effects certain nonrecurring inventory charges amortization acquisitionrelated intangible assets acquisitionrelated costs restructuring charges totaling aggregate 217 million 241 million years ended december 31 2012 2011 respectively gross profit margins 487 years ended december 31 2012 2011 consistency gross profit margins driven sales newly introduced products carry higher gross margins previous generations products offsetting increase increasing pricing pressures certain markets changes mix products cam division contributing lower gross profit margins due increased production costs best segment gross profit margin increased 312 198 comparable period 2011 primarily due recognition license revenue sale technology 2012 cost revenue year ended december 31 2012 selling general administrative expenses research development expenses bsi segment increased 6140 million 369 segment revenue 5608 million 361 segment revenue comparable period 2011 increase function incremental investments sales marketing activities research development activities well increases operating expenses related acquisitions completed 2011 2012 cost increases primarily relate additional headcount higher sales commission expenses result higher revenues higher material costs selling general administrative expenses research development expenses best segment increased 262 million 192 segment revenue 231 million 204 segment revenue comparable period 2011 decline percentage revenue attributable impact recognizing license revenue 2012 related sale technology income loss operations following table presents income loss operations operating margins revenue reportable segment years ended december 31 2012 2011 dollars millions arepresents corporate costs eliminations allocated reportable segments bsi segment income operations year ended december 31 2012 1408 million resulting operating margin 85 compared income operations 1628 million resulting operating margin 105 year ended december 31 2011 income operations includes 592 million 375 million years ended december 31 2012 2011 respectively representing inventory charges amortization acquisitionrelated intangible assets acquisitionrelated costs impairment goodwill definitelived intangible assets longlived assets charges excluding costs income operations bsi segment would 2000 million 2003 million resulting operating margins 120 129 respectively years ended december 31 2012 2011 operating margins declined result increased pricing pressure certain markets product mix higher operating expenses offset part higher revenues company recorded impairment assets within bsi segment 226 million year ended december 31 2012 comprised goodwill definitelived intangible asset impairment charges 14 million 164 million respectively cam division impairment charge 48 million longlived assets reduce carrying value estimated fair value best segment income operations year ended december 31 2012 128 million resulting operating margin 94 compared loss operations 41 million resulting operating margin 36 year ended december 31 2011 increase operating margin result higher revenues particular recognition license revenue sale technology partially offset higher operating expenses increase operating expenses function incremental investments sales marketing activities research development activities well impairment assets 12 million recorded year ended december 31 2012 reduce carrying value certain tangible longlived assets estimated fair value liquidity capital resources currently anticipate existing cash credit facilities sufficient support operating investing needs least next twelve months future cash requirements could affected acquisitions may make future historically financed growth cash flow generation combination debt financings issuances common stock future assurances additional financing alternatives available us required available obtained terms favorable us year ended december 31 2013 net cash provided operating activities 1450 million resulting primarily 1910 million consolidated net income adjusted noncash items partially offset 460 million increase working capital increase working capital year ended december 31 2013 primarily result reduction income tax payables part due settlement certain tax audits 2013 increase accounts receivable higher revenue levels year ended december 31 2012 net cash provided operating activities 1331 million resulting primarily 1914 million consolidated net income adjusted noncash items partially offset 583 million increase working capital driven higher inventory levels recorded impairment assets 238 million year ended december 31 2012 comprising goodwill definitelived intangible asset impairment charges 14 million 164 million respectively cam division impairment charge 60 million longlived assets reduce carrying value estimated fair value increase working capital year ended december 31 2012 primarily result increase inventory build year ended december 31 2013 net cash used investing activities 600 million compared net cash used investing activities 932 million year ended december 31 2012 cash used investing activities year ended december 31 2013 attributable primarily 489 million capital expenditures net 116 million used acquisitions cash used investing activities year ended december 31 2012 attributable primarily 695 million capital expenditures net 270 million used acquisitions currently anticipate capital spending 50 million 2014 year ended december 31 2013 net cash provided financing activities 265 million compared net cash provided financing activities 344 million year ended december 31 2012 cash provided financing activities year ended december 31 2013 primarily attributable proceeds revolving lines credit 195 million 82 million proceeds issuance common stock connection stock option exercises offset part repayment debt 16 million cash provided financing activities year ended december 31 2012 primarily attributable 2400 million borrowings note purchase agreement described offset part repayments revolving lines credit 2165 million proceeds revolving lines credit 930 million net debt repayments various longterm shortterm arrangements 832 million december 31 2013 december 31 2012 4198 million 2882 million respectively foreign cash equivalents significantly germany switzerland netherlands compared total amount cash equivalents december 31 2013 december 31 2012 4387 million 3106 million respectively cash equivalents held foreign subsidiaries needed fund operations us otherwise elect repatriate unremitted earnings foreign subsidiaries form dividends otherwise shares subsidiaries sold transferred would likely subject additional us income taxes net impact available tax credits could result higher effective tax rate future based current plans anticipated cash needs fund us operations foresee need repatriate earnings foreign subsidiaries current intent indefinitely reinvest unremitted earnings foreign subsidiaries december 31 2013 outstanding debt totaling 3550 million consisting 2400 million outstanding note purchase agreement described 1125 million outstanding revolving loan component amended credit agreement described 25 million capital lease obligations loans december 31 2012 outstanding debt totaling 3372 million consisting 2400 million outstanding note purchase agreement described 930 million outstanding revolving loan component amended credit agreement described 42 million capital lease obligations loans may 2011 entered amendment restatement credit agreement originally entered 2008 referred amended credit agreement amended credit agreement provides revolving credit line maximum commitment 2500 million maturity date may 2016 borrowings revolving credit line amended credit agreement accrue interest option either greatest prime rate ii federal funds rate plus 050 iii adjusted libor plus 100 b libor plus margins ranging 080 165 also facility fee ranging 020 035 borrowings amended credit agreement secured guarantees certain material subsidiaries defined amended credit agreement bruker energy supercon technologies inc amended credit agreement also requires maintain certain financial ratios related maximum leverage minimum interest coverage defined amended credit agreement specifically leverage ratio cannot exceed 30 interest coverage ratio cannot less 30 december 31 2013 compliance covenants amended credit agreement addition financial ratios amended credit agreement restricts among things ability following make certain payments incur additional debt incur certain liens make certain investments including derivative agreements merge consolidate sell transfer substantially assets enter certain transactions affiliates failure comply restrictions covenants may result event default amended credit agreement could permit acceleration debt require us prepay debt scheduled due date revolving loans various financial institutions located primarily germany switzerland france following summary maximum commitments net amounts available company revolving loans december 31 2013 dollars millions january 2012 entered note purchase agreement referred note purchase agreement group accredited institutional investors note purchase agreement issued sold 2400 million senior notes consist following •200 million 316 series 2012a senior notes due january 18 2017 •150 million 374 series 2012a senior notes due january 18 2019 •1050 million 431 series 2012a senior notes due january 18 2022 •1000 million 446 series 2012a senior notes due january 18 2024 december 31 2013 compliance covenants note purchase agreement leverage ratio 13 interest coverage ratio 135 december 31 2013 approximately 303 million us net operating loss carryforwards available reduce future state taxable income expire various times 2033 approximately 543 million german trade tax net operating losses carried forward indefinitely additionally 86 million foreign net operating losses expected expire various times beginning 2022 also us tax credits approximately 188 million available offset future tax liabilities expire various dates credits include research development tax credits 116 million expiring various times 2033 foreign tax credits 72 million expiring various times 2023 us operating loss tax credit carryforwards may subject limitations provisions internal revenue code following table summarizes maturities significant financial obligations december 31 2013 dollars millions uncertain tax contingencies positions taken expected taken income tax return may result additional payments tax authorities total amount uncertain tax contingencies included 13 years column able reasonably estimate timing potential future payments tax authority agrees tax position taken expected taken applicable statute limitations expires additional payments necessary transactions related parties lease certain office space certain principal shareholders including director executive officer another member board directors members immediate family years ended december 31 2013 2012 2011 shareholders paid approximately 26 million 24 million 24 million respectively estimated equal fair market value rentals years ended december 31 2013 2012 2011 incurred expenses 53 million 24 million 32 million respectively law firm one members board directors partner years ended december 31 2013 2012 2011 incurred expenses 02 million 04 million 05 million respectively financial services firm one members board directors partner item 7aitem 7 managements discussion analysis financial condition results operations following managements discussion analysis financial condition results operations mda describes principal factors affecting results operations financial condition changes financial condition well critical accounting policies estimates mda organized follows • overview section provides general description business brief discussion reportable segments significant recent developments business opportunities challenges risks may impact business future • results operations section provides analysis significant line items consolidated statement income comprehensive income year ended december 31 2014 compared year ended december 31 2013 year ended december 31 2013 compared year ended december 31 2012 • liquidity capital resources section provides analysis liquidity cash flow discussion outstanding debt commitments • critical accounting policies section discusses accounting estimates considered important financial condition results operations require us exercise subjective complex judgments application significant accounting policies including critical accounting policies estimates summarized note 2 consolidated financial statements item 8 annual report form 10k • recent accounting pronouncements section provides summary recent accounting pronouncements discusses potential impact consolidated financial statements overview designer manufacturer proprietary life science materials research systems associated products help drive advances life science research pharmaceuticals applied markets nanotechnology cell biology clinical research microbiology invitro diagnostics technology platforms include magnetic resonance technologies mass spectrometry technologies gas chromatography technologies infrared raman molecular spectroscopy technologies xray technologies sparkoptical emission spectroscopy atomic force microscopy fluorescence optical microscopy stylus optical metrology technology sell broad range field analytical systems chemical biological radiological nuclear explosive cbrne detection also develop manufacture low temperature high temperature superconducting wire products superconducting wire superconducting devices use advanced magnet technology physics research energy applications diverse customer base includes life science pharmaceutical biotechnology molecular diagnostic research companies academic institutions advanced materials semiconductor industries government agencies corporate headquarters located billerica massachusetts maintain major technical manufacturing centers europe north america sales offices located throughout world please see item 1 business discussion business products organized four operating segments bruker biospin group bruker calid group bruker nano group formerly called bruker mat group bruker energy supercon technologies best division bruker biospin group combines bruker magnetic resonance preclinical imaging divisions designs manufactures distributes enabling life science tools based magnetic resonance technology bruker calid group combines bruker daltonics combination former life sciences clinical lsc chemical applied markets cam divisions bruker detection bruker optics divisions designs manufactures distributes mass spectrometry chromatography instruments solutions life sciences including proteomics metabolomics clinical research applications mass spectrometry chromatography instruments also provide solutions applied markets include food safety environmental analysis petrochemical analysis bruker calid also designs manufactures distributes various analytical instruments cbrne detection research well analytical research process analysis instruments solutions based infrared raman molecular spectroscopy technologies bruker nano group includes bruker axs bruker nano surfaces bruker nano analytical bruker elemental divisions designs manufactures distributes advanced xray sparkoptical emission spectroscopy atomic force microscopy stylus optical metrology instrumentation used nondestructive molecular materials elemental analysis best division designs manufactures distributes low temperature superconductor high temperature superconductor materials use advanced magnet technology energy applications well linear accelerators accelerator cavities insertion devices accelerator components specialty superconducting magnets physics energy research variety scientific applications financial reporting purposes aggregate bruker biospin bruker calid bruker nano operating segments bruker scientific instruments bsi reporting segment represents approximately 93 companys revenues year ended december 31 2014 aggregation reflects operating segments similar economic characteristics production processes customer services provided types classes customers methods distribution regulatory environments year ended december 31 2014 revenue decreased 305 million 17 18089 million compared 18394 million comparable period 2013 reduced orders nmr systems governmental academic research customers continued weakness semiconductor data storage microelectronic industries increased competition japanese companies resulting strengthening us dollar euro japanese yen effect geopolitical uncertainty obtaining export licenses products restructuring initiatives divestiture product lines within former cam division contributed decline uncertain whether recent market conditions continue revenue derived market segments may affected future periods addition impact foreign exchange due strengthening us dollar versus japanese yen russian ruble currencies contributing factor revenue decline prior year yeartodate basis us dollar strengthened approximately 8 21 japanese yen russian ruble respectively currently anticipate impact exchange rates negative impact 2015 revenue overall financial results though uncertain extent gross profit margin decreased 422 438 years ended december 31 2014 2013 respectively lower revenue primary driver decrease selling general administrative expenses research development costs combined relatively consistent prior year resulting primarily positive effect due exchange rates impact previously announced restructuring cost containment efforts actions mitigated adverse effect operating income net income plan take additional restructuring measures result revenue decline occurred second half 2014 including restructuring actions commence 2015 expected reduce employee headcount approximately 9 within bruker biospin group completed anticipate restructuring actions implemented 2014 positive impact operating income net income 2015 including actions within former cam division expect result annual savings 15 20 million substantially completed end first quarter 2015 uncertain extent operations may impacted recent geopolitical instability russia year ended december 31 2014 sales customers russia represented approximately 1 revenue consistent percentage 2013 addition 2015 outsourced pension plan switzerland made certain plan design changes december 31 2014 plan assets converted cash pension expense 2015 increase approximately 16 million including onetime noncash charge approximately 10 million associated settlement portion plan addition also experience quartertoquarter fluctuations operating results result factors outside control • sales infrequent high value system solutions bruker biospin groups ultrahigh field magnets bruker calid groups fourier transform mass spectrometry systems ftms bruker nano groups atomic force microscopy systems • timing governmental stimulus programs academic research budgets • time takes customers construct prepare facilities products • time required obtain governmental licenses factors past affected timing recognizing revenue associated products continue future accordingly operating results particular quarter may necessarily indication future quarters operating performance results operations year ended december 31 2014 compared year ended december 31 2013 consolidated results following table presents results years ended december 31 2014 2013 dollars millions except per share data revenue year ended december 31 2014 revenue decreased 305 million 17 18089 million compared 18394 million year ended december 31 2013 included revenue decrease approximately 254 million impact foreign exchange due strengthening us dollar versus japanese yen russian ruble currencies increase approximately 29 million attributable recent acquisitions divestitures excluding effects foreign exchange recent acquisitions divestitures revenue decreased 80 million 04 bsi segment revenue decreased 349 million 20 16746 million year ended december 31 2014 compared 17095 million year ended december 31 2013 best segment revenue increased 55 million 37 1529 million year ended december 31 2014 compared 1474 million year ended december 31 2013 please see segment results section later section additional discussion revenue gross profit gross profit year ended december 31 2014 7633 million resulting gross profit margin 422 compared 8052 million resulting gross profit margin 438 year ended december 31 2013 included gross profit various charges amortization acquisitionrelated intangible assets acquisitionrelated costs restructuring costs totaling 444 million 273 million years ended december 31 2014 2013 respectively excluding charges gross profit margin year ended december 31 2014 2013 447 453 respectively lower gross profit margin primarily driven negative effects foreign exchange rates including impact strengthening us dollar versus japanese yen denominated revenues substantially exceeded yen denominated expenses addition 2013 gross profit margin benefited license revenue recognized sale technology best segment cost revenue effects partially offset favorable changes mix products sold 2014 including 21 tesla highfield magnet benefited higher gross profit margins selling general administrative selling general administrative expenses year ended december 31 2014 increased 4510 million 249 revenue 4379 million 238 revenue year ended december 31 2013 increase selling general administrative expenses primarily attributable increased sales marketing spending particularly former lsc division maldi biotyper product hiring new senior management general administrative spending related certain investments including financial reporting system improvements strategic advisory services higher allowance doubtful accounts including amounts associated certain distributor arrangements asia expenses relating recent acquisitions increases partially offset favorable impact changes foreign exchange rates research development research development expenses year ended december 31 2014 decreased 1742 million 96 revenue 1905 million 104 revenue year ended december 31 2013 decrease research development expenses attributable efforts improve efficiency product development process impairment assets company recorded impairment charge 115 million year ended december 31 2014 comprising definitelived intangible asset longlived assets 09 million 55 million respectively relating former cam division due restructuring divestiture actions impairment charge 51 million within best segment reduce carrying value certain longlived assets fair value due projected cash flows assets expected sufficient recover carrying value december 31 2014 2013 company performed annual goodwill indefinitelived intangible impairment evaluation performing qualitative assessment concluded morelikelythannot fair value reporting units greater carrying amount therefore additional impairment required impairment losses recorded related definitelived intangible assets year ended december 31 2013 continue monitor goodwill longlived intangible assets well longlived tangible assets possible future impairment charges net charges net 212 million recorded 2014 related bsi segment charges consisted 111 million restructuring costs related closing facilities implementing outsourcing restructuring initiatives 32 million legal professional service fees associated internal investigation review operations china 29 million acquisitionrelated costs 40 million costs associated initial stages global transformation initiative charges net 286 million recorded 2013 related primarily bsi segment charges consist 182 million restructuring costs including 159 million within bsi segment 23 million within best segment related closing facilities implementing outsourcing restructuring initiatives 61 million legal professional service fees associated internal investigation review operations china 36 million acquisitionrelated costs 07 million related two factory relocations within best segment 2015 expect incur 2530 million expense related various outsourcing initiatives restructuring activities implemented 2014 commence 2015 operating income operating income year ended december 31 2014 1054 million resulting operating margin 58 compared income operations 1482 million resulting operating margin 81 year ended december 31 2013 operating income included restructuring costs 361 million 253 million year ended december 31 2014 2013 respectively related closing facilities implementing outsourcing restructuring initiatives july 2014 board directors approved plan divest certain assets implement restructuring program former cam division within bruker calid group plan developed result managements conclusion former cam business would unable achieve acceptable financial performance next two years actions connection plan substantially completed end first quarter 2015 employee headcount reduced approximately 180 people restructuring onetime charges connection plan almost recorded second half 2014 expected approximately 24 million approximately 8 million relate employee separation facility exit costs approximately 16 million estimated inventory writedowns asset impairments expected restructuring onetime charges connection plan lower initially announced due divestiture activity second half 2014 part plan company divested certain assets icpms product line gc gcsq product lines combined gain sale product lines 80 million recorded part interest income expense net operating income also included 429 million 320 million year ended december 31 2014 2013 respectively various charges amortization acquisitionrelated intangible assets acquisitionrelated costs legal professional service fees related internal investigation review operations china impairment longlived assets costs associated global information technology transformation initiative excluding charges noted operating margins 102 112 year ended december 31 2014 2013 respectively decline operating margin driven negative effect due changes foreign exchange rates interest income expense net interest income expense net year ended december 31 2014 41 million compared 236 million year ended december 31 2013 year ended december 31 2014 major components within interest income expense net interest expense 125 million settlement charge related review operations china 24 million realized unrealized losses foreign currency transactions 20 million expenses partially offset gains sale product lines 83 million driven divestiture product lines within former cam division noted insurance claim reimbursement 25 million incentive state massachusetts 11 million year ended december 31 2013 major components within interest income expense net interest expense 124 million realized unrealized losses foreign currency transactions 104 million expect incur approximately 14 million interest expense 2015 provision income taxes income tax provision generally reflects amounts nonus entities maintain full valuation allowance us deferred tax assets including us net operating losses tax credits evidence exists likely loss carryforward credit amounts utilized offset us taxable income tax rate may change time amount mix income taxes outside us changes income tax provision year ended december 31 2014 417 million compared income tax provision 428 million year ended december 31 2013 representing effective tax rates 412 343 respectively increase effective tax rate primarily due unbenefited losses associated actions former cam division impact offset slightly changes mix earnings among tax jurisdictions net income attributable noncontrolling interests net income attributable noncontrolling interests year ended december 31 2014 29 million compared 17 million year ended december 31 2013 net income attributable noncontrolling interests represents minority shareholders proportionate share net income recorded majorityowned indirect subsidiaries net income attributable bruker corporation net income attributable bruker corporation year ended december 31 2014 567 million 033 per diluted share compared net income 801 million 048 per diluted share 2013 decrease year ended december 31 2014 primarily due lower gross margin levels higher effective tax rate partially offset gains sale product lines 2014 segment results revenue following table presents revenue change revenue growth reportable segment years ended december 31 2014 2013 dollars millions arepresents product service revenue reportable segments bsi segment revenues bsi segment revenue decreased 349 million 20 16746 million year ended december 31 2014 compared 17095 million year ended december 31 2013 included revenue decrease approximately 255 million impact foreign exchange due strengthening us dollar versus japanese yen russian ruble currencies increase approximately 29 million attributable recent acquisitions divestitures excluding effects foreign exchange recent acquisitions divestitures revenue decreased 123 million 07 bruker biospin group revenue decreased 16 million 03 6228 million year ended december 31 2014 compared 6244 million year ended december 31 2013 bruker biospin group revenue reflected lower sales within magnetic resonance division due reduced orders nmr systems governmental academic research customers partially offset recognition revenue sale 21 tesla highfield magnet current year decline magnetic resonance division offset higher sales preclinical imaging division across product lines bruker calid group revenue decreased 279 million 48 5535 million year ended december 31 2014 compared 5814 million year ended december 31 2013 decrease revenue driven declines former cam division part due divestiture restructuring actions third fourth quarters 2014 detection division due delays obtaining export licenses related certain orders declines partially offset increased sales maldi biotyper within former lsc division bruker optics division also experienced increases revenue across number product lines bruker nano group revenue decreased 54 million 11 4983 million year ended december 31 2014 compared 5037 million year ended december 31 2013 principal drivers decline continued weakness end market demand semiconductor data storage microelectronics products pricing advantage japanese based competitors resulting strengthening us dollar euro japanese yen axs division reduced demand customers russia result geopolitical uncertainty region declines partially offset revenue generated recently acquired line fluorescence microscopy products system revenue aftermarket revenue percentage total bsi segment revenue follows years ended december 31 2014 2013 dollars millions system revenue bsi segment includes nuclear magnetic resonance systems magnetic resonance imaging systems electron paramagnetic imaging systems mass spectrometry systems gas chromatography systems cbrne detection systems xray systems sparkoptical emission spectroscopy systems atomic force microscopy systems stylus optical metrology systems molecular spectroscopy systems aftermarket revenues bsi segment include accessory sales consumables training services best segment revenues best segment revenue increased 55 million 37 1529 million year ended december 31 2014 compared 1474 million year ended december 31 2013 increase revenue primarily attributable higher sales cavity devices offset 2013 license revenue recognized sale technology system wire revenue aftermarket revenue percentage total best segment revenue follows years ended december 31 2014 2013 dollars millions system wire revenue best segment includes low high temperature superconducting wire superconducting devices including magnets linear accelerators radio frequency cavities aftermarket revenues best segment consist primarily license revenue consumables sales gross profit operating expenses year ended december 31 2014 gross profit margin bsi segment decreased 437 453 comparable period 2013 lower gross profit margins resulted primarily restructuring charges recorded year ended december 31 2014 related closing facilities implementing outsourcing restructuring initiatives negative effect foreign exchange rates including impact strengthening us dollar versus japanese yen declines partially offset increase due changes mix products sold including 21 tesla highfield magnet benefited higher gross margins best segment gross profit margin decreased 188 215 comparable period 2013 lower gross margins resulted primarily license revenue recognized 2013 sale technology cost revenue year ended december 31 2014 selling general administrative expenses research development expenses bsi segment decreased 6048 million 361 segment revenue 6091 million 356 segment revenue comparable period 2013 decrease dollars reflects lower research development expense attributable efforts improve efficiency product development process decrease offset higher sales marketing spending particularly former lsc division maldi biotyper product hiring new senior management general administrative spending related certain investments including financial reporting system improvement strategic advisory services higher allowance doubtful accounts including amounts associated certain distributor arrangements asia expenses due recent acquisitions increases partially offset effect changes foreign exchange rates increase percentage revenue due lower revenue levels 2014 selling general administrative expenses research development expenses best segment remained relatively consistent 204 million 133 segment revenue 2014 compared 193 million 131 segment revenue 2013 operating income loss following table presents operating income loss operating margins revenue reportable segment years ended december 31 2014 2013 dollars millions arepresents corporate costs eliminations allocated reportable segments bsi operating income year ended december 31 2014 998 million resulting operating margin 60 compared income operations 1389 million resulting operating margin 81 year ended december 31 2013 income operations included 737 million 541 million years ended december 31 2014 2013 respectively various charges representing amortization acquisitionrelated intangible assets acquisitionrelated costs legal professional fees related internal investigation review operations china restructuring relocation costs impairment definitelived intangible assets longlived assets costs associated global transformation initiative excluding costs operating income bsi 1735 million 1930 million resulting operating margins 104 113 respectively years ended december 31 2014 2013 operating income excluding costs decreased result negative effect changes foreign exchange rates including impact strengthening us dollar versus japanese yen denominated revenues substantially exceeded yen denominated expenses lower gross margin levels increase selling general administrative expenses increases partially offset decrease research development expenses best operating income year ended december 31 2014 34 million resulting operating margin 22 compared operating income 95 million resulting operating margin 64 year ended december 31 2013 decline operating margin result license revenue recognized 2013 sale technology cost revenue recur impairment charges 51 million recorded 2014 reduce carrying value certain longlived assets estimated fair value year ended december 31 2013 compared year ended december 31 2012 consolidated results following table presents results years ended december 31 2013 2012 dollars millions except per share data revenue year ended december 31 2013 revenue increased 480 million 27 18394 million compared 17914 million year ended december 31 2012 included revenue decrease approximately 53 million impact foreign exchange due strengthening us dollar versus japanese yen offset weakening us dollar versus euro decrease approximately 38 million attributable acquisitions divestitures excluding effects foreign exchange acquisitions divestitures revenue increased 571 million 32 bsi segment revenue increased 434 million 26 17095 million year ended december 31 2013 compared 16661 million year ended december 31 2012 best segment revenues increased 112 million 82 1474 million year ended december 31 2013 compared 1362 million year ended december 31 2012 please see segment results section later section additional discussion revenue gross profit gross profit year ended december 31 2013 8052 million resulting gross profit margin 438 compared 8294 million resulting gross profit margin 463 year ended december 31 2012 included gross profit various charges amortization acquisitionrelated intangible assets acquisitionrelated costs restructuring costs totaling 273 million 219 million years ended december 31 2013 2012 respectively excluding charges gross profit margin year ended december 31 2013 2012 453 475 respectively lower gross profit margin partially due negative effects foreign exchange rates including impact strengthening us dollar versus japanese yen denominated revenues substantially exceeded yen denominated expenses changes value yen compared us dollar significant positive negative effect gross profit margins income operations addition yearoveryear decline amount license revenue recognized sale technology best segment cost revenue decreased gross profit margins finally volume pricing declines bruker nano group negative impact margins selling general administrative selling general administrative expenses year ended december 31 2013 decreased 4379 million 238 revenue 4404 million 246 revenue year ended december 31 2012 decrease selling general administrative expenses driven impact lower discretionary spending partially offset increased general administrative spending related certain investments including financial system improvements well expenses due recent acquisitions research development research development expenses year ended december 31 2013 decreased 1905 million 104 revenue 1953 million 109 revenue year ended december 31 2012 decrease research development expenses attributable managements decision reduce spending less profitable portions company lower levels material costs impairment assets company recorded impairment charge 238 million year ended december 31 2012 comprising goodwill definitelived intangible asset impairment charges 14 million 164 million respectively relating former cam division impairment charge 60 million longlived assets reduce carrying value estimated fair value december 31 2013 company performed annual goodwill indefinitelived intangible impairment evaluation performing qualitative assessment concluded morelikelythannot fair value reporting units greater carrying amount therefore impairment required december 31 2012 company performed annual goodwill indefinitelived intangible impairment evaluation performing quantitative assessment concluded reporting units fair values exceeded carrying values exception former cam division experienced increased deterioration financial performance company therefore performed step two impairment test measure potential impairment concluded impairment charge 14 million required represented goodwill allocated former cam division indefinitelived intangible assets associated former cam division impairment indefinitelived intangible assets year ended december 31 2012 increased deterioration financial performance former cam division 2012 discussed indicator requiring evaluation definitelived intangible assets longterm assets within reporting unit recoverability company performed valuation december 31 2012 determined definitelived intangible assets certain longterm assets within former cam division impaired company recorded impairment charge amount 212 million year ended december 31 2012 reduce carrying value assets estimated fair values impairment losses recorded related definitelived intangible assets year ended december 31 2013 addition based abandonment project best reporting unit 2012 indicator requiring evaluation longlived assets recoverability company performed valuation december 31 2012 determined certain longlived assets within best reporting unit impaired year ended december 31 2012 impairment charge amount 12 million related property plant equipment recorded reduce carrying value assets estimated fair values charges net charges net 286 million recorded 2013 related primarily bsi segment charges consist 182 million restructuring costs including 159 million within bsi segment 23 million within best segment related closing facilities implementing outsourcing restructuring initiatives 61 million legal professional service fees associated internal investigation review operations china 36 million acquisitionrelated costs 07 million related two factory relocations within best segment charges net 139 million recorded 2012 consist 111 million legal professional service fees associated internal investigation review operations china 20 million related two factory relocations within best segment 08 million charges operating income operating income year ended december 31 2013 1482 million resulting operating margin 81 compared income operations 1560 million resulting operating margin 87 year ended december 31 2012 operating income included 573 million 630 million year ended december 31 2013 2012 respectively various charges amortization acquisitionrelated intangible assets acquisitionrelated costs impairment goodwill intangible assets longterm assets legal professional services fees related internal investigation review operations china restructuring relocation costs excluding charges operating margins 112 122 year ended december 31 2013 2012 respectively operating margin excluding items declined due lower gross profit margins including negative effect changes foreign exchange rates partially offset lower levels operating expenses interest income expense net interest income expense net year ended december 31 2013 236 million compared 177 million year ended december 31 2012 year ended december 31 2013 major components within interest income expense net interest expense 124 million realized unrealized losses foreign currency transactions 104 million year ended december 31 2012 major components within interest income expense net interest expense 134 million realized unrealized losses foreign currency transactions 68 million partially offset 22 million gain sale product line 2012 decrease interest expense driven maturity interest rate swap end 2012 realized unrealized losses foreign currency transactions 2013 driven strengthening us dollar euro versus number currencies operate provision income taxes income tax provision generally reflects amounts nonus entities maintain full valuation allowance us deferred tax assets including us net operating losses tax credits evidence exists likely loss carryforward credit amounts utilized offset us taxable income tax rate may change time amount mix income taxes outside us changes income tax provision year ended december 31 2013 428 million compared income tax provision 601 million year ended december 31 2012 representing effective tax rates 343 435 respectively decrease effective tax rate primarily due impairment charges recorded 2012 tax deduction permitted net income attributable noncontrolling interests net income attributable noncontrolling interests year ended december 31 2013 17 million compared 07 million year ended december 31 2012 net income attributable noncontrolling interests represents minority shareholders proportionate share net income recorded majorityowned indirect subsidiaries net income attributable bruker corporation net income attributable bruker corporation year ended december 31 2013 801 million 048 per diluted share compared net income 775 million 046 per diluted share 2012 increase year ended december 31 2013 primarily due higher revenue levels reductions overall operating expenses lower effective tax rate partially offset decline gross margins segment results revenue following table presents revenue change revenue growth reportable segment years ended december 31 2013 2012 dollars millions arepresents product service revenue reportable segments bsi segment revenues bsi segment revenue increased 434 million 26 17095 million year ended december 31 2013 compared 16661 million year ended december 31 2012 included revenue decrease approximately 94 million impact foreign exchange due strengthening us dollar versus japanese yen offset weakening us dollar versus euro decrease approximately 38 million attributable recent acquisitions divestitures excluding effects foreign exchange recent acquisitions divestitures revenue increased 566 million 34 revenue bruker biospin group increased reflecting higher sales within magnetic resonance division due strong demand academic customers particularly europe asia increase also reflects higher revenue levels within preclinical imaging division includes impact acquisition 2012 bruker calid group also increase revenue driven primarily higher levels maldi biotyper ftms products sold former lsc division improved commercial execution bruker optics division revenue within bruker nano group decreased compared period prior year particularly lower revenue levels atomic force microscopy xray products lower demand customers industrial microelectronics markets particularly asia addition impact divesting product line within bruker nano group 2012 contributed decline revenue system revenue aftermarket revenue percentage total bsi segment revenue follows years ended december 31 2013 2012 dollars millions system revenue bsi segment includes nuclear magnetic resonance systems magnetic resonance imaging systems electron paramagnetic imaging systems mass spectrometry systems gas chromatography systems cbrne detection systems xray systems sparkoptical emission spectroscopy systems atomic force microscopy systems stylus optical metrology systems molecular spectroscopy systems aftermarket revenues bsi segment include accessory sales consumables training services best segment revenues best segment revenues increased 112 million 82 1474 million year ended december 31 2013 compared 1362 million year ended december 31 2012 increase revenue excluding effect foreign exchange primarily attributable increased sales low temperature superconducting wire well beamline cavity devices partially offset 107 million reduction license revenue recognized sale technology included revenue increase approximately 47 million impact foreign exchange due weakening us dollar versus euro foreign currencies excluding effect foreign exchange revenue increased 65 million 48 system wire revenue aftermarket revenue percentage total best segment revenue follows years ended december 31 2013 2012 dollars millions system wire revenue best segment includes low high temperature superconducting wire superconducting devices including magnets linear accelerators radio frequency cavities aftermarket revenues best segment consist primarily license revenue consumables sales gross profit operating expenses year ended december 31 2013 gross profit margin bsi segment decreased 453 474 comparable period 2012 lower gross profit margins resulted primarily negative effects foreign exchange rates including impact strengthening us dollar versus japanese yen volume pricing declines bruker nano group addition restructuring charges recorded year ended december 31 2013 related closing facilities implementing outsourcing restructuring initiatives best segment gross profit margin decreased 215 312 comparable period 2012 primarily due decline recognition license revenue sale technology cost revenue year ended december 31 2013 selling general administrative expenses research development expenses bsi segment decreased 6091 million 356 segment revenue 6140 million 369 segment revenue comparable period 2012 decrease driven impact lower discretionary spending managements decision reduce research development spending less profitable portions business lower levels research development material consumption partially offset higher general administrative spending related certain investments including financial system improvements well expenses due recent acquisitions selling general administrative expenses research development expenses best segment decreased 193 million 131 segment revenue 262 million 192 segment revenue comparable period 2012 decrease attributable lower discretionary spending impact managements decision reduce research development spending less profitable portions business operating income loss following table presents operating income loss operating margins revenue reportable segment years ended december 31 2013 2012 dollars millions arepresents corporate costs eliminations allocated reportable segments bsi operating income year ended december 31 2013 1389 million resulting operating margin 81 compared income operations 1408 million resulting operating margin 85 year ended december 31 2012 income operations included 541 million 592 million years ended december 31 2013 2012 respectively included various charges representing amortization acquisitionrelated intangible assets acquisitionrelated costs impairment goodwill definitelived intangible assets longlived assets restructuring relocation costs excluding costs operating income bsi 1930 million 2000 million resulting operating margins 113 120 respectively years ended december 31 2013 2012 income operations excluding costs declined primarily result lower gross margins due part negative effects foreign exchange rates including impact strengthening us dollar versus japanese yen denominated revenues substantially exceeded yen denominated expenses declines partially offset higher revenues described best operating income year ended december 31 2013 95 million resulting operating margin 64 compared income operations 128 million resulting operating margin 94 year ended december 31 2012 decline operating margin primarily result lower levels license revenue sale technology cost revenue 23 million restructuring expenses recorded year ended december 31 2013 factors partially offset lower selling general administrative expenses research development expenses addition company recorded impairment charge 12 million year ended december 31 2012 reduce carrying value certain tangible longlived assets estimated fair value liquidity capital resources currently anticipate existing cash credit facilities sufficient support operating investing needs least next twelve months future cash requirements could affected acquisitions may make future historically financed growth cash flow generation combination debt financings issuances common stock future assurances additional financing alternatives available us required available obtained terms favorable us year ended december 31 2014 net cash provided operating activities 1143 million resulting primarily consolidated net income adjusted noncash items 1536 million partially offset increase working capital 393 million increase working capital year ended december 31 2014 primarily due decrease customer advances difference timing receipt customer acceptances obtaining acceptance year 21 tesla highfield magnet bruker biospin group completion certain orders best segment relatively large customer advances advance payments new orders received addition increase accounts receivable due higher shipment levels towards end fourth quarter 2014 uses cash partially offset cash generated increase accounts payable driven improved vendor payment practices year ended december 31 2013 net cash provided operating activities 1450 million resulting primarily 1910 million consolidated net income adjusted noncash items partially offset 460 million increase working capital increase working capital year ended december 31 2013 primarily result reduction income tax payables part due settlement certain tax audits 2013 increase accounts receivable higher revenue levels year ended december 31 2014 net cash used investing activities 2019 million compared net cash used investing activities 600 million year ended december 31 2013 cash used investing activities year ended december 31 2014 attributable primarily purchases net maturities shortterm investments 1926 million 307 million capital expenditures net partially offset proceeds sale product lines 253 million cash used investing activities year ended december 31 2013 attributable primarily 489 million capital expenditures net 116 million used acquisitions anticipate capital spending approximately 45 million 2015 year ended december 31 2014 net cash provided financing activities 67 million compared net cash provided financing activities 265 million year ended december 31 2013 cash provided financing activities year ended december 31 2014 primarily attributable proceeds 79 million issuance common stock connection stock option exercises partially offset repayment debt 08 million cash provided financing activities year ended december 31 2013 primarily attributable proceeds revolving lines credit 195 million 82 million proceeds issuance common stock connection stock option exercises offset part repayment debt 16 million december 31 2014 december 31 2013 4607 million 4198 million respectively foreign cash equivalents shortterm investments significantly netherlands germany switzerland japan compared total amount cash equivalents shortterm investments december 31 2014 december 31 2013 4975 million 4387 million respectively cash equivalents held foreign subsidiaries needed fund operations us otherwise elect repatriate unremitted earnings foreign subsidiaries form dividends otherwise shares subsidiaries sold transferred would likely subject additional us income taxes net impact available tax credits could result higher effective tax rate future based current plans anticipated cash needs fund us operations foresee need repatriate earnings foreign subsidiaries current intent indefinitely reinvest unremitted earnings foreign subsidiaries december 31 2014 2013 outstanding debt totaling 3550 million consisting 2400 million outstanding note purchase agreement described 1125 million outstanding revolving loan component amended credit agreement described 25 million capital lease obligations loans may 2011 entered amendment restatement credit agreement originally entered 2008 referred amended credit agreement amended credit agreement provides revolving credit line maximum commitment 2500 million maturity date may 2016 borrowings revolving credit line amended credit agreement accrue interest option either greatest prime rate ii federal funds rate plus 050 iii adjusted libor plus 100 b libor plus margins ranging 080 165 also facility fee ranging 020 035 borrowings amended credit agreement secured guarantees certain material subsidiaries defined amended credit agreement bruker energy supercon technologies inc amended credit agreement also requires maintain certain financial ratios related maximum leverage minimum interest coverage defined amended credit agreement specifically leverage ratio cannot exceed 30 interest coverage ratio cannot less 30 december 31 2014 compliance covenants amended credit agreement addition financial ratios amended credit agreement restricts among things ability following make certain payments incur additional debt incur certain liens make certain investments including derivative agreements merge consolidate sell transfer substantially assets enter certain transactions affiliates failure comply restrictions covenants may result event default amended credit agreement could permit acceleration debt require us prepay debt scheduled due date following summary maximum commitments net amounts available company revolving loans december 31 2014 dollars millions revolving loans lines credit various financial institutions located primarily germany switzerland france companys revolving lines credit secured unsecured typically due upon demand interest payable monthly january 2012 entered note purchase agreement referred note purchase agreement group accredited institutional investors note purchase agreement issued sold 2400 million senior notes consist following • 200 million 316 series 2012a senior notes due january 18 2017 • 150 million 374 series 2012a senior notes due january 18 2019 • 1050 million 431 series 2012a senior notes due january 18 2022 • 1000 million 446 series 2012a senior notes due january 18 2024 december 31 2014 compliance covenants note purchase agreement leverage ratio 14 interest coverage ratio 123 december 31 2014 approximately 455 million us net operating loss carryforwards us research development tax credits 123 million expiring various times 2034 us operating loss tax credit carryforwards may subject limitations provisions internal revenue code december 31 2014 also approximately 477 million german trade tax net operating losses carried forward indefinitely following table summarizes maturities significant financial obligations december 31 2014 dollars millions uncertain tax contingencies positions taken expected taken income tax return may result additional payments tax authorities total amount uncertain tax contingencies included 13 years column able reasonably estimate timing potential future payments tax authority agrees tax position taken expected taken applicable statute limitations expires additional payments necessary critical accounting policies discussion analysis financial condition results operations based upon consolidated financial statements prepared accordance accounting principles generally accepted united states america preparation financial statements requires make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments including related revenue recognition expensing capitalization software development costs stockbased compensation expense restructuring related charges income taxes including recoverability deferred tax assets allowances doubtful accounts inventory reductions excess obsolete inventories estimated fair values longlived assets used evaluate recoverability longlived assets intangible assets goodwill expected future cash flows used evaluate recoverability intangible assets longlived assets warranty costs derivative financial instruments contingent liabilities base estimates judgments historical experience current market economic conditions industry trends assumptions believe reasonable form basis making judgments carrying value assets liabilities readily apparent sources actual results could differ estimates believe following critical accounting policies important portrayal financial position results operations require subjective judgment revenue recognition recognize revenue system sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectability resulting receivable reasonably assured title risk loss generally transferred upon customer acceptance system delivered customer installed products sold independent distributor strategic distribution partner assumes responsibility installation recognize system sale product shipped title risk loss transferred distributor distributors price protection rights return however products typically warranted free defect period one year revenue deferred cash received collectability reasonably assured price fixed determinable arrangements multiple elements allocate revenue element either using vendor specific objective evidence vsoe thirdparty evidence tpe estimated selling price esp attempt determine fair value using vsoe available use tpe cant determine vsoe tpe use esp typically cannot ascertain tpe products services offered qualify separate units accounting recognize revenue upon customer acceptance system shipped installed customer trained result timing customer acceptance readiness could cause reported revenues differ materially expectations revenue accessories parts recognized upon shipment service revenue recognized services performed also contracts apply percentageofcompletion model completed contract model revenue recognition application percentageofcompletion method requires us make reasonable estimates extent progress toward completion contract total costs incur contract losses recorded immediately estimate contracts ultimately result loss changes estimates could affect timing revenue recognition income taxes determination income tax expense requires us make certain estimates judgments concerning annual effective tax rate calculation deferred tax assets liabilities forecasted profitability subsidiaries certain geographic jurisdictions well deductions carryforwards credits available reduce taxable income deferred tax assets liabilities arise differences timing recognition revenue expenses financial statement tax purposes deferred tax assets liabilities measured using tax rates effect year temporary differences expected settled estimate degree tax assets loss carryforwards result benefit based expected profitability tax jurisdiction provide valuation allowance tax assets loss carryforwards believe likely go unused becomes likely tax asset loss carryforward used reserve provided reverse related valuation allowance actual future taxable income tax jurisdiction differs estimates additional allowances reversals reserves may necessary addition recognize benefits tax positions believe likely sustained upon review taxing authority knowledge relevant information reevaluate uncertain tax positions quarterly basis changes positions result tax audits tax laws facts circumstances could result additional charges credits operations expiration statutes limitations affecting estimates made uncertain tax positions cause higher earnings inventories stated lower cost market costs determined firstin firstout method majority subsidiaries average cost certain subsidiaries record provisions account excess obsolete inventory reflect expected nonsaleable nonrefundable inventory based evaluation slow moving products longer offered sale inventories also include demonstration units located demonstration laboratories installed sites potential customers consider demonstration units available sale reduce carrying value demonstration inventories differences cost estimated net realizable value taking consideration usage preceding twelve months expected demand technological obsolescence information including physical condition unit ultimate usage demand varies significantly expected usage demand additional writedowns may required resulting additional charges operations goodwill intangible assets longlived assets evaluate goodwill impairment annually events occur circumstances change test goodwill impairment reporting unit level operating segment one level operating segment us gaap option performing qualitative assessment determine whether impairment testing necessary performing twostep quantitative assessment qualitative assessment requires significant judgments macroeconomic conditions including entitys operating environment industry market considerations entityspecific events related financial performance loss key personnel events could impact reporting unit result qualitative assessment morelikelythannot fair value reporting unit less carrying amount quantitative impairment test required otherwise testing required quantitative impairment test performed first step involves comparing fair values applicable reporting units aggregate carrying values including goodwill generally determine fair value reporting units using weighting market approach income approach methodologies income approach valuation methodology includes discounted cash flow estimates estimating fair value reporting units requires significant judgment future cash flows carrying amount reporting unit exceeds fair value reporting unit perform second step goodwill impairment test measure amount impairment second step goodwill impairment test compare implied fair value reporting units goodwill carrying value goodwill also review definitelived intangible assets longlived assets indications potential impairment exist fair value longlived assets decline reduced operating performance market declines indicators impairment charge operations impairment may necessary recent accounting pronouncements may 2014 fasb issued asu 201409 revenue contracts customers supersedes revenue recognition requirements asc topic 605 new guidance result joint project fasb international accounting standards board clarify principles recognizing revenue develop common revenue standards gaap international financial reporting standards core principle new guidance revenue recognized depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services asu 201409 effective prospectively annual periods beginning december 15 2016 interim periods within years early application permitted currently assessing impact adoption new guidance may consolidated financial statements april 2014 fasb issued asu 201408 reporting discontinued operations disclosures disposals components entity amendment asc topic 205 amendment disposal component entity group components entity required reported discontinued operations disposal represents strategic shift major effect entitys operations financial results amendment also requires additional disclosures discontinued operations well individually significant components entity qualify discontinued operations presentation financial statements asu 201408 effective prospective basis fiscal years beginning december 15 2014 interim periods within annual periods beginning december 15 2015 early adoption permitted adopted amendment second quarter 2014 incorporated guidance within financial statements related footnote disclosures adoption material impact consolidated financial statements year ended december 31 2014 july 2013 fasb issued asu 201311 income taxes amendment asc topic 740 related financial statement presentation unrecognized tax benefit net operating loss carryforward similar tax loss tax credit carryforward exists amendment unrecognized tax benefit presented decrease deferred tax asset net operating loss similar tax loss tax credit carryforward exists certain criteria met asu 201311 effective fiscal years beginning december 15 2013 adopted amendment first quarter 2014 adoption material impact consolidated financial statements year ended december 31 2014 item 7aitem 7 managements discussion analysis financial condition results operations following managements discussion analysis financial condition results operations mda describes principal factors affecting results operations financial condition changes financial condition well critical accounting policies estimates mda organized follows • overview section provides general description business brief discussion reportable segments significant recent developments business opportunities challenges risks may impact business future • results operations section provides analysis significant line items consolidated statements income comprehensive income loss year ended december 31 2015 compared year ended december 31 2014 year ended december 31 2014 compared year ended december 31 2013 • liquidity capital resources section provides analysis liquidity cash flow discussion outstanding debt commitments • critical accounting policies estimates section discusses accounting estimates considered important financial condition results operations require us exercise subjective complex judgments application significant accounting policies summarized note 2 consolidated financial statements item 8 annual report form 10k • recent accounting pronouncements section provides summary recent accounting pronouncements discusses potential impact consolidated financial statements • transactions related parties section summarizes transactions related parties overview organized four operating segments bruker biospin group bruker calid group bruker nano group bruker energy supercon technologies best segment twelve months ended december 31 2015 revenue decreased 1851 million 102 16238 million compared 18089 million comparable period 2014 impact changes foreign currency translation rates divestitures former chemical applied markets cam division offset recent acquisition jordan valley semiconductors ltd caused decline 2215 million 123 excluding items revenue increased 21 driven growth bruker calid group bruker nano group best segment revenue growth operating segments offset decline bruker biospin group discussed detail within results operations gross profit margin increased 436 422 twelve months ended december 31 2015 compared twelve months ended december 31 2014 increase gross margin percentage primarily caused positive impact recent operational improvement initiatives product pricing outsourcing various manufacturing activities favorable impact changes foreign currency translation rates recent divestiture restructuring actions factors discussed within results operations selling general administrative expenses research development costs twelve months ended december 31 2015 decreased approximately 873 million prior year caused favorable impact changes foreign currency translation rates recent divestiture restructuring actions earnings per share increased 027 060 per diluted share twelve months ended december 31 2015 compared period 2014 increase attributable operating profit improvements favorable effective tax rate due release valuation allowances certain us deferred tax assets twelve months ended december 31 2015 generated 1950 million free cash flow calculate free cash flow net cash provided operating activities 2292 million less purchases property plant equipment 342 million free cash flow primarily driven higher operating results reduction working capital progress operational improvement initiatives time elapsed date customer orders taken deposits customers received receipt full payments orders fluctuate significantly period cycle significantly positive effect free cash flow generation 2015 previously disclosed commenced restructuring initiative 2015 within bruker biospin group developed result revenue decline occurred second half 2014 continued first half 2015 initiative intended improve bruker biospin groups operating results restructuring actions expected result reduction employee headcount within bruker biospin group approximately 9 restructuring expenses related initiative recorded year ended december 31 2015 141 million consisting 21 million inventory writedowns 120 million severance exit costs restructuring also includes closure consolidation certain bruker biospin manufacturing facilities performed evaluation year ended december 31 2015 determined certain property plant equipment impaired recorded impairment charge 21 million reduce assets fair value total restructuring onetime charges related initiative continuing 2016 expected 3 5 million relate employee separation facility exit costs expect generate approximately 10 million annualized savings restructuring initiative completed end first quarter 2016 prior restructuring initiatives executed planned material changes initially recorded liabilities payments twelve months ended december 31 2015 outsourced pension plan switzerland outside insurance provider made certain plan design changes remeasured pension liability result noncash pension expenses 2015 increased approximately 160 million included onetime noncash settlement charge 102 million recorded first quarter 2015 plan assets pension obligations retirees certain members population transferred outside insurance provider settlement charge recorded component charges net consolidated statements income comprehensive income loss experience quartertoquarter fluctuations operating results result various factors outside control • timing governmental stimulus programs academic research budgets • time takes date customer orders deposits received systems shipped accepted customers full payment received • time takes customers construct prepare facilities products • time required obtain governmental licenses factors past affected amount timing revenue recognized sales products receipt related payments continue future accordingly operating results particular quarter may necessarily indication future quarters operating performance results operations year ended december 31 2015 compared year ended december 31 2014 consolidated results following table presents results years ended december 31 2015 2014 dollars millions except per share data revenue year ended december 31 2015 revenue decreased 1851 million 102 16238 million compared 18089 million year ended december 31 2014 included revenue decrease approximately 1844 million impact foreign currency translation caused strengthening us dollar versus euro japanese yen currencies decrease approximately 371 million attributable divestitures partially offset acquisition jordan valley semiconductors ltd excluding effects foreign currency translation recent acquisitions divestitures revenue increased 364 million 21 bsi segment revenue decreased 1754 million 105 14992 million year ended december 31 2015 compared 16746 million year ended december 31 2014 best segment revenue decreased 192 million 126 1337 million year ended december 31 2015 compared 1529 million year ended december 31 2014 please see segment results section later section additional discussion revenue gross profit gross profit year ended december 31 2015 7086 million resulting gross profit margin 436 compared 7633 million resulting gross profit margin 422 year ended december 31 2014 included gross profit various charges amortization acquisitionrelated intangible assets acquisitionrelated costs restructuring costs totaling 424 million 444 million years ended december 31 2015 2014 respectively excluding charges gross profit margin year ended december 31 2015 2014 462 447 respectively higher gross profit margin primarily attributable favorable impact changes foreign currency translation rates increased business volume certain product lines favorable impact recent operational improvement initiatives product pricing within bruker biospin group outsourcing various manufacturing activities recent divestiture restructuring actions including among others within former cam division selling general administrative selling general administrative expenses year ended december 31 2015 decreased 3922 million 242 revenue 4510 million 249 revenue year ended december 31 2014 decrease primarily attributable favorable impact changes foreign currency translation rates divestitures within former cam division research development research development expenses year ended december 31 2015 decreased 1457 million 90 revenue 1742 million 96 revenue year ended december 31 2014 decrease attributable favorable impact changes foreign currency translation rates recent divestitures restructuring actions primarily within former cam division lower material costs improved efficiency product development processes impairment assets recorded impairment charge 46 million year ended december 31 2015 comprised goodwill definitelived intangible assets longlived assets 07 million 18 million 21 million respectively related restructuring actions within bruker biospin group year recorded impairment charge 115 million year ended december 31 2014 comprising definitelived intangible asset longlived assets 09 million 55 million respectively relating former cam division due restructuring divestiture actions impairment charge 51 million within best segment reduce carrying value certain longlived assets fair value due projected cash flows assets expected sufficient recover carrying value december 31 2015 2014 performed annual goodwill indefinitelived intangible impairment evaluation concluded fair values reporting units significantly greater carrying amounts therefore additional impairment required continue monitor goodwill longlived intangible assets well longlived tangible assets possible future impairment charges net charges net 204 million recorded 2015 almost entirely related bsi segment charges consisted primarily 102 million onetime noncash settlement charge plan assets pension obligations retirees certain members population within pension plan switzerland transferred outside insurance provider 81 million restructuring costs related closing facilities implementing outsourcing restructuring initiatives 89 million costs associated global information technology transformation initiative partially offset 72 million contingent consideration reversals determined certain financial targets related applicable products would meet required thresholds payment charges net 212 million recorded 2014 related bsi segment charges consisted 111 million restructuring costs related closing facilities implementing outsourcing restructuring initiatives 32 million legal professional service fees associated internal investigation review operations china 29 million acquisitionrelated costs 40 million costs associated global transformation initiative 2016 expect incur 68 million expense related various outsourcing initiatives restructuring activities implemented 2015 commence 2016 operating income operating income year ended december 31 2015 1457 million resulting operating margin 90 compared income operations 1054 million resulting operating margin 58 year ended december 31 2014 operating income included restructuring costs 293 million 361 million year ended december 31 2015 2014 respectively related closing facilities implementing outsourcing restructuring initiatives operating income also included 402 million 429 million year ended december 31 2015 2014 respectively various charges amortization acquisitionrelated intangible assets acquisitionrelated costs legal professional service fees related internal investigation review operations china impairment longlived assets costs associated global transformation initiative excluding charges noted operating margins 133 102 year ended december 31 2015 2014 respectively increase operating margin caused improvements gross profit margins reduction operating expenses discussed interest income expense net interest income expense net year ended december 31 2015 177 million compared 41 million year ended december 31 2014 year ended december 31 2015 major components within interest income expense net interest expense 118 million realized unrealized losses foreign currency denominated transactions 55 million realized unrealized losses foreign currency denominated transactions year ended december 31 2015 primarily caused fluctuations us dollar euro swiss franc year ended december 31 2014 major components within interest income expense net interest expense 125 million settlement charge related review operations china 24 million realized unrealized losses foreign currency transactions 20 million expenses partially offset gains sale product lines 83 million driven divestiture product lines within former cam division noted insurance claim reimbursement 25 million incentive commonwealth massachusetts 11 million expect incur approximately 135 million interest expense 2016 provision income taxes income tax provision year ended december 31 2015 231 million compared income tax provision 417 million year ended december 31 2014 representing effective tax rates 180 412 respectively decrease effective tax rate primarily attributable partial release us valuation allowances previously recorded deferred tax assets changes mix earnings among tax jurisdictions valuation allowance december 31 2015 decreased 202 million compared december 31 2014 including reduction beginning year valuation allowance 208 million account change judgment respect realizability us deferred tax assets decrease primarily attributable us net operating loss foreign tax credit usage result repatriation 2353 million foreign earnings united states 2015 prompted adverse interest rate conditions europe unfavorably impacting cash balances among evidence supporting conclusion respect realizability deferred tax assets elimination recent cumulative us losses well expected future near term us taxable income tax rate may change time amount mix jurisdictional income changes net income attributable noncontrolling interests net income attributable noncontrolling interests year ended december 31 2015 33 million compared 29 million year ended december 31 2014 net income attributable noncontrolling interests represents minority shareholders proportionate share net income recorded majorityowned indirect subsidiaries net income attributable bruker corporation net income attributable bruker corporation year ended december 31 2015 1016 million 060 per diluted share compared net income 567 million 033 per diluted share 2014 increase year ended december 31 2015 primarily caused increased operating income favorable effective tax rate discussed segment results revenue following table presents revenue change revenue growth reportable segment years ended december 31 2015 2014 dollars millions arepresents product service revenue reportable segments bsi segment revenues financial reporting purposes aggregate bruker biospin bruker calid bruker nano operating segments bruker scientific instruments bsi reportable segment represented approximately 92 companys revenues twelve months ended december 31 2015 aggregation reflects operating segments similar economic characteristics production processes customer services provided types classes customers methods distribution regulatory environments best segment reportable segment represents remainder revenues bsi segment revenue decreased 1754 million 105 14992 million year ended december 31 2015 compared 16746 million year ended december 31 2014 included revenue decrease approximately 1609 million impact foreign currency translation caused strengthening us dollar versus euro japanese yen currencies decrease approximately 371 million attributable divestiture former cam division partially offset acquisition jordan valley semiconductors ltd excluding effects foreign currency translation recent acquisitions divestitures revenue increased 226 million 13 discussed excluding effect foreign currency translation bruker biospin group revenue decreased 206 million 33 6022 million year ended december 31 2015 compared 6228 million year ended december 31 2014 bruker biospin group decrease revenue primarily attributable decline revenue mri molecular imaging mi epr products partially offset increased sales nmr products predominantly second half 2015 increase sales nmr products 542 million resulted increased levels new order bookings comparable period 2014 addition twelve months ended december 31 2014 benefited recognition significant 21 tesla highfield magnet sale excluding effect foreign currency translation recent acquisitions divestitures bruker calid group revenue increased 378 million 74 5913 million year ended december 31 2015 compared 5535 million year ended december 31 2014 bruker calid group experienced higher revenue levels certain mass spectrometry products primarily malditof maldi biotyper caused primarily strong underlying academic pharma biotech contract research markets cbrne products sales higher result certain large orders newly launched explosive trace detection products sold european airports increase revenue partially offset decline sales mir products caused weaker demand end markets excluding effect foreign currency translation recent acquisitions divestitures bruker nano group revenue increased 55 million 11 5038 million year ended december 31 2015 compared 4983 million year ended december 31 2014 bruker nano group experienced increase revenue levels xray diffraction single crystal xray diffraction electron microscope analyzer markets partially offset decrease revenue caused continued weakness semiconductor data storage industrial markets improvements commercial processes improved sales forecasting resulting better production planning improved understanding customer site readiness better scheduling installation services also contributed sales increase system revenue aftermarket revenue percentage total bsi segment revenue follows years ended december 31 2015 2014 dollars millions system revenue bsi segment included nuclear magnetic resonance systems magnetic resonance imaging systems electron paramagnetic imaging systems mass spectrometry systems gas chromatography systems cbrne detection systems xray systems sparkoptical emission spectroscopy systems atomic force microscopy systems stylus optical metrology systems molecular spectroscopy systems aftermarket revenues bsi segment include accessory sales consumables training services best segment revenues best segment revenue decreased 192 million 126 1337 million year ended december 31 2015 compared 1529 million year ended december 31 2014 decline revenue primarily caused impact changes foreign currency translation partially offset increases resulting completion rosatom pilot line timing certain large orders system wire revenue aftermarket revenue percentage total best segment revenue follows years ended december 31 2015 2014 dollars millions system wire revenue best segment includes low high temperature superconducting wire superconducting devices including magnets linear accelerators radio frequency cavities aftermarket revenues best segment consist primarily license revenue consumables sales gross profit operating expenses year ended december 31 2015 gross profit margin bsi segment increased 455 437 comparable period 2014 increase gross profit margin percentage primarily caused favorable impact changes foreign currency translation rates positive impact higher business volume certain product lines recent operational improvement initiatives increased product pricing outsourcing various manufacturing activities recent divestiture restructuring activities best segment gross profit margin increased 195 188 comparable period 2014 higher gross margins resulted primarily completion certain large projects year changes foreign currency translation rates year ended december 31 2015 selling general administrative expenses research development expenses bsi segment decreased 5242 million 350 segment revenue 6048 million 361 segment revenue comparable period 2014 decrease reflected favorable impact changes foreign currency recent divestiture restructuring actions within former cam division selling general administrative expenses research development expenses best segment decreased 137 million 102 segment revenue 2015 compared 204 million 133 segment revenue 2014 decrease primarily attributable reduction operating expenses favorable impact changes foreign currency operating income following table presents operating income operating margins revenue reportable segment years ended december 31 2015 2014 dollars millions arepresents corporate costs eliminations allocated reportable segments bsi operating income year ended december 31 2015 1332 million resulting operating margin 89 compared income operations 998 million resulting operating margin 60 year ended december 31 2014 income operations included 684 million 737 million years ended december 31 2015 2014 respectively various charges representing amortization acquisitionrelated intangible assets acquisitionrelated costs legal professional fees related internal investigation review operations china restructuring relocation costs impairment definitelived intangible assets longlived assets costs associated global transformation initiative excluding costs operating income bsi 2016 million 1735 million resulting operating margins 134 104 respectively years ended december 31 2015 2014 increases operating margins primarily caused higher gross margin levels lower operating expenses discussed best operating income year ended december 31 2015 115 million resulting operating margin 86 compared operating income 34 million resulting operating margin 22 year ended december 31 2014 increase operating margin primarily result increased gross margins result completion certain large orders year ended december 31 2014 compared year ended december 31 2013 consolidated results following table presents results years ended december 31 2014 2013 dollars millions except per share data revenue year ended december 31 2014 revenue decreased 305 million 17 18089 million compared 18394 million year ended december 31 2013 included revenue decrease approximately 254 million impact foreign currency translation caused strengthening us dollar versus japanese yen russian ruble currencies increase approximately 29 million attributable recent acquisitions divestitures excluding effects foreign currency translation recent acquisitions divestitures revenue decreased 80 million 04 bsi segment revenue decreased 349 million 20 16746 million year ended december 31 2014 compared 17095 million year ended december 31 2013 best segment revenue increased 55 million 37 1529 million year ended december 31 2014 compared 1474 million year ended december 31 2013 please see segment results section later section additional discussion revenue gross profit gross profit year ended december 31 2014 7633 million resulting gross profit margin 422 compared 8052 million resulting gross profit margin 438 year ended december 31 2013 included gross profit various charges amortization acquisitionrelated intangible assets acquisitionrelated costs restructuring costs totaling 444 million 273 million years ended december 31 2014 2013 respectively excluding charges gross profit margin year ended december 31 2014 2013 447 453 respectively lower gross profit margin primarily driven negative effects foreign currency translation rates including impact strengthening us dollar versus japanese yen denominated revenues substantially exceeded yen denominated expenses addition 2013 gross profit margin benefited license revenue recognized sale technology best segment cost revenue effects partially offset favorable changes mix products sold 2014 including 21 tesla highfield magnet benefited higher gross profit margins selling general administrative selling general administrative expenses year ended december 31 2014 increased 4510 million 249 revenue 4379 million 238 revenue year ended december 31 2013 increase selling general administrative expenses primarily attributable increased sales marketing spending particularly former lsc division maldi biotyper product hiring new senior management general administrative spending related certain investments including financial reporting system improvements strategic advisory services higher allowance doubtful accounts including amounts associated certain distributor arrangements asia expenses relating recent acquisitions increases partially offset favorable impact changes foreign currency translation rates research development research development expenses year ended december 31 2014 decreased 1742 million 96 revenue 1905 million 104 revenue year ended december 31 2013 decrease research development expenses attributable efforts improve efficiency product development process impairment assets company recorded impairment charge 115 million year ended december 31 2014 comprising definitelived intangible asset longlived assets 09 million 55 million respectively relating former cam division caused restructuring divestiture actions impairment charge 51 million within best segment reduce carrying value certain longlived assets fair value caused projected cash flows assets expected sufficient recover carrying value december 31 2014 2013 company performed annual goodwill indefinitelived intangible impairment evaluation performing qualitative assessment concluded morelikelythannot fair value reporting units greater carrying amount therefore additional impairment required impairment losses recorded related definitelived intangible assets year ended december 31 2013 charges net charges net 212 million recorded 2014 related bsi segment charges consisted 111 million restructuring costs related closing facilities implementing outsourcing restructuring initiatives 32 million legal professional service fees associated internal investigation review operations china 29 million acquisitionrelated costs 40 million costs associated initial stages global transformation initiative charges net 286 million recorded 2013 related primarily bsi segment charges consist 182 million restructuring costs including 159 million within bsi segment 23 million within best segment related closing facilities implementing outsourcing restructuring initiatives 61 million legal professional service fees associated internal investigation review operations china 36 million acquisitionrelated costs 07 million related two factory relocations within best segment operating income operating income year ended december 31 2014 1054 million resulting operating margin 58 compared income operations 1482 million resulting operating margin 81 year ended december 31 2013 operating income included restructuring costs 361 million 253 million year ended december 31 2014 2013 respectively related closing facilities implementing outsourcing restructuring initiatives operating income also included 429 million 320 million year ended december 31 2014 2013 respectively various charges amortization acquisitionrelated intangible assets acquisitionrelated costs legal professional service fees related internal investigation review operations china impairment longlived assets costs associated global information technology transformation initiative excluding charges noted operating margins 102 112 year ended december 31 2014 2013 respectively decline operating margin driven negative effect caused changes foreign currency translation rates interest income expense net interest income expense net year ended december 31 2014 41 million compared 236 million year ended december 31 2013 year ended december 31 2014 major components within interest income expense net interest expense 125 million settlement charge related review operations china 24 million realized unrealized losses foreign currency transactions 20 million expenses partially offset gains sale product lines 83 million driven divestiture product lines within former cam division noted insurance claim reimbursement 25 million incentive commonwealth massachusetts 11 million year ended december 31 2013 major components within interest income expense net interest expense 124 million realized unrealized losses foreign currency transactions 104 million provision income taxes income tax provision year ended december 31 2014 417 million compared income tax provision 428 million year ended december 31 2013 representing effective tax rates 412 343 respectively increase effective tax rate primarily caused unbenefited losses associated actions former cam division impact offset slightly changes mix earnings among tax jurisdictions income tax provision years ended december 31 2014 2013 reflects amounts nonus entities maintained full valuation allowance us deferred tax assets including us net operating losses tax credits evidence existed likely loss carryforward credit amounts utilized offset us taxable income net income attributable noncontrolling interests net income attributable noncontrolling interests year ended december 31 2014 29 million compared 17 million year ended december 31 2013 net income attributable noncontrolling interests represents minority shareholders proportionate share net income recorded majorityowned indirect subsidiaries net income attributable bruker corporation net income attributable bruker corporation year ended december 31 2014 567 million 033 per diluted share compared net income 801 million 048 per diluted share 2013 decrease year ended december 31 2014 primarily caused lower gross margin levels higher effective tax rate partially offset gains sale product lines 2014 segment results revenue following table presents revenue change revenue growth reportable segment years ended december 31 2014 2013 dollars millions arepresents product service revenue reportable segments bsi segment revenues bsi segment revenue decreased 349 million 20 16746 million year ended december 31 2014 compared 17095 million year ended december 31 2013 included revenue decrease approximately 255 million impact foreign currency translation caused strengthening us dollar versus japanese yen russian ruble currencies increase approximately 29 million attributable recent acquisitions divestitures excluding effects foreign currency translation recent acquisitions divestitures revenue decreased 123 million 07 bruker biospin group revenue decreased 16 million 03 6228 million year ended december 31 2014 compared 6244 million year ended december 31 2013 bruker biospin group revenue reflected lower sales caused reduced orders nmr systems governmental academic research customers partially offset recognition revenue sale 21 tesla highfield magnet higher sales mri mi epr products bruker calid group revenue decreased 279 million 48 5535 million year ended december 31 2014 compared 5814 million year ended december 31 2013 decrease revenue driven declines former cam division part due divestiture restructuring actions third fourth quarters 2014 delays obtaining export licenses related certain cbrne orders declines partially offset increased sales maldi biotyper mir nir product lines bruker nano group revenue decreased 54 million 11 4983 million year ended december 31 2014 compared 5037 million year ended december 31 2013 principal drivers decline continued weakness end market demand semiconductor data storage microelectronics products pricing advantage japanese based competitors resulting strengthening us dollar euro japanese yen reduced demand customers russia result geopolitical uncertainty region declines partially offset revenue generated recently acquired line fluorescence microscopy products system revenue aftermarket revenue percentage total bsi segment revenue follows years ended december 31 2014 2013 dollars millions system revenue bsi segment includes nuclear magnetic resonance systems magnetic resonance imaging systems electron paramagnetic imaging systems mass spectrometry systems gas chromatography systems cbrne detection systems xray systems sparkoptical emission spectroscopy systems atomic force microscopy systems stylus optical metrology systems molecular spectroscopy systems fluorescent microscopy systems aftermarket revenues bsi segment include accessory sales consumables training services best segment revenues best segment revenue increased 55 million 37 1529 million year ended december 31 2014 compared 1474 million year ended december 31 2013 increase revenue primarily attributable higher sales cavity devices offset 2013 license revenue recognized sale technology system wire revenue aftermarket revenue percentage total best segment revenue follows years ended december 31 2014 2013 dollars millions system wire revenue best segment includes low high temperature superconducting wire superconducting devices including magnets linear accelerators radio frequency cavities aftermarket revenues best segment consist primarily license revenue consumables sales gross profit operating expenses year ended december 31 2014 gross profit margin bsi segment decreased 437 453 comparable period 2013 lower gross profit margins resulted primarily restructuring charges recorded year ended december 31 2014 related closing facilities implementing outsourcing restructuring initiatives negative effect foreign currency translation rates including impact strengthening us dollar versus japanese yen declines partially offset increase caused changes mix products sold including 21 tesla highfield magnet benefited higher gross margins best segment gross profit margin decreased 188 215 comparable period 2013 lower gross margins resulted primarily license revenue recognized 2013 sale technology cost revenue year ended december 31 2014 selling general administrative expenses research development expenses bsi segment decreased 6048 million 361 segment revenue 6091 million 356 segment revenue comparable period 2013 decrease dollars reflects lower research development expense attributable efforts improve efficiency product development process decrease offset higher sales marketing spending particularly maldi biotyper product hiring new senior management general administrative spending related certain investments including financial reporting system improvement strategic advisory services higher allowance doubtful accounts including amounts associated certain distributor arrangements asia expenses caused recent acquisitions increases partially offset effect changes foreign currency translation rates increase percentage revenue caused lower revenue levels 2014 selling general administrative expenses research development expenses best segment remained relatively consistent 204 million 133 segment revenue 2014 compared 193 million 131 segment revenue 2013 operating income following table presents operating income operating margins revenue reportable segment years ended december 31 2014 2013 dollars millions arepresents corporate costs eliminations allocated reportable segments bsi operating income year ended december 31 2014 998 million resulting operating margin 60 compared income operations 1389 million resulting operating margin 81 year ended december 31 2013 income operations included 737 million 541 million years ended december 31 2014 2013 respectively various charges representing amortization acquisitionrelated intangible assets acquisitionrelated costs legal professional fees related internal investigation review operations china restructuring relocation costs impairment definitelived intangible assets longlived assets costs associated global transformation initiative excluding costs operating income bsi 1735 million 1930 million resulting operating margins 104 113 respectively years ended december 31 2014 2013 operating income excluding costs decreased result negative effect changes foreign currency translation rates including impact strengthening us dollar versus japanese yen denominated revenues substantially exceeded yen denominated expenses lower gross margin levels increase selling general administrative expenses increases partially offset decrease research development expenses best operating income year ended december 31 2014 34 million resulting operating margin 22 compared operating income 95 million resulting operating margin 64 year ended december 31 2013 decline operating margin result license revenue recognized 2013 sale technology cost revenue recur impairment charges 51 million recorded 2014 reduce carrying value certain longlived assets estimated fair value liquidity capital resources currently anticipate existing cash credit facilities sufficient support operating investing needs least next twelve months future cash requirements could affected acquisitions may make repurchases common stock payment dividends future historically financed growth liquidity needs cash flow generation combination debt financings issuances common stock future assurances additional financing alternatives available us required available obtained terms favorable us year ended december 31 2015 net cash provided operating activities 2292 million resulting primarily consolidated net income adjusted noncash items 1829 million decrease working capital 463 million decrease working capital year ended december 31 2015 primarily caused improved efficiency accounts receivable collections increase income taxes payable caused part additional withholding taxes repatriated funds time elapsed date customer orders taken deposits customers received receipt full payments orders fluctuate significantly period cycle significantly positive effect free cash flow generation 2015 year ended december 31 2014 net cash provided operating activities 1143 million resulted primarily consolidated net income adjusted noncash items 1536 million partially offset increase working capital 393 million increase working capital year ended december 31 2014 primarily due decrease customer advances timing receipt customer acceptances obtaining acceptance year 21 tesla highfield magnet bruker biospin group completion certain orders best segment relatively large customer advances advance payments new orders received varied addition increase accounts receivable caused higher shipment levels towards end fourth quarter 2014 uses cash partially offset cash generated increase accounts payable driven improved vendor payment practices year ended december 31 2015 net cash used investing activities 1024 million compared net cash used investing activities 2019 million year ended december 31 2014 cash used investing activities year ended december 31 2015 primarily caused purchases net maturities shortterm investments 407 million capital expenditures 342 million cash paid acquisitions net cash acquired 286 million cash used investing activities year ended december 31 2014 primarily caused purchases net maturities shortterm investments 1926 million capital expenditures 338 million partially offset proceeds sale product lines 253 million expect capital expenditures 2016 amount approximately 50 million year ended december 31 2015 net cash used financing activities 1680 million compared net cash provided financing activities 67 million year ended december 31 2014 cash used financing activities year ended december 31 2015 primarily caused repayment revolving line credit proceeds repatriation certain non us cash net additional proceeds 875 million repurchases common stock 900 million partially offset issuance common stock connection stock option exercises 108 million cash provided financing activities year ended december 31 2014 primarily caused proceeds 79 million issuance common stock connection stock option exercises partially offset repayment debt 08 million may 2015 board directors approved share repurchase program antidilutive repurchase program authorized repurchase common stock amounts intended approximately offset annual basis dilutive effect shares may issued pursuant option restricted stock awards 2010 incentive compensation plan total 1245000 shares repurchased aggregate cost 249 million prior suspension antidilutive repurchase program november 2015 discussed november 2015 board directors suspended antidilutive repurchase program january 1 2017 approved additional share repurchase program repurchase program repurchases common stock amount 225 million may occur time amounts prices times deem appropriate subject market conditions legal requirements considerations total 2837042 shares repurchased aggregate cost 650 million december 31 2015 repurchase program repurchase program continue 2016 intend fund additional repurchases cash hand future cash flows operations available borrowings revolving credit facility repurchased shares reflected within treasury stock accompanying consolidated balance sheet december 31 2015 repatriated 2353 million foreign earnings united states prompted adverse interest rate conditions europe unfavorably impacting cash balances incremental us income tax incurred majority repatriation comprised previously taxed income sufficient us net operating losses tax credits offset remaining tax liability used 1295 million repatriated funds repay outstanding balance revolving credit line amended credit agreement cash equivalents shortterm investments december 31 2015 2014 totaled 4683 million 4975 million respectively 4209 million 4607 million respectively related cash equivalents shortterm investments held outside us foreign subsidiaries significantly netherlands switzerland regularly evaluate assertion foreign earnings indefinitely reinvested cash equivalents shortterm investments held foreign subsidiaries needed fund operations us otherwise elect repatriate unremitted earnings foreign subsidiaries form dividends otherwise shares subsidiaries sold transferred would likely subject additional us income taxes net impact available tax credits could result higher effective tax rate future based current plans anticipated cash needs fund us operations current intent indefinitely reinvest unremitted foreign earnings previously taxed us foreign subsidiaries may 2011 entered amendment restatement existing credit agreement referred amended credit agreement amended credit agreement provided maximum commitment revolving credit line 2500 million maturity date may 2016 borrowings revolving credit line amended credit agreement accrued interest option either greater prime rate ii federal funds rate plus 050 iii adjusted libor plus 100 b libor plus margins ranging 080 165 also facility fee ranging 020 035 amended credit agreement repaid full october 2015 noted october 27 2015 entered new revolving credit agreement referred 2015 credit agreement terminated amended credit agreement 2015 credit agreement provides maximum commitment companys revolving credit line 500 million maturity date october 2020 borrowings revolving credit line 2015 credit agreement accrue interest companys option either greater prime rate ii federal funds rate plus 050 iii adjusted libor plus 100 plus margins ranging 000 030 b libor plus margins ranging 090 130 also facility fee ranging 010 020 borrowings 2015 credit agreement secured guarantees certain material subsidiaries defined 2015 credit agreement 2015 credit agreement also requires company maintain certain financial ratios related maximum leverage minimum interest coverage defined 2015 credit agreement specifically companys leverage ratio cannot exceed 35 companys interest coverage ratio cannot less 25 addition financial ratios 2015 credit agreement contains negative covenants including among others restrictions liens indebtedness company subsidiaries asset sales dividends transactions affiliates failure comply restrictions covenants may result event default terms 2015 credit agreement could permit acceleration debt require company prepay debt scheduled due date december 31 2015 compliance covenants 2015 credit agreement leverage ratio defined 2015 credit agreement 10 interest coverage ratio defined 2015 credit agreement 149 december 31 2015 outstanding debt totaling 2667 million consisting 2400 million outstanding note purchase agreement described 250 million outstanding revolving loan component 2015 credit agreement described 17 million capital lease obligations loans december 31 2014 outstanding debt totaling 3550 million consisting 2400 million outstanding note purchase agreement described 1125 million outstanding revolving loan component amended credit agreement described 25 million capital lease obligations loans following summary maximum commitments net amounts available company december 31 2015 dollars millions lines credit various financial institutions located primarily germany switzerland companys revolving lines credit unsecured typically due upon demand interest payable monthly january 2012 entered note purchase agreement referred note purchase agreement group accredited institutional investors note purchase agreement issued sold 2400 million senior notes consist following • 200 million 316 series 2012a senior notes due january 18 2017 • 150 million 374 series 2012a senior notes due january 18 2019 • 1050 million 431 series 2012a senior notes due january 18 2022 • 1000 million 446 series 2012a senior notes due january 18 2024 terms note purchase agreement may issue sell additional senior notes aggregate principal amount 600 million subject certain conditions interest senior notes payable semiannually january 18 july 18 year senior notes unsecured obligations us fully unconditionally guaranteed certain direct indirect subsidiaries senior notes rank pari passu right repayment senior unsecured indebtedness may prepay senior notes time amount less 10 original aggregate principal amount senior notes prepaid price equal sum 100 principal amount thereof plus accrued unpaid interest b applicable makewhole amount upon less 30 60 days written notice holders senior notes event change control company defined note purchase agreement may required prepay notes price equal 100 principal amount thereof plus accrued unpaid interest note purchase agreement contains affirmative covenants including without limitation maintenance corporate existence compliance laws maintenance insurance properties payment taxes addition subsidiary guarantors furnishing notices information note purchase agreement also contains certain restrictive covenants restrict ability among things incur liens transfer sell assets engage certain mergers consolidations enter transactions affiliates note purchase agreement also includes customary representations warranties events default case event default arising specified events bankruptcy insolvency outstanding senior notes become due payable immediately without action notice case payment events defaults holder senior notes affected thereby may declare senior notes held due payable immediately case event default majority holders senior notes may declare senior notes due payable immediately pursuant note purchase agreement long senior notes outstanding permit leverage ratio determined pursuant note purchase agreement end fiscal quarter exceed 350 100 ii interest coverage ratio determined pursuant note purchase agreement end fiscal quarter period four consecutive fiscal quarters less 250 1 iii priority debt time exceed 25 consolidated net worth determined pursuant note purchase agreement december 31 2015 compliance covenants note purchase agreement leverage ratio defined note purchase agreement 10 interest coverage ratio defined note purchase agreement 149 december 31 2015 approximately 30 million net operating loss carryforwards available reduce state taxable income approximately 424 million german trade tax net operating losses carried forward indefinitely 429 million foreign net operating losses expected expire various times beginning 2018 also us federal tax credits approximately 278 million available offset future tax liabilities expire various dates include research development tax credits 140 million expiring various times 2034 foreign tax credits 138 million expiring various times 2024 state research development tax credits 71 million utilization credits state net operating losses may subject annual limitations due ownership percentage change limitations provided internal revenue code section 382 similar state provisions event deemed change control internal revenue code section 382 annual limitation utilization net operating losses credits may result expiration portion net operating loss credit carryforwards uncertain tax contingencies positions taken expected taken income tax return may result additional payments tax authorities total amount uncertain tax contingencies included 13 years column table able reasonably estimate timing potential future payments tax authority agrees tax position taken expected taken applicable statute limitations expires additional payments necessary following table summarizes maturities significant financial obligations december 31 2015 dollars millions 1unconditional purchase commitments include agreements purchase goods services fixed assets enforceable legally binding specify significant terms including fixed minimum quantities purchased fixed minimum variable price provisions approximate timing transaction purchase commitments exclude agreements cancellable time without penalty february 22 2016 announced establishment dividend policy declaration board directors initial quarterly cash dividend amount 004 per share issued outstanding common stock dividend paid march 24 2016 stockholders record march 4 2016 dividend policy target cash dividend stockholders amount 016 per share per annum payable equal quarterly installments subsequent dividend declarations establishment record payment dates future dividend payments subject board directors continuing determination dividend policy best interests stockholders dividend policy may suspended cancelled discretion board directors time critical accounting policies estimates discussion analysis financial condition results operations based upon consolidated financial statements prepared accordance accounting principles generally accepted united states america us gaap preparation financial statements requires make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments including related revenue recognition expensing capitalization software development costs stockbased compensation expense restructuring related charges income taxes including recoverability deferred tax assets allowances doubtful accounts inventory reductions excess obsolete inventories estimated fair values longlived assets used measure recoverability longlived assets intangible assets goodwill expected future cash flows used measure recoverability intangible assets longlived assets warranty costs derivative financial instruments contingent liabilities base estimates judgments historical experience current market economic conditions industry trends assumptions believe reasonable form basis making judgments carrying value assets liabilities readily apparent sources actual results could differ estimates believe following critical accounting policies estimates important portrayal financial position results operations require estimation subjective judgment revenue recognition recognize revenue system sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectability resulting receivable reasonably assured title risk loss transfers based upon customer acceptance system delivered customer installed customer facility certain systems upon shipping terms systems include customerspecific acceptance criteria required assess demonstrate acceptance criteria met generally upon customer acceptance evidence installation products sold independent distributor strategic distribution partner assumes responsibility installation recognize system sale product shipped title risk loss transferred distributor distributors price protection rights return however products typically warranted free defect period one year revenue deferred cash received collectability reasonably assured price fixed determinable transactions include multiple elements arrangement consideration allocated element using fair value hierarchy required asu 200913 limit amount revenue recognized delivered elements amount contingent future delivery products services future performance obligations subject customerspecific return refund privileges determine fair value products services based upon vendor specific objective evidence vsoe determine vsoe based normal selling pricing discounting practices specific product service sold standalone basis determining vsoe policy requires substantial majority selling prices product service within reasonably narrow range also consider class customer method distribution geographies products services sold determining vsoe cannot established attempt establish selling price based thirdparty evidence tpe vsoe cannot established instances product service sold separately standalone sales infrequent product pricing within sufficiently narrow range tpe determined based competitor prices similar deliverables sold separately cannot determine vsoe tpe use estimated selling price esp allocation arrangement consideration objective esp determine price would typically transact standalone sale product service esp determined considering number factors including pricing policies internal costs gross profit objectives method distribution market research information recent technological trends competitive landscape geographies analyze selling prices used allocation arrangement consideration minimum annual basis selling prices analyzed frequently significant change business occurs factors necessitate frequent analysis experience significant variances selling prices revenue accessories parts recognized upon shipment service revenue recognized services performed ratably contractual obligation includes maintenance contracts extended warranty training application support ondemand services also contracts apply percentageofcompletion model completed contract model revenue recognition application percentageofcompletion method requires us make reasonable estimates extent progress toward completion contract total costs incur contract losses recorded immediately estimate contracts ultimately result loss changes estimates could affect timing revenue recognition income taxes determination income tax expense requires us make certain estimates judgments concerning annual effective tax rate calculation deferred tax assets liabilities forecasted profitability subsidiaries certain geographic jurisdictions well deductions carryforwards credits available reduce taxable income deferred tax assets liabilities arise differences timing recognition revenue expenses financial statement tax purposes deferred tax assets liabilities measured using tax rates effect year temporary differences expected settled estimate degree tax assets loss carryforwards result benefit based expected profitability tax jurisdiction provide valuation allowance tax assets loss carryforwards believe likely go unused becomes likely tax asset loss carryforward used valuation allowance provided reverse related valuation allowance actual future taxable income tax jurisdiction differs estimates additional allowances reversals valuation allowance may necessary addition recognize benefits tax positions believe likely sustained upon review taxing authority knowledge relevant information reevaluate uncertain tax positions quarterly basis changes positions result tax audits tax laws facts circumstances could result additional charges credits operations expiration statutes limitations affecting estimates made uncertain tax positions cause higher earnings inventories stated lower cost market costs determined firstin firstout method majority subsidiaries average cost certain subsidiaries record provisions account excess obsolete inventory reflect expected nonsaleable nonrefundable inventory based evaluation slow moving products longer offered sale inventories also include demonstration units located demonstration laboratories installed sites potential customers consider demonstration units available sale reduce carrying value demonstration inventories differences cost estimated net realizable value taking consideration usage preceding twelve months expected demand technological obsolescence information including physical condition unit ultimate usage demand varies significantly expected usage demand additional writedowns may required resulting additional charges operations goodwill intangible assets longlived assets evaluate goodwill impairment annually events occur circumstances change test goodwill impairment reporting unit level operating segment one level operating segment us gaap option performing qualitative assessment determine whether impairment testing necessary performing twostep quantitative assessment qualitative assessment requires significant judgments macroeconomic conditions including entitys operating environment industry market considerations entityspecific events related financial performance loss key personnel events could impact reporting unit result qualitative assessment morelikelythannot fair value reporting unit less carrying amount quantitative impairment test required otherwise testing required quantitative impairment test performed first step involves comparing fair values applicable reporting units aggregate carrying values including goodwill generally determine fair value reporting units using weighting market approach income approach methodologies income approach valuation methodology includes discounted cash flow estimates estimating fair value reporting units requires significant judgment future cash flows carrying amount reporting unit exceeds fair value reporting unit perform second step goodwill impairment test measure amount impairment second step goodwill impairment test compare implied fair value reporting units goodwill carrying value goodwill december 31 2015 performed annual goodwill indefinitelived intangible impairment evaluation using quantitative impairment test concluded fair values reporting units significantly greater carrying amounts therefore additional impairment required also review definitelived intangible assets longlived assets indications potential impairment exist fair value longlived assets decline reduced operating performance market declines indicators impairment charge operations impairment may necessary employee benefit plan assumptions substantially employees switzerland france japan well certain employees germany covered defined benefit pension plans retirement benefits generally earned based years service compensation active employment retirement plan costs significant cost business represent obligations ultimately settled sometime future therefore subject estimation pension accounting intended reflect recognition future benefit costs employees average expected future service based terms plans investment funding decisions estimate impact future payments decisions concerning funding obligations required make assumptions using actuarial concepts within framework us gaap two critical assumptions discount rate expected longterm return plan assets important assumptions include expected future salary increases expected future increases benefit payments expected retirement dates employee turnover retiree mortality rates portfolio composition evaluate assumptions least annually discount rate used determine present value future benefit payments measurement date december 31 2015 2014 discount rates determined basis yield corporate bonds rating aa aaa projected benefit obligation cash flows lower discount rates increase present values subsequent year pension expense higher discount rates decrease present values subsequent year pension expense changed discount rates 1 percent impact would approximately 45 million annual pension expense expected longterm return plan assets estimated using current expected asset allocations well historical expected returns various asset categories plan assets plan assets valued fair value apply expected rate return marketrelated value assets stabilizes variability assets expected return applied changed estimated return assets 1 percent impact would approximately 10 million annual pension expense 2015 actual return assets expectations increased next years pension cost net contributions year well decreased funded status december 31 2015 net periodic benefit costs recorded operations 217 million 54 million 80 million years ended december 31 2015 2014 2013 respectively net periodic benefit costs year ended december 31 2015 includes onetime noncash settlement loss 102 million outsourced pension plan switzerland outside insurance provider transferred certain plan assets pension obligations retirees certain members population made certain plan design changes remeasured liability use corridor approach amortize actuarial gains losses approach net actuarial gains losses excess ten percent larger projected benefit obligation fair value plan assets amortized average remaining service active participants expected receive benefits plans december 31 2015 expect contribute 56 million existing defined benefit pension plans 2016 recent accounting pronouncements november 2015 financial accounting standards board fasb issued accounting standards update asu 201517 balance sheet classification deferred taxes eliminates current requirement present deferred tax assets liabilities current noncurrent classified balance sheet instead entities required classify deferred tax assets liabilities noncurrent guidance effective annual periods interim periods within annual periods beginning december 15 2016 early adoption permitted elected early adopt standard prospectively deferred taxes shown noncurrent consolidated balance sheet december 31 2015 september 2015 fasb issued asu 201516 business combinations topic 805 simplifying accounting measurementperiod adjustments asu 201516 eliminates requirement acquirer business combination account measurementperiod adjustments retrospectively instead acquirer recognize measurementperiod adjustment period determines amount adjustment including effect earnings amounts would recorded previous periods accounting completed acquisition date guidance effective public business entities fiscal years including interim periods within fiscal years beginning december 15 2015 early adoption permitted expect adoption asu 201516 material impact consolidated financial statements july 2015 fasb issued asu 201511 simplifying measurement inventory new guidance eliminates measurement inventory market value inventory measured lower cost net realizable value asu defines net realizable value estimated selling prices ordinary course business less reasonably predictable costs completion disposal transportation changes made current guidance inventory measurement asu 201511 effective interim annual periods beginning december 15 2016 early application permitted applied prospectively evaluating provisions statement determined impact adoption asu 201511 consolidated financial statements april 2015 fasb issued asu 201503 simplifying presentation debt issuance costs new guidance changes presentation debt issuance costs balance sheet reduction related debt liability instead classifying asset income statement presentation debt issuance costs unchanged asu 201503 effective annual periods beginning december 15 2015 interim periods within years early application permitted guidance applied retrospectively prior periods presented august 2015 fasb issued asu 201515 presentation subsequent measurement debt issuance costs associated lineofcredit arrangements excluding debt issuance costs related lineofcredit arrangements scope asu 201503 expect adoption standard material impact consolidated balance sheet may 2014 fasb issued asu 201409 revenue contracts customers supersedes revenue recognition requirements accounting standards codification asc topic 605 new guidance result joint project fasb international accounting standards board clarify principles recognizing revenue develop common revenue standards us gaap international financial reporting standards core principle new guidance revenue recognized depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services asu 201409 originally effective prospectively annual periods beginning december 15 2016 interim periods within years early application permitted august 2015 fasb elected defer effective date asu 201409 one year annual periods beginning december 15 2017 early application permitted original effective date currently assessing impact adoption standard may consolidated financial statements transactions related parties lease certain office space certain principal shareholders including director executive officer another member board directors members immediate families expiration dates ranging 2016 2020 total rent expense leases 18 million 20 million 26 million years ended december 31 2015 2014 2013 respectively years ended december 31 2014 2013 incurred expenses 24 million 53 million respectively law firm one former members board directors partner years ended december 31 2014 2013 incurred expenses 01 million 02 million respectively financial services firm one former members board directors partner years ended december 31 2014 2013 recorded revenue 09 million 01 million respectively commercial transactions life science supply company member board directors chairman president chief executive officer another member board directors formerly director years ended december 31 2015 2014 recorded revenue 07 million 19 million respectively incurred expenses 01 million year ended december 31 2014 arising commercial transactions life sciences company member board directors joined board directors 2014 chairman chief executive officer year ended december 31 2015 recorded revenue 05 million commercial transactions thermal analysis company member board directors serves consultant item 7aitem 7 managements discussion analysis financial condition results operations following managements discussion analysis financial condition results operations mda describes principal factors affecting results operations financial condition changes financial condition well critical accounting policies estimates mda organized follows • overview section provides brief discussion reportable segments results operations significant recent developments businesses challenges risks may impact businesses future • results operations section provides analysis significant line items consolidated statements income comprehensive income loss year ended december 31 2016 compared year ended december 31 2015 year ended december 31 2015 compared year ended december 31 2014 • liquidity capital resources section provides analysis liquidity cash flow discussion outstanding debt commitments • critical accounting policies estimates section discusses accounting estimates considered important financial condition results operations require us exercise subjective complex judgments application significant accounting policies summarized note 2 consolidated financial statements item 8 annual report form 10k • recent accounting pronouncements section provides summary recent accounting pronouncements discusses potential impact consolidated financial statements • transactions related parties section summarizes transactions related parties statements contained managements discussion analysis financial condition results operations express believe anticipate plan expect seek estimate well statements historical fact forwardlooking statements within meaning private securities litigation reform act 1995 actual events results may differ materially set forth forwardlooking statements certain factors might cause difference discussed risk factors managements discussion analysis financial condition results operations annual report form 10k year ended december 31 2016 supplement consolidated financial statements prepared presented accordance us generally accepted accounting principles gaap use organic revenue free cash flow nongaap financial measures annual report form 10k define term organic revenue gaap revenue excluding effect foreign currency changes effect acquisitions divestitures believe useful measure evaluate continuing business define free cash flow net cash provided operating activities less additions property plant equipment believe free cash flow useful measure evaluate business indicates amount cash generated additions property plant equipment available among things investments business acquisitions repayment debt presentation nongaap financial measures intended substitute superior financial information prepared presented accordance gaap may different nongaap financial measures used companies therefore may comparable among companies believe nongaap financial measures provide meaningful supplemental information regarding performance specifically management believes nongaap measures mentioned provide relevant useful information widely used analysts investors competitors industry well management assessing consolidated business unit performance use nongaap financial measures evaluate periodoverperiod operating performance management believes provides comparable measure continuing business adjusts certain items reflective underlying performance business measures may also useful investors evaluating underlying operating performance business forecasting future results regularly use nongaap financial measures internally understand manage evaluate business results make operating decisions also measure employees compensate part based nongaap measures use information planning forecasting activities overview organized four operating segments bruker biospin group bruker calid group bruker nano group bruker energy supercon technologies best segment revenue decreased 125 million 08 16113 million year ended december 31 2016 compared 16238 million year ended december 31 2015 included revenue increase approximately 324 million related primarily acquisition jordan valley offset part decrease approximately 83 million impact foreign currency translation caused strengthening us dollar versus euro swiss franc currencies excluding effects foreign currency translation recent acquisitions organic revenue nongaap measure decreased 366 million 23 driven primarily declines bruker calid group bruker nano group caused largely funding delays european research global industrial markets revenue declines partially offset revenue growth bruker biospin group driven primarily sales highend nmr products greater aftermarket service revenues price increases gross profit margin increased 461 436 year ended december 31 2016 compared year ended december 31 2015 increase gross margin percentage primarily caused operating cost improvements result recent restructuring operational initiatives impact pricing increases favorable business mix within bruker biospin group well impact acquisition jordan valley beneficial impact items offset part weakness bruker nano group global industrial markets delays european academic funding within bruker calid bruker nano groups first three quarters 2016 selling general administrative expenses research development costs year ended december 31 2016 increased approximately 16 million prior year caused additional expenses incurred 2016 related acquisition jordan valley recent acquisitions largely offset favorable impacts outsourcing restructuring initiatives foreign currency translation income tax provision years ended december 31 2016 2015 231 million representing effective tax rates 130 180 respectively decrease effective tax rate year ended december 31 2016 principally driven release remaining valuation allowances recognition previously unrecognized tax benefits due closure tax audits earnings per share increased 060 095 per diluted share year ended december 31 2016 compared year ended december 31 2015 increase primarily caused increased gross profit operating profit improvements jordan valley acquisition lower effective tax rate favorable impacts foreign currency transaction share repurchase program operating cash flow year ended december 31 2016 source cash 1308 million year ended december 31 2016 free cash flow 937 million calculated follows free cash flow lower year ended december 31 2016 year ended december 31 2015 primarily result higher normal collections receivables significant new product related customer advances received fourth quarter 2015 increase inventory 2016 result inventory build 2017 orders within bruker biospin group best segment income tax payments audit settlements withholding tax payments made first quarter 2016 related 2015 european cash repatriation november 2015 board directors approved share repurchase program repurchase program authorized repurchases 2250 million common stock total 6475480 shares repurchased aggregate cost 1600 million year ended december 31 2016 9312522 shares repurchased aggregate cost 2250 million inception repurchase program december 31 2016 additional repurchases authorized repurchase program february 22 2016 announced establishment dividend policy declaration board directors initial quarterly cash dividend amount 004 per share issued outstanding common stock dividends amounting 65 million paid march june 64 million paid september december 2016 future dividend payments subject approval board directors targeting cash dividend shareholders amount 016 per share per annum payable equal quarterly installments year ended december 31 2016 completed various acquisitions either complimented existing market offerings added aftermarket software capabilities existing microbiology business impact acquired companies revenues net income total assets material 2016 began restructuring initiative address lower demand bruker calid bruker nano groups result delays european academic funding ongoing weakness several industrial end market segments served bruker nano group initiative intended improve bruker calid bruker nano group operating results response market conditions restructuring actions result reduction approximately 125 employees within bruker calid bruker nano groups year ended december 31 2016 recorded 104 million restructuring charges associated initiative total restructuring onetime charges related initiative 2017 expected 06 26 million expect generate approximately 100 130 million annualized savings upon completion initiative expected take full effect second quarter 2017 experience quartertoquarter fluctuations operating results result various factors outside control • timing governmental stimulus programs academic research budgets • time takes date customer orders deposits received systems shipped accepted customers full payment received • time takes customers construct prepare facilities products • time required obtain governmental licenses factors past affected amount timing revenue recognized sales products receipt related payments continue future accordingly operating results particular quarter may necessarily indication future quarters operating performance results operations year ended december 31 2016 compared year ended december 31 2015 consolidated results following table presents results years ended december 31 2016 2015 dollars millions except per share data revenue year ended december 31 2016 revenue decreased 125 million 08 16113 million compared 16238 million year ended december 31 2015 included revenue increase approximately 324 million attributable primarily acquisition jordan valley decrease approximately 83 million impact foreign currency translation caused strengthening us dollar versus euro swiss franc currencies excluding effects foreign currency translation recent acquisitions organic revenue nongaap measure decreased 366 million 23 bsi segment revenue decreased 66 million 04 14926 million year ended december 31 2016 compared 14992 million year ended december 31 2015 best segment revenue decreased 35 million 26 1302 million year ended december 31 2016 compared 1337 million year ended december 31 2015 please see segment results section later section additional discussion revenue gross profit gross profit year ended december 31 2016 7425 million resulting gross profit margin 461 compared 7086 million resulting gross profit margin 436 year ended december 31 2015 increase gross profit margin caused primarily operating cost improvements result recent restructuring operational initiatives impact pricing increases favorable business mix within bruker biospin group impact jordan valley acquisition favorable effect items partially offset weakness bruker nano group industrial market segments delays european academic funding within bruker calid bruker nano groups first three quarters 2016 selling general administrative selling general administrative expenses year ended december 31 2016 decreased 3905 million 242 revenue 3922 million 242 revenue year ended december 31 2015 selling general administrative expenses remained consistent percentage revenue compared year ended december 31 2015 favorable impacts outsourcing restructuring initiatives offset additional expenses incurred related 2015 acquisition jordan valley recent acquisitions research development research development expenses year ended december 31 2016 increased 1490 million 92 revenue 1457 million 90 revenue year ended december 31 2015 increase attributable new initiatives related recent acquisitions expanded technological portfolio charges net charges net 258 million year ended december 31 2016 252 million related bsi segment 06 million related best segment charges consisted primarily 98 million restructuring costs related closing facilities implementing outsourcing restructuring initiatives 90 million related primarily additional contingent consideration recognized jordan valley based upon increase revenue levels acquired business increased amount expected earn payments 62 million costs associated global information technology transformation initiative impairment charges 08 million comprised longlived assets related restructuring actions within bruker calid bruker nano groups year charges net 250 million year ended december 31 2015 related almost entirely bsi segment charges consisted primarily 102 million onetime noncash settlement charge plan assets pension obligations retirees certain members population within pension plan switzerland transferred outside insurance provider 81 million restructuring costs related closing facilities implementing outsourcing restructuring initiatives 89 million costs associated global transformation initiative impairment charges 46 million comprised goodwill definitelived intangible assets longlived assets related restructuring actions within bruker biospin group partially offset 72 million contingent consideration reversals determined certain financial targets related applicable acquisitions would meet required thresholds payment 2017 expect incur 60 80 million expense related various outsourcing initiatives restructuring activities implemented 2016 commence 2017 december 31 2016 2015 performed annual goodwill indefinitelived intangible impairment evaluation concluded fair values reporting units significantly greater carrying amounts therefore additional impairment required continue monitor goodwill longlived intangible assets well longlived tangible assets possible future impairment operating income operating income year ended december 31 2016 1772 million resulting operating margin 110 compared income operations 1457 million resulting operating margin 90 year ended december 31 2015 increase operating margin primarily attributable gross margin improvements discussed operating cost improvements result restructuring initiatives prudent cost controls interest income expense net interest income expense net year ended december 31 2016 04 million compared 177 million year ended december 31 2015 year ended december 31 2016 major components within interest income expense net gain acquisition 92 million realized unrealized gains foreign currency denominated transactions 41 million partially offset net interest expense 129 million 92 million gain acquisition related acquisition ost within best segment value assets purchased exceeded consideration paid year ended december 31 2015 major components within interest income expense net interest expense 118 million realized unrealized losses foreign currency denominated transactions 55 million expect incur approximately 160 million interest expense 2017 income tax provision income tax provision years ended december 31 2016 2015 231 million representing effective tax rates 130 180 respectively decrease effective tax rate year ended december 31 2016 compared 2015 primarily attributable release remaining valuation allowances recognition previously unrecognized tax benefits due closure tax audits tax rate may change time amount mix jurisdictional income changes expect income tax provision approximately 250 year ended december 31 2017 net income attributable noncontrolling interests net income attributable noncontrolling interests year ended december 31 2016 09 million compared 33 million year ended december 31 2015 net income attributable noncontrolling interests represented minority shareholders proportionate share net income recorded majorityowned indirect subsidiaries net income attributable bruker corporation net income attributable bruker corporation year ended december 31 2016 1536 million 095 per diluted share compared net income 1016 million 060 per diluted share 2015 increase year ended december 31 2016 primarily caused increased gross profit operating profit improvements lower effective tax rate positive impact foreign currency translation share repurchase program segment results revenue following table presents revenue change revenue growth reportable segment years ended december 31 2016 2015 dollars millions arepresents product service revenue reportable segments bsi segment revenues financial reporting purposes aggregate bruker biospin bruker calid bruker nano operating segments bruker scientific instruments bsi reportable segment represented approximately 93 companys revenues year ended december 31 2016 aggregation reflects operating segments similar economic characteristics production processes customer services provided types classes customers methods distribution regulatory environments best segment reportable segment represents remainder revenues bsi segment revenue decreased 66 million 04 14926 million year ended december 31 2016 compared 14992 million year ended december 31 2015 included revenue increase approximately 266 million related acquisition jordan valley offset part approximately 76 million impact foreign currency translation caused strengthening us dollar versus euro swiss franc currencies excluding effects foreign currency translation recent acquisitions organic revenue nongaap measure decreased 256 million 17 bruker biospin group revenue increased 157 million 5627 million year ended december 31 2016 compared 5470 million year ended december 31 2015 bruker biospin group increase revenue primarily due increased pricing recognition revenues sale first shielded ultrahigh field gigahertz nuclear magnetic resonance system bruker calid group revenue decreased 172 million 4754 million year ended december 31 2016 compared 4926 million year ended december 31 2015 bruker calid group experienced lower revenue primarily due delays european academic funding first three quarters 2016 lower sales maldi biotyper china united states first half 2016 bruker nano group revenue decreased 52 million 4546 million year ended december 31 2016 compared 4598 million year ended december 31 2015 bruker nano group experienced lower revenue primarily due delays european academic funding first three quarters 2016 well continued weaker demand within global industrial markets system revenue aftermarket revenue percentage total bsi segment revenue follows years ended december 31 2016 2015 dollars millions best segment revenues best segment revenue decreased 35 million 26 1302 million year ended december 31 2016 compared 1337 million year ended december 31 2015 decline revenue primarily attributable completion final acceptance rosatom pilot line russia high margin customer projects desy particle acceleration iter magnetic fusion year ended december 31 2015 system wire revenue aftermarket revenue percentage total best segment revenue follows years ended december 31 2016 2015 dollars millions gross profit operating expenses year ended december 31 2016 gross profit margin bsi segment increased 481 455 year ended december 31 2015 increase gross margin percentage caused primarily operating cost improvements resulting recent restructuring operational initiatives impact pricing increases within bruker biospin group impact jordan valley acquisition within bruker nano group effects partially offset revenue weakness certain bruker nano bruker calid group market segments resulting delays european academic funding first three quarters 2016 best segment gross profit margin decreased 171 195 year ended december 31 2015 lower gross margins resulted primarily completion rosatom pilot line desy iter orders 2015 year ended december 31 2016 selling general administrative expenses research development expenses bsi segment remained consistent 5240 million 351 segment revenue 5242 million 350 segment revenue comparable period 2015 selling general administrative expenses research development expenses best segment increased 155 million 119 segment revenue 2016 compared 137 million 102 segment revenue 2015 increase best segment operating expenses primarily attributable increased costs associated selective research development initiatives operating income following table presents operating income operating margins revenue reportable segment years ended december 31 2016 2015 dollars millions arepresents corporate costs eliminations allocated reportable segments bsi operating income year ended december 31 2016 1689 million resulting operating margin 113 compared income operations 1332 million resulting operating margin 89 year ended december 31 2015 operating margin increased primarily gross profit improvements noted well operational improvements result restructuring initiatives best operating income year ended december 31 2016 66 million resulting operating margin 51 compared operating income 115 million resulting operating margin 86 year ended december 31 2015 decrease operating margin primarily result decreased gross margins result completion rosatom pilot line desy iter projects 2015 year ended december 31 2015 compared year ended december 31 2014 consolidated results following table presents results years ended december 31 2015 2014 dollars millions except per share data revenue year ended december 31 2015 revenue decreased 1851 million 102 16238 million compared 18089 million year ended december 31 2014 included revenue decrease approximately 1844 million impact foreign currency translation caused strengthening us dollar versus euro japanese yen currencies decrease approximately 371 million attributable divestitures partially offset acquisition jordan valley excluding effects foreign currency translation recent acquisitions divestitures organic revenue nongaap measure increased 364 million 21 bsi segment revenue decreased 1754 million 105 14992 million year ended december 31 2015 compared 16746 million year ended december 31 2014 best segment revenue decreased 192 million 126 1337 million year ended december 31 2015 compared 1529 million year ended december 31 2014 please see segment results section later section additional discussion revenue gross profit gross profit year ended december 31 2015 7086 million resulting gross profit margin 436 compared 7633 million resulting gross profit margin 422 year ended december 31 2014 higher gross profit margin primarily attributable favorable impact changes foreign currency translation rates increased business volume certain product lines favorable impact recent operational improvement initiatives product pricing within bruker biospin group outsourcing various manufacturing activities recent divestiture restructuring actions including among others within former cam division selling general administrative selling general administrative expenses year ended december 31 2015 decreased 3922 million 242 revenue 4510 million 249 revenue year ended december 31 2014 decrease primarily attributable favorable impact changes foreign currency translation rates divestitures within former cam division research development research development expenses year ended december 31 2015 decreased 1457 million 90 revenue 1742 million 96 revenue year ended december 31 2014 decrease attributable favorable impact changes foreign currency translation rates recent divestitures restructuring actions primarily within former cam division lower material costs improved efficiency product development processes charges net charges net 250 million year ended december 31 2015 almost entirely related bsi segment charges consisted primarily 102 million onetime noncash settlement charge plan assets pension obligations retirees certain members population within pension plan switzerland transferred outside insurance provider 81 million restructuring costs related closing facilities implementing outsourcing restructuring initiatives 89 million costs associated global information technology transformation initiative impairment charges 46 million comprised goodwill definitelived intangible assets longlived assets related restructuring actions within bruker biospin group partially offset 72 million contingent consideration reversals determined certain financial targets related applicable acquisitions would meet required thresholds payment charges net 327 million year ended december 31 2014 276 million related bsi segment 51 million related best segment charges consisted impairment charges 115 million comprising definitelived intangible asset longlived assets relating former cam division impairment charge 51 million within best segment 111 million restructuring costs related closing facilities implementing outsourcing restructuring initiatives 32 million legal professional service fees associated internal investigation review operations china 29 million acquisitionrelated costs 40 million costs associated global transformation initiative december 31 2015 2014 performed annual goodwill indefinitelived intangible impairment evaluation concluded fair values reporting units significantly greater carrying amounts therefore additional impairment required operating income operating income year ended december 31 2015 1457 million resulting operating margin 90 compared income operations 1054 million resulting operating margin 58 year ended december 31 2014 increase operating margin caused improvements gross profit margins reduction operating expenses discussed interest income expense net interest income expense net year ended december 31 2015 177 million compared 41 million year ended december 31 2014 year ended december 31 2015 major components within interest income expense net interest expense 118 million realized unrealized losses foreign currency denominated transactions 55 million realized unrealized losses foreign currency denominated transactions year ended december 31 2015 primarily caused fluctuations us dollar euro swiss franc year ended december 31 2014 major components within interest income expense net interest expense 125 million settlement charge related review operations china 24 million realized unrealized losses foreign currency transactions 20 million expenses partially offset gains sale product lines 83 million driven divestiture product lines within former cam division noted insurance claim reimbursement 25 million incentive commonwealth massachusetts 11 million income tax provision income tax provision year ended december 31 2015 231 million compared income tax provision 417 million year ended december 31 2014 representing effective tax rates 180 412 respectively decrease effective tax rate primarily attributable partial release us valuation allowances previously recorded deferred tax assets changes mix earnings among tax jurisdictions valuation allowance december 31 2015 decreased 202 million compared december 31 2014 including reduction beginning year valuation allowance 208 million account change judgment respect realizability us deferred tax assets decrease primarily attributable us net operating loss foreign tax credit usage result repatriation 2353 million foreign earnings united states 2015 prompted adverse interest rate conditions europe unfavorably impacting cash balances among evidence supporting conclusion respect realizability deferred tax assets elimination recent cumulative us losses well expected future near term us taxable income tax rate may change time amount mix jurisdictional income changes net income attributable noncontrolling interests net income attributable noncontrolling interests year ended december 31 2015 33 million compared 29 million year ended december 31 2014 net income attributable noncontrolling interests represents minority shareholders proportionate share net income recorded majorityowned indirect subsidiaries net income attributable bruker corporation net income attributable bruker corporation year ended december 31 2015 1016 million 060 per diluted share compared net income 567 million 033 per diluted share 2014 increase year ended december 31 2015 primarily caused increased operating income favorable effective tax rate discussed segment results revenue following table presents revenue change revenue growth reportable segment years ended december 31 2015 2014 dollars millions arepresents product service revenue reportable segments bsi segment revenues financial reporting purposes aggregate bruker biospin bruker calid bruker nano operating segments bruker scientific instruments bsi reportable segment represented approximately 92 companys revenues year ended december 31 2015 aggregation reflects operating segments similar economic characteristics production processes customer services provided types classes customers methods distribution regulatory environments best segment reportable segment represents remainder revenues bsi segment revenue decreased 1754 million 105 14992 million year ended december 31 2015 compared 16746 million year ended december 31 2014 included revenue decrease approximately 1609 million impact foreign currency translation caused strengthening us dollar versus euro japanese yen currencies decrease approximately 371 million attributable divestiture former cam division partially offset acquisition jordan valley excluding effects foreign currency translation recent acquisitions divestitures organic revenue nongaap measure increased 226 million 13 bruker biospin group revenue decreased 758 million 5470 million year ended december 31 2015 compared 6228 million year ended december 31 2014 bruker biospin group decrease revenue primarily attributable decline revenue mri molecular imaging mi epr products partially offset increased sales nmr products predominantly second half 2015 increase sales nmr products 542 million resulted increased levels new order bookings comparable period 2014 addition year ended december 31 2014 benefited recognition significant 21 tesla highfield magnet sale bruker calid group revenue decreased 609 million 4926 million year ended december 31 2015 compared 5535 million year ended december 31 2014 excluding foreign currency translation impact 592 million 396 million due divestiture cam division bruker calid group experienced higher revenue levels certain mass spectrometry products primarily malditof maldi biotyper caused primarily strong underlying academic pharma biotech contract research markets cbrne products sales higher result certain large orders newly launched explosive trace detection products sold european airports increase organic revenue partially offset decline sales mir products caused weaker demand end markets bruker nano group revenue decreased 385 million 4598 million year ended december 31 2015 compared 4983 million year ended december 31 2014 excluding 466 million negative impact foreign currency translation bruker nano group experienced increase revenue levels xray diffraction single crystal xray diffraction electron microscope analyzer markets partially offset decrease revenue caused continued weakness semiconductor data storage industrial markets improvements commercial processes improved sales forecasting resulting better production planning improved understanding customer site readiness better scheduling installation services also contributed sales increase system revenue aftermarket revenue percentage total bsi segment revenue follows years ended december 31 2015 2014 dollars millions best segment revenues best segment revenue decreased 192 million 126 1337 million year ended december 31 2015 compared 1529 million year ended december 31 2014 decline revenue primarily caused impact changes foreign currency translation partially offset increases resulting completion rosatom pilot line timing certain large projects desy particle acceleration iter magnetic fusion system wire revenue aftermarket revenue percentage total best segment revenue follows years ended december 31 2015 2014 dollars millions gross profit operating expenses year ended december 31 2015 gross profit margin bsi segment increased 455 437 comparable period 2014 increase gross profit margin percentage primarily caused favorable impact changes foreign currency translation rates positive impact higher business volume certain product lines recent operational improvement initiatives increased product pricing outsourcing various manufacturing activities recent divestiture restructuring activities best segment gross profit margin increased 195 188 comparable period 2014 higher gross margins resulted primarily completion certain large projects year changes foreign currency translation rates year ended december 31 2015 selling general administrative expenses research development expenses bsi segment decreased 5242 million 350 segment revenue 6048 million 361 segment revenue comparable period 2014 decrease reflected favorable impact changes foreign currency translation recent divestiture restructuring actions within former cam division selling general administrative expenses research development expenses best segment decreased 137 million 102 segment revenue 2015 compared 204 million 133 segment revenue 2014 decrease primarily attributable favorable impact changes foreign currency translation rates operating income following table presents operating income operating margins revenue reportable segment years ended december 31 2015 2014 dollars millions arepresents corporate costs eliminations allocated reportable segments bsi operating income year ended december 31 2015 1332 million resulting operating margin 89 compared income operations 998 million resulting operating margin 60 year ended december 31 2014 increases operating margins primarily caused higher gross margin levels lower operating expenses discussed best operating income year ended december 31 2015 115 million resulting operating margin 86 compared operating income 34 million resulting operating margin 22 year ended december 31 2014 increase operating margin primarily attributable increased gross margins result completion certain large orders year discussed liquidity capital resources currently anticipate existing cash credit facilities sufficient support operating investing needs least next twelve months future cash requirements could affected acquisitions may complete repurchases common stock payment dividends future historically financed growth liquidity needs cash flow generation combination debt financings issuances common stock future assurances additional financing alternatives available us required available obtained terms favorable us year ended december 31 2016 net cash provided operating activities 1308 million resulting primarily consolidated net income adjusted noncash items 2196 million offset net increase operating assets liabilities net acquisitions divestitures 888 million increase operating assets liabilities net acquisitions divestitures year ended december 31 2016 primarily caused timing customer payments fourth quarter 2015 included higher normal collections receivables increase inventory 2016 result inventory build 2017 orders bruker biospin group best segment income tax payments audit settlements withholding tax payments made first quarter 2016 related companys 2015 european cash repatriation year ended december 31 2015 net cash provided operating activities 2292 million resulting primarily consolidated net income adjusted noncash items 1829 million decrease operating assets liabilities net acquisitions divestitures 463 million decrease working capital year ended december 31 2015 primarily caused improved efficiency accounts receivable collections increase income taxes payable caused part additional withholding taxes repatriated funds time elapsed date customer orders taken deposits customers received receipt full payments orders fluctuate significantly period cycle significantly positive effect cash flow generation 2015 year ended december 31 2016 net cash used investing activities 218 million compared net cash used investing activities 1024 million year ended december 31 2015 cash used investing activities year ended december 31 2016 primarily caused capital expenditures 371 million cash paid acquisitions net cash acquired 243 million offset part maturities net purchases shortterm investments 385 million year ended december 31 2015 net cash used investing activities 1024 million primarily caused purchases net maturities shortterm investments 407 million capital expenditures 342 million cash paid acquisitions net cash acquired 286 million expect capital expenditures 2017 amount approximately 450 million year ended december 31 2016 net cash used financing activities 272 million compared net cash provided financing activities 1680 million year ended december 31 2015 cash used financing activities year ended december 31 2016 primarily caused repurchase common stock 1600 million 258 million used payment dividends partially offset borrowings 1460 million revolving line credit 115 million proceeds issuance common stock connection stock option exercises cash used financing activities year ended december 31 2015 primarily caused repayment revolving line credit proceeds repatriation certain non us cash balances related previously taxed earnings net additional proceeds 875 million repurchases common stock 900 million partially offset proceeds 108 million issuance common stock connection stock option exercises 108 million november 2015 board directors suspended previously announced antidilutive repurchase program january 1 2017 approved additional share repurchase program repurchase program authorizing repurchases common stock 2250 million total 6475480 shares repurchased aggregate cost 1600 million year ended december 31 2016 9312522 shares repurchased aggregate cost 2250 million inception repurchase program december 31 2016 additional repurchases authorized repurchase program cash equivalents shortterm investments december 31 2016 2015 totaled 5003 million 4683 million respectively 4609 million 4209 million respectively related cash equivalents shortterm investments held outside us foreign subsidiaries significantly netherlands switzerland assert foreign earnings exception foreign earnings previously taxed us indefinitely reinvested regularly evaluate assertion foreign earnings indefinitely reinvested cash equivalents shortterm investments held foreign subsidiaries needed fund operations united states otherwise elect repatriate unremitted earnings foreign subsidiaries form dividends otherwise shares subsidiaries sold transferred would likely subject additional us income taxes net impact available tax credits could result higher effective tax rate future december 31 2016 outstanding debt totaling 4117 million consisting 2400 million outstanding note purchase agreement described 1710 million outstanding revolving loan component 2015 credit agreement described 15 million capital lease obligations loans amounts offset unamortized debt issuance costs note purchase agreement 08 million december 31 2015 outstanding debt totaling 2658 million consisting 2400 million outstanding note purchase agreement described 250 million outstanding revolving loan component amended credit agreement described 17 million capital lease obligations loans amounts offset unamortized debt issuance costs note purchase agreement 09 million following summary maximum commitments net amounts available us 2015 credit agreement lines credit various financial institutions located primarily germany switzerland unsecured typically due upon demand interest payable monthly december 31 2016 millions may 2011 entered amendment restatement existing credit agreement referred amended credit agreement amended credit agreement provided maximum commitment revolving credit line 2500 million maturity date may 2016 borrowings revolving credit line amended credit agreement accrued interest option either greater prime rate ii federal funds rate plus 050 iii adjusted libor plus 100 b libor plus margins ranging 080 165 also facility fee ranging 020 035 amended credit agreement repaid full october 2015 october 27 2015 entered new revolving credit agreement referred 2015 credit agreement terminated amended credit agreement 2015 credit agreement provides maximum commitment companys revolving credit line 500 million maturity date october 2020 borrowings revolving credit line 2015 credit agreement accrue interest companys option either greater prime rate ii federal funds rate plus 050 iii adjusted libor plus 100 plus margins ranging 000 030 b libor plus margins ranging 090 130 also facility fee ranging 010 020 borrowings 2015 credit agreement secured guarantees certain material subsidiaries defined 2015 credit agreement 2015 credit agreement also requires us maintain certain financial ratios related maximum leverage minimum interest coverage specifically leverage ratio cannot exceed 35 interest coverage ratio cannot less 25 addition financial ratios 2015 credit agreement contains negative covenants including among others restrictions liens indebtedness company subsidiaries asset sales dividends transactions affiliates failure comply restrictions covenants may result event default 2015 credit agreement could permit acceleration debt require us prepay debt scheduled due date december 31 2016 compliance covenants defined 2015 credit agreement leverage ratio 149 interest coverage ratio 155 january 2012 entered note purchase agreement referred note purchase agreement group accredited institutional investors note purchase agreement issued sold 2400 million senior notes consist following • 200 million 316 series 2012a senior notes due january 18 2017 • 150 million 374 series 2012a senior notes due january 18 2019 • 1050 million 431 series 2012a senior notes due january 18 2022 • 1000 million 446 series 2012a senior notes due january 18 2024 terms note purchase agreement may issue sell additional senior notes aggregate principal amount 600 million subject certain conditions interest senior notes payable semiannually january 18 july 18 year senior notes unsecured obligations us fully unconditionally guaranteed certain direct indirect subsidiaries senior notes rank pari passu right repayment senior unsecured indebtedness may prepay senior notes time amount less 10 original aggregate principal amount senior notes prepaid price equal sum 100 principal amount thereof plus accrued unpaid interest b applicable makewhole amount upon less 30 60 days written notice holders senior notes event change control company defined note purchase agreement may required prepay notes price equal 100 principal amount thereof plus accrued unpaid interest note purchase agreement contains affirmative covenants including without limitation maintenance corporate existence compliance laws maintenance insurance properties payment taxes addition subsidiary guarantors furnishing notices information note purchase agreement also contains certain restrictive covenants restrict ability among things incur liens transfer sell assets engage certain mergers consolidations enter transactions affiliates note purchase agreement also includes customary representations warranties events default case event default arising specified events bankruptcy insolvency outstanding senior notes become due payable immediately without action notice case payment events defaults holder senior notes affected thereby may declare senior notes held due payable immediately case event default majority holders senior notes may declare senior notes due payable immediately pursuant note purchase agreement long senior notes outstanding permit leverage ratio determined pursuant note purchase agreement end fiscal quarter exceed 350 100 ii interest coverage ratio determined pursuant note purchase agreement end fiscal quarter period four consecutive fiscal quarters less 250 1 iii priority debt time exceed 25 consolidated net worth determined pursuant note purchase agreement december 31 2016 compliance covenants note purchase agreement leverage ratio defined note purchase agreement 149 interest coverage ratio defined note purchase agreement 155 december 31 2016 approximately 402 million net operating loss carryforwards available reduce state taxable income also approximately 410 million german trade tax net operating losses carried forward indefinitely additionally 231 million foreign net operating losses expected expire various times beginning 2018 also us federal tax credits approximately 151 million available offset future tax liabilities expire various dates include research development tax credits 122 million expiring various times 2035 foreign tax credits 29 million expiring various times 2025 state research development tax credits 78 million utilization credits state net operating losses may subject annual limitations due ownership percentage change limitations provided internal revenue code section 382 similar state provisions event deemed change control internal revenue code section 382 annual limitation utilization net operating losses credits may result expiration portion net operating loss credit carryforwards uncertain tax contingencies positions taken expected taken income tax return may result additional payments tax authorities tax authority agrees tax position taken expected taken applicable statute limitations expires additional payments necessary following table summarizes maturities significant financial obligations december 31 2016 dollars millions 1unconditional purchase commitments include agreements purchase goods services fixed assets enforceable legally binding specify significant terms including fixed minimum quantities purchased fixed minimum variable price provisions approximate timing transaction purchase commitments exclude agreements cancellable time without penalty 2acquisitionrelated contingent considerations represents estimated fair value future payments former shareholders applicable acquired companies based achieving annual revenue gross margin targets certain years specified purchase sale agreements critical accounting policies estimates discussion analysis financial condition results operations based upon consolidated financial statements prepared accordance accounting principles generally accepted united states america us gaap preparation financial statements requires make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments including related revenue recognition expensing capitalization software development costs stockbased compensation expense restructuring related charges income taxes including recoverability deferred tax assets allowances doubtful accounts inventory reductions excess obsolete inventories estimated fair values longlived assets used measure recoverability longlived assets intangible assets goodwill expected future cash flows used measure recoverability intangible assets longlived assets warranty costs derivative financial instruments contingent liabilities base estimates judgments historical experience current market economic conditions industry trends assumptions believe reasonable form basis making judgments carrying value assets liabilities readily apparent sources actual results could differ estimates believe following critical accounting policies estimates important portrayal financial position results operations require estimation subjective judgment revenue recognition recognize revenue system sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectability resulting receivable reasonably assured title risk loss generally transfers upon shipping terms certain systems based upon customer acceptance system delivered customer installed customer facility systems include customerspecific acceptance criteria required assess demonstrate acceptance criteria met generally upon successful factory acceptance testing customer acceptance evidence installation products sold independent distributor strategic distribution partner assumes responsibility installation recognize system sale product shipped title risk loss transferred distributor distributors price protection rights return however products typically warranted free defect period one year revenue deferred cash received collectability reasonably assured price fixed determinable transactions include multiple elements arrangement consideration allocated element using fair value hierarchy required asu 200913 limit amount revenue recognized delivered elements amount contingent future delivery products services future performance obligations subject customerspecific return refund privileges determine fair value products services based upon vendor specific objective evidence vsoe determine vsoe based normal selling pricing discounting practices specific product service sold standalone basis determining vsoe policy requires substantial majority selling prices product service within reasonably narrow range also consider class customer method distribution geographies products services sold determining vsoe cannot established attempt establish selling price based thirdparty evidence tpe vsoe cannot established instances product service sold separately standalone sales infrequent product pricing within sufficiently narrow range tpe determined based competitor prices similar deliverables sold separately cannot determine vsoe tpe use estimated selling price esp allocation arrangement consideration objective esp determine price would typically transact standalone sale product service esp determined considering number factors including pricing policies internal costs gross profit objectives method distribution market research information recent technological trends competitive landscape geographies analyze selling prices used allocation arrangement consideration minimum annual basis selling prices analyzed frequently significant change business occurs factors necessitate frequent analysis experience significant variances selling prices revenue accessories consumable parts generally recognized upon shipping terms service revenue recognized services performed ratably contractual obligation includes maintenance contracts extended warranty training application support ondemand services also contracts apply percentageofcompletion model completed contract model revenue recognition application percentageofcompletion method requires us make reasonable estimates extent progress toward completion contract total costs incur contract losses recorded immediately estimate contracts ultimately result loss changes estimates could affect timing revenue recognition revenues primarily comprised development arrangements recognized costplusfixedfee basis licensing arrangements recognized ratably term related contracts income taxes determination income tax expense requires us make certain estimates judgments concerning annual effective tax rate calculation deferred tax assets liabilities forecasted profitability subsidiaries certain geographic jurisdictions well deductions carryforwards credits available reduce taxable income deferred tax assets liabilities arise differences timing recognition revenue expenses financial statement tax purposes deferred tax assets liabilities measured using tax rates effect year temporary differences expected settled estimate degree tax assets loss carryforwards result benefit based expected profitability tax jurisdiction provide valuation allowance tax assets loss carryforwards believe likely go unused becomes likely tax asset loss carryforward used valuation allowance provided reverse related valuation allowance actual future taxable income tax jurisdiction differs estimates additional allowances reversals valuation allowance may necessary addition recognize benefits tax positions believe likely sustained upon review taxing authority knowledge relevant information reevaluate uncertain tax positions quarterly basis changes positions result tax audits tax laws facts circumstances could result additional charges credits operations expiration statutes limitations affecting estimates made uncertain tax positions cause higher earnings inventories stated lower cost market costs determined firstin firstout method majority subsidiaries average cost certain subsidiaries record provisions account excess obsolete inventory reflect expected nonsaleable nonrefundable inventory based evaluation slow moving products longer offered sale inventories also include demonstration units located demonstration laboratories installed sites potential customers consider demonstration units available sale history selling demonstration units reduce carrying value demonstration inventories differences cost estimated net realizable value taking consideration usage preceding twelve months expected demand technological obsolescence information including physical condition unit ultimate usage demand varies significantly expected usage demand additional writedowns may required resulting additional charges operations goodwill intangible assets longlived assets evaluate goodwill impairment annually events occur circumstances change test goodwill impairment reporting unit level operating segment one level operating segment us gaap option performing qualitative assessment determine whether impairment testing necessary performing twostep quantitative assessment qualitative assessment requires significant judgments macroeconomic conditions including entitys operating environment industry market considerations entityspecific events related financial performance loss key personnel events could impact reporting unit result qualitative assessment morelikelythannot fair value reporting unit less carrying amount quantitative impairment test required otherwise testing required quantitative impairment test performed first step involves comparing fair values applicable reporting units aggregate carrying values including goodwill generally determine fair value reporting units using weighting market approach income approach methodologies income approach valuation methodology includes discounted cash flow estimates estimating fair value reporting units requires significant judgment future cash flows carrying amount reporting unit exceeds fair value reporting unit perform second step goodwill impairment test measure amount impairment second step goodwill impairment test compare implied fair value reporting units goodwill carrying value goodwill december 31 2016 performed annual goodwill indefinitelived intangible impairment evaluation using qualitative impairment test concluded fair values reporting units significantly greater carrying amounts therefore additional impairment required also review definitelived intangible assets longlived assets indications potential impairment exist fair value longlived assets decline reduced operating performance market declines indicators impairment charge operations impairment may necessary post retirement plan assumptions substantially employees switzerland france japan well certain employees germany covered defined benefit pension plans retirement benefits generally earned based years service compensation active employment retirement plan costs significant cost business represent obligations ultimately settled sometime future therefore subject estimation pension accounting intended reflect recognition future benefit costs employees average expected future service based terms plans investment funding decisions estimate impact future payments decisions concerning funding obligations required make assumptions using actuarial concepts within framework us gaap two critical assumptions discount rate expected longterm return plan assets important assumptions include expected future salary increases expected future increases benefit payments expected retirement dates employee turnover retiree mortality rates portfolio composition evaluate assumptions least annually discount rate used determine present value future benefit payments measurement date december 31 2016 2015 discount rates determined basis yield corporate bonds rating aa aaa projected benefit obligation cash flows lower discount rates increase present values subsequent year pension expense higher discount rates decrease present values subsequent year pension expense changed discount rates 1 percent impact would approximately 40 million annual pension expense expected longterm return plan assets estimated using current expected asset allocations well historical expected returns various asset categories plan assets plan assets valued fair value apply expected rate return marketrelated value assets stabilizes variability assets expected return applied changed estimated return assets 1 percent impact would approximately 11 million annual pension expense 2016 actual return assets expectations increased next years pension cost net contributions year well decreased funded status december 31 2016 net periodic benefit costs recorded operations 113 million 217 million 54 million years ended december 31 2016 2015 2014 respectively net periodic benefit costs year ended december 31 2015 includes onetime noncash settlement loss 102 million outsourced pension plan switzerland outside insurance provider transferred certain plan assets pension obligations retirees certain members population made certain plan design changes remeasured liability use corridor approach amortize actuarial gains losses approach net actuarial gains losses excess ten percent larger projected benefit obligation fair value plan assets amortized average remaining service active participants expected receive benefits plans december 31 2016 expect contribute 21 million existing defined benefit pension plans 2017 recent accounting pronouncements january 2017 financial accounting standards boards fasb issued accounting standards update asu 201704 intangiblesgoodwill topic 350 simplifying test goodwill impairment new standard simplifies subsequent measurement goodwill eliminating second step goodwill impairment test asu applied prospectively effective annual interim goodwill impairment tests fiscal years beginning december 15 2019 adoption standard expected material impact financial position results operations statements cash flows upon adoption january 2017 fasb issued asu 201701 business combinations topic 805 clarifying definition business new standard clarifies definition business provides screen determine integrated set assets activities business screen requires substantially fair value gross assets acquired disposed concentrated single identifiable asset group similar identifiable assets set business new standard effective january 1 2018 evaluating provisions standard including period adopt determined impact adoption asu 201701 consolidated financial statements october 2016 fasb issued asu 201616 income taxes topic 740intraentity transfer assets inventory new standard requires recognition current deferred income taxes resulting intraentity transfer asset excluding inventory transfer occurs change existing us gaap prohibits recognition current deferred income taxes asset sold third party new standard effective january 1 2018 early adoption permitted evaluating provisions standard including period adopt determined impact adoption asu 201616 consolidated financial statements august 2016 fasb issued asu 201615 statement cash flows topic 230 objective update provide additional guidance reduce diversity practice classifying certain transactions within statement cash flows november 2016 fasb issued asu 201618 statement cash flows topic 230 restricted cash new standard requires statement cash flows explain change period total cash equivalents amounts generally described restricted cash restricted cash equivalents standards effective financial statements issued fiscal years beginning december 15 2017 including interim periods within fiscal years currently evaluating guidance determine impact may consolidated financial statements march 2016 fasb issued asu 201609 stock compensationimprovements employee sharebased payment accounting new standard simplifies accounting sharebased payment transactions including income tax consequences classification tax impact statement cash flows new standard effective january 1 2017 early adoption permitted new standard effective us january 1 2017 adoption standard expected material impact financial position results operations statements cash flows upon adoption february 2016 fasb issued asu 201602 leases new standard provides guidance recognition measurement presentation disclosure leases new standard supersedes present us gaap guidance leases requires substantially leases reported balance sheet rightofuse assets lease liabilities well additional disclosures new standard effective january 1 2019 early adoption permitted evaluating provisions standard including period adopt determined impact adoption asu 201602 consolidated financial statements july 2015 fasb issued accounting standards update asu 201511 simplifying measurement inventory new guidance eliminates measurement inventory market value inventory measured lower cost net realizable value asu defines net realizable value estimated selling prices ordinary course business less reasonably predictable costs completion disposal transportation changes made current guidance inventory measurement asu 201511 effective interim annual periods beginning december 15 2016 early application permitted applied prospectively evaluating provisions standard determined impact adoption asu 201511 consolidated financial statements may 2014 fasb issued asu 201409 revenue contracts customers supersedes revenue recognition requirements accounting standards codification asc topic 605 new guidance result joint project fasb international accounting standards board clarify principles recognizing revenue develop common revenue standards us gaap international financial reporting standards core principle new guidance revenue recognized depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services asu 201409 originally effective prospectively annual periods beginning december 15 2016 interim periods within years early application permitted august 2015 fasb elected defer effective date asu 201409 one year annual periods beginning december 15 2017 early application permitted original effective date new guidance may applied retrospective basis prior periods presented modified retrospective basis cumulative effect new guidance date initial application new guidance effective us january 1 2018 currently expect use modified retrospective transition method 2016 substantially completed impact assessment phase evaluation asu 201409 result impact assessment implementing additional processes controls including additional disclosures comply new standard largest financial impact relate timing revenue recognition certain projectbased orders currently apply percentageofcompletion completed contract model new guidance specific criteria determine performance obligation recognized time point time expect cases revenue recognition timing new guidance change current practice based applying specific criteria yet quantified impact adoption asu 201409 consolidated financial statements transactions related parties lease certain office space certain principal shareholders including director executive officer another member board directors members immediate families expiration dates ranging 2017 2020 total rent expense leases 39 million 18 million 20 million years ended december 31 2016 2015 2014 respectively year ended december 31 2014 incurred expenses 24 million law firm one former members board directors partner year ended december 31 2014 incurred expenses 01 million financial services firm one former members board directors partner year ended december 31 2014 recorded revenue 09 million commercial transactions life science supply company member board directors chairman president chief executive officer another member board directors formerly director years ended december 31 2016 2015 2014 recorded revenue 11 million 07 million 19 million respectively incurred expenses 01 million year ended december 31 2014 arising commercial transactions life sciences company member board directors joined board directors 2014 chairman chief executive officer year ended december 31 2016 2015 recorded revenue 02 million 05 million respectively commercial transactions thermal analysis company member board directors serves consultant item 7aitem 7 managements discussion analysis financial condition results operations following managements discussion analysis financial condition results operations mda describes principal factors affecting results operations financial condition changes financial condition well critical accounting policies estimates mda organized follows • safeharbor nongaap financial measures section provides appropriate disclosures regarding forward looking statements use nongaap financials measures • overview section provides brief discussion reportable segments results operations significant recent developments businesses challenges risks may impact businesses future • results operations section provides analysis significant line items consolidated statements income comprehensive income year ended december 31 2018 compared year ended december 31 2017 year ended december 31 2017 compared year ended december 31 2016 • liquidity capital resources section provides analysis liquidity cash flow discussion outstanding debt commitments • critical accounting policies estimates section discusses accounting estimates considered important financial condition results operations require us exercise subjective complex judgments application significant accounting policies summarized note 2 consolidated financial statements item 8 annual report form 10k • recent accounting pronouncements section provides summary recent accounting pronouncements discusses potential impact consolidated financial statements • transactions related parties section summarizes transactions related parties safeharbor nongaap financial measures statements contained managements discussion analysis financial condition results operations express believe anticipate plan expect seek estimate well statements historical fact forwardlooking statements within meaning section 21e securities exchange act 1934 section 27a securities act 1933 actual events results may differ materially set forth forwardlooking statements certain factors might cause difference discussed risk factors managements discussion analysis financial condition results operations annual report form 10k year ended december 31 2018 although consolidated financial statements prepared accordance generally accepted accounting principles united states america gaap believe describing revenue expenses excluding effects foreign currency acquisitions divestitures well certain charges net provides meaningful supplemental information regarding performance specifically management believes organic revenue free cash flow nongaap financial measures well nongaap gross profit margin nongaap operating margin provide relevant useful information widely used equity analysts investors competitors industry well management assessing consolidated business unit performance define term organic revenue gaap revenue excluding effect foreign currency translation changes effect acquisitions divestitures define term nongaap gross profit margin gaap gross profit margin certain nongaap measures excluded nongaap operating margin gaap operating margin certain nongaap measures excluded nongaap measures exclude costs related restructuring actions acquisition related integration expenses amortization acquired intangible assets costs associated global information technology transition initiative nonoperational costs infrequent nonrecurring nature believe useful measures evaluate continuing business define free cash flow net cash provided operating activities less additions property plant equipment believe free cash flow useful measure evaluate business indicates amount cash generated additions property plant equipment available among things investments business acquisitions share repurchases dividends repayment debt use nongaap financial measures evaluate periodoverperiod operating performance management believes provide comparable measures continuing business adjust certain items reflective underlying performance business measures may also useful investors evaluating underlying operating performance business regularly use nongaap financial measures internally understand manage evaluate business results make operating decisions also measure employees compensate part based nongaap measures use information planning forecasting activities presentation nongaap financial measures intended substitute superior financial information prepared presented accordance gaap may different nongaap financial measures used companies therefore may comparable among companies overview developer manufacturer distributor highperformance scientific instruments analytical diagnostic solutions enable customers explore life materials microscopic molecular cellular levels corporate headquarters located billerica massachusetts maintain major technical manufacturing centers europe north america sales offices located throughout world bruker organized four operating segments bruker biospin group bruker calid group bruker nano group bruker energy supercon technologies best segment year ended december 31 2018 revenue increased 1297 million 73 18956 million compared 17659 million year ended december 31 2017 included revenue increases approximately 282 million attributable recent acquisitions approximately 255 million impact foreign currency translation due weaker average us dollar exchange rate relative euro currencies year ended december 31 2018 compared year ended december 31 2017 excluding effects foreign currency translation recent acquisitions organic revenue nongaap measure increased 760 million 43 gross profit margin increased 475 year ended december 31 2018 compared 462 year ended december 31 2017 increase gross profit margin resulted primarily strong operating leverage favorable product mix impact operational improvements positive effects partially offset unfavorable foreign currency translation operating margin increased 138 year ended december 31 2018 124 year ended december 31 2017 demonstrating operating leverage following brukers multiyear operational transformation appropriately investing strategic growth areas operating margin increased year ended december 31 2018 due primarily positive operating leverage higher sales operational improvements factors offset significant negative foreign currency translation effects occurred primarily first half year income tax provision years ended december 31 2018 december 31 2017 637 million 1175 million respectively representing effective tax rates 260 594 respectively decrease effective tax rate year ended december 31 2018 compared 2017 primarily attributable impact us tax reform related charges 2017 tax rate may change time amount mix jurisdictional income changes earnings per share increased 114 per diluted share year ended december 31 2018 compared 049 per diluted share year ended december 31 2017 increase compared prior year driven primarily revenue growth higher gross operating profit absence us tax reform related charges resulted significantly higher effective tax rate year ended december 31 2017 operating cash flow year ended december 31 2018 source cash 2397 million year ended december 31 2018 free cash flow nongaap measure 1905 million calculated follows year ended december 31 2018 free cash flow 721 higher year ended december 31 2017 primarily attributable higher net earnings adjusted noncash items timing customer payments offset slight increase capital expenditures february 22 2016 announced establishment dividend policy declaration board directors initial quarterly cash dividend amount 004 per share issued outstanding common stock dividends amounting 251 million 254 million paid years ended december 31 2018 2017 respectively future dividend payments subject approval board directors targeting cash dividend shareholders amount 016 per share per annum payable equal quarterly installments years ended december 31 2018 2017 completed various acquisitions complemented existing market offerings added aftermarket software capabilities impact acquired companies revenues net income total assets material experience quartertoquarter fluctuations operating results result various factors outside control • timing governmental stimulus programs academic research budgets • time takes date customer orders deposits received systems shipped accepted customers full payment received • time takes satisfy local customs requirements exportimport requirements • time takes customers construct prepare facilities products • time required obtain governmental licenses factors past affected amount timing revenue recognized sales products receipt related payments continue future accordingly operating results particular quarter may necessarily indication future quarters operating performance results operations year ended december 31 2018 compared year ended december 31 2017 consolidated results following table presents results years ended december 31 2018 2017 dollars millions except per share data revenue year ended december 31 2018 revenue increased 1297 million 73 18956 million compared 17659 million year ended december 31 2017 included revenue increases approximately 282 million attributable recent acquisitions approximately 255 million impact foreign currency translation due weaker average us dollar exchange rate relative euro currencies year ended december 31 2018 compared year ended december 31 2017 excluding effects foreign currency translation recent acquisitions organic revenue nongaap measure increased 760 million 43 gross profit gross profit year ended december 31 2018 9000 million resulting gross profit margin 475 compared 8160 million resulting gross profit margin 462 year ended december 31 2017 included gross profit various charges amortization acquisitionrelated intangible assets acquisitionrelated costs restructuring costs totaling 287 million 361 million years ended december 31 2018 2017 respectively excluding charges nongaap gross profit margins 490 483 years ended december 31 2018 2017 respectively gaap nongaap gross profit margin increased year ended december 31 2018 due positive operating leverage higher sales volume favorable product mix partially offset unfavorable foreign currency translation effects selling general administrative selling general administrative expenses year ended december 31 2018 increased 4447 million 235 revenue 4152 million 235 revenue year ended december 31 2017 increase primarily caused additional expenses associated recent acquisitions bruker nano group bruker calid group select investments foreign currency translation effects research development research development expenses year ended december 31 2018 increased 1734 million 91 revenue 1616 million 92 revenue year ended december 31 2017 increase driven primarily additional expenses associated recent acquisitions foreign currency translation effects charges net charges net 195 million year ended december 31 2018 194 million related bsi segment 01 million related best segment charges consisted primarily 68 million restructuring costs related closing facilities implementing outsourcing restructuring initiatives 34 million acquisitionrelated charges related acquisitions completed 2018 2017 48 million costs associated global information technology transformation initiative 45 million related professional fees charges net 197 million year ended december 31 2017 187 million related bsi segment 10 million related best segment charges consisted primarily 106 million restructuring costs related closing facilities implementing outsourcing restructuring initiatives 45 million related primarily additional contingent consideration recognized acquisition jordan valley semiconductors ltd jordan valley based upon increase revenue levels acquired business increased amount expected earn payments 42 million costs associated global transformation initiative impairment charges 02 million comprised longlived assets related restructuring actions 2019 expect incur 50 100 million expense related various outsourcing initiatives restructuring activities implemented 2018 commence 2019 december 31 2018 2017 performed annual goodwill indefinitelived intangible impairment evaluation concluded fair values reporting units significantly greater carrying amounts therefore additional impairment required continue monitor goodwill longlived intangible assets well longlived tangible assets possible future impairment operating income operating income year ended december 31 2018 2624 million resulting operating margin 138 compared income operations 2195 million resulting operating margin 124 year ended december 31 2017 operating margin expansion primarily due increased revenue favorable product mix bsi best segments well ongoing operational improvements partially offset negative foreign currency translation effects occurred primarily first half year included operating income various charges amortization acquisitionrelated intangible assets acquisitionrelated costs restructuring costs totaling 555 million 614 million years ended december 31 2018 2017 respectively excluding charges nongaap operating margins 168 159 years ended december 31 2018 2017 respectively gaap nongaap operating margin increased year ended december 31 2018 despite significant unfavorable foreign currency translation effects interest income expense net interest income expense net year ended december 31 2018 177 million compared 217 million year ended december 31 2017 year ended december 31 2018 major components within interest income expense net interest expense 114 million realized unrealized losses foreign currency denominated transactions 30 million 39 million related pension plan expenses year ended december 31 2017 major components within interest income expense net interest expense 146 million realized unrealized losses foreign currency denominated transactions 55 million 48 million related pension plan expenses partially offset 21 million proceeds cargo insurance settlement gain acquisition 06 million 06 million gain acquisition related acquisition merlin diagnostika gmbh merlin within bsi segment value assets purchased exceeded consideration paid 2017 interest income expense net amounts revised reflect adoption asu 201707 related reclassification certain pension costs income tax provision income tax provision years ended december 31 2018 2017 637 million 1175 million respectively representing effective tax rates 260 594 respectively decrease effective tax rate year ended december 31 2018 compared 2017 primarily attributable absence us tax reform related charges significantly increased income tax provision 2017 tax rate may change time amount mix jurisdictional income changes expect effective income tax rate approximately 250 year ended december 31 2019 net income attributable noncontrolling interests net income attributable noncontrolling interests redeemable noncontrolling interest year ended december 31 2018 13 million compared 17 million year ended december 31 2017 net income attributable noncontrolling interests redeemable noncontrolling interest represented minority shareholders proportionate share net income recorded majorityowned indirect subsidiaries net income attributable bruker corporation net income attributable bruker corporation year ended december 31 2018 1797 million 114 per diluted share compared net income 786 million 049 per diluted share 2017 increase year ended december 31 2018 primarily driven higher revenues operational improvements absence us tax reform related charges incurred 2017 noted segment results revenue following table presents revenue change revenue growth reportable segment years ended december 31 2018 2017 dollars millions arepresents product service revenue reportable segments bsi segment revenues financial reporting purposes aggregate bruker biospin bruker calid bruker nano operating segments bruker scientific instruments bsi reportable segment represented approximately 90 revenues year ended december 31 2018 aggregation reflects operating segments similar economic characteristics production processes customer services provided types classes customers methods distribution regulatory environments best segment reportable segment represents remainder revenues bsi segment revenue increased 1231 million 78 17070 million year ended december 31 2018 compared 15839 million year ended december 31 2017 included revenue increase approximately 282 million related recent acquisitions approximately 205 million impact foreign currency translation due weaker average us dollar exchange rate relative euro currencies year ended december 31 2018 compared year ended december 31 2017 excluding effects foreign currency translation recent acquisitions organic revenue nongaap measure increased 744 million 47 bruker biospin group revenue increased 192 million 5911 million year ended december 31 2018 compared 5719 million year ended december 31 2017 bruker biospin group revenue increase primarily attributable biopharma clinical research applied aftermarket businesses bruker calid group revenue increased 488 million 5478 million year ended december 31 2018 compared 4990 million year ended december 31 2017 bruker calid group revenue increase primarily result strong performance microbiology life science mass spectrometry ftirnir molecular spectroscopy businesses together contributions recent microbiology diagnostics acquisitions strong performance mass spectrometry molecular spectroscopy businesses offset part decline revenue cbrne products bruker nano group revenue increased 551 million 5681 million year ended december 31 2018 compared 5130 million year ended december 31 2017 bruker nano group revenue increase primarily driven solid performance academic industrial materials research markets xray nano surfaces nano analysis tools partially offset lower revenue semiconductor metrology markets bruker nano group also benefited contributions recent acquisitions mainly anasys instruments jpk instruments system revenue aftermarket revenue percentage total bsi segment revenue follows years ended december 31 2018 2017 dollars millions best segment revenues best segment revenue increased 36 million 19 1948 million year ended december 31 2018 compared 1912 million year ended december 31 2017 modest increase revenue year ended december 31 2018 prior year due 50 million favorable foreign currency translation effect caused fluctuation us dollar versus euro system wire revenue aftermarket revenue percentage total best segment revenue follows years ended december 31 2018 2017 dollars millions gross profit operating expenses year ended december 31 2018 gross profit margin bsi segment increased 507 498 year ended december 31 2017 increase gross profit margin resulted primarily growth revenue favorable product mix impact operational improvements partially offset negative foreign currency translation effects best segment gross profit margin increased 179 153 year ended december 31 2017 increase gross profit margin resulted primarily favorable product mix impact operational improvements year ended december 31 2018 selling general administrative expenses research development expenses bsi segment increased 5979 million 350 segment revenue 5560 million 351 segment revenue comparable period 2017 selling general administrative expenses research development expenses best segment decreased 202 million 104 segment revenue 2018 compared 207 million 108 segment revenue 2017 decrease operating expenses percentage revenue primarily attributable decreased spending year ended december 31 2018 operating income following table presents operating income operating margins revenue reportable segment years ended december 31 2018 2017 dollars millions arepresents corporate costs eliminations allocated reportable segments bsi segment operating income year ended december 31 2018 2479 million resulting operating margin 145 compared income operations 2134 million resulting operating margin 135 year ended december 31 2017 operating margin increased primarily result increased revenue favorable product mix ongoing operational improvements partially offset negative foreign currency translation effects occurred primarily first half 2018 best segment operating income year ended december 31 2018 145 million resulting operating margin 74 compared operating income 74 million resulting operating margin 39 year ended december 31 2017 increase operating margin primarily due favorable product mix operational improvements year ended december 31 2017 compared year ended december 31 2016 consolidated results following table presents results years ended december 31 2017 2016 dollars millions except per share data revenue year ended december 31 2017 revenue increased 1546 million 96 17659 million compared 16113 million year ended december 31 2016 included revenue increase approximately 772 million attributable recent acquisitions increase approximately 196 million impact foreign currency translation caused weakening us dollar versus euro currencies excluding effects foreign currency translation recent acquisitions organic revenue nongaap measure increased 578 million 36 gross profit gross profit year ended december 31 2017 8160 million resulting gross profit margin 462 compared 7453 million resulting gross profit margin 463 year ended december 31 2016 included gross profit various charges amortization acquisitionrelated intangible assets acquisitionrelated costs restructuring costs totaling 361 million 319 million years ended december 31 2017 2016 respectively excluding charges nongaap gross profit margin 483 482 years ended december 31 2017 2016 respectively selling general administrative selling general administrative expenses year ended december 31 2017 increased 4152 million 235 revenue 3898 million 242 revenue year ended december 31 2016 increase primarily caused effect recent acquisitions bruker nano group bruker calid group decrease selling general administrative expenses percentage revenue attributable cost control discipline savings associated restructuring initiatives research development research development expenses year ended december 31 2017 increased 1616 million 92 revenue 1479 million 92 revenue year ended december 31 2016 increase primarily caused effect recent acquisitions bruker nano group bruker calid group charges net charges net 197 million year ended december 31 2017 187 million related bsi segment 10 million related best segment charges consisted primarily 106 million restructuring costs related closing facilities implementing outsourcing restructuring initiatives 45 million related primarily additional contingent consideration recognized acquisition jordan valley based upon increase revenue levels acquired business increased amount expected earn payments 42 million costs associated global information technology transformation initiative impairment charges 02 million comprised longlived assets related restructuring actions charges net 258 million year ended december 31 2016 252 million related bsi segment 06 million related best segment charges consisted primarily 98 million restructuring costs related closing facilities implementing outsourcing restructuring initiatives 90 million related primarily additional contingent consideration recognized jordan valley acquisition based upon increase revenue levels acquired business increased amount expected earn payments 62 million costs associated global transformation initiative impairment charges 08 million comprised longlived assets related restructuring actions within bruker calid bruker nano groups year operating income operating income year ended december 31 2017 2195 million resulting operating margin 124 compared income operations 1818 million resulting operating margin 113 year ended december 31 2016 operating margin increased due primarily positive operating leverage higher revenues cost discipline savings restructuring initiatives factors offset dilution recent acquisitions foreign currency translation effects included operating income various charges amortization acquisitionrelated intangible assets acquisitionrelated costs restructuring costs totaling 614 million 607 million years ended december 31 2017 2016 respectively excluding charges nongaap operating margins 159 150 years ended december 31 2017 2016 respectively interest income expense net interest income expense net year ended december 31 2017 217 million compared 42 million year ended december 31 2016 year ended december 31 2017 major components within interest income expense net interest expense 146 million realized unrealized losses foreign currency denominated transactions 55 million 48 million pension plan expenses partially offset 21 million proceeds cargo insurance settlement gain acquisition 06 million 06 million gain acquisition related acquisition merlin within bsi segment value assets purchased exceeded consideration paid year ended december 31 2016 major components within interest income expense net gain acquisition 92 million realized unrealized gains foreign currency denominated transactions 41 million partially offset net interest expense 129 million 46 million pension plan expenses 92 million gain acquisition related acquisition oxford instruments superconducting wire llc ost within best segment value assets purchased exceeded consideration paid income tax provision income tax provision years ended december 31 2017 2016 1175 million 231 million respectively representing effective tax rates 594 130 respectively increase effective tax rate year ended december 31 2017 compared 2016 primarily attributable impact us tax reform 2017 offset 2016 release remaining valuation allowances recognition previously unrecognized tax benefits due closure tax audits 2016 tax rate may change time amount mix jurisdictional income changes net income attributable noncontrolling interests net income attributable noncontrolling interests year ended december 31 2017 17 million compared 09 million year ended december 31 2016 net income attributable noncontrolling interests represented minority shareholders proportionate share net income recorded majorityowned indirect subsidiaries net income attributable bruker corporation net income attributable bruker corporation year ended december 31 2017 786 million 049 per diluted share compared net income 1536 million 095 per diluted share 2016 decrease year ended december 31 2017 primarily caused impact us tax reform noted segment results revenue following table presents revenue change revenue growth reportable segment years ended december 31 2017 2016 dollars millions arepresents product service revenue reportable segments bsi segment revenues financial reporting purposes aggregate bruker biospin bruker calid bruker nano operating segments bruker scientific instruments bsi reportable segment represented approximately 90 revenues year ended december 31 2017 aggregation reflects operating segments similar economic characteristics production processes customer services provided types classes customers methods distribution regulatory environments best segment reportable segment represents remainder revenues bsi segment revenue increased 913 million 61 15839 million year ended december 31 2017 compared 14926 million year ended december 31 2016 included revenue increase approximately 334 million related recent acquisitions approximately 173 million impact foreign currency translation caused weakening us dollar versus euro currencies excluding effects foreign currency translation recent acquisitions organic revenue nongaap measure increased 406 million 27 bruker biospin group revenue increased 92 million 5719 million year ended december 31 2017 compared 5627 million year ended december 31 2016 bruker biospin group revenue increased despite challenging comparison year ended december 31 2016 benefited sale first shielded ultrahigh field one gigahertz nmr system higher levels high field nmr systems increase revenue primarily attributable service aftermarket business bruker biospin group foreign currency translations bruker calid group revenue increased 236 million 4990 million year ended december 31 2017 compared 4754 million year ended december 31 2016 bruker calid group increase primarily result improved academic end markets particularly mass spectrometry products within europe infrared raman technologies used applied industrial end markets contributions acquisitions foreign currency translation effects increases partly offset lower cbrne revenue benefited significant contract year ended december 31 2016 bruker nano group revenue increased 584 million 5130 million year ended december 31 2017 compared 4546 million year ended december 31 2016 bruker nano group revenue increase primarily result recent acquisitions growth within academic industrial markets xray nano surfaces products growth semiconductor metrology markets system revenue aftermarket revenue percentage total bsi segment revenue follows years ended december 31 2017 2016 dollars millions best segment revenues best segment revenue increased 610 million 469 1912 million year ended december 31 2017 compared 1302 million year ended december 31 2016 increase revenue resulted ost acquisition completed fourth quarter 2016 organic revenue growth caused higher shipments superconductors large magnetic resonance imaging customers system wire revenue aftermarket revenue percentage total best segment revenue follows years ended december 31 2017 2016 dollars millions gross profit operating expenses year ended december 31 2017 gross profit margin bsi segment increased 498 483 year ended december 31 2016 increase gross margin caused primarily higher sales attributable improved european industrial end markets operating cost improvements resulting recent restructuring operational initiatives product mix favoring less profitable lower field nmr systems within biospin group offset year bsi segment gross margin expansion best segment gross profit margin decreased 153 171 year ended december 31 2016 lower gross margins resulted primarily impact ost acquisition integration plans best segments ost business include commercial productivity improvement actions designed achieve preacquisition gross profit margin levels year ended december 31 2017 selling general administrative expenses research development expenses bsi segment increased 5560 million 351 segment revenue 5222 million 350 segment revenue comparable period 2016 selling general administrative expenses research development expenses best segment increased 207 million 108 segment revenue 2017 compared 155 million 119 segment revenue 2016 decrease best segment operating expenses percent revenue primarily attributable increased revenue year ended december 31 2017 operating income following table presents operating income operating margins revenue reportable segment years ended december 31 2017 2016 dollars millions arepresents corporate costs eliminations allocated reportable segments bsi segment operating income year ended december 31 2017 2134 million resulting operating margin 135 compared income operations 1735 million resulting operating margin 116 year ended december 31 2016 operating margin increased primarily gross profit improvements noted well operational improvements result restructuring initiatives best segment operating income year ended december 31 2017 74 million resulting operating margin 39 compared operating income 66 million resulting operating margin 51 year ended december 31 2016 decrease operating margin primarily result gross margin deterioration noted liquidity capital resources anticipate existing cash credit facilities sufficient support operating investing needs least next twelve months future cash requirements could affected acquisitions may complete repurchases common stock payment dividends future historically financed growth liquidity needs cash flow generation combination debt financings issuances common stock future assurances continue generate cash flow operations additional financing alternatives available us required available obtained terms favorable us year ended december 31 2018 net cash provided operating activities 2397 million resulting primarily consolidated net income adjusted noncash items 2819 million offset net decrease operating assets liabilities net acquisitions divestitures 422 million decrease operating assets liabilities net acquisitions divestitures year ended december 31 2018 primarily caused increase accounts receivable caused proportionately higher sales late fourth quarter 2018 inventory build 2019 orders offset part cash received customer advances year ended december 31 2017 net cash provided operating activities 1544 million resulting primarily consolidated net income adjusted noncash items 1950 million offset net increase operating assets liabilities net acquisitions divestitures 406 million increase operating assets liabilities net acquisitions divestitures year ended december 31 2017 primarily caused increase accounts receivables caused proportionately higher sales late fourth quarter 2017 offset part income tax accruals fourth quarter 2017 related us tax reform legislation well higher compensation restructuring accruals year ended december 31 2018 net cash used investing activities 1234 million compared net cash used investing activities 302 million year ended december 31 2017 increase cash used investing activities year ended december 31 2018 primarily attributable net cash paid acquisitions 1916 million net capital expenditures 492 million activities offset part net cash proceeds shortterm investments 1170 million year ended december 31 2017 net cash used investing activities 302 million compared net cash used investing activities 218 million year ended december 31 2016 cash used investing activities year ended december 31 2017 primarily included net cash paid acquisitions 663 million net capital expenditures 322 million activities offset part net cash proceeds shortterm investments 683 million expect capital expenditures 2019 approximately 800 million year ended december 31 2018 net cash used financing activities 1124 million compared net cash used financing activities 1590 million year ended december 31 2017 cash used financing activities year ended december 31 2018 primarily caused 2181 million repayments revolving lines credit 251 million used payment dividends cash uses partially offset borrowings 1294 million revolving lines credit 94 million proceeds issuance common stock connection stock option exercises year ended december 31 2017 net cash used financing activities 1590 million compared net cash used financing activities 279 million year ended december 31 2016 cash used financing activities year ended december 31 2017 primarily caused repurchase common stock 1522 million 1300 million repayments revolving line credit 254 million used payment dividends 200 million repayments note purchase agreement described cash uses partially offset borrowings 1540 million revolving line credit 200 million proceeds issuance common stock connection stock option exercises may 2017 board directors approved repurchase program repurchases common stock amount 2250 million authorized occur time amounts prices times deem appropriate subject market conditions legal requirements considerations repurchases occurred repurchase program year ended december 31 2018 remaining authorization february 25 2019 728 million intend fund additional repurchases cash hand future cash flows operations available borrowings revolving credit facility repurchased shares reflected within treasury stock accompanying consolidated balance sheet december 31 2018 cash equivalents shortterm investments december 31 2018 2017 totaled 3224 million 4392 million respectively 2809 million 4058 million respectively related cash equivalents shortterm investments held outside us foreign subsidiaries significantly netherlands switzerland december 31 2018 accordance 2017 tax act recorded state foreign withholding taxes well subsequent foreign currency translations withholding taxes obligation parent company cash liquid assets portion unremitted earnings profits ep foreign subsidiaries expected repatriated foreign subsidiaries united states continue indefinitely reinvested amount 4534 million noncash ep subject 2017 tax act deemed repatriation ep ultimately distributed united states form dividends otherwise would likely subject additional withholding tax continue evaluate assertions cumulative historical outside basis differences foreign subsidiaries december 31 2018 finalized analysis accounting related toll charge outside basis differences foreign subsidiaries measurement period provided 2017 tax act amount unrecognized deferred withholding taxes undistributed ep 485 million december 31 2018 december 31 2018 approximately 432 million net operating loss carryforwards available reduce state taxable income approximately 931 million net operating losses available reduce german federal income trade taxes carried forward indefinitely 85 million foreign net operating losses expected expire various times beginning 2019 also us state research development tax credits 86 million utilization credits state net operating losses may subject annual limitations due ownership percentage change limitations provided internal revenue code section 382 similar state provisions event deemed change control internal revenue code section 382 annual limitation utilization net operating losses credits may result expiration portion net operating loss credit carryforwards uncertain tax contingencies positions taken expected taken income tax return may result additional payments tax authorities tax authority agrees tax position taken expected taken applicable statute limitations expires additional payments necessary december 31 2018 outstanding debt totaling 3411 million consisting 2200 million outstanding note purchase agreement described 1116 million outstanding revolving loan component 2015 credit agreement described 71 million capital lease obligations loans 29 million revolving loans amounts offset unamortized debt issuance costs note purchase agreement 05 million december 31 2017 outstanding debt totaling 4156 million consisting 2200 million outstanding note purchase agreement 1950 million outstanding revolving loan component 2015 credit agreement described 13 million capital lease obligations loans amounts offset unamortized debt issuance costs note purchase agreement 07 million following summary maximum commitments net amounts available us 2015 credit agreement lines credit various financial institutions located primarily germany switzerland unsecured typically due upon demand interest payable monthly december 31 2018 millions october 27 2015 entered 2015 credit agreement terminated prior credit agreement 2015 credit agreement provides maximum commitment revolving credit line 5000 million maturity date october 2020 borrowings revolving credit line accrue interest option either greatest prime rate ii federal funds rate plus 050 iii adjusted libor plus 100 plus margins ranging 000 030 b libor plus margins ranging 090 130 also facility fee ranging 010 020 borrowings 2015 credit agreement secured guarantees certain material subsidiaries defined 2015 credit agreement 2015 credit agreement also requires us maintain certain financial ratios related maximum leverage minimum interest coverage specifically leverage ratio cannot exceed 35 interest coverage ratio cannot less 25 addition financial ratios 2015 credit agreement contains negative covenants including among others restrictions liens indebtedness company subsidiaries asset sales dividends transactions affiliates failure comply restrictions covenants may result event default 2015 credit agreement could permit acceleration debt require us prepay debt scheduled due date january 2012 entered note purchase agreement referred note purchase agreement group accredited institutional investors note purchase agreement issued sold 2400 million senior notes consist following • 200 million 316 series 2012a senior notes due january 18 2017 • 150 million 374 series 2012a senior notes due january 18 2019 • 1050 million 431 series 2012a senior notes due january 18 2022 • 1000 million 446 series 2012a senior notes due january 18 2024 january 18 2017 outstanding 200 million principal amount tranche senior notes repaid accordance terms note purchase agreement december 31 2018 compliance covenants defined 2015 credit agreement note purchase agreement leverage ratio 093 interest coverage ratio 225 following table summarizes maturities significant financial obligations december 31 2018 dollars millions 1unconditional purchase commitments include agreements purchase goods services fixed assets enforceable legally binding specify significant terms including fixed minimum quantities purchased fixed minimum variable price provisions approximate timing transaction purchase commitments exclude agreements cancellable time without penalty 2acquisitionrelated contingent considerations represents estimated fair value future payments former shareholders applicable acquired companies based achieving annual revenue gross margin targets certain years specified purchase sale agreements critical accounting policies estimates discussion analysis financial condition results operations based upon consolidated financial statements prepared accordance accounting principles generally accepted united states america us gaap preparation financial statements requires make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments including related revenue recognition expensing capitalization software development costs stockbased compensation expense restructuring related charges income taxes including recoverability deferred tax assets allowances doubtful accounts inventory reductions excess obsolete inventories estimated fair values longlived assets used measure recoverability longlived assets intangible assets goodwill expected future cash flows used measure recoverability intangible assets longlived assets warranty costs derivative financial instruments contingent liabilities base estimates judgments historical experience current market economic conditions industry trends assumptions believe reasonable form basis making judgments carrying value assets liabilities readily apparent sources actual results could differ estimates believe following critical accounting policies estimates important portrayal financial position results operations require estimation subjective judgment revenue recognition 2018 policy asc 606 recognize revenue accordance accounting standards codification 606 revenue contracts customers asc 606 key elements asc 606 1 identifying contract customer 2 identifying performance obligations contract 3 determining transaction price 4 allocating transaction price performance obligations contract 5 recognizing revenue performance obligation satisfied recognize revenue systems sales upon transfer control amount reflects consideration expect receive transfer control generally occurs upon shipment certain systems based upon customer acceptance system delivered installed customer facility systems include customerspecific acceptance criteria required assess demonstrate acceptance criteria met generally upon successful factory acceptance testing customer acceptance evidence installation systems require installation system revenue recognized upon shipment standalone selling price installation deferred customer acceptance products sold independent distributor strategic distribution partner recognize system sale upon transfer control typically shipment responsible installation standalone selling price installation deferred customer acceptance distributors price protection rights return however products typically warranted free defect period one year contracts include multiple performance obligations transaction price allocated distinct performance obligation based relative standalone selling prices goods services provided customer best evidence standalone selling price normal selling pricing discounting practices specific product service sold standalone basis alternatively may determine standalone selling price using expected cost plus margin approach analyze selling prices used allocation transaction price minimum annual basis selling prices analyzed frequently significant change business factors necessitate frequent analysis experience significant variances selling prices revenue accessories parts generally recognized based shipment service revenue recognized services performed ratably contractual obligation includes maintenance contracts extended warranties training application support ondemand services performance obligations recognized time revenue measured progress toward completion performance obligation reflects transfer control particular certain contracts recognized time apply costtocost method based costs incurred date relative total estimated costs contract upon completion application costtocost method requires us make reasonable estimates extent progress toward completion total costs incur losses recorded immediately estimate contracts ultimately result loss changes estimates could affect timing revenue recognition include costs incurred connection shipping handling products within selling general administrative costs amounts billed customers connection costs included total revenues control goods transfers prior completion obligation ship products customers elected practical expedient account shipping services fulfillment cost expense incremental costs obtaining contract incurred expected amortization period one year less amount immaterial exclude transaction price taxes assessed governmental authority revenueproducing transactions collected us customer require advance deposit based terms conditions contracts customers many contracts typically revenue recognized within one year receiving advance deposit material payment terms extend beyond one year contracts advance payment received greater one year expected revenue recognition portion payment due extends beyond one year determined constitute significant financing component minimal variable consideration included transaction price contracts revenues primarily comprised development arrangements recognized costplusfixedfee basis licensing arrangements recognized either licenses provided ratably contract term depending nature arrangement contract assets liabilities contract assets represent unbilled receivables revenue recognized exceeds amount billed customer right payment subject passage time contract assets typically result system revenue recorded portion transaction price billable future event customer acceptance contracts recognized costtocost costplusfixedfee basis revenue exceeds amount billed customer amounts may exceed net realizable value contract assets generally classified current contract liabilities consist customer advances deferred revenue billings excess revenue contracts recognized costtocost costplusfixedfee basis contract liabilities classified current longterm based timing expect recognize revenue contract assets liabilities reported net position contractbycontract basis end reporting period 2017 2016 policy asc 605 recognize revenue system sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectability resulting receivable reasonably assured title risk loss generally transfers upon shipment certain systems based upon customer acceptance system delivered customer installed customer facility systems include customerspecific acceptance criteria required assess demonstrate acceptance criteria met generally upon successful factory acceptance testing customer acceptance evidence installation products sold independent distributor strategic distribution partner assumes responsibility installation recognize system sale product shipped title risk loss transferred distributor distributors price protection rights return however products typically warranted free defect period one year revenue deferred cash received collectability reasonably assured price fixed determinable transactions include multiple elements arrangement consideration allocated element using fair value hierarchy required asu 200913 limit amount revenue recognized delivered elements amount contingent future delivery products services future performance obligations subject customerspecific return refund privileges determine fair value products services based upon vendor specific objective evidence vsoe determine vsoe based normal selling pricing discounting practices specific product service sold standalone basis determining vsoe policy requires substantial majority selling prices product service within reasonably narrow range also consider class customer method distribution geographies products services sold determining vsoe cannot established attempt establish selling price based thirdparty evidence tpe vsoe cannot established instances product service sold separately standalone sales infrequent product pricing within sufficiently narrow range tpe determined based competitor prices similar deliverables sold separately cannot determine vsoe tpe use estimated selling price esp allocation arrangement consideration objective esp determine price would typically transact standalone sale product service esp determined considering number factors including pricing policies internal costs gross profit objectives method distribution market research information recent technological trends competitive landscape geographies analyze selling prices used allocation arrangement consideration minimum annual basis selling prices analyzed frequently significant change business occurs factors necessitate frequent analysis experience significant variances selling prices revenue accessories consumable parts generally recognized upon shipping terms service revenue recognized services performed ratably contractual obligation includes maintenance contracts extended warranty training application support ondemand services also contracts apply percentageofcompletion model completed contract model revenue recognition application percentageofcompletion method requires us make reasonable estimates extent progress toward completion contract total costs incur contract losses recorded immediately estimate contracts ultimately result loss changes estimates could affect timing revenue recognition revenues primarily comprised development arrangements recognized costplusfixedfee basis licensing arrangements recognized ratably term related contracts income taxes determination income tax expense requires us make certain estimates judgments concerning annual effective tax rate calculation deferred tax assets liabilities forecasted profitability subsidiaries certain geographic jurisdictions well deductions carryforwards credits available reduce taxable income deferred tax assets liabilities arise differences timing recognition revenue expenses financial statement tax purposes deferred tax assets liabilities measured using tax rates effect year temporary differences expected settled estimate degree tax assets loss carryforwards result benefit based expected profitability tax jurisdiction provide valuation allowance tax assets loss carryforwards believe likely go unused becomes likely tax asset loss carryforward used valuation allowance provided reverse related valuation allowance actual future taxable income tax jurisdiction differs estimates additional allowances reversals valuation allowance may necessary addition recognize benefits tax positions believe likely sustained upon review taxing authority knowledge relevant information reevaluate uncertain tax positions quarterly basis changes positions result tax audits tax laws facts circumstances could result additional charges credits operations expiration statutes limitations affecting estimates made uncertain tax positions cause higher earnings december 22 2017 president united states signed tax reform legislation 2017 tax act enacted wide range changes us corporate income tax system many differ significantly provisions previous us tax law completed assessment tax effects associated enactment 2017 tax act changes tax rates laws accounted period enactment inventories stated lower cost net realizable value costs determined firstin firstout method majority subsidiaries average cost certain subsidiaries record provisions account excess obsolete inventory reflect expected nonsaleable nonrefundable inventory based evaluation slow moving products longer offered sale inventories also include demonstration units located demonstration laboratories installed sites potential customers consider demonstration units available sale history selling demonstration units reduce carrying value demonstration inventories differences cost estimated net realizable value taking consideration usage preceding twelve months expected demand technological obsolescence information including physical condition unit ultimate usage demand varies significantly expected usage demand additional writedowns may required resulting additional charges operations goodwill intangible assets longlived assets evaluate goodwill indefinite lived intangible assets impairment annually events occur circumstances change test goodwill impairment reporting unit level operating segment one level operating segment us gaap option performing qualitative assessment determine whether impairment testing necessary performing twostep quantitative assessment qualitative assessment requires significant judgments macroeconomic conditions including entitys operating environment industry market considerations entityspecific events related financial performance loss key personnel events could impact reporting unit result qualitative assessment morelikelythannot fair value reporting unit less carrying amount quantitative impairment test required otherwise testing required quantitative impairment test performed first step involves comparing fair values applicable reporting units aggregate carrying values including goodwill generally determine fair value reporting units using weighting market approach income approach methodologies income approach valuation methodology includes discounted cash flow estimates estimating fair value reporting units requires significant judgment future cash flows carrying amount reporting unit exceeds fair value reporting unit perform second step goodwill impairment test measure amount impairment second step goodwill impairment test compare implied fair value reporting units goodwill carrying value goodwill december 31 2018 performed annual goodwill indefinitelived intangible impairment evaluation using quantitative impairment test concluded fair values reporting units significantly greater carrying amounts therefore additional impairment required also review definitelived intangible assets longlived assets indications potential impairment exist fair value longlived assets decline reduced operating performance market declines indicators impairment charge operations impairment may necessary business combinations account business combinations acquisition method accounting accordingly date acquisition measure fair value identifiable assets acquired including intangible assets liabilities assumed remaining noncontrolling interests allocates amounts paid items measured fair value identifiable intangible assets acquired based valuations use information assumptions determined management consider managements best estimates inputs assumptions market participant would use recent accounting pronouncements march 2017 financial accounting standards board fasb issued accounting standards update asu 201707 compensationretirement benefits topic 715 improving presentation net periodic pension cost net periodic postretirement benefit cost standard intends improve presentation net periodic pension cost net periodic postretirement benefit cost standard requires service cost component net periodic cost reported line items employee compensation costs components net periodic cost reported condensed consolidated statements income comprehensive income operating income adopted guidance january 1 2018 retrospective basis reclassified nonservice pension cost previously reported operations 48 million 46 million years ended december 31 2017 2016 respectively amounts previously reported cost sales selling general administrative research development expenses consolidated statements income comprehensive income january 2017 fasb issued asu 201704 intangiblesgoodwill topic 350 simplifying test goodwill impairment new standard simplifies subsequent measurement goodwill eliminating second step goodwill impairment test asu applied prospectively effective annual interim goodwill impairment tests fiscal years beginning december 15 2019 standard expected material impact financial position results operations statements cash flows upon adoption january 2017 fasb issued asu 201701 business combinations topic 805 clarifying definition business new standard clarifies definition business provides screen determine integrated set assets activities business screen requires substantially fair value gross assets acquired disposed concentrated single identifiable asset group similar identifiable assets set business standard adopted effective date january 1 2018 evaluated provisions standard determined impact adoption asu 201701 material consolidated financial statements october 2016 fasb issued asu 201616 income taxes topic 740intraentity transfer assets inventory new standard requires recognition current deferred income taxes resulting intraentity transfer asset excluding inventory transfer occurs change existing us gaap prohibits recognition current deferred income taxes asset sold third party standard adopted effective date january 1 2018 evaluated provisions standard determined impact adoption asu 201616 material consolidated financial statements february 2016 fasb issued asu 201602 leases provides guidance recognition measurement presentation disclosure leases new standard supersedes present us gaap guidance leases requires leases terms longer 12 months reported balance sheet rightofuse rou assets lease liabilities well provide additional disclosures lease liability represents lessees obligation make lease payments arising lease measured present value lease payments rightofuse asset represents lessees right use specified asset lease term measured lease liability amount adjusted lease prepayment lease incentives received lessees initial direct costs new standard effective january 1 2019 asu 201602 companies required transition new standard period adoption beginning earliest period presented financial statements january 1 2017 us july 2018 fasb issued asu 201811 update asu 201602 part provided companies option transitioning new standard adoption date recognize cumulativeeffect adjustment opening balance retained earnings period adoption adopted new standard january 1 2019 using alternative transition method asu 201811 recognize cumulativeeffect adjustment opening balance sheet elected available package practical expedients leases commenced prior effective date allows us reassess 1 whether expired existing contracts contain leases 2 lease classification expired existing leases 3 accounting treatment initial direct costs expired existing leases also elected practical expedient allows lessees treat lease nonlease components leases single lease component process finalizing implementation leasing software provide required accounting disclosures continuing finalize calculations based new standard accordingly completed evaluation aspects new standard expect new standard material impact consolidated balance sheet due recognition rightofuse assets lease liabilities substantially leases currently accounted operating leases complete evaluation new standard new information may arise could change current understanding impact consolidated financial statements also working establish new processes internal controls may required comply new standard expect material impact operations item 7aitem 7 management’s discussion analysis financial condition results operations following management’s discussion analysis financial condition results operations mda describes principal factors affecting results operations financial condition changes financial condition well critical accounting policies estimates mda organized follows ●safeharbor nongaap clarification section provides appropriate disclosures regarding forward looking statements use nongaap financial measures ●overview section provides brief discussion reportable segments’ results operations significant recent developments businesses challenges risks may impact businesses future ●results operations section provides analysis significant line items consolidated statements income comprehensive income loss year ended december 31 2019 compared year ended december 31 2018 year ended december 31 2018 compared year ended december 31 2017 ●liquidity capital resources section provides analysis liquidity cash flow discussion outstanding debt commitments ●critical accounting policies estimates section discusses accounting estimates considered important financial condition results operations require us exercise subjective complex judgments application significant accounting policies summarized note 2 consolidated financial statements item 8 annual report form 10k ●recent accounting pronouncements section provides summary recent accounting pronouncements discusses potential impact consolidated financial statements nongaap clarification although consolidated financial statements prepared accordance generally accepted accounting principles united states america gaap believe describing revenue expenses excluding effects foreign currency acquisitions divestitures well certain charges net provides meaningful supplemental information regarding performance specifically management believes organic revenue free cash flow nongaap financial measures well nongaap gross profit margin nongaap operating margin provide relevant useful information widely used equity analysts investors competitors industry well management assessing consolidated business unit performance define term organic revenue gaap revenue excluding effect foreign currency translation changes effect acquisitions divestitures define term nongaap gross profit margin gaap gross profit margin certain nongaap measures excluded nongaap operating margin gaap operating margin certain nongaap measures excluded nongaap measures exclude costs related restructuring actions acquisition related integration expenses amortization acquired intangible assets costs associated global information technology transition initiative nonoperational costs infrequent nonrecurring nature believe useful measures evaluate continuing business define free cash flow net cash provided operating activities less additions property plant equipment believe free cash flow useful measure evaluate business indicates amount cash generated additions property plant equipment available among things investments business acquisitions share repurchases dividends repayment debt use nongaap financial measures evaluate periodoverperiod operating performance management believes provide comparable measures continuing business adjust certain items reflective underlying performance business measures may also useful investors evaluating underlying operating performance business regularly use nongaap financial measures internally understand manage evaluate business results make operating decisions also measure employees compensate part based nongaap measures use information planning forecasting activities presentation nongaap financial measures intended substitute superior financial information prepared presented accordance gaap may different nongaap financial measures used companies therefore may comparable among companies overview developer manufacturer distributor highperformance scientific instruments analytical diagnostic solutions enable customers explore life materials microscopic molecular cellular levels corporate headquarters located billerica massachusetts maintain major technical manufacturing centers europe north america sales offices located throughout world bruker organized three reportable segments bsi life science segment comprised bruker biospin group bruker calid group bsi nano segment bruker energy supercon technologies best segment year ended december 31 2019 revenue increased 1770 million 93 20726 million compared 18956 million year ended december 31 2018 included revenue increases approximately 1184 million attributable recent acquisitions decrease approximately 503 million impact foreign currency translation year ended december 31 2019 compared year ended december 31 2018 excluding effects foreign currency translation recent acquisitions organic revenue nongaap measure increased 1089 million 57 gross profit margin increased 480 year ended december 31 2019 compared 475 year ended december 31 2018 increase gross profit margin resulted primarily operational improvements within bsi life science segment accretive acquisitions favorable foreign currency translation effects operating margin increased 145 year ended december 31 2019 138 year ended december 31 2018 operating margin increased year ended december 31 2019 due primarily volume operational improvements within bsi life science segment accretive acquisitions positive impact foreign currency translation partially offset continued investments strategic growth areas income tax provision years ended december 31 2019 december 31 2018 824 million 637 million respectively representing effective tax rates 294 260 respectively increase effective tax rate year ended december 31 2019 compared 2018 primarily attributable benefit recorded 2018 associated reversal state foreign withholding taxes unremitted earnings recur 2019 additional tax reserves uncertain tax positions europe 2019 tax rate may change time amount mix jurisdictional income changes earnings per share increased 126 per diluted share year ended december 31 2019 compared 114 per diluted share year ended december 31 2018 increase compared prior year driven primarily revenue growth higher gross operating profit offset increase effective tax rate year ended december 31 2019 operating cash flow year ended december 31 2019 source cash 2134 million year ended december 31 2019 free cash flow nongaap measure 1404 million calculated follows year ended december 31 2019 free cash flow 26 lower year ended december 31 2018 primarily attributable higher net earnings adjusted noncash items offset increase capital expenditures timing inventory purchases december 11 2019 entered 1 new revolving credit agreement establish new revolving credit facility aggregate principal amount 600 million 2 term loan agreement establish new term loan facility aggregate principal amount 300 million 3 note purchase agreement issue sell chf 297 million aggregate principal amount 101 senior notes due december 11 2029 floating interest rates term loan simultaneously fixed crosscurrency interest rate swap agreements euro 150 million swiss franc 150 million rates carrying average effective interest rates 094 hedge net investment euro swiss franc denominated net assets new revolving credit agreement replaced 500 million fiveyear revolving credit agreement established october 27 2015 terminated december 11 2019 addition designated chf 297 million senior notes hedge net investment swiss franc denominated net assets proceeds financing used repay outstanding borrowings prior 2015 revolving credit facility intend use remaining proceeds general corporate purposes support corporate strategic objectives december 2019 entered us dollar euro crosscurrency swaps existing 2012 private placement notes 105 million 431 series 2012a senior notes tranche c due january 18 2022 existing 100 million 446 series 2012a senior notes tranche due january 18 2024 resulting average effective interest rate 225 instruments crosscurrency swaps hedge net investment euro denominated net assets result entering interest rate cross currency swap agreements reduced interest expense 06 million year ended december 31 2019 anticipate swap agreements lower net interest expense future years february 22 2016 announced establishment dividend policy declaration board directors initial quarterly cash dividend amount 004 per share issued outstanding common stock dividends amounting 250 million 251 million paid years ended december 31 2019 2018 respectively future dividend payments subject approval board directors targeting cash dividend shareholders amount 016 per share per annum payable equal quarterly installments years ended december 31 2019 2018 completed various acquisitions complemented existing market offerings added aftermarket software capabilities impact acquired companies revenues net income total assets material experience quartertoquarter fluctuations operating results result various factors outside control ●the timing governmental stimulus programs academic research budgets ●the time takes date customer orders deposits received systems shipped accepted customers full payment received ●foreign currency exchange rates ●the time takes us receive critical materials manufacture products ●general economic conditions ●the time takes satisfy local customs requirements exportimport requirements ●the time takes customers construct prepare facilities products ●the time required obtain governmental licenses factors past affected amount timing revenue recognized sales products receipt related payments continue future accordingly operating results particular quarter may necessarily indication future quarter’s operating performance previously disclosed current report form 8k filed february 18 2020 audit committee board directors audit committee initiated internal investigation allegation recently received connection yearend close primarily relating income tax matters including effective income tax rate 2019 related income tax balance sheet accounts audit committee assistance independent experienced external legal counsel independent forensic accountants concluded investigation march 2020 investigation identify material misstatements omissions regarding financial statements misconduct violations code conduct tone top failures results operations year ended december 31 2019 compared year ended december 31 2018 consolidated results following table presents results years ended december 31 2019 2018 dollars millions except per share data revenue year ended december 31 2019 revenue increased 1770 million 93 20726 million compared 18956 million year ended december 31 2018 revenues included 1184 million attributable recent acquisitions decrease approximately 503 million impact foreign currency translation year ended december 31 2019 compared year ended december 31 2018 excluding effects foreign currency translation recent acquisitions organic revenue nongaap measure increased 1089 million 57 gross profit gross profit year ended december 31 2019 9953 million resulting gross profit margin 480 compared 9000 million resulting gross profit margin 475 year ended december 31 2018 included gross profit various charges amortization acquisitionrelated intangible assets acquisitionrelated costs restructuring costs totaling 417 million 287 million years ended december 31 2019 2018 respectively excluding charges nongaap gross profit margin 500 490 years ended december 31 2019 2018 respectively gaap nongaap gross profit margin increased year ended december 31 2019 primarily due operational improvements within bsi life science segment accretive acquisitions favorable foreign currency translation effects selling general administrative selling general administrative expenses year ended december 31 2019 increased 5002 million 241 revenue 4447 million 235 revenue year ended december 31 2018 increase primarily caused addition recent acquisitions select investments strategic growth areas partially offset favorable foreign currency translation effects research development research development expenses year ended december 31 2019 increased 1877 million 91 revenue 1734 million 91 revenue year ended december 31 2018 dollar increase driven primarily addition recent acquisitions partially offset favorable foreign currency translation effects charges net charges net 65 million year ended december 31 2019 charges consisted primarily 39 million restructuring costs related closing facilities implementing outsourcing restructuring initiatives 46 million acquisitionrelated charges related acquisitions completed 2019 2018 37 million costs associated global transformation initiative 21 million related professional fees restructuring charges included gain sale building 77 million charges net 195 million year ended december 31 2018 charges consisted primarily 68 million restructuring costs related closing facilities implementing outsourcing restructuring initiatives 34 million acquisitionrelated charges related acquisitions completed 2018 2017 48 million costs associated global information technology transformation initiative 45 million related professional fees 2020 expect incur 100 150 million expense related various outsourcing initiatives restructuring activities implemented 2019 commence 2020 december 31 2019 2018 performed annual goodwill indefinitelived intangible impairment evaluation concluded fair values reporting units significantly greater carrying amounts therefore additional impairment required continue monitor goodwill longlived intangible assets well longlived tangible assets possible future impairment operating income operating income year ended december 31 2019 3009 million resulting operating margin 145 compared operating income 2624 million resulting operating margin 138 year ended december 31 2018 included operating income various charges amortization acquisitionrelated intangible assets acquisitionrelated costs restructuring costs totaling 631 million 555 million years ended december 31 2019 2018 respectively excluding charges nongaap operating margin 176 168 years ended december 31 2019 2018 respectively increase gaap nongaap operating margin due primarily volume operational improvements within bsi life science segment accretive acquisitions positive impact foreign currency translation interest income expense net interest income expense net year ended december 31 2019 205 million compared 177 million year ended december 31 2018 increase net interest expense 2019 primarily attributable higher outstanding debt balances 2019 compared 2018 marginally offset interest income new 2019 us dollartoeuro us dollar swiss franc interest rate crosscurrency swap agreements year ended december 31 2019 major components within interest income expense net interest expense 147 million realized unrealized losses foreign currency denominated transactions 33 million 25 million related pension plan expenses year ended december 31 2018 major components within interest income expense net interest expense 114 million realized unrealized losses foreign currency denominated transactions 30 million 39 million related pension plan expenses income tax provision income tax provision years ended december 31 2019 2018 824 million 637 million respectively representing effective tax rates 294 260 respectively increase effective tax rate year ended december 31 2019 compared 2018 primarily attributable benefit recorded 2018 associated reversal state foreign withholding taxes unremitted earnings recur 2019 additional tax reserves uncertain tax positions europe 2019 tax rate may change time amount mix jurisdictional income changes net income attributable noncontrolling interests redeemable noncontrolling interest net income attributable noncontrolling interests redeemable noncontrolling interest year ended december 31 2019 08 million compared 13 million year ended december 31 2018 net income attributable noncontrolling interests redeemable noncontrolling interest represented minority shareholders’ proportionate share net income recorded majorityowned indirect subsidiaries net income attributable bruker corporation net income attributable bruker corporation year ended december 31 2019 1972 million 126 per diluted share compared net income 1797 million 114 per diluted share 2018 increase compared prior year driven primarily revenue growth higher gross operating profit offset increase effective tax rate year ended december 31 2019 segment results revenue following table presents revenue change revenue growth reportable segment years ended december 31 2019 2018 dollars millions arepresents product service revenue reportable segments financial reporting purposes aggregate bruker biospin group bruker calid group bsi life science segment aggregation reflects similar economic characteristics production processes customer services provided types classes customers methods distribution regulatory environments bsi life science segment revenue increased 1060 million 12449 million year ended december 31 2019 compared 11389 million year ended december 31 2018 bruker biospin group revenue increase primarily due growth system revenue included revenue recognition three ghz class systems well aftermarket revenue small contribution recent software acquisitions increase bruker calid group revenue result continued strong demand life science mass spectrometry microbiology products growth molecular spectroscopy ftir nir products contributions acquisition bsi nano segment revenue increased 646 million 6327 million year ended december 31 2019 compared 5681 million year ended december 31 2018 revenue increase primarily result acquisitions well continued demand advanced xray nano analysis products partially offset sharp decline demand semiconductor metrology products unfavorable foreign currency translation best segment revenue increased 151 million 2099 million year ended december 31 2019 compared 1948 million year ended december 31 2018 increase revenue resulted primarily shipments superconductors healthcare applications offset part impact unfavorable foreign currency translation operating income following table presents operating income operating margins revenue reportable segment years ended december 31 2019 2018 dollars millions arepresents corporate costs eliminations allocated reportable segments operating margin expansion bsi life science best primarily due positive operating leverage higher sales mix operational improvements well favorable foreign currency translation bsi life science segment decline operating margin bsi nano segment due decline semiconductor metrology demand softness industrial research markets second half 2019 impact costs related recent acquisition year ended december 31 2018 compared year ended december 31 2017 consolidated results following table presents results years ended december 31 2018 2017 dollars millions except per share data revenue year ended december 31 2018 revenue increased 1297 million 73 18956 million compared 17659 million year ended december 31 2017 included revenue increase approximately 282 million attributable recent acquisitions increase approximately 255 million impact foreign currency translation caused weakening us dollar versus euro currencies excluding effects foreign currency translation recent acquisitions organic revenue nongaap measure increased 760 million 43 gross profit gross profit year ended december 31 2018 9000 million resulting gross profit margin 475 compared 8160 million resulting gross profit margin 462 year ended december 31 2017 included gross profit various charges amortization acquisitionrelated intangible assets acquisitionrelated costs restructuring costs totaling 287 million 361 million years ended december 31 2018 2017 respectively excluding charges nongaap gross profit margins 490 483 years ended december 31 2018 2017 respectively gaap nongaap gross profit margin increased year ended december 31 2018 due positive operating leverage higher sales volume favorable product mix partially offset unfavorable foreign currency translation effects selling general administrative selling general administrative expenses year ended december 31 2018 increased 4447 million 235 revenue 4152 million 235 revenue year ended december 31 2017 increase primarily caused effect recent acquisitions research development research development expenses year ended december 31 2018 increased 1734 million 91 revenue 1616 million 92 revenue year ended december 31 2017 increase primarily caused effect recent acquisitions charges net charges net 195 million year ended december 31 2018 charges consisted primarily 68 million restructuring costs related closing facilities implementing outsourcing restructuring initiatives 34 million acquisitionrelated charges related acquisitions completed 2018 2017 48 million costs associated global information technology transformation initiative 45 million related professional fees charges net 197 million year ended december 31 2017 charges consisted primarily 106 million restructuring costs related closing facilities implementing outsourcing restructuring initiatives 45 million related primarily additional contingent consideration recognized acquisition jordan valley semiconductors ltd jordan valley based upon increase revenue levels acquired business increased amount expected earn payments 42 million costs associated global transformation initiative impairment charges 02 million comprised longlived assets related restructuring actions operating income operating income year ended december 31 2018 2624 million resulting operating margin 138 compared income operations 2195 million resulting operating margin 124 year ended december 31 2017 operating margin expansion primarily due increased revenue favorable product mix well ongoing operational improvements partially offset negative foreign currency translation effects occurred primarily first half year included operating income various charges amortization acquisitionrelated intangible assets acquisitionrelated costs restructuring costs totaling 555 million 614 million years ended december 31 2018 2017 respectively excluding charges nongaap operating margin 168 159 years ended december 31 2018 2017 respectively gaap nongaap operating margin increased year ended december 31 2018 despite significant unfavorable foreign currency translation effects interest income expense net interest income expense net year ended december 31 2018 177 million compared 217 million year ended december 31 2017 year ended december 31 2018 major components within interest income expense net interest expense 114 million realized unrealized losses foreign currency denominated transactions 30 million 39 million related pension plan expenses year ended december 31 2017 major components within interest income expense net interest expense 146 million realized unrealized losses foreign currency denominated transactions 55 million 48 million related pension plan expenses partially offset 21 million proceeds cargo insurance settlement gain acquisition 06 million 2017 interest income expense net amounts revised reflect adoption asu 201707 related reclassification certain pension costs income tax provision income tax provision years ended december 31 2018 2017 637 million 1175 million respectively representing effective tax rates 260 594 respectively decrease effective tax rate year ended december 31 2018 compared 2017 primarily attributable absence us tax reform related charges 2017 tax rate may change time amount mix jurisdictional income changes net income attributable noncontrolling interests redeemable noncontrolling interest net income attributable noncontrolling interests redeemable noncontrolling interest year ended december 31 2018 13 million compared 17 million year ended december 31 2017 net income attributable bruker corporation net income attributable bruker corporation year ended december 31 2018 1797 million 114 per diluted share compared net income 786 million 049 per diluted share 2017 increase year ended december 31 2018 primarily driven higher revenues operational improvements absence us tax reform related charges incurred 2017 noted segment results revenue following table presents revenue change revenue growth reportable segment years ended december 31 2018 2017 dollars millions arepresents product service revenue reportable segments bsi life science segment revenue increased 680 million 11389 million year ended december 31 2018 compared 10709 million year ended december 31 2017 bruker biospin group revenue increase primarily attributable strong performance biopharma clinical research applied aftermarket businesses bruker calid group revenue increase primarily result strong performance microbiology life science mass spectrometry ftirnir molecular spectroscopy businesses together contributions recent microbiology diagnostics acquisitions strong performance mass spectrometry molecular spectroscopy businesses offset part decline revenue cbrne products bsi nano segment revenue increased 551 million 5681 million year ended december 31 2018 compared 5130 million year ended december 31 2017 revenue increase primarily driven solid performance academic industrial materials research markets xray nano surfaces nano analysis tools partially offset lower revenue semiconductor metrology markets bsi nano segment also benefited contributions recent acquisitions mainly anasys instruments jpk instruments best segment revenue increased 36 million 1948 million year ended december 31 2018 compared 1912 million year ended december 31 2017 modest increase revenue year ended december 31 2018 prior year due 50 million favorable foreign currency translation effect caused fluctuation us dollar versus euro operating income following table presents operating income operating margins revenue reportable segment years ended december 31 2018 2017 dollars millions arepresents corporate costs eliminations allocated reportable segments operating margin increased primarily gross profit operational improvements noted liquidity capital resources anticipate existing cash credit facilities sufficient support operating investing needs least next twelve months future cash requirements could affected acquisitions may complete repurchases common stock payment dividends future historically financed growth liquidity needs cash flow generation combination debt financings issuances common stock future assurances continue generate cash flow operations additional financing alternatives available us required available obtained terms favorable us year ended december 31 2019 net cash provided operating activities 2134 million resulting primarily consolidated net income adjusted noncash items 2879 million offset net decrease operating assets liabilities net acquisitions divestitures 745 million decrease operating assets liabilities net acquisitions divestitures year ended december 31 2019 primarily caused increase inventory build 2020 orders year ended december 31 2018 net cash provided operating activities 2397 million resulting primarily consolidated net income adjusted noncash items 2819 million offset net decrease operating assets liabilities net acquisitions divestitures 422 million decrease operating assets liabilities net acquisitions divestitures year ended december 31 2018 primarily caused increase accounts receivable caused proportionately higher sales late fourth quarter 2018 inventory build 2019 orders offset part cash received customer advances year ended december 31 2019 net cash used investing activities 1584 million compared net cash used investing activities 1234 million year ended december 31 2018 increase cash used investing activities year ended december 31 2019 primarily attributable net cash paid acquisitions 900 million net capital expenditures 620 million purchase shortterm investments 64 million year ended december 31 2018 net cash used investing activities 1234 million compared net cash used investing activities 302 million year ended december 31 2017 increase cash used investing activities year ended december 31 2018 primarily attributable net cash paid acquisitions 1916 million net capital expenditures 488 million activities offset part net cash proceeds shortterm investments 1170 million expect capital expenditures 2020 approximately 1000 million year ended december 31 2019 net cash provided financing activities 3000 million compared net cash used financing activities 1124 million year ended december 31 2018 cash provided financing activities year ended december 31 2019 primarily caused 5979 million new debt borrowings described offset part 3619 million repayments revolving lines credit cash uses 1423 million used repurchase common shares 250 million payment dividends 150 million repayment 2012 note purchase agreement cash sources borrowings 2506 million revolving lines credit 109 million proceeds issuance common stock connection stock option exercises december 11 2019 entered 1 new revolving credit agreement establish new revolving credit facility aggregate principal amount 600 million 2 term loan agreement establish new term loan facility aggregate principal amount 300 million 3 note purchase agreement issue sell chf 297 million aggregate principal amount 101 senior notes due december 11 2029 floating interest rates term loan simultaneously fixed crosscurrency interest rate swap agreements euro 150 million swiss franc 150 million rates carrying average effective interest rates 094 hedge net investment euro swiss franc denominated net assets new revolving credit agreement replaced 500 million fiveyear revolving credit agreement established october 27 2015 terminated december 11 2019 addition designated chf 297 million senior notes hedge net investment swiss franc denominated net assets proceeds financing used repay outstanding borrowings prior 2015 revolving credit facility intend use remaining proceeds general corporate purposes support corporate strategic objectives december 2019 entered us dollar euro crosscurrency swaps existing 2012 private placement notes 105 million 431 series 2012a senior notes tranche c due january 18 2022 existing 100 million 446 series 2012a senior notes tranche due january 18 2024 resulting average effective interest rate 225 instruments crosscurrency swaps hedge net investment euro denominated net assets result entering interest rate cross currency swap agreements reduced interest expense 06 million year ended december 31 2019 anticipate swap agreements lower net interest expense future years december 31 2019 entered several crosscurrency interest rate swap agreements notional value 150 million us dollar swiss franc notional value 355 million us dollar euro hedge variability movement foreign currency exchange rates portions euro swiss franc denominated net asset investments result entering agreements lowered net interest expense 06 million 2019 anticipate swap agreements lower net interest expense approximately 88 million 2020 88 million 2021 48 million 2022 year ended december 31 2018 net cash used financing activities 1124 million compared net cash used financing activities 1590 million year ended december 31 2017 cash used financing activities year ended december 31 2018 primarily caused 2181 million repayments revolving lines credit 251 million used payment dividends cash uses partially offset borrowings 1294 million revolving lines credit 94 million proceeds issuance common stock connection stock option exercises may 2019 board directors approved repurchase program repurchases common stock amount 3000 million authorized occur time amounts prices times deem appropriate subject market conditions legal requirements considerations 2019 repurchased 3323104 shares common stock aggregate cost approximately 1423 million 2019 repurchase program remaining authorization march 20 2020 1577 million intend fund additional repurchases cash hand future cash flows operations available borrowings revolving credit facility repurchased shares reflected within treasury stock accompanying consolidated balance sheet december 31 2019 cash equivalents shortterm investments december 31 2019 2018 totaled 6849 million 3224 million respectively 3011 million 2809 million respectively related cash equivalents shortterm investments held outside us foreign subsidiaries significantly netherlands switzerland december 31 2019 accordance 2017 tax act recorded state foreign withholding taxes well subsequent foreign currency translations withholding taxes obligation parent company cash liquid assets portion unremitted earnings profits ep foreign subsidiaries expected repatriated foreign subsidiaries united states continue indefinitely reinvested amount 477 million noncash ep subject 2017 tax act deemed repatriation ep ultimately distributed united states form dividends otherwise would likely subject additional withholding tax continue evaluate assertions cumulative historical outside basis differences foreign subsidiaries december 31 2019 amount unrecognized deferred withholding taxes undistributed ep 58 million december 31 2019 december 31 2019 approximately 388 million net operating loss carryforwards available reduce state taxable income expected expire various times beginning 2020 approximately 827 million net operating losses available reduce german federal income trade taxes carried forward indefinitely 132 million foreign net operating losses expected expire various times beginning 2020 also us state research development tax credits 77 million utilization credits state net operating losses may subject annual limitations due ownership percentage change limitations provided internal revenue code section 382 similar state provisions event deemed change control internal revenue code section 382 annual limitation utilization net operating losses credits may result expiration portion net operating loss credit carryforwards uncertain tax contingencies positions taken expected taken income tax return may result additional payments tax authorities tax authority agrees tax position taken expected taken applicable statute limitations expires additional payments necessary december 31 2019 2018 following debt outstanding dollars millions amount outstanding 2019 credit agreement december 31 2019 following summary maximum commitments net amounts available us 2019 credit agreement lines credit various financial institutions located primarily germany switzerland unsecured typically due upon demand interest payable monthly december 31 2019 dollars millions december 31 2019 compliance covenants defined 2012 note purchase agreement 2019 credit agreement 2019 note purchase agreement 2019 term loan following table summarizes maturities significant financial obligations december 31 2019 dollars millions 1 unconditional purchase commitments include agreements purchase goods services fixed assets enforceable legally binding specify significant terms including fixed minimum quantities purchased fixed minimum variable price provisions approximate timing transaction purchase commitments exclude agreements cancellable time without penalty 2 acquisitionrelated contingent considerations represents estimated fair value future payments former shareholders applicable acquired companies based achieving annual revenue gross margin targets certain years specified purchase sale agreements critical accounting policies estimates discussion analysis financial condition results operations based upon consolidated financial statements prepared accordance accounting principles generally accepted united states america us gaap preparation financial statements requires make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments including related revenue recognition stockbased compensation expense restructuring related charges income taxes including recoverability deferred tax assets allowances doubtful accounts inventory reductions excess obsolete inventories estimated fair values longlived assets used measure recoverability longlived assets intangible assets goodwill expected future cash flows used measure recoverability intangible assets longlived assets warranty costs derivative financial instruments contingent liabilities base estimates judgments historical experience current market economic conditions industry trends assumptions believe reasonable form basis making judgments carrying value assets liabilities readily apparent sources actual results could differ estimates believe following critical accounting policies estimates important portrayal financial position results operations require estimation subjective judgment revenue recognition 2019 2018 policy asc 606 recognize revenue accordance accounting standards codification 606 revenue contracts customers asc 606 key elements asc 606 1 identifying contract customer 2 identifying performance obligations contract 3 determining transaction price 4 allocating transaction price performance obligations contract 5 recognizing revenue performance obligation satisfied recognize revenue systems sales upon transfer control amount reflects consideration expect receive transfer control generally occurs upon shipment certain systems based upon customer acceptance system delivered installed customer facility systems include customerspecific acceptance criteria required assess demonstrate acceptance criteria met generally upon successful factory acceptance testing customer acceptance evidence installation systems require installation system revenue recognized upon shipment standalone selling price installation deferred customer acceptance products sold independent distributor strategic distribution partner recognize system sale upon transfer control typically shipment responsible installation standalone selling price installation deferred customer acceptance distributors price protection rights return however products typically warranted free defect period one year contracts include multiple performance obligations transaction price allocated distinct performance obligation based relative standalone selling prices goods services provided customer best evidence standalone selling price normal selling pricing discounting practices specific product service sold standalone basis alternatively may determine standalone selling price using expected cost plus margin approach analyze selling prices used allocation transaction price minimum annual basis selling prices analyzed frequently significant change business factors necessitate frequent analysis experience significant variances selling prices revenue accessories parts generally recognized based shipment service revenue recognized services performed ratably contractual obligation includes maintenance contracts extended warranties training application support ondemand services performance obligations recognized time revenue measured progress toward completion performance obligation reflects transfer control particular certain contracts recognized time apply costtocost method based costs incurred date relative total estimated costs contract upon completion application costtocost method requires us make reasonable estimates extent progress toward completion total costs incur losses recorded immediately estimate contracts ultimately result loss changes estimates could affect timing revenue recognition include costs incurred connection shipping handling products within selling general administrative costs amounts billed customers connection costs included total revenues control goods transfers prior completion obligation ship products customers elected practical expedient account shipping services fulfillment cost expense incremental costs obtaining contract incurred expected amortization period one year less amount immaterial exclude transaction price taxes assessed governmental authority revenueproducing transactions collected us customer require advance deposit based terms conditions contracts customers many contracts typically revenue recognized within one year receiving advance deposit material payment terms extend beyond one year contracts advance payment received greater one year expected revenue recognition portion payment due extends beyond one year determined constitute significant financing component minimal variable consideration included transaction price contracts revenues primarily comprised development arrangements recognized costplusfixedfee basis licensing arrangements recognized either licenses provided ratably contract term depending nature arrangement contract assets liabilities contract assets represent unbilled receivables revenue recognized exceeds amount billed customer right payment subject passage time contract assets typically result system revenue recorded portion transaction price billable future event customer acceptance contracts recognized costtocost costplusfixedfee basis revenue exceeds amount billed customer amounts may exceed net realizable value contract assets generally classified current contract liabilities consist customer advances deferred revenue billings excess revenue contracts recognized costtocost costplusfixedfee basis contract liabilities classified current longterm based timing expect recognize revenue contract assets liabilities reported net position contractbycontract basis end reporting period 2017 policy asc 605 recognize revenue system sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectability resulting receivable reasonably assured title risk loss generally transfers upon shipment certain systems based upon customer acceptance system delivered customer installed customer facility systems include customerspecific acceptance criteria required assess demonstrate acceptance criteria met generally upon successful factory acceptance testing customer acceptance evidence installation products sold independent distributor strategic distribution partner assumes responsibility installation recognize system sale product shipped title risk loss transferred distributor distributors price protection rights return however products typically warranted free defect period one year revenue deferred cash received collectability reasonably assured price fixed determinable transactions include multiple elements arrangement consideration allocated element using fair value hierarchy required asu 200913 limit amount revenue recognized delivered elements amount contingent future delivery products services future performance obligations subject customerspecific return refund privileges determine fair value products services based upon vendor specific objective evidence vsoe determine vsoe based normal selling pricing discounting practices specific product service sold standalone basis determining vsoe policy requires substantial majority selling prices product service within reasonably narrow range also consider class customer method distribution geographies products services sold determining vsoe cannot established attempt establish selling price based thirdparty evidence tpe vsoe cannot established instances product service sold separately standalone sales infrequent product pricing within sufficiently narrow range tpe determined based competitor prices similar deliverables sold separately cannot determine vsoe tpe use estimated selling price esp allocation arrangement consideration objective esp determine price would typically transact standalone sale product service esp determined considering number factors including pricing policies internal costs gross profit objectives method distribution market research information recent technological trends competitive landscape geographies analyze selling prices used allocation arrangement consideration minimum annual basis selling prices analyzed frequently significant change business occurs factors necessitate frequent analysis experience significant variances selling prices revenue accessories consumable parts generally recognized upon shipping terms service revenue recognized services performed ratably contractual obligation includes maintenance contracts extended warranty training application support ondemand services also contracts apply percentageofcompletion model completed contract model revenue recognition application percentageofcompletion method requires us make reasonable estimates extent progress toward completion contract total costs incur contract losses recorded immediately estimate contracts ultimately result loss changes estimates could affect timing revenue recognition revenues primarily comprised development arrangements recognized costplusfixedfee basis licensing arrangements recognized ratably term related contracts income taxes determination income tax expense requires us make certain estimates judgments concerning annual effective tax rate calculation deferred tax assets liabilities forecasted profitability subsidiaries certain geographic jurisdictions well deductions carryforwards credits available reduce taxable income deferred tax assets liabilities arise differences timing recognition revenue expenses financial statement tax purposes deferred tax assets liabilities measured using tax rates effect year temporary differences expected settled estimate degree tax assets loss carryforwards result benefit based expected profitability tax jurisdiction provide valuation allowance tax assets loss carryforwards believe likely go unused becomes likely tax asset loss carryforward used valuation allowance provided reverse related valuation allowance actual future taxable income tax jurisdiction differs estimates additional allowances reversals valuation allowance may necessary addition recognize benefits tax positions believe likely sustained upon review taxing authority knowledge relevant information reevaluate uncertain tax positions quarterly basis changes positions result tax audits tax laws facts circumstances could result additional charges credits operations expiration statutes limitations affecting estimates made uncertain tax positions cause higher earnings december 22 2017 enactment date president united states signed tax reform legislation 2017 tax act enacted wide range changes us corporate income tax system many differ significantly provisions previous us tax law completed assessment tax effects associated enactment 2017 tax act changes tax rates laws accounted period enactment inventories stated lower cost net realizable value costs determined firstin firstout method majority subsidiaries average cost certain subsidiaries record provisions account excess obsolete inventory reflect expected nonsaleable nonrefundable inventory based evaluation slow moving products longer offered sale inventories also include demonstration units located demonstration laboratories installed sites potential customers consider demonstration units available sale history selling demonstration units reduce carrying value demonstration inventories differences cost estimated net realizable value taking consideration usage preceding twelve months expected demand technological obsolescence information including physical condition unit ultimate usage demand varies significantly expected usage demand additional writedowns may required resulting additional charges operations goodwill intangible assets longlived assets evaluate goodwill indefinite lived intangible assets impairment annually events occur circumstances change test goodwill impairment reporting unit level operating segment one level operating segment us gaap option performing qualitative assessment determine whether impairment testing necessary performing twostep quantitative assessment qualitative assessment requires significant judgments macroeconomic conditions including entity’s operating environment industry market considerations entityspecific events related financial performance loss key personnel events could impact reporting unit result qualitative assessment morelikelythannot fair value reporting unit less carrying amount quantitative impairment test required otherwise testing required quantitative impairment test performed first step involves comparing fair values applicable reporting units aggregate carrying values including goodwill generally determine fair value reporting units using weighting market approach income approach methodologies income approach valuation methodology includes discounted cash flow estimates estimating fair value reporting units requires significant judgment future cash flows carrying amount reporting unit exceeds fair value reporting unit perform second step goodwill impairment test measure amount impairment second step goodwill impairment test compare implied fair value reporting unit’s goodwill carrying value goodwill december 31 2019 performed annual goodwill indefinitelived intangible impairment evaluation using qualitative quantitative impairment test concluded fair values reporting units significantly greater carrying amounts therefore additional impairment required also review definitelived intangible assets longlived assets indications potential impairment exist fair value longlived assets decline reduced operating performance market declines indicators impairment charge operations impairment may necessary business combinations account business combinations acquisition method accounting accordingly date acquisition measure fair value identifiable assets acquired including intangible assets liabilities assumed remaining noncontrolling interests allocates amounts paid items measured fair value identifiable intangible assets acquired based valuations use information assumptions determined management consider management’s best estimates inputs assumptions market participant would use recent accounting pronouncements information regarding recent accounting standard changes developments incorporated reference part ii item 8 financial statements supplementary data document considered integral part item 7 see note 23 notes consolidated financial statements recently adopted issued accounting standards item 7aitem 7 managements discussion analysis financial condition results operations read following discussion analysis financial condition results operations together selected financial data financial statements related notes appearing elsewhere report discussion analysis contains forwardlooking statements involve risks uncertainties assumptions actual results may differ materially anticipated forwardlooking statements result many factors including limited set forth factors affecting business operating results financial condition elsewhere report overview leading developer provider innovative life science tools based mass spectrometry also worldwide leader supplying mass spectrometrybased systems substance detection pathogen identification security defense applications maintain technical centers europe north america japan well customer support facilities many industrialized developing countries allocate substantial capital resources research development party various collaborations strategic alliances diverse customer base includes pharmaceutical companies biotechnology companies proteomic companies academic institutions government agencies effective december 21 1998 bruker daltonics inc acquired shares bruker daltonik gmbh 54 million transaction represented exchange entities common control accordingly assets acquired liabilities assumed accounted historical cost manner similar poolingofinterests accounting addition periods presented restated reflect businesses combined basis acquisitions december 1999 acquired 49 interest proteigene inc delaware corporation related party proteigene biomarker research development company specializing application mass spectrometry bioinformatics medical microbiology cell tissue analysis acquisition cost 50000 cash estimated fair market value accounted purchase march 2000 acquired remaining 51 interest proteigene 26000 unrelated party june 1999 purchased assets viking instruments corporation developer manufacturer transportable gas chromatrograph mass spectrometers instruments used laboratory field analysis soil air water identification quantification wide variety organic compounds pollutants acquisition cost 150000 results operations included accompanying consolidated financial statements date acquisition connection acquisition 100000 expensed purchased inprocess research development 25000 allocated core technology classified intangible 20000 allocated inventory 5000 allocated fixed assets amortization period five years intangibles three five years fixed assets 100000 inprocess research development attributed viking 573 transportable gas chromatrograph mass spectrometer supported discounted probable cash flow analysis projectbyproject basis modified reflect stage completion inprocess research development expenditures june 22 1999 feasibility acquired technology established acquired technology future alternative uses connection viking 573 project invested additional 313000 operational cash flows december 31 1999 shipped first unit december 1999 accepted customer january 2000 discontinued operations 1999 decided dispose analytical infrared sales group march 2000 completed divestiture related party bruker optik gmbh without gain loss former analytical infrared sales group sold serviced instruments manufactured us germany infrared sales group generated revenues 27 million fiscal 1999 amounts previously reported reclassified discontinued operations included discussion significant accounting policies customer deposits terms conditions contracts many customers require portion purchase price form advance deposit record deposit amounts liability associated revenue recognized time acceptance system revenue recognition recognize revenue system sales including hardware embedded software product accepted customer except sold independent distributor strategic distribution partner unconsolidated bruker affiliated distributor assumes responsibility installation case system sale recognized products shipped distributor title transferred distributor distributors price protection rights return however products warranted free defect period typically one year revenue accessories parts recognized upon shipment revenue services performed cost product revenue cost product revenue includes direct materials direct labor benefits indirect costs related generating revenue indirect costs include indirect labor materials supplies equipment rental depreciation production equipment test equipment facilities related production space revenue sales marketing sales marketing expenses include salaries sales commissions benefits travel occupancy costs related expenses direct sales force sales support marketing functions expanded sales marketing organization substantially since 1997 adding subsidiaries sales representatives china france japan scandinavia switzerland united kingdom canada italy taiwan sales marketing expenses also include costs associated supporting distribution channel partners timeofflight ion trap mass spectrometry products expect sales marketing expenses continue increase future expand global distribution capabilities introduce new products general administrative general administrative expenses include salaries benefits expenses executive finance legal human resources internal systems support personnel addition general administrative expenses include occupancy costs fees professional services depreciation office equipment expect general administrative expenses increase continue expand administrative infrastructure support anticipated growth business including costs associated public company research development research development expenses include costs development new technologies products expenses include materials salaries benefits occupancy costs related expenses development personnel expense research development costs incurred expect increase spending research development order develop new products applications patent litigation costs patent litigation costs include actual estimated legal fees anticipated assessments associated litigation connection intellectual property particularly finnigan litigation costs may increase depending upon outcome current legal proceedings results operations following table sets forth certain items included results operations three years ended december 31 1998 1999 2000 expressed percentage net revenue periods year ended december 31 2000 compared year ended december 31 1999 product revenue total product revenue increased 142 million 233 748 million 2000 compared 606 million 1999 topline product revenue growth rate year approximately 39 unfavorable currency effects due particular weakness european currencies throughout year life science product revenue substance detection pathogen identification product revenue percentage product revenue approximately 66 22 respectively 2000 compared 54 46 respectively 1999 increase product revenue 2000 fueled continuing strong demand life science products various product lines new existing customers revenue decreased 22 million 551 18 million 2000 compared 41 million 1999 decrease due completion certain projects earlystage research development funded grants german government advanced technology program national institute standards technologies united states historically obtained significant funding grant awards earlystage research development activity anticipate funding significantly reduced future cost product revenue including provision loss contract cost product revenue increased 40 million 126 356 million 2000 compared 316 million 1999 cost product revenue percentage product revenue 476 2000 compared 522 1999 decrease due combination greater revenues new life science products lower cost increased efficiencies manufacturing operations lower material costs driven increase volume discounts fourth quarter 2000 took 11 million special charge unprofitable contract within substance detection pathogen identification business made considerable design changes systems delivered contract increased cost contract expected completed near end 2001 sales marketing sales marketing expenses increased 25 217 138 million 2000 compared 113 million 1999 dollar increase due higher sales commissions earned direct sales force result increase number units sold addition new distribution subsidiaries operation 1999 sales marketing expenses percentage product revenues 185 2000 187 1999 general administrative general administrative expenses increased 16 million 483 51 million 2000 compared 34 million 1999 percentage product revenues general administrative expenses 68 2000 56 1999 increase relates certain noncash charges compensation expense related stock option grants well various costs related public company research development research development expenses increased 49 million 323 200 million 2000 compared 151 million 1999 percentage product revenues research development expenses increased 268 2000 250 1999 dollar increase 2000 due increased staffing related personnel costs well late stage testing costs incurred new products scheduled introduction early 2001 investing heavily proteomics lifescience systems integration general expect introduce several new products early march 2001 well second half year patent litigation costs patent litigation costs 303000 2000 increase reflects revised estimate legal costs associated intellectual property litigation reflects estimated assessments related ongoing litigation interest income expenses net interest income net 16 million 2000 compared interest expense net 777000 1999 difference due interest income earned additional funding raised equity offering third quarter 2000 payoff outstanding shortterm lines credit united states germany income discontinued operations net income taxes income discontinued operations net income taxes decreased 189000 508 184000 2000 compared 373000 1999 income discontinued operations related disposal infrared sales group early 2000 provision income taxes provision income taxes 254000 2000 compared 987000 1999 effective tax rate 2000 109 reflected blended tax rate various countries operate reduction valuation allowance united states result future anticipated earnings benefit revaluation net deferred tax liabilities result reduction enacted tax rates germany effective tax rate 1999 529 reflected blended tax rate various countries operate benefits utilization tax loss carryforwards germany increase valuation allowance united states associated tax loss carryforwards year ended december 31 1999 compared year ended december 31 1998 product revenue total product revenue increased 205 million 510 606 million 1999 compared 402 million 1998 product revenue via affiliated distributors increased 503000 51 103 million 1999 compared 98 million 1998 life science product revenue substance detection pathogen identification product revenue percentage net revenue 506 431 respectively 1999 compared 421 530 respectively 1998 increase product revenue 1999 fueled strong demand life science products new existing customers led fourier transform mass spectrometry maldi timeofflight esquire product lines additionally 81 million 1999 substance detection pathogen identification product revenue due completion large nonrecurring contract revenue increased 20 million 986 41 million 1999 compared 20 million 1998 increase due additional grant funding early stage research development german government advanced technology program national institute standards technologies united states cost product revenue cost product revenue increased 119 million 607 316 million 1999 compared 197 million 1998 cost product revenue percentage product revenue 522 1999 compared 490 1998 increase percentage product revenue due lower revenue substance detection pathogen identification product historically lower cost product revenue life science products additionally increased manufacturing capacity meet future projected product sales growth increased capacity adverse effect cost product anticipate improved leverage fixed manufacturing costs declines cost product revenue percentage sales product revenue increases also seeking improve gross margin developing new integrated systems higher margin consumables life science market sales marketing sales marketing expenses increased 39 million 526 113 million 1999 compared 74 million 1998 percentage net revenues sales marketing expenses remained relatively consistent dollar increase due sales commissions bonuses earned direct sales force result increase number units sold expansion global distribution capabilities dollar increase also due increase sales personnel associated recruiting training travel commissions office space costs necessary support larger sales organization general administrative general administrative expenses increased 12 million 542 34 million 1999 compared 22 million 1998 dollar increases due increased staffing personnel related costs incurred manage support growth costs associated incorporation foreign subsidiary offices percentage net revenues general administrative expenses remained relatively consistent research development research development expenses increased 21 million 160 151 million 1999 compared 130 million 1998 percentage net revenues research development decreased 234 compared 309 dollar increase 1999 due increased staffing related personnel costs incurred late stage testing new product introductions including apex iii biotof ii esquire3000 map ii8 omniflex march 2000 increased expenses represented lower percentage revenue due significant increase revenues fiscal 1999 patent litigation costs patent litigation costs 538000 1999 increase reflects revised estimate legal costs associated intellectual property litigation interest expense net interest expense increased 6000 07 907000 1999 compared 901000 1998 interest expense result long shortterm borrowings banks united states germany income discontinued operations net income taxes income discontinued operations net income taxes decreased 10000 26 373000 1999 compared 383000 1998 income discontinued operations related disposal infrared sales group march 2000 information concerning provision income taxes well information regarding differences effective tax rates statutory rates see note 6 notes consolidated financial statements liquidity capital resources presently anticipate existing capital resources including approximately 110 million net proceeds received equity offering third quarter 2000 meet operating investing needs least end 2001 historically financed growth combination cash provided operations debt financing issuance common stock utilized proceeds initial public offering repay shortterm debt amount approximately 5 million general working capital 2000 net cash used operating activities 202000 net cash provided operating activities 1999 58 million net cash used 64 million 1998 used 53 million cash year capital expenditures 44 1999 29 1998 capital expenditures made improve productivity expand manufacturing capacity expect continue make capital investments focused enhancing efficiency operations supporting growth also 2001 planning expanding research development manufacturing facilities infrastructure massachusetts bremen germany december 31 2000 available 25 million revolving line credit bank united states december 31 2000 amounts outstanding line secured portions inventory receivables equipment united states used provide working capital expires july 31 2001 also maintain revolving lines credit approximately 77 million german banks december 31 2000 amounts outstanding german lines credit unsecured future capital uses requirements depend numerous factors including success selling existing products progress research development ability introduce sell new products sales marketing expenses need expand production capacity costs associated possible acquisitions expenses associated unforeseen litigation regulatory changes competition technological developments market inflation believe inflation material impact business operating results periods presented recent accounting pronouncements june 1998 financial accounting standards board fasb issued statement financial accounting standards 133 accounting derivative instruments hedging activities sfas 133 establishes accounting reporting standards derivative instruments including certain derivative instruments embedded contracts hedging activities requires entity recognize derivatives either assets liabilities statement financial position measure instruments fair value july 1999 fasb issued statement financial accounting standards 137 accounting derivative instruments hedging activitiesdeferral effective date fasb statement 133 sfas 137 sfas 137 deferred effective date sfas 133 first fiscal year beginning june 15 2000 adopt standard january 2001 management believes sfas 133 material effect financial position results operations company impact foreign currencies sell products many countries substantial portion sales portion costs expenses denominated foreign currencies especially euro historically realized foreign exchange gains losses material accordingly hedged foreign currency position past however expand sales internationally plan evaluate currency risks may enter foreign exchange contracts time mitigate foreign currency exposure quantitative qualitative disclosures market risk part information called item provided caption liquidity capital resources impact foreign currencies item 7 managements discussion analysis financial condition results operations company use derivative financial instruments trading speculative purposes however company regularly invests excess cash overnight repurchase agreements interestbearing investmentgrade securities shortterm partnership funds subject changes shortterm interest rates company believes market risk arising holding financial instruments minimal companys exposure market risks associated changes interest rates relates primarily increase decrease amount interest income earned investment portfolio since companys longterm debt fixed rate company ensures safety preservation invested funds limiting default risks market risk reinvestment risk company mitigates default risk investing investment grade securities hypothetical 100 basis point adverse move interest rates along entire interest rate yield curve would materially affect fair value companys interest sensitive financial instruments december 31 2000 declines interest rates time however reduce companys interest income factors affecting business operating results financial condition following risk factors considered conjunction information included report may include forwardlooking statements involve risks uncertainties addition risk factors discussed elsewhere report identify following risk factors could affect actual results cause actual results differ materially forwardlooking statements products fail achieve sustain sufficient market acceptance across broad intended range applications life sciences generate expected revenue business strategy depends ability successfully commercialize broad range products based mass spectrometry use variety life science applications recently commercially launched many current products sale markets many products achieved limited sales commercial success life science products depends obtaining continued expanding market acceptance mass spectrometry tools pharmaceutical biotechnology companies academic government research laboratories across wide range applications covered product offerings may fail achieve sustain substantial market acceptance products across full range intended life science applications one principal intended life science applications failure could decrease sales revenue succeed must convince substantial numbers pharmaceutical biotechnology companies laboratories replace existing techniques mass spectrometry techniques employing systems limited funding available capital acquisitions customers well customers internal purchasing approval policies could hinder market acceptance products intended life science customers may reluctant make substantial capital investment generally needed acquire products incur training costs involved replacing existing systems products also may able convince intended life science customers systems attractive costeffective alternative technologies systems acquisition analysis management molecular information factors products may fail gain sustain market acceptance products compete markets subject rapid technological change products based range mass spectrometry technologies one could made obsolete new technology market life science discovery tools characterized rapid technological change frequent new product introductions rapidly changing technology could make life science product lines obsolete unless able continually improve existing products develop new products substantially life science products based mass spectrometry particularly vulnerable technological advances would make mass spectrometry obsolete basis bioanalytical systems life science markets meet evolving needs customers must rapidly continually enhance current planned products services develop introduce new products services business model calls us derive significant portion revenues year products exist previous year however may experience difficulties may delay prevent successful development introduction marketing new products product enhancements addition product lines based complex technologies subject rapid change new technologies developed introduced marketplace may difficulty keeping abreast rapid changes affecting different markets serve intend serve fail develop introduce products timely manner response changing technology market demands requirements customers product sales may decline could experience significant losses offer plan offer broad product line incurred expect continue incur substantial expenses development new products enhanced versions existing products speed technological change life science markets may prevent us able successfully market products length time required recover often significant development costs failure recover development costs one products product lines could decrease profitability cause us experience significant losses furthermore failure develop successful products capitalize research development investment would negatively influence profits financial position face substantial competition market life science products face substantial competition major competitors including competitors offer mass spectrometrybased systems along product lines competitors offer technology alternatives mass spectrometry expect competition life science markets increase significantly biotechnology pharmaceutical companies adopt automated highthroughput bioanalytical instruments tools drug discovery drug development proteomics genomics metabolomics currently principal competition comes established companies providing products using existing technologies including mass spectrometry technologies perform many functions market products addition companies may choose enter field future competitors may develop market products effective commercially attractive current future products may render products obsolete many competitors experience life sciences market substantially greater financial operational marketing technical resources could give competitive edge areas research development production marketing distribution ability compete successfully depend part ability develop proprietary products reach market timely manner technologically superior less expensive costeffective currently marketed products success depends ability operate without infringing misappropriating proprietary rights others commercial success depends avoiding infringement parties valid patents proprietary rights well breach licenses relating technologies products various thirdparty patents may relate technology may found future infringe patents proprietary rights third parties either products currently marketing developing new products may develop future described german court found sales ion trap mass spectrometers germany infringe european patents held competitor third party holding rights patent successfully asserts infringement claim respect current future products may prevented manufacturing marketing infringing product country countries covered patent infringe unless obtain license patent holder may able obtain license commercially reasonable terms especially patent holder competitor addition even obtain license may nonexclusive permit others practice technology licensed us may also required pay substantial damages patent holder certain circumstances united states damages may include damages equal triple actual damages experienced patent holder supplied infringing products third parties marketing licensed third parties manufacture use market infringing products may obligated indemnify third parties damages required pay patent holder losses third parties may sustain result lost sales license payments required make patent holder successful infringement action brought us may also adversely affect marketing infringing product markets covered infringement action well marketing products based similar technology furthermore suffer adverse consequences successful infringement action us even action subsequently reversed appeal nullified another action resolved settlement patent holder damages remedies awarded may significant result successful infringement action us could prevent us selling products cause us experience significant losses currently involved several legal actions concerning technology ion trap mass spectrometry competitor various affiliates competitor german court decided infringed two european patents competitor involved several years various litigation proceedings competitor finnigan corporation affiliates regarding possible infringement us patents finnigan concerning technology ion trap mass spectrometry systems finnigan subsidiary thermoquest corporation turn subsidiary thermo electron corporation various claims currently heard united states international trade commission court appeals federal circuit pending united states district court district massachusetts various german courts addition filed various infringement antitrust actions finnigan affiliates 1998 1999 2000 total worldwide sales ion trap mass spectrometry products constituted 50 million 82 million 126 million respectively march 2000 german court decided infringed two finnigan patents selling ion trap mass spectrometer products germany result enjoined selling ion trap mass spectrometer products germany also required pay damages expenses finnigan amounts determined german court proceedings 2000 german sales ion trap mass spectrometry products approximately 24 million finnigan seeking enforce european patents us agilent technologies company jointly produce develop ion trap mass spectrometers proceedings germany could prevent us distributing delivering ion trap mass spectrometry products united kingdom france sweden switzerland similar patents issue separate litigation cases brought finnigan massachusetts finnigan may also seek show committed infringement elsewhere found infringe patents finnigan affiliates proceedings may liable monetary damages could required obtain licenses commercialize products redesign products infringe patents unable prove invalidity finnigan patents obtain license adopt noninfringing product design could prevented selling ion trap mass spectrometry products may also indemnification obligation agilent pursuant collaboration agreement circumstances ion trap business would develop contemplated results would materially suffer information litigation finnigan affiliates please see businesslegal proceedings may involved lawsuits protect enforce patents brought us would expensive timeconsuming order protect enforce patent rights may initiate patent litigation third parties may also become subject interference proceedings conducted patent trademark offices various countries determine priority inventions defense prosecution necessary intellectual property suits interference proceedings related legal administrative proceedings costly diverts technical management personnel normal responsibilities may prevail suits adverse determination litigation defense proceedings could put patents risk invalidated interpreted narrowly could put patent applications risk issuing furthermore substantial amount discovery required connection intellectual property litigation risk confidential information could compromised disclosure type litigation example course kind litigation could public announcements results hearings motions interim proceedings developments litigation securities analysts investors perceive results negative could substantial negative effect trading price stock unable effectively protect intellectual property third parties may use technology would impair ability compete markets continued success depend significant part ability obtain maintain meaningful patent protection products throughout world rely patents protect significant part intellectual property enhance competitive position however presently pending future patent applications may issue patents patent previously issued us may challenged invalidated held unenforceable circumvented furthermore claims patents issued may issued us future may sufficiently broad prevent third parties producing competing products similar products addition laws various foreign countries compete may protect intellectual property extent laws united states failure obtain adequate patent protection proprietary technology could materially impair ability commercially competitive addition patent protection also rely protection trade secrets knowhow confidential proprietary information maintain confidentiality trade secrets proprietary information generally seek enter confidentiality agreements employees consultants strategic partners upon commencement relationship us however may obtain agreements circumstances event unauthorized use disclosure information agreements even obtained may provide meaningful protection trade secrets confidential information addition adequate remedies may exist event unauthorized use disclosure information loss exposure trade secrets proprietary information would impair competitive advantages could material adverse affect operating results financial condition future growth prospects furthermore others may future independently develop substantially similar superior knowhow technology agreed share name portions intellectual property rights distribution channels entities common control could result loss name lock price products may sell entities may best price available products maintain sharing agreement 13 affiliated entities requires us share portions intellectual property existed february 28 2000 distribution channels affiliated companies affiliates also share bruker name many affiliates could lose right use bruker name declare bankruptcy b interfere another partys use name c take material action materially detracts goodwill associated name suffer major loss reputation industry marketplace loss bruker name could result loss goodwill brand loyalty sales products addition agreed maintain price products purchased sold affiliates period twelve years subject yearly adjustments equal increase consumer price index manufacture sale products could lead product liability claims could substantial liability manufacture sale products exposes us product liability claims products cause injury found otherwise unsuitable manufacturing marketing sale customer use successful product liability claim brought us excess outside coverage insurance coverage could material adverse effect business financial situation results operations may able maintain product liability insurance acceptable terms insurance may provide adequate coverage potential liabilities business could harmed collaborations fail advance product development demand products depend part upon extent collaborations pharmaceutical biotechnology companies successful developing helping us develop new products new applications existing products addition collaborate academic institutions product development limited control resources collaborator may devote products present future collaborators may perform obligations expected fail enter maintain appropriate collaboration agreements events occur may able develop new products could materially impede ability generate revenue lose strategic partners could impair marketing efforts substantial portion sales selected products consists sales third parties incorporate products systems third parties responsible marketing sales systems little control marketing sales activities use resources present future strategic partners may purchase sufficient quantities products us perform appropriate marketing sales activities failures present future strategic partners inability maintain enter new arrangements strategic partners product distribution could materially impede growth business ability generate sufficient revenue reduction capital resources government funding customers could reduce sales impede ability generate revenue significant portion sales capital purchases customers spending policies customers could significant effect demand products policies based wide variety factors including resources available make purchases spending priorities among various types equipment policies regarding spending recessionary periods changes political climate changes capital spending changes capital budgets customers could significantly reduce demand products capital resources biotechnology corporate customers may limited availability equity debt financing significant decline research development expenditures life science customers could significantly decrease sales addition make substantial portion sales nonprofit government entities dependent government support scientific research decline support could decrease ability customers purchase products general health care spending patterns decline ability generate revenue may suffer dependent directly indirectly upon general health care spending patterns particularly research development budgets pharmaceutical biotechnology industries well upon financial condition various governments government agencies since inception academic collaborators benefited various governmental contracts research grants whether academic collaborators continue able attract grants depends quality products also general spending patterns public institutions exists risk potential decrease level governmental spending allocated scientific medical research could substantially reduce even eliminate grants status public company likely eliminate ability obtain research grants german government future german government focuses funding small private companies limited access capital may able expand sales service staff meet demand products services need expand direct marketing sales force well service support staff future revenue profitability depend ability expand team marketing service personnel products technical nature believe marketing sales support staff must scientific technical expertise experience competition employees skills intense may able continue attract retain sufficient qualified sales service people may able grow maintain efficient effective sales marketing support department fail continue attract retain qualified people business could suffer plan significant growth risk able manage growth success depend expansion operations effective growth management place increased demands management operational financial resources manage growth must expand facilities augment operational financial management systems hire train additional qualified personnel failure manage growth effectively could impair ability generate revenue could cause expenses increase rapidly revenue resulting operating losses addition risks applicable life science products substance detection pathogen identification products subject number additional risks including lengthy product development contract negotiation periods certain risks inherent longterm government contracts substance detection pathogen identification products subject many risks associated life science products including vulnerability rapid technological change dependence mass spectrometry technology substantial competition addition substance detection pathogen identification products generally sold government agencies longterm contracts generally involve lengthy precontract negotiations product development may required devote substantial working capital resources prior obtaining product orders result may incur substantial costs recognize revenue products moreover return larger longerterm contracts customers products often demand stringent acceptance criteria may also cause delay ability recognize revenue sales products furthermore may able accurately predict advance costs fulfill obligations longterm contracts fail accurately predict costs due inflation factors could incur significant losses single longterm contract substance detection pathogen identification products may represent material portion total business volume loss contract could material adverse effect results operations march 2000 completed production contract united states government accounted 12 13 net revenue 1998 1999 respectively failure increase business obtain another government contract one would cause revenue decline also presence absence contracts may cause substantial variation results operations fiscal periods result results operations given fiscal period may predictive results subsequent fiscal periods resulting uncertainty may adverse impact stock price subject existing potential additional regulation impose burdens operations narrow markets products subject directly indirectly adverse impact existing potential future government regulation operations markets example exportation products particularly substance detection pathogen identification products subject strict regulatory control number jurisdictions failure satisfy export control criteria obtain necessary clearances could delay prevent shipment products could adversely affect revenues profitability moreover life sciences industry market principal products historically heavily regulated example laws several jurisdictions restricting research genetic engineering operate narrow markets given evolving nature industry legislative bodies regulatory authorities may adopt additional regulation adversely affects market opportunities additionally ethical concerns surrounding use genetic information gene therapy genetically modified organisms become widespread may less demand products business also directly affected wide variety government regulations applicable business enterprises generally companies operating life sciences industry particular failure comply regulations obtain maintain necessary permits licenses could result variety fines censures interruption business operations may negative impact ability generate revenues dependent upon various key personnel must recruit additional qualified personnel number management positions success highly dependent continued services key management technical scientific personnel management employees may voluntarily terminate employment us time upon short notice loss services member senior management technical scientific staff may significantly delay prevent achievement product development business objectives chief executive officer also chairman board directors affiliated company management officer another affiliate may reduce time attention devote management process recruiting chief financial officer future success also depend ability identify recruit retain additional qualified scientific technical managerial personnel competition qualified personnel intense particularly areas information technology engineering science process hiring suitably qualified personnel often lengthy unable hire retain sufficient number qualified employees ability conduct expand business could seriously reduced dependent operations upon limited number suppliers contract manufacturers currently purchase components used mass spectrometry systems limited number outside sources reliance limited number suppliers could result time delays associated redesigning product due inability obtain adequate supply required components reduced control pricing quality timely delivery interruption supply components could adverse effect business results operations financial condition scarcity components may unable obtain adequate supply components may required pay higher prices purchase components lesser quality market experiencing shortage electrical components critical components many products delay interruption supply components could impair ability manufacture deliver products harm reputation cause reduction revenues addition increase cost components use products could make products less competitive lower margins may able obtain sufficient quantities required components substantially terms additionally consolidations among suppliers could result sole source suppliers us future must integrate global operations us headquarters located billerica massachusetts european headquarters located bremen germany principal manufacturing facilities located billerica massachusetts bremen germany leipzig germany operating diverse geographic locations imposes number risks burdens us including need manage employees contractors diverse cultural backgrounds speak different languages difficulties associated operating number time zones may encounter unforeseen difficulties logistical problems operating diverse locations success international operations dependent many factors could adversely affect ability sell products internationally could affect profitability international sales account expected continue account significant portion total revenues fiscal year ended december 31 2000 international sales totaled 519 million 694 net revenue intend substantially increase international operations international operations continue subject variety risks associated conducting business internationally many beyond control risks may adversely affect ability achieve maintain profitability ability sell products internationally include changes regulatory requirements legislation regulation including tariffs relating import export high technology products imposition government controls political economic instability conflicts costs risks deploying systems foreign countries limited intellectual property rights burden complying wide variety complex foreign laws treaties additionally international expansion require hire additional personnel fail hire additional personnel develop maintain relationships foreign customers partners may able expand international sales would suffer decreased profits may lose money exchange foreign currency received international sales us dollars significant portion business conducted currencies us dollar reporting currency result currency fluctuations among us dollar currencies business caused continue cause foreign currency transaction gains losses recognize foreign currency gains losses arising operations period incurred cannot predict effects exchange rate fluctuations upon future operating results number currencies involved variability currency exposures potential volatility currency exchange rates various international tax risks could adversely affect earnings subject international tax risks distributions earnings payments received subsidiaries may subject withholding taxes imposed countries operating formed foreign countries income tax treaties united states countries subsidiaries incorporated could subject high rates withholding taxes distributions payments could also subject taxed twice income related operations nontreaty countries unable reduce taxable income one operating company losses incurred another operating company located another country may higher foreign effective income tax rate companies industry amount credit may claim us federal income tax foreign income taxes subject many limitations may significantly restrict ability claim credit foreign taxes pay responding claims relating improper handling storage disposal hazardous chemicals radioactive biological materials use could time consuming costly use controlled hazardous radioactive materials business generate wastes regulated hazardous wastes united states federal massachusetts state environmental atomic energy regulatory laws equivalent provisions law jurisdictions research manufacturing facilities located use substances materials subject stringent periodically changing regulation impose costly compliance obligations us potential adversely affect manufacturing activities risk accidental contamination injury materials cannot completely eliminated accident substances occurs could held liable damages result addition incurring cleanup costs liabilities substantial additionally accident could damage research manufacturing facilities resulting delays increased costs unpredictability fluctuation quarterly results may adversely affect trading price common stock revenues results operations past may future vary quarter due number factors many outside control may cause stock price fluctuate primary factors may affect us include following timing sales products services timing recognizing revenue deferred revenue us gaap changes pricing policies pricing policies competitors increases sales marketing product development administration expenses mix services provided us thirdparty contractors ability attain maintain quality levels products costs related acquisitions technology businesses historically experienced decrease revenue first quarter fiscal year relative prior fourth quarter believe due customers budgeting cycles rely quartertoquarter comparisons results operations indication future performance likely future quarters results operations may expectations public market analysts investors event price common stock may fall unable make successful acquisitions contemplated growth strategy integrate acquisitions business development may suffer company strategy involves expanding technology base strategic acquisitions fail effect acquisitions technology base may expand quickly efficiently anticipated without expansion ability keep evolving needs market meet future performance goals adversely affected additionally fail effectively integrate acquired businesses technologies existing business failure could adversely affect business item 7aitem 7 managements discussion analysis financial condition results operations following managements discussion analysis mda describes principal factors affecting results operations financial condition changes financial condition well critical accounting policies estimates mda organized follows •executive overview section provides general description history business brief discussion reportable segments significant recent developments business opportunities challenges risks may impact business future •critical accounting policies estimates section discusses accounting estimates considered important financial condition results operations require us exercise subjective complex judgments application significant accounting policies including critical accounting policies estimates summarized note 2 consolidated financial statements item 8 report form 10k •results operations section provides analysis significant line items consolidated statement operations year ended december 31 2007 compared 2006 year ended december 31 2006 compared 2005 •liquidity capital resources section provides analysis liquidity cash flow discussion outstanding debt commitments •transactions related parties section summarizes transactions entities also use bruker name affiliated common shareholders •recent accounting pronouncements section provides information new accounting standards issued adoption yet required executive overview bruker corporation whollyowned subsidiaries design manufacture market service proprietary life science materials research systems based mass spectrometry core technology platforms xray technologies optical emission spectroscopy oes molecular spectroscopy technologies also manufacture distribute broad range field analytical systems chemical biological radiological nuclear cbrn detection financial results december 31 2007 reported basis three reportable segments bruker axs bruker daltonics bruker optics following recent acquisition bruker biospin group management reevaluate way business managed internal reporting structure changes internal reporting structure may require us change segment reporting future february 26 2008 completed bruker biospin group company bruker biospin group majority owned six affiliated stockholders prior acquisition result acquisition bruker biospin group considered combination companies common control accounted historical carrying values historical consolidated balance sheets statements operations statements cash flows notes consolidated financial statements future filings securities exchange commission beginning companys quarterly report form 10q period ending march 31 2008 restated combining historical consolidated financial statements bruker corporation bruker biospin group addition transaction accounted acquisition businesses common control onetime transaction costs expensed incurred rather added goodwill year ended december 31 2007 incurred expensed acquisition related charges totaling 47 million consisted legal fees investment banking accounting fees compensation earned special committee companys board directors antitrust regulation filing fees expect incur additional 31 million acquisition related charges consisting primarily investment banking fees first quarter 2008 addition bruker biospin group enhanced position leading supplier life science materials research technologies bruker biospin group particularly complementary accuratemass electrospray timeofflight mass spectrometers bruker daltonics singlecrystal diffraction xray spectrometers bruker axs create revenue synergies provide opportunities supply customers equipment packages broader range applications value believe addition bruker biospin group also enhance distribution americas europe asia sales service infrastructure provide us revenue growth opportunities accelerate drive improve margins net income operating cash flows july 1 2006 completed acquisition bruker optics company bruker optics majority owned five affiliated stockholders prior acquisition result acquisition bruker optics considered business combination companies common control accordingly acquisition bruker optics relates portion common ownership approximately 96 accounted historical carrying values portion common ownership five affiliated stockholders approximately 4 accounted using purchase method accounting fair value pro rata basis excess purchase price interest common control fair value related net assets acquired accounted goodwill intangible assets acquisition accounted combination companies common control onetime transaction costs expensed incurred rather added goodwill year ended december 31 2006 incurred expensed acquisition related charges totaling 57 million consisted investment banking legal accounting fees compensation earned special committee companys board directors bruker optics officer antitrust regulation filing fees historical financial statements within mda presented companies always combined addition bruker optics increased diversified market presence technology base product line global distribution customer support capabilities addition bruker optics increased critical mass many markets serve created revenue synergies diversified customer revenue base expanded product service offerings providing us revenue growth opportunities well opportunities improve margins net income operating cash flows acquisition bruker optics also provides us access new market segments applications particularly pharmaceutical process analytical technologies pharmaforensics well food beverage feed agricultural analysis addition bruker optics acquired keymaster technologies inc july 2006 quantron gmbh september 2006 keymaster provided us access fast growing handheld portable xray analysis market believe technologies keymaster developed markets serves highly complementary core business quantron complements existing stationary xray fluorescence systems metal foundries well handheld xray fluorescence product line operating results keymaster quantron included results bruker axs segment date acquisitions bruker axs engages primarily business manufacturing distributing advanced instrumentation automated solutions based xray technology oesspark purpose addressing needs customers discovery new drugs drug targets advanced materials well individual qaqc applications typical customers bruker axs products solutions include biotechnology pharmaceutical companies semiconductor industries chemical cement metals petroleum companies raw material manufacturers academic government research institutions bruker daltonics leading manufacturer innovative mass spectrometrybased instruments accessories used pharmaceutical biotechnology proteomics molecular diagnostic companies academic institutions government agencies research also integrated used along analytical instruments bruker daltonics also manufactures distributes broad range field analytical systems cbrn detection bruker optics leading developer manufacturer provider research analytical process analysis instruments solutions based infrared raman molecular spectroscopy technology typical customers bruker optics products solutions include pharmaceutical biotechnology companies cement petroleum companies food beverage agricultural industries academic government research institutions maintain major technical manufacturing centers europe north america japan sales offices located throughout world corporate headquarters located billerica massachusetts business strategy capitalize proven ability innovate generate rapid revenue growth organically acquisitions revenue growth strategy combined continued improvements gross profit margins increased leverage research development sales marketing distribution investments general administrative expenses expected enhance operating margins improve earnings future year ended december 31 2007 revenue grew approximately 26 5476 million revenue growth approximately 17 organic 7 impact foreign exchange remaining 2 due acquisitions continue focus improving profitability gross profit margins product service revenues improved 456 2006 462 2007 reflecting improvements realized ongoing gross profit margin improvement programs continue invest sales marketing initiatives research development primarily headcount increases material purchases increased sales marketing research development costs yearoveryear expect investments result increased revenues future periods adopted financial accounting standards board fasb statement financial accounting standards sfas 123r sharebased payment sfas 123r january 1 2006 standard revised measurement valuation recognition financial accounting reporting standards equitybased compensation plans contained sfas 123 accounting stockbased compensation sfas 123r requires measurement recognition compensation expense sharebased payment awards including employee stock options based estimated fair values date grant adopted sfas 123r using modified prospective transition method accordance modified prospective transition method consolidated financial statements prior periods restated reflect include impact sfas 123r years ended december 31 2007 2006 recorded stockbased compensation expense 16 million 11 million net tax respectively stockbased compensation material overall results operations specific line items within consolidated statements operations periods presented critical accounting policies discussion analysis financial condition results operations based upon consolidated financial statements prepared accordance accounting principles generally accepted united states america preparation financial statements requires make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments including related revenue recognition allowance doubtful accounts inventories goodwill longlived assets warranty costs income taxes base estimates judgments historical experience current market economic conditions industry trends assumptions believe reasonable form basis making judgments carrying value assets liabilities readily apparent sources actual results could differ estimates believe following critical accounting policies important portrayal financial condition require subjective judgment revenue recognition recognize revenue system sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectibility resulting receivable reasonably assured title risk loss generally transferred customer upon receipt signed customer acceptance form system shipped installed customer trained result timing customer acceptance readiness could cause reported revenues differ materially expectations products sold independent distributor strategic distribution partner unconsolidated affiliated distributor assumes responsibility installation recognize system sale product shipped title risk loss transferred distributors price protection rights return however products typically warranted free defect period one year revenue deferred cash received significant portion fee due one year delivery installation acceptance system arrangements multiple elements recognize revenue element based fair value element provided criteria revenue recognition met fair value element provided multiple element arrangements typically determined referencing historical pricing policies element sold separately changes ability establish fair value element multiple element arrangements could affect timing revenue recognition revenue accessories parts recognized upon shipment service revenue recognized services performed grant revenue recognized complete services required grant warranty costs normally provide oneyear parts labor warranty purchase equipment anticipated cost oneyear warranty accrued upon recognition sale included current liability balance sheet although facilities undergo quality assurance testing procedures throughout production process warranty obligation affected product failure rates material usage service delivery costs incurred correcting product failure although actual warranty costs historically consistent expectations extent warranty claim activity costs associated servicing claims differ estimates revisions warranty accrual may required inventories stated lower cost market costs determined firstin firstout method majority subsidiaries averagecost one international location maintain allowance excess obsolete inventory reflect expected unsaleable unrefundable inventory based evaluation slow moving products ultimate usage demand varies significantly expected usage demand additional writedowns may required resulting charge operations goodwill intangible assets longlived assets evaluate whether goodwill impaired annually events occur circumstances change would likely reduce fair value reporting unit carrying amount fair value determined using market comparables similar businesses forecasts discounted future cash flows also review intangible assets longlived assets indication potential impairment exists significant reduction cash flows associated assets fair value longlived assets decline reduced operating performance market declines indicators impairment charge operations impairment may necessary allowance doubtful accounts maintain allowances doubtful accounts estimated losses resulting inability customers pay amounts due financial condition customers deteriorate reducing ability make payments additional allowances would required resulting charge operations income taxes estimate degree tax assets loss carryforwards result benefit based expected profitability tax jurisdiction provide valuation allowance tax assets loss carryforwards believe likely go unused becomes likely tax asset loss carryforward used reserve provided reverse related valuation allowance actual future taxable income tax jurisdiction differ estimates additional allowances reversals reserves may necessary results operations year ended december 31 2007 compared year ended december 31 2006 revenue following table presents revenue changes revenue growth reportable segment years ended december 31 2007 2006 dollars thousands arepresents product service revenues reportable segments bruker axs bruker axs revenue increased 645 million 359 2440 million year ended december 31 2007 compared 1795 million comparable period 2006 included change revenue approximately 106 million impact foreign exchange excluding effect foreign exchange revenue increased 300 increase revenue excluding effect foreign exchange attributable increase xray diffraction xray fluorescence system sales higher system revenue higher aftermarket revenue businesses acquired second half 2006 represented approximately 49 revenue growth systems revenues relate primarily distribution products manufactured bruker axs xray systems system aftermarket revenue percentage bruker axs product service revenue follows years ended december 31 2007 2006 dollars thousands bruker daltonics bruker daltonics revenue increased 289 million 181 1886 million year ended december 31 2007 compared 1597 million comparable period 2006 included change revenue approximately 118 million impact foreign exchange excluding effect foreign exchange revenue increased 107 increase revenue excluding effect foreign exchange result increased direct sales life science systems cbrn detection systems partially offset reduced oem sales certain life science systems reduced grant revenue aftermarket revenues include accessory sales consumables training services life science systems cbrn detection systems aftermarket revenue percentage bruker daltonics product service revenue follows years ended december 31 2007 2006 dollars thousands bruker optics bruker optics revenue increased 170 million 161 1225 million year ended december 31 2007 compared 1055 million comparable period 2006 included change revenue approximately 57 million impact foreign exchange excluding effect foreign exchange revenue increased 107 increase revenue excluding effect foreign exchange attributable increase molecular spectroscopy systems sales yearoveryear partially offset reduced revenues associated order chinese state food drug administration year ended december 31 2007 recognized 79 million revenue order chinese state food drug administration compared 87 million revenue order period 2006 order chinese state food drug administration completed 2007 expect recognize molecular spectroscopy systems revenue order 2008 systems revenue relates primarily distribution products manufactured bruker optics aftermarket revenues include accessory sales consumables training services molecular spectroscopy systems aftermarket revenue percentage bruker optics product service revenue follows years ended december 31 2007 2006 dollars thousands cost revenue following table presents cost product service revenue gross profit margins product service revenue reportable segment years ended december 31 2007 2006 dollars thousands arepresents cost product service revenues reportable segments bruker axs cost product service revenue year ended december 31 2007 1317 million resulting gross profit margin 460 compared cost product service revenue 1036 million gross profit margin 423 comparable period 2006 increase gross profit margin attributable primarily better capacity utilization result increased revenues yearoveryear higher margin businesses acquired second half 2006 realization benefits various ongoing gross profit margin improvement programs partially offset lower gross profit margins realized system revenues bruker daltonics cost product service revenue year ended december 31 2007 1075 million resulting gross profit margin 428 compared cost product service revenue 917 million gross profit margin 422 comparable period 2006 increase gross profit margin attributable primarily increased sales cbrn detection systems decrease oem life science system sales typically lower margins direct life science system sales bruker optics cost product service revenue year ended december 31 2007 623 million resulting gross profit margin 492 compared cost product service revenue 505 million gross profit margin 521 comparable period 2006 decrease gross profit margin attributable primarily reduced revenue order chinese state food drug administration change product mix yearoveryear within molecular spectroscopy systems specifically lower sales ftnir systems sales marketing following table presents sales marketing expense sales marketing expense percentage product service revenue reportable segment years ended december 31 2007 2006 dollars thousands bruker axs sales marketing expense year ended december 31 2007 increased 476 million 195 product service revenue 353 million 197 product service revenue comparable period 2006 increase sales marketing expenses attributable primarily increased headcount related acquisitions completed second half 2006 higher commissions increased revenues new order bookings bruker daltonics sales marketing expense year ended december 31 2007 increased 312 million 166 product service revenue 259 million 163 product service revenue comparable period 2006 increase sales marketing expenses attributable primarily incremental investments various sales marketing initiatives related primarily increase product specialists direct sales inside sales applications resources bruker optics sales marketing expense year ended december 31 2007 increased 272 million 222 product service revenue 228 million 216 product service revenue comparable period 2006 increase sales marketing expenses attributable primarily higher commissions increased revenues new order bookings yearoveryear particularly asiapacific operations general administrative following table presents general administrative expense general administrative expense percentage product service revenue reportable segment years ended december 31 2007 2006 dollars thousands bruker axs general administrative expense year ended december 31 2007 increased 160 million 65 product service revenue 129 million 72 product service revenue comparable period 2006 increase general administrative expenses due primarily increased intangible asset amortization associated acquisitions completed second half 2006 increased headcount tax consulting fees incurred second quarter 2007 bruker daltonics general administrative expense year ended december 31 2007 increased 88 million 47 product service revenue 80 million 51 product service revenue comparable period 2006 increase general administrative expenses attributable primarily tax consulting fees incurred second quarter 2007 lower general administrative expenses 2006 resulted collection accounts receivable balances previously writtenoff bruker optics general administrative expense year ended december 31 2007 increased 61 million 50 product service revenue 44 million 42 product service revenue comparable period 2006 increase general administrative expenses attributable primarily allocated corporate general administrative expenses associated part public company tax consulting fees incurred second quarter 2007 corporate general administrative expense year ended december 31 2007 decreased 32 million 37 million comparable period 2006 corporate general administrative expenses represent expenses associated public company allocated reportable segments including legal fees audit consulting fees salaries filing fees decrease general administrative expenses attributable primarily various salaries accounting auditing consulting fees included corporate expenses year ended december 31 2006 allocated reportable segments year ended december 31 2007 research development following table presents research development expense research development expense percentage product service revenue reportable segment years ended december 31 2007 2006 dollars thousands bruker axs research development expense year ended december 31 2007 increased 228 million 93 product service revenue 177 million 99 product service revenue comparable period 2006 increase research development expenses due primarily increase headcount resulting acquisitions completed second half 2006 changes foreign currencies yearoveryear primarily euro majority research development performed germany increased material purchases bruker daltonics research development expense year ended december 31 2007 increased 271 million 144 product service revenue 247 million 156 product service revenue comparable period 2006 increase research development expenses attributable primarily changes foreign currencies yearoveryear primarily euro majority research development performed germany increased material purchases bruker optics general administrative expense year ended december 31 2007 increased 86 million 70 product service revenue 76 million 72 product service revenue comparable period 2006 increase research development expenses attributable primarily changes foreign currencies yearoveryear primarily euro majority research development performed germany acquisition related charges december 3 2007 announced entered definitive agreement acquire stock bruker biospin group acquisition bruker biospin group approved shareholders february 25 2008 subsequently completed february 26 2008 acquisition represented combination companies common control due majority ownership individuals bruker corporation bruker biospin group result transaction costs expensed incurred rather included purchase price allocation year ended december 31 2007 incurred expensed acquisition related charges totaling 47 million consisted legal fees investment banking accounting fees compensation earned special committee companys board directors antitrust regulation filing fees expect incur additional 31 million acquisition related charges consisting primarily investment banking fees first quarter 2008 april 18 2006 announced entered definitive agreement acquire stock bruker optics acquisition bruker optics approved shareholders june 29 2006 subsequently completed july 1 2006 acquisition represented business combination companies common control due majority ownership individuals bruker corporation bruker optics result transaction costs expensed incurred rather included purchase price allocation year ended december 31 2006 incurred expensed acquisition related charges totaling 57 million consisted investment banking legal accounting fees compensation earned special committee companys board directors antitrust regulation filing fees interest income expense net interest income expense net year ended december 31 2007 14 million compared 38 million comparable period 2006 year ended december 31 2007 major components within interest income expense net losses foreign currency transactions 21 million net interest expense 05 million offset partially appreciation fair value derivative financial instruments 06 million year ended december 31 2006 major components within interest income expense net appreciation fair value derivative financial instruments 47 million rental income 02 million offset partially losses foreign currency transactions 16 million provision income taxes income tax provision year ended december 31 2007 168 million effective tax rate 345 compared income tax provision 159 million year ended december 31 2006 effective tax rate 463 lower effective tax rate year ended december 31 2007 compared year ended december 31 2006 due primarily new legislation germany analyzed impact changes deferred tax assets liabilities date enactment temporary differences reverse december 31 2007 adjusted reflect new tax rate becomes effective january 1 2008 result recorded net reduction income tax expense 37 million second half 2007 effective tax rate reflects tax provision nonus entities since benefit recognized losses incurred us maintain full valuation allowance us net operating losses evidence exists likely loss carryforward amounts utilized offset us taxable income tax rate may change time amount mix income taxes outside us changes effective tax rate calculated using projected annual pretax income loss affected research development tax credits expected level tax benefits impact changes valuation allowance well changes mix pretax income losses among jurisdictions varying statutory tax rates credits minority interest consolidated subsidiaries minority interest consolidated subsidiaries year ended december 31 2007 299000 compared 8000 comparable period 2006 minority interest consolidated subsidiaries represents minority shareholders proportionate share net income subsidiaries years ended december 31 2007 2006 years ended december 31 2007 2006 minority interest relates two majorityowned subsidiaries incoatec gmbh bruker baltic ltd year ended december 31 2006 compared year ended december 31 2005 revenue following table presents revenue changes revenue growth reportable segment years ended december 31 2006 2005 dollars thousands arepresents product service revenues reportable segments bruker axs bruker axs revenue increased 421 million 307 1795 million year ended december 31 2006 compared 1374 million comparable period 2005 impact foreign exchange material increase revenue attributable businesses acquired last five quarters increase materials research system sales systems aftermarket revenue excluding acquisitions revenue growth rate 203 system revenue relates primarily distribution products manufactured bruker axs xray oes systems aftermarket revenue percentage bruker axs product service revenue follows years ended december 31 2006 2005 dollars thousands bruker daltonics bruker daltonics revenue decreased 16 million 10 1597 million year ended december 31 2006 compared 1614 million comparable period 2005 impact foreign exchange material decrease revenue result higher life science system revenues yearoveryear offset lower sales cbrn systems 2006 compared 2005 lower grant revenue lower aftermarket revenues includes accessory sales consumables training services included revenue 2006 2005 grant revenues various projects earlystage research development projects funded german united states governments life science systems cbrn detection systems aftermarket revenue percentage bruker daltonics product service revenue follows years ended december 31 2006 2005 dollars thousands bruker optics bruker optics revenue increased 268 million 341 1055 million year ended december 31 2006 compared 787 million comparable period 2005 included change revenue approximately 16 million impact foreign exchange excluding effect foreign exchange revenue increased 320 increase revenue excluding effect foreign exchange result increase molecular spectroscopy system revenues especially europe pacific rim well recognition 87 million revenue 2006 new contract chinese state food drug administration sfda system revenue relates primarily distribution products manufactured bruker optics molecular spectroscopy systems aftermarket revenue percentage bruker optics product service revenue follows years ended december 31 2006 2005 dollars thousands cost revenue following table presents cost product service revenue gross profit margins product service revenue reportable segment years ended december 31 2006 2005 dollars thousands arepresents cost product service revenues reportable segments bruker axs cost product service revenue year ended december 31 2006 1036 million resulting gross profit margin 423 compared cost product service revenue 838 million gross profit margin 390 comparable period 2005 increase gross profit margin primarily attributable higher margin businesses acquired last five quarters better capacity utilization result increased revenue yearoveryear realization benefits various ongoing gross profit margin improvement programs partially offset lower gross profit margins realized system revenue bruker daltonics cost product service revenue year ended december 31 2006 917 million resulting gross profit margin 422 compared cost product service revenue 889 million gross profit margin 442 comparable period 2005 decrease gross profit margin primarily attributable lower cbrn detection system revenues yearoveryear bruker optics cost product service revenue year ended december 31 2006 505 million resulting gross profit margin 521 compared cost product service revenue 383 million gross profit margin 512 comparable period 2005 increase gross profit margin primarily attributable higher margins realized chinese sfda systems better capacity utilization result increased revenues yearoveryear sales marketing following table presents sales marketing expense sales marketing expense percentage product service revenue reportable segment years ended december 31 2006 2005 dollars thousands bruker axs sales marketing expense year ended december 31 2006 increased 353 million 197 product service revenue 276 million 201 product service revenue comparable period 2005 increase sales marketing expense primarily attributable increased headcount related acquisitions past five quarters incremental investments various sales marketing initiatives bruker daltonics sales marketing expense year ended december 31 2006 increased 259 million 163 product service revenue 238 million 150 product service revenue comparable period 2005 increase sales marketing expense attributable incremental investments various sales marketing initiatives primarily headcount related bruker optics sales marketing expense year ended december 31 2006 increased 228 million 216 product service revenue 190 million 242 product service revenue comparable period 2005 increase sales marketing expense primarily attributable increased headcount higher commissions increased revenues yearoveryear decrease sales marketing expense percentage product service revenue attributable leveraging sales marketing infrastructure higher revenues yearoveryear general administrative following table presents general administrative expense general administrative expense percentage product service revenue reportable segment years ended december 31 2006 2005 dollars thousands bruker axs general administrative expenses year ended december 31 2006 increased 129 million 72 product service revenue 108 million 79 product service revenue comparable period 2005 increase general administrative expenses primarily due increased headcount intangible asset amortization related acquisitions completed past five quarters bruker daltonics general administrative expense year ended december 31 2006 decreased 80 million 51 product service revenue 89 million 56 product service revenue comparable period 2005 decrease general administrative expenses primarily attributable lower bad debt expenses yearoveryear benefits ongoing cost reduction initiatives bruker optics general administrative expenses year ended december 31 2006 increased 44 million 42 product service revenue 32 million 41 product service revenue comparable period 2005 increase general administrative expenses primarily due expansion business allocated corporate general administrative expenses associated public company corporate general administrative expense year ended december 31 2006 increased 37 million 27 million comparable period 2005 corporate general administrative expenses represent expenses associated public company allocated reportable segments including legal fees audit consulting fees salaries filing fees increase expenses primarily attributable stockbased compensation charges 2006 required recorded 2005 increased headcount yearoveryear partially offset ongoing cost reduction initiatives research development following table presents research development expense research development expense percentage product service revenue reportable segment years ended december 31 2006 2005 dollars thousands bruker axs research development expense year ended december 31 2006 increased 177 million 99 product service revenue 141 million 103 product service revenue comparable period 2005 increase research development expense primarily attributable increase headcount resulting acquisitions completed past five quarters increased material purchases 2006 compared 2005 bruker daltonics research development expense year ended december 31 2006 decreased 247 million 156 product service revenue 273 million 171 product service revenue comparable period 2005 decrease research development expense primarily attributable decrease material purchases year ended december 31 2006 compared comparable period 2005 reduction headcount yearoveryear bruker optics research development expense year ended december 31 2006 increased 76 million 72 product service revenue 61 million 78 product service revenue comparable period 2005 increase research development expense primarily attributable development activities associated dispersive raman product line enhanced product development activities increase material purchases headcount 2006 compared 2005 acquisition related charges april 18 2006 announced entered definitive agreement acquire stock bruker optics acquisition bruker optics approved shareholders june 29 2006 subsequently completed july 1 2006 acquisition represented business combination companies common control due majority ownership individuals bruker corporation bruker optics result transaction costs expensed incurred rather included purchase price allocation year ended december 31 2006 incurred expensed acquisition related charges totaling 57 million consisted investment banking legal accounting fees compensation earned special committee companys board directors antitrust regulation filing fees interest income expense net interest income expense net year ended december 31 2006 38 million compared 08 million comparable period 2005 year ended december 31 2006 major components within interest income expense net appreciation fair value derivative financial instruments 47 million rental income 02 million losses foreign currency transactions 16 million year ended december 31 2005 major components within interest income expense net depreciation fair value derivative financial instruments 27 million net interest income 05 million gains foreign currency transactions 13 million provision income taxes income tax provision year ended december 31 2006 159 million effective tax rate 463 compared income tax provision 119 million year ended december 31 2005 effective tax rate 548 effective tax rate reflects tax provision nonus entities since benefit recognized losses incurred us maintain full valuation allowance us net operating losses evidence exists likely loss carryforward amounts utilized offset us taxable income tax rate may change time amount mix income taxes outside us changes effective tax rate calculated using projected annual pretax income loss affected research development tax credits expected level tax benefits impact changes valuation allowance well changes mix pretax income losses among jurisdictions varying statutory tax rates credits minority interest consolidated subsidiaries minority interest consolidated subsidiaries year ended december 31 2006 8000 compared 40000 2005 minority interest subsidiaries represents minority shareholders proportionate share net income subsidiaries years ended december 31 2006 2005 years ended december 31 2006 2005 minority interest relates two majorityowned subsidiaries incoatec gmbh bruker baltic ltd formerly baltic scientific instruments ltd liquidity capital resources currently anticipate existing cash sufficient support operating investing needs least next twelve months however depends profitability ability manage working capital requirements future cash requirements also affected potential acquisitions historically financed growth combination cash generated operations debt financings issuances common stock future assurances additional financing alternatives available us required available obtained favorable terms february 26 2008 completed acquisition bruker biospin group 9140 million acquisition bruker biospin group financed 57844872 shares unregistered common stock valued 5260 million based trailing 10 day trading average closing price 914 per share two days prior signing transaction agreements 3510 million cash obtained new five year credit facility balance cash hand credit agreement syndication lenders provides revolving credit line maximum commitment 2300 million term facility 1500 million outstanding principal term loan payable quarterly installments december 2012 borrowings credit agreement bear interest companys option either higher prime rate federal funds rate plus 050 ii adjusted libor plus margins ranging 040 125 facility fee ranging 010 020 february 26 2008 weightedaverage interest rate borrowings credit agreement approximately 41 borrowings credit agreement secured pledge banks 100 capital stock companys whollyowned domestic subsidiaries 65 capital stock certain companys whollyowned direct indirect foreign subsidiaries credit agreement also requires maintain certain financial ratios related maximum leverage minimum interest coverage defined credit agreement addition financial ratios credit agreement restricts among things ability following make certain payments incur additional debt incur certain liens make certain investments including derivative agreements merge consolidate sell transfer substantially companys assets enter certain transactions affiliates year ended december 31 2007 net cash provided operating activities 282 million compared net cash provided operating activities 377 million year ended december 31 2006 change cash operating activities attributable primarily changes working capital specifically increases accounts receivable inventory offset partially increases accounts payable income taxes payable year ended december 31 2007 net cash used investing activities 205 million compared net cash provided investing activities 122 million year ended december 31 2006 cash used investing activities year ended december 31 2007 attributable primarily 161 million capital expenditures 42 million used acquisitions net cash acquired cash provided investing activities year ended december 31 2006 attributable primarily 465 million sales shortterm investments offset approximately 264 million used acquisitions net cash acquired 76 million capital expenditures year ended december 31 2007 net cash provided financing activities 91 million compared net cash used financing activities 644 million year ended december 31 2006 cash provided financing activities year ended december 31 2007 attributable 196 million net proceeds public offering common stock along subsequent stock option exercises partially offset 80 million net repayments shortterm borrowing 24 million repayments longterm borrowing net cash used financing activities year ended december 31 2006 consisted 740 million paid certain shareholders connection acquisition bruker optics offset 122 million increased proceeds shortterm borrowings although 740 million part bruker optics purchase price purchase accounting treatment companies common control resulted payments recorded within financing activities deemed dividend december 31 2007 outstanding debt totaling 381 million consisting 251 million outstanding longterm debt arrangements 130 million outstanding revolving lines credit december 31 2006 outstanding debt totaling 447 million consisting 253 million outstanding longterm debt arrangements 194 million outstanding revolving lines credit amounts outstanding longterm debt arrangements include collateralized uncollateralized arrangements various financial institutions germany japan united states government agency united states longterm debt arrangements also consist fixed variable interest rates ranging 180 801 december 31 2007 certain arrangements expose us adverse movements interest rates primarily floating rate debt instruments indexed shortterm market rates entered interest rate swaps cross currency rate swaps order minimize volatility changes interest rates might earnings cash flows revolving lines credit various financial institutions united states germany japan france aggregate maximum borrowing amounts 1210 million 753 million december 31 2007 2006 respectively consideration outstanding letters credit availability approximately 947 million 468 million december 31 2007 2006 respectively effective february 26 2008 terminated line credit united states replaced revolving credit available credit agreement entered connection acquisition bruker biospin group 750 million revolving line credit united states secured pledge 100 capital stock whollyowned domestic subsidiaries also pledged portion stock certain foreign subsidiaries maximum commitment line credit increased 750 million 400 million september 2007 borrowings revolving line credit bore interest banks prime rate libor plus 1 libor advantage rate plus 1 request company amounts outstanding line credit december 31 2007 110 million outstanding december 31 2006 revolving lines credit germany japan france provide maximum commitment 460 million uncollateralized borrowings revolving lines credit germany japan france bear interest variable rates ranged 150 975 amounts outstanding december 31 2007 following table summarizes maturities significant financial obligations december 31 2007 thousands uncertain tax contingencies positions taken expected taken income tax return may result additional payments tax authorities amount preceding table includes interest penalties accrued related positions december 31 2007 total amount uncertain tax contingencies included 13 years column able reasonably estimate timing potential future payments tax authority agrees tax position taken expected taken applicable statute limitations expires additional payments necessary december 31 2007 189 million net operating loss carryforwards available reduce future us taxable income losses various expiration dates 2027 also foreign tax credits 80 million expire 2017 research development tax credits 31 million available offset future us tax liabilities expire various dates 2025 transactions related parties prior acquisition bruker biospin group february 26 2008 affiliated common shareholders several entities use bruker name sharing agreement certain affiliates provides sharing specified intellectual property rights services facilities related items december 31 2007 2006 payables related parties 83 million 59 million respectively december 31 2007 2006 receivables related parties 72 million 90 million respectively payment terms balances related parties similar third party customers sales related parties subsidiaries included revenues consolidated financial statements related parties maintain sales offices countries distribution network sales primarily resale products sales amounted 145 million 113 million 130 million years ended december 31 2007 2006 2005 respectively addition purchased products services amounted 240 million 211 million 170 million affiliated entities years ended december 31 2007 2006 2005 respectively share various general administrative expenses items including umbrella insurance policies accounting services leases various related parties general administrative expenses amounted 51 million 37 million 28 million years ended december 31 2007 2006 2005 respectively years ended december 31 2007 2006 2005 paid 13 million 13 million 05 million respectively law firm one directors partner years ended december 31 2007 2006 2005 paid 01 million period financial services firm one directors partner bruker optics rents various office space principal stockholder lease agreements years ended december 31 2007 2006 2005 stockholder paid approximately 04 million 03 million 03 million respectively estimated equal fair market value less cost capital improvements provided bruker optics 2004 bruker optics subleased portion office space affiliate 2007 2006 2005 received rental income includes charges utilities occupancy costs 31500 period rental income recorded reduction rent utilities building maintenance expenses new accounting pronouncements december 2007 fasb issued sfas 141r business combinations sfas 141r statement significantly change accounting business combinations sfas 141r acquiring entity required recognize assets acquired liabilities assumed transaction acquisition date fair value certain limited exceptions addition sfas 141r change accounting treatment acquisition costs inprocess research development restructuring costs associated business combinations changes deferred tax asset valuation allowances income tax uncertainties acquisition date sfas 141r also includes significant number new disclosure requirements early adoption sfas 141r prohibited required apply sfas 141r acquisitions occur january 1 2009 december 2007 fasb issued sfas 160 noncontrolling interests consolidated financial statementsan amendment arb 51 sfas 160 statement establishes new accounting reporting standards minority interest subsidiary deconsolidation subsidiary sfas 160 effective beginning fiscal 2009 early adoption prohibited yet assessed effect adoption sfas 160 results operations financial position february 2007 fasb issued sfas 159 fair value option financial assets liabilities including amendment fasb statement 115 sfas 159 statement permits entities choose measure many financial instruments certain items fair value currently required measured fair value sfas 159 effective beginning fiscal 2008 expect adoption sfas 159 material impact results operations financial position september 2006 fasb issued statement financial accounting standards 157 fair value measurements sfas 157 statement effective financial statements issued fiscal years beginning november 15 2007 february 2008 fasb issued fasb staff position fsp 1571 application fasb statement 157 fasb statement 13 accounting pronouncements address fair value measurements purposes lease classification measurement statement 13 fsp 1571 fsp 1572 effective date fasb statement 157 fsp 1572 fsp 1572 defers effective date sfas 157 fiscal years beginning november 15 2008 certain nonfinancial assets liabilities sfas 157 provides common fair value hierarchy companies follow determining fair value measurements preparation financial statements expands disclosure requirements relating fair value measurements developed sfas 157 clarifies principle fair value based assumptions marketplace would use pricing asset liability rather company specific data currently assessing impact sfas 157 results operations financial position item 7aitem 7 managements discussion analysis financial condition results operations following managements discussion analysis financial condition results operations mda describes principal factors affecting results operations financial condition changes financial condition well critical accounting policies estimates mda organized follows • overview section provides brief discussion reportable segments results operations significant recent developments businesses challenges risks may impact businesses future • results operations section provides analysis significant line items consolidated statements income comprehensive income year ended december 31 2017 compared year ended december 31 2016 year ended december 31 2016 compared year ended december 31 2015 • liquidity capital resources section provides analysis liquidity cash flow discussion outstanding debt commitments • critical accounting policies estimates section discusses accounting estimates considered important financial condition results operations require us exercise subjective complex judgments application significant accounting policies summarized note 2 consolidated financial statements item 8 annual report form 10k • recent accounting pronouncements section provides summary recent accounting pronouncements discusses potential impact consolidated financial statements • transactions related parties section summarizes transactions related parties statements contained managements discussion analysis financial condition results operations express believe anticipate plan expect seek estimate well statements historical fact forwardlooking statements within meaning private securities litigation reform act 1995 actual events results may differ materially set forth forwardlooking statements certain factors might cause difference discussed risk factors managements discussion analysis financial condition results operations annual report form 10k year ended december 31 2017 although consolidated financial statements prepared accordance generally accepted accounting principles united states america gaap believe describing revenue expenses excluding effects foreign currency acquisitions divestitures well certain charges net provides meaningful supplemental information regarding performance specifically management believes free cash flow organic revenue nongaap financial measures well nongaap gross profit margin nongaap operating margin provide relevant useful information widely used equity analysts investors competitors industry well management assessing consolidated business unit performance define term organic revenue gaap revenue excluding effect foreign currency translation changes effect acquisitions divestitures define term nongaap gross profit margin gaap gross profit margin certain nongaap measures excluded nongaap operating margin gaap operating margin certain nongaap measures excluded nongaap measures exclude costs related restructuring actions acquisition related integration expenses amortization acquired intangible assets costs infrequent nonrecurring nature believe useful measures evaluate continuing business define free cash flow net cash provided operating activities less additions property plant equipment believe free cash flow useful measure evaluate business indicates amount cash generated additions property plant equipment available among things investments business acquisitions share repurchases dividends repayment debt use nongaap financial measures evaluate periodoverperiod operating performance management believes provide comparable measures continuing business adjust certain items reflective underlying performance business measures may also useful investors evaluating underlying operating performance business regularly use nongaap financial measures internally understand manage evaluate business results make operating decisions also measure employees compensate part based nongaap measures use information planning forecasting activities presentation nongaap financial measures intended substitute superior financial information prepared presented accordance gaap may different nongaap financial measures used companies therefore may comparable among companies overview organized four operating segments bruker biospin group bruker calid group bruker nano group bruker energy supercon technologies best segment year ended december 31 2017 revenue increased 1546 million 96 17659 million compared 16113 million year ended december 31 2016 included revenue increase approximately 772 million attributable recent acquisitions increase approximately 196 million impact foreign currency translation caused weakening us dollar versus euro currencies excluding effects foreign currency translation recent acquisitions organic revenue nongaap measure increased 578 million 36 gross profit margin remained approximately consistent 460 year ended december 31 2017 compared 461 year ended december 31 2016 positive effect higher sales resulting improvements european industrial end markets offset primarily unfavorable business product mix caused higher revenues larger best segment lower gross profit margins unfavorable mix within biospin group operating margin increased 122 year ended december 31 2017 110 year ended december 31 2016 demonstrating operating leverage following brukers multiyear operational transformation appropriately investing six strategic growth areas operating margin increased due primarily positive operating leverage higher sales cost discipline savings restructuring initiatives factors offset dilution recent acquisitions foreign currency translations effects income tax provision years ended december 31 2017 2016 1175 million 231 million respectively representing effective tax rates 594 130 respectively increase effective tax rate year ended december 31 2017 compared 2016 primarily attributable impact us tax reform 2017 offset 2016 release remaining valuation allowances recognition previously unrecognized tax benefits due closure tax audits 2016 tax rate may change time amount mix jurisdictional income changes december 22 2017 enactment date president united states signed tax reform legislation 2017 tax act enacted wide range changes us corporate income tax system many differ significantly provisions previous us tax law yet completed assessment tax effects associated enactment 2017 tax act however reasonable estimate made effects existing deferred tax balances onetime transition tax changes tax rates laws accounted period enactment therefore fourth quarter 2017 recorded incremental income tax provision 689 million primarily comprised following • estimated income tax provision 550 million federal state impacts onetime deemed repatriation pre2018 ep accordance 2017 tax act federal portion toll charge liability may paid eight years liability reduced certain credits accordingly recorded 306 million 27 million longterm income tax liabilities accrued income taxes current respectively december 31 2017 • estimated net income tax benefit 14 million remeasurement deferred tax assets liabilities newly enacted tax rate 21 • result 2017 tax act expectations distributing certain cash balances foreign subsidiaries united states also recorded estimated income tax provisions estimated state income taxes foreign withholding taxes 125 million actual results implementation 2017 tax act may materially differ current estimate due among things guidance may issued us tax authorities regulatory bodies including sec fasb interpret 2017 tax act continue analyze 2017 tax act additional guidance may issued finalize full effects applying new legislation measurement period earnings per share decreased 095 049 per diluted share year ended december 31 2017 compared year ended december 31 2016 decrease primarily due impact us tax reform resulted significantly higher effective tax rate year ended december 31 2017 operating cash flow year ended december 31 2017 source cash 1544 million year ended december 31 2017 free cash flow nongaap measure 1107 million calculated follows year ended december 31 2017 free cash flow 18 higher year ended december 31 2016 primarily attributable higher net earnings adjusted noncash items lower inventory levels timing employee payments effects partially offset increase accounts receivables caused proportionately higher sales late fourth quarter 2017 may 2017 board directors approved share repurchase program repurchase program authorized repurchases 2250 million common stock two years total 5318063 shares repurchased aggregate cost 1522 million twelve months ended december 31 2017 february 22 2016 announced establishment dividend policy declaration board directors initial quarterly cash dividend amount 004 per share issued outstanding common stock dividends amounting 254 million 258 million paid years ended december 31 2017 2016 respectively future dividend payments subject approval board directors targeting cash dividend shareholders amount 016 per share per annum payable equal quarterly installments years ended december 31 2017 2016 completed various acquisitions complemented existing market offerings added aftermarket software capabilities existing microbiology business impact acquired companies revenues net income total assets material experience quartertoquarter fluctuations operating results result various factors outside control • timing governmental stimulus programs academic research budgets • time takes date customer orders deposits received systems shipped accepted customers full payment received • time takes satisfy local customs requirements exportimport requirements • time takes customers construct prepare facilities products • time required obtain governmental licenses factors past affected amount timing revenue recognized sales products receipt related payments continue future accordingly operating results particular quarter may necessarily indication future quarters operating performance results operations year ended december 31 2017 compared year ended december 31 2016 consolidated results following table presents results years ended december 31 2017 2016 dollars millions except per share data revenue year ended december 31 2017 revenue increased 1546 million 96 17659 million compared 16113 million year ended december 31 2016 included revenue increase approximately 772 million attributable recent acquisitions increase approximately 196 million impact foreign currency translation caused weakening us dollar versus euro currencies excluding effects foreign currency translation recent acquisitions organic revenue nongaap measure increased 578 million 36 gross profit gross profit year ended december 31 2017 8130 million resulting gross profit margin 460 compared 7425 million resulting gross profit margin 461 year ended december 31 2016 included gross profit various charges amortization acquisitionrelated intangible assets acquisitionrelated costs restructuring costs totaling 361 million 319 million years ended december 31 2017 2016 respectively excluding charges nongaap gross profit margins 481 years ended december 31 2017 2016 selling general administrative selling general administrative expenses year ended december 31 2017 increased 4159 million 236 revenue 3905 million 242 revenue year ended december 31 2016 increase primarily caused effect recent acquisitions bruker nano group bruker calid group decrease selling general administrative expenses percentage revenue attributable cost control discipline savings associated restructuring initiatives research development research development expenses year ended december 31 2017 increased 1627 million 92 revenue 1490 million 92 revenue year ended december 31 2016 increase primarily caused effect recent acquisitions bruker nano group bruker calid group charges net charges net 197 million year ended december 31 2017 187 million related bsi segment 10 million related best segment charges consisted primarily 106 million restructuring costs related closing facilities implementing outsourcing restructuring initiatives 45 million related primarily additional contingent consideration recognized acquisition jordan valley semiconductors ltd jordan valley based upon increase revenue levels acquired business increased amount expected earn payments 42 million costs associated global information technology transformation initiative impairment charges 02 million comprised longlived assets related restructuring actions charges net 258 million year ended december 31 2016 252 million related bsi segment 06 million related best segment charges consisted primarily 98 million restructuring costs related closing facilities implementing outsourcing restructuring initiatives 90 million related primarily additional contingent consideration recognized jordan valley acquisition based upon increase revenue levels acquired business increased amount expected earn payments 62 million costs associated global transformation initiative impairment charges 08 million comprised longlived assets related restructuring actions within bruker calid bruker nano groups year 2018 expect incur 70 100 million expense related various outsourcing initiatives restructuring activities implemented 2017 commence 2018 december 31 2017 2016 performed annual goodwill indefinitelived intangible impairment evaluation concluded fair values reporting units significantly greater carrying amounts therefore additional impairment required continue monitor goodwill longlived intangible assets well longlived tangible assets possible future impairment operating income operating income year ended december 31 2017 2147 million resulting operating margin 122 compared income operations 1772 million resulting operating margin 110 year ended december 31 2016 operating margin increased due primarily positive operating leverage higher revenues cost discipline savings restructuring initiatives factors offset dilution recent acquisitions foreign currency translation effects included operating income various charges amortization acquisitionrelated intangible assets acquisitionrelated costs restructuring costs totaling 614 million 607 million years ended december 31 2017 2016 respectively excluding charges nongaap operating margins 156 148 years ended december 31 2017 2016 respectively interest income expense net interest income expense net year ended december 31 2017 169 million compared 04 million year ended december 31 2016 year ended december 31 2017 major components within interest income expense net interest expense 146 million realized unrealized losses foreign currency denominated transactions 55 million partially offset 21 million proceeds cargo insurance settlement gain acquisition 06 million 06 million gain acquisition related acquisition merlin diagnostika gmbh within bsi segment value assets purchased exceeded consideration paid year ended december 31 2016 major components within interest income expense net gain acquisition 92 million realized unrealized gains foreign currency denominated transactions 41 million partially offset net interest expense 129 million 92 million gain acquisition related acquisition oxford instruments superconducting wire llc ost within best segment value assets purchased exceeded consideration paid expect incur approximately 135 million interest expense 2018 income tax provision income tax provision years ended december 31 2017 2016 1175 million 231 million respectively representing effective tax rates 594 130 respectively increase effective tax rate year ended december 31 2017 compared 2016 primarily attributable impact us tax reform 2017 offset 2016 release remaining valuation allowances recognition previously unrecognized tax benefits due closure tax audits 2016 tax rate may change time amount mix jurisdictional income changes expect effective income tax rate approximately 250 year ended december 31 2018 december 22 2017 enactment date president united states signed tax reform legislation 2017 tax act enacted wide range changes us corporate income tax system many differ significantly provisions previous us tax law yet completed assessment tax effects associated enactment 2017 tax act however reasonable estimate made effects existing deferred tax balances onetime transition tax changes tax rates laws accounted period enactment therefore fourth quarter 2017 recorded incremental income tax provision 689 million primarily comprised following • estimated income tax provision 550 million federal state impacts onetime deemed repatriation pre2018 ep accordance 2017 tax act federal portion toll charge liability may paid eight years liability reduced certain credits accordingly recorded 306 million 27 million longterm income tax liabilities accrued income taxes current respectively december 31 2017 • estimated net income tax benefit 14 million remeasurement deferred tax assets liabilities newly enacted tax rate 21 • result 2017 tax act expectations distributing certain cash balances foreign subsidiaries united states also recorded estimated income tax provisions estimated state income taxes foreign withholding taxes 125 million actual results implementation 2017 tax act may materially differ current estimate due among things guidance may issued us tax authorities regulatory bodies including sec fasb interpret 2017 tax act continue analyze 2017 tax act additional guidance may issued finalize full effects applying new legislation measurement period majority companys earnings derived germany switzerland accounting various federal local taxing authorities statutory rates 2017 approximately 300 200 germany switzerland respectively mix earnings two jurisdictions resulted reduction 78 us statutory rate 350 2017 company party tax holiday agreements net income attributable noncontrolling interests net income attributable noncontrolling interests year ended december 31 2017 17 million compared 09 million year ended december 31 2016 net income attributable noncontrolling interests represented minority shareholders proportionate share net income recorded majorityowned indirect subsidiaries net income attributable bruker corporation net income attributable bruker corporation year ended december 31 2017 786 million 049 per diluted share compared net income 1536 million 095 per diluted share 2016 decrease year ended december 31 2017 primarily caused impact us tax reform noted segment results revenue following table presents revenue change revenue growth reportable segment years ended december 31 2017 2016 dollars millions arepresents product service revenue reportable segments bsi segment revenues financial reporting purposes aggregate bruker biospin bruker calid bruker nano operating segments bruker scientific instruments bsi reportable segment represented approximately 90 companys revenues year ended december 31 2017 aggregation reflects operating segments similar economic characteristics production processes customer services provided types classes customers methods distribution regulatory environments best segment reportable segment represents remainder revenues bsi segment revenue increased 913 million 61 15839 million year ended december 31 2017 compared 14926 million year ended december 31 2016 included revenue increase approximately 334 million related recent acquisitions approximately 173 million impact foreign currency translation caused weakening us dollar versus euro currencies excluding effects foreign currency translation recent acquisitions organic revenue nongaap measure increased 406 million 27 bruker biospin group revenue increased 92 million 5719 million year ended december 31 2017 compared 5627 million year ended december 31 2016 bruker biospin group revenue increased despite challenging comparison year ended december 31 2016 benefited sale first shielded ultrahigh field one gigahertz nmr system higher levels high field nmr systems increase revenue primarily attributable service aftermarket business bruker biospin group foreign currency translations bruker calid group revenue increased 236 million 4990 million year ended december 31 2017 compared 4754 million year ended december 31 2016 bruker calid group increase primarily result improved academic end markets particularly mass spectrometry products within europe infrared raman technologies used applied industrial end markets contributions acquisitions foreign currency translation effects increases partly offset lower cbrne revenue benefited significant contract year ended december 31 2016 bruker nano group revenue increased 584 million 5130 million year ended december 31 2017 compared 4546 million year ended december 31 2016 bruker nano group revenue increase primarily result recent acquisitions growth within academic industrial markets xray nano surfaces products growth semiconductor metrology markets system revenue aftermarket revenue percentage total bsi segment revenue follows years ended december 31 2017 2016 dollars millions best segment revenues best segment revenue increased 610 million 469 1912 million year ended december 31 2017 compared 1302 million year ended december 31 2016 increase revenue resulted ost acquisition completed fourth quarter 2016 organic revenue growth caused higher shipments superconductors large magnetic resonance imaging customers system wire revenue aftermarket revenue percentage total best segment revenue follows years ended december 31 2017 2016 dollars millions gross profit operating expenses year ended december 31 2017 gross profit margin bsi segment increased 496 481 year ended december 31 2016 increase gross margin caused primarily higher sales attributable improved european industrial end markets operating cost improvements resulting recent restructuring operational initiatives product mix favoring less profitable lower field nmr systems within biospin group offset year bsi segment gross margin expansion best segment gross profit margin decreased 153 171 year ended december 31 2016 lower gross margins resulted primarily impact ost acquisition integration plans best segments ost business include commercial productivity improvement actions designed achieve preacquisition gross profit margin levels year ended december 31 2017 selling general administrative expenses research development expenses bsi segment increased 5578 million 352 segment revenue 5240 million 351 segment revenue comparable period 2016 selling general administrative expenses research development expenses best segment increased 207 million 108 segment revenue 2017 compared 155 million 119 segment revenue 2016 decrease best segment operating expenses percent revenue primarily attributable increased revenue year ended december 31 2017 operating income following table presents operating income operating margins revenue reportable segment years ended december 31 2017 2016 dollars millions arepresents corporate costs eliminations allocated reportable segments bsi segment operating income year ended december 31 2017 2086 million resulting operating margin 132 compared income operations 1689 million resulting operating margin 113 year ended december 31 2016 operating margin increased primarily gross profit improvements noted well operational improvements result restructuring initiatives best segment operating income year ended december 31 2017 74 million resulting operating margin 39 compared operating income 66 million resulting operating margin 51 year ended december 31 2016 decrease operating margin primarily result gross margin deterioration noted year ended december 31 2016 compared year ended december 31 2015 consolidated results following table presents results years ended december 31 2016 2015 dollars millions except per share data revenue year ended december 31 2016 revenue decreased 125 million 08 16113 million compared 16238 million year ended december 31 2015 included revenue increase approximately 324 million attributable primarily acquisition jordan valley decrease approximately 83 million impact foreign currency translation caused strengthening us dollar versus euro swiss franc currencies excluding effects foreign currency translation recent acquisitions organic revenue nongaap measure decreased 366 million 23 gross profit gross profit year ended december 31 2016 7425 million resulting gross profit margin 461 compared 7086 million resulting gross profit margin 436 year ended december 31 2015 increase gross profit margin caused primarily operating cost improvements result recent restructuring operational initiatives impact pricing increases favorable business mix within bruker biospin group impact jordan valley acquisition favorable effect items partially offset weakness bruker nano group industrial market segments delays european academic funding within bruker calid bruker nano groups first three quarters 2016 selling general administrative selling general administrative expenses year ended december 31 2016 decreased 3905 million 242 revenue 3922 million 242 revenue year ended december 31 2015 selling general administrative expenses remained consistent percentage revenue compared year ended december 31 2015 favorable impacts outsourcing restructuring initiatives offset additional expenses incurred related 2015 acquisition jordan valley recent acquisitions research development research development expenses year ended december 31 2016 increased 1490 million 92 revenue 1457 million 90 revenue year ended december 31 2015 increase attributable new initiatives related recent acquisitions expanded technological portfolio charges net charges net 258 million year ended december 31 2016 252 million related bsi segment 06 million related best segment charges consisted primarily 98 million restructuring costs related closing facilities implementing outsourcing restructuring initiatives 90 million related primarily additional contingent consideration recognized jordan valley based upon increase revenue levels acquired business increased amount expected earn payments 62 million costs associated global information technology transformation initiative impairment charges 08 million comprised longlived assets related restructuring actions within bruker calid bruker nano groups year charges net 250 million year ended december 31 2015 related almost entirely bsi segment charges consisted primarily 102 million onetime noncash settlement charge plan assets pension obligations retirees certain members population within pension plan switzerland transferred outside insurance provider 81 million restructuring costs related closing facilities implementing outsourcing restructuring initiatives 89 million costs associated global transformation initiative impairment charges 46 million comprised goodwill definitelived intangible assets longlived assets related restructuring actions within bruker biospin group partially offset 72 million contingent consideration reversals determined certain financial targets related applicable acquisitions would meet required thresholds payment december 31 2016 2015 performed annual goodwill indefinitelived intangible impairment evaluation concluded fair values reporting units significantly greater carrying amounts therefore additional impairment required operating income operating income year ended december 31 2016 1772 million resulting operating margin 110 compared income operations 1457 million resulting operating margin 90 year ended december 31 2015 increase operating margin primarily attributable gross margin improvements discussed operating cost improvements result restructuring initiatives prudent cost controls interest income expense net interest income expense net year ended december 31 2016 04 million compared 177 million year ended december 31 2015 year ended december 31 2016 major components within interest income expense net gain acquisition 92 million realized unrealized gains foreign currency denominated transactions 41 million partially offset net interest expense 129 million 92 million gain acquisition related acquisition ost within best segment value assets purchased exceeded consideration paid year ended december 31 2015 major components within interest income expense net interest expense 118 million realized unrealized losses foreign currency denominated transactions 55 million income tax provision income tax provision years ended december 31 2016 2015 231 million representing effective tax rates 130 180 respectively decrease effective tax rate year ended december 31 2016 compared 2015 primarily attributable release remaining valuation allowances recognition previously unrecognized tax benefits due closure tax audits tax rate may change time amount mix jurisdictional income changes net income attributable noncontrolling interests net income attributable noncontrolling interests year ended december 31 2016 09 million compared 33 million year ended december 31 2015 net income attributable noncontrolling interests represented minority shareholders proportionate share net income recorded majorityowned indirect subsidiaries net income attributable bruker corporation net income attributable bruker corporation year ended december 31 2016 1536 million 095 per diluted share compared net income 1016 million 060 per diluted share 2015 increase year ended december 31 2016 primarily caused increased gross profit operating profit improvements lower effective tax rate positive impact foreign currency translation share repurchase program segment results revenue following table presents revenue change revenue growth reportable segment years ended december 31 2016 2015 dollars millions arepresents product service revenue reportable segments bsi segment revenues financial reporting purposes aggregate bruker biospin bruker calid bruker nano operating segments bruker scientific instruments bsi reportable segment represented approximately 93 companys revenues year ended december 31 2016 aggregation reflects operating segments similar economic characteristics production processes customer services provided types classes customers methods distribution regulatory environments best segment reportable segment represents remainder revenues bsi segment revenue decreased 66 million 04 14926 million year ended december 31 2016 compared 14992 million year ended december 31 2015 included revenue increase approximately 266 million related acquisition jordan valley offset part approximately 76 million impact foreign currency translation caused strengthening us dollar versus euro swiss franc currencies excluding effects foreign currency translation recent acquisitions organic revenue nongaap measure decreased 256 million 17 bruker biospin group revenue increased 157 million 5627 million year ended december 31 2016 compared 5470 million year ended december 31 2015 bruker biospin group increase revenue primarily due increased pricing recognition revenues sale first shielded ultrahigh field gigahertz nuclear magnetic resonance system bruker calid group revenue decreased 172 million 4754 million year ended december 31 2016 compared 4926 million year ended december 31 2015 bruker calid group experienced lower revenue primarily due delays european academic funding first three quarters 2016 lower sales maldi biotyper china united states first half 2016 bruker nano group revenue decreased 52 million 4546 million year ended december 31 2016 compared 4598 million year ended december 31 2015 bruker nano group experienced lower revenue primarily due delays european academic funding first three quarters 2016 well continued weaker demand within global industrial markets system revenue aftermarket revenue percentage total bsi segment revenue follows years ended december 31 2016 2015 dollars millions best segment revenues best segment revenue decreased 35 million 26 1302 million year ended december 31 2016 compared 1337 million year ended december 31 2015 decline revenue primarily attributable completion final acceptance rosatom pilot line russia high margin customer projects desy particle acceleration iter magnetic fusion year ended december 31 2015 system wire revenue aftermarket revenue percentage total best segment revenue follows years ended december 31 2016 2015 dollars millions gross profit operating expenses year ended december 31 2016 gross profit margin bsi segment increased 481 455 year ended december 31 2015 increase gross margin percentage caused primarily operating cost improvements resulting recent restructuring operational initiatives impact pricing increases within bruker biospin group impact jordan valley acquisition within bruker nano group effects partially offset revenue weakness certain bruker nano bruker calid group market segments resulting delays european academic funding first three quarters 2016 best segment gross profit margin decreased 171 195 year ended december 31 2015 lower gross margins resulted primarily completion rosatom pilot line desy iter orders 2015 year ended december 31 2016 selling general administrative expenses research development expenses bsi segment remained consistent 5240 million 351 segment revenue 5242 million 350 segment revenue comparable period 2015 selling general administrative expenses research development expenses best segment increased 155 million 119 segment revenue 2016 compared 137 million 102 segment revenue 2015 increase best segment operating expenses primarily attributable increased costs associated selective research development initiatives operating income following table presents operating income operating margins revenue reportable segment years ended december 31 2016 2015 dollars millions arepresents corporate costs eliminations allocated reportable segments bsi operating income year ended december 31 2016 1689 million resulting operating margin 113 compared income operations 1332 million resulting operating margin 89 year ended december 31 2015 operating margin increased primarily gross profit improvements noted well operational improvements result restructuring initiatives best operating income year ended december 31 2016 66 million resulting operating margin 51 compared operating income 115 million resulting operating margin 86 year ended december 31 2015 decrease operating margin primarily result decreased gross margins result completion rosatom pilot line desy iter projects 2015 liquidity capital resources currently anticipate existing cash credit facilities sufficient support operating investing needs least next twelve months future cash requirements could affected acquisitions may complete repurchases common stock payment dividends future historically financed growth liquidity needs cash flow generation combination debt financings issuances common stock future assurances additional financing alternatives available us required available obtained terms favorable us year ended december 31 2017 net cash provided operating activities 1544 million resulting primarily consolidated net income adjusted noncash items 1950 million offset net increase operating assets liabilities net acquisitions divestitures 406 million increase operating assets liabilities net acquisitions divestitures year ended december 31 2017 primarily caused increase accounts receivables caused proportionately higher sales late fourth quarter 2017 offset part income tax accruals fourth quarter 2017 related us tax reform legislation well higher compensation restructuring accruals year ended december 31 2016 net cash provided operating activities 1308 million resulting primarily consolidated net income adjusted noncash items 2196 million offset net increase operating assets liabilities net acquisitions divestitures 888 million increase operating assets liabilities net acquisitions divestitures year ended december 31 2016 primarily caused timing customer payments fourth quarter 2015 included higher normal collections receivables increase inventory 2016 result inventory build 2017 orders bruker biospin group best segment income tax payments audit settlements withholding tax payments made first quarter 2016 related companys 2015 european cash repatriation year ended december 31 2017 net cash used investing activities 302 million compared net cash used investing activities 218 million year ended december 31 2016 cash used investing activities year ended december 31 2017 primarily due net cash paid acquisitions 663 million net capital expenditures 322 million activities offset part net cash proceeds shortterm investments 683 million year ended december 31 2016 net cash used investing activities 218 million compared net cash used investing activities 1024 million year ended december 31 2015 cash used investing activities year ended december 31 2016 primarily caused net capital expenditures 360 million cash paid acquisitions net cash acquired 243 million offset part maturities net purchases shortterm investments 385 million expect capital expenditures 2018 amount approximately 500 million year ended december 31 2017 net cash used financing activities 1590 million compared net cash used financing activities 279 million year ended december 31 2016 cash used financing activities year ended december 31 2017 primarily caused repurchase common stock 1522 million 1300 million repayments revolving line credit 254 million used payment dividends 200 million repayments note purchase agreement cash uses partially offset borrowings 1540 million revolving line credit 200 million proceeds issuance common stock connection stock option exercises cash used financing activities year ended december 31 2016 primarily caused repurchase common stock 1600 million 258 million used payment dividends partially offset borrowings 1460 million revolving line credit 115 million proceeds issuance common stock connection stock option exercises may 2017 board directors approved share repurchase program repurchase program repurchases common stock amount 2250 million may occur time amounts prices times deem appropriate subject market conditions legal requirements considerations total 5318063 shares repurchased aggregate cost 1522 million december 31 2017 repurchase program intend fund additional repurchases cash hand future cash flows operations available borrowings revolving credit facility repurchased shares reflected within treasury stock accompanying consolidated balance sheet december 31 2017 cash equivalents shortterm investments december 31 2017 2016 totaled 4392 million 5003 million respectively 4058 million 4609 million respectively related cash equivalents shortterm investments held outside us foreign subsidiaries significantly netherlands switzerland december 31 2017 accordance 2017 tax act recorded state foreign withholding taxes cash liquid assets portion unremitted earnings profits ep foreign subsidiaries expected repatriated foreign subsidiaries united states continue indefinitely reinvested amounting 7400 million noncash ep related 2017 tax act deemed repatriation ep ultimately distributed united states form dividends otherwise would likely subject additional withholding tax continue evaluate assertions cumulative historical outside basis differences foreign subsidiaries december 31 2017 expect finalize analysis accounting related toll charge remaining outside basis differences foreign subsidiaries measurement period estimate amount unrecognized deferred withholding taxes undistributed ep approximately 27 million december 31 2017 december 31 2017 approximately 232 million net operating loss carryforwards available reduce state taxable income also approximately 774 million german trade tax corporate income tax net operating losses carried forward indefinitely additionally 139 million foreign net operating losses expected expire various times beginning 2018 also state research development tax credits 75 million utilization credits state net operating losses may subject annual limitations due ownership percentage change limitations provided internal revenue code section 382 similar state provisions event deemed change control internal revenue code section 382 annual limitation utilization net operating losses credits may result expiration portion net operating loss credit carryforwards uncertain tax contingencies positions taken expected taken income tax return may result additional payments tax authorities tax authority agrees tax position taken expected taken applicable statute limitations expires additional payments necessary december 31 2017 outstanding debt totaling 4156 million consisting 2200 million outstanding note purchase agreement described 1950 million outstanding revolving loan component 2015 credit agreement described 13 million capital lease obligations loans amounts offset unamortized debt issuance costs note purchase agreement 07 million december 31 2016 outstanding debt totaling 4117 million consisting 2400 million outstanding note purchase agreement described 1710 million outstanding revolving loan component 2015 credit agreement described 15 million capital lease obligations loans amounts offset unamortized debt issuance costs note purchase agreement 08 million following summary maximum commitments net amounts available us 2015 credit agreement lines credit various financial institutions located primarily germany switzerland unsecured typically due upon demand interest payable monthly december 31 2017 millions october 27 2015 entered revolving credit agreement referred 2015 credit agreement terminated prior credit agreement 2015 credit agreement provides maximum commitment revolving credit line 5000 million maturity date october 2020 borrowings revolving credit line 2015 credit agreement accrue interest companys option either greatest prime rate ii federal funds rate plus 050 iii adjusted libor plus 100 plus margins ranging 000 030 b libor plus margins ranging 090 130 also facility fee ranging 010 020 borrowings 2015 credit agreement secured guarantees certain material subsidiaries defined 2015 credit agreement 2015 credit agreement also requires us maintain certain financial ratios related maximum leverage minimum interest coverage specifically leverage ratio cannot exceed 35 interest coverage ratio cannot less 25 addition financial ratios 2015 credit agreement contains negative covenants including among others restrictions liens indebtedness company subsidiaries asset sales dividends transactions affiliates failure comply restrictions covenants may result event default 2015 credit agreement could permit acceleration debt require us prepay debt scheduled due date december 31 2017 compliance covenants defined 2015 credit agreement leverage ratio 132 interest coverage ratio 155 january 2012 entered note purchase agreement referred note purchase agreement group accredited institutional investors note purchase agreement issued sold 2400 million senior notes consist following • 200 million 316 series 2012a senior notes due january 18 2017 • 150 million 374 series 2012a senior notes due january 18 2019 • 1050 million 431 series 2012a senior notes due january 18 2022 • 1000 million 446 series 2012a senior notes due january 18 2024 january 18 2017 outstanding 200 million principal amount tranche senior notes repaid accordance terms note purchase agreement terms note purchase agreement may issue sell additional senior notes aggregate principal amount 600 million subject certain conditions interest senior notes payable semiannually january 18 july 18 year senior notes unsecured obligations fully unconditionally guaranteed certain direct indirect subsidiaries senior notes rank pari passu right repayment senior unsecured indebtedness may prepay senior notes time amount less 10 original aggregate principal amount senior notes prepaid price equal sum 100 principal amount thereof plus accrued unpaid interest b applicable makewhole amount upon less 30 60 days written notice holders senior notes event change control company defined note purchase agreement may required prepay notes price equal 100 principal amount thereof plus accrued unpaid interest note purchase agreement contains affirmative covenants including without limitation maintenance corporate existence compliance laws maintenance insurance properties payment taxes addition subsidiary guarantors furnishing notices information note purchase agreement also contains certain restrictive covenants restrict ability among things incur liens transfer sell assets engage certain mergers consolidations enter transactions affiliates note purchase agreement also includes customary representations warranties events default case event default arising specified events bankruptcy insolvency outstanding senior notes become due payable immediately without action notice case payment events defaults holder senior notes affected thereby may declare senior notes held due payable immediately case event default majority holders senior notes may declare senior notes due payable immediately pursuant note purchase agreement long senior notes outstanding permit leverage ratio determined pursuant note purchase agreement end fiscal quarter exceed 350 100 ii interest coverage ratio determined pursuant note purchase agreement end fiscal quarter period four consecutive fiscal quarters less 250 1 iii priority debt time exceed 25 consolidated net worth determined pursuant note purchase agreement december 31 2017 compliance covenants note purchase agreement leverage ratio defined note purchase agreement 132 interest coverage ratio defined note purchase agreement 155 following table summarizes maturities significant financial obligations december 31 2017 dollars millions 1unconditional purchase commitments include agreements purchase goods services fixed assets enforceable legally binding specify significant terms including fixed minimum quantities purchased fixed minimum variable price provisions approximate timing transaction purchase commitments exclude agreements cancellable time without penalty 2acquisitionrelated contingent considerations represents estimated fair value future payments former shareholders applicable acquired companies based achieving annual revenue gross margin targets certain years specified purchase sale agreements critical accounting policies estimates discussion analysis financial condition results operations based upon consolidated financial statements prepared accordance accounting principles generally accepted united states america us gaap preparation financial statements requires make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments including related revenue recognition expensing capitalization software development costs stockbased compensation expense restructuring related charges income taxes including recoverability deferred tax assets allowances doubtful accounts inventory reductions excess obsolete inventories estimated fair values longlived assets used measure recoverability longlived assets intangible assets goodwill expected future cash flows used measure recoverability intangible assets longlived assets warranty costs derivative financial instruments contingent liabilities base estimates judgments historical experience current market economic conditions industry trends assumptions believe reasonable form basis making judgments carrying value assets liabilities readily apparent sources actual results could differ estimates believe following critical accounting policies estimates important portrayal financial position results operations require estimation subjective judgment revenue recognition recognize revenue system sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectability resulting receivable reasonably assured title risk loss generally transfers upon shipment certain systems based upon customer acceptance system delivered customer installed customer facility systems include customerspecific acceptance criteria required assess demonstrate acceptance criteria met generally upon successful factory acceptance testing customer acceptance evidence installation products sold independent distributor strategic distribution partner assumes responsibility installation recognize system sale product shipped title risk loss transferred distributor distributors price protection rights return however products typically warranted free defect period one year revenue deferred cash received collectability reasonably assured price fixed determinable transactions include multiple elements arrangement consideration allocated element using fair value hierarchy required asu 200913 limit amount revenue recognized delivered elements amount contingent future delivery products services future performance obligations subject customerspecific return refund privileges determine fair value products services based upon vendor specific objective evidence vsoe determine vsoe based normal selling pricing discounting practices specific product service sold standalone basis determining vsoe policy requires substantial majority selling prices product service within reasonably narrow range also consider class customer method distribution geographies products services sold determining vsoe cannot established attempt establish selling price based thirdparty evidence tpe vsoe cannot established instances product service sold separately standalone sales infrequent product pricing within sufficiently narrow range tpe determined based competitor prices similar deliverables sold separately cannot determine vsoe tpe use estimated selling price esp allocation arrangement consideration objective esp determine price would typically transact standalone sale product service esp determined considering number factors including pricing policies internal costs gross profit objectives method distribution market research information recent technological trends competitive landscape geographies analyze selling prices used allocation arrangement consideration minimum annual basis selling prices analyzed frequently significant change business occurs factors necessitate frequent analysis experience significant variances selling prices revenue accessories consumable parts generally recognized upon shipping terms service revenue recognized services performed ratably contractual obligation includes maintenance contracts extended warranty training application support ondemand services also contracts apply percentageofcompletion model completed contract model revenue recognition application percentageofcompletion method requires us make reasonable estimates extent progress toward completion contract total costs incur contract losses recorded immediately estimate contracts ultimately result loss changes estimates could affect timing revenue recognition revenues primarily comprised development arrangements recognized costplusfixedfee basis licensing arrangements recognized ratably term related contracts income taxes determination income tax expense requires us make certain estimates judgments concerning annual effective tax rate calculation deferred tax assets liabilities forecasted profitability subsidiaries certain geographic jurisdictions well deductions carryforwards credits available reduce taxable income deferred tax assets liabilities arise differences timing recognition revenue expenses financial statement tax purposes deferred tax assets liabilities measured using tax rates effect year temporary differences expected settled estimate degree tax assets loss carryforwards result benefit based expected profitability tax jurisdiction provide valuation allowance tax assets loss carryforwards believe likely go unused becomes likely tax asset loss carryforward used valuation allowance provided reverse related valuation allowance actual future taxable income tax jurisdiction differs estimates additional allowances reversals valuation allowance may necessary addition recognize benefits tax positions believe likely sustained upon review taxing authority knowledge relevant information reevaluate uncertain tax positions quarterly basis changes positions result tax audits tax laws facts circumstances could result additional charges credits operations expiration statutes limitations affecting estimates made uncertain tax positions cause higher earnings december 22 2017 enactment date president united states signed tax reform legislation 2017 tax act enacted wide range changes us corporate income tax system many differ significantly provisions previous us tax law yet completed assessment tax effects associated enactment 2017 tax act however reasonable estimate made effects existing deferred tax balances onetime transition tax changes tax rates laws accounted period enactment actual results implementation 2017 tax act may materially differ current estimate due among things guidance may issued us tax authorities regulatory bodies including sec fasb interpret 2017 tax act continue analyze 2017 tax act additional guidance may issued finalize full effects applying new legislation measurement period inventories stated lower cost net realizable value costs determined firstin firstout method majority subsidiaries average cost certain subsidiaries record provisions account excess obsolete inventory reflect expected nonsaleable nonrefundable inventory based evaluation slow moving products longer offered sale inventories also include demonstration units located demonstration laboratories installed sites potential customers consider demonstration units available sale history selling demonstration units reduce carrying value demonstration inventories differences cost estimated net realizable value taking consideration usage preceding twelve months expected demand technological obsolescence information including physical condition unit ultimate usage demand varies significantly expected usage demand additional writedowns may required resulting additional charges operations goodwill intangible assets longlived assets evaluate goodwill impairment annually events occur circumstances change test goodwill impairment reporting unit level operating segment one level operating segment us gaap option performing qualitative assessment determine whether impairment testing necessary performing twostep quantitative assessment qualitative assessment requires significant judgments macroeconomic conditions including entitys operating environment industry market considerations entityspecific events related financial performance loss key personnel events could impact reporting unit result qualitative assessment morelikelythannot fair value reporting unit less carrying amount quantitative impairment test required otherwise testing required quantitative impairment test performed first step involves comparing fair values applicable reporting units aggregate carrying values including goodwill generally determine fair value reporting units using weighting market approach income approach methodologies income approach valuation methodology includes discounted cash flow estimates estimating fair value reporting units requires significant judgment future cash flows carrying amount reporting unit exceeds fair value reporting unit perform second step goodwill impairment test measure amount impairment second step goodwill impairment test compare implied fair value reporting units goodwill carrying value goodwill december 31 2017 performed annual goodwill indefinitelived intangible impairment evaluation using qualitative impairment test concluded fair values reporting units significantly greater carrying amounts therefore additional impairment required also review definitelived intangible assets longlived assets indications potential impairment exist fair value longlived assets decline reduced operating performance market declines indicators impairment charge operations impairment may necessary recent accounting pronouncements january 2017 financial accounting standards board fasb issued accounting standards update asu 201704 intangiblesgoodwill topic 350 simplifying test goodwill impairment new standard simplifies subsequent measurement goodwill eliminating second step goodwill impairment test asu applied prospectively effective annual interim goodwill impairment tests fiscal years beginning december 15 2019 adoption standard expected material impact financial position results operations statements cash flows upon adoption january 2017 fasb issued asu 201701 business combinations topic 805 clarifying definition business new standard clarifies definition business provides screen determine integrated set assets activities business screen requires substantially fair value gross assets acquired disposed concentrated single identifiable asset group similar identifiable assets set business new standard adopted effective date january 1 2018 evaluated provisions standard determined impact adoption asu 201701 material consolidated financial statements october 2016 fasb issued asu 201616 income taxes topic 740intraentity transfer assets inventory new standard requires recognition current deferred income taxes resulting intraentity transfer asset excluding inventory transfer occurs change existing us gaap prohibits recognition current deferred income taxes asset sold third party new standard adopted effective date january 1 2018 evaluated provisions standard determined impact adoption asu 201616 material consolidated financial statements february 2016 fasb issued asu 201602 leases new standard provides guidance recognition measurement presentation disclosure leases new standard supersedes present us gaap guidance leases requires substantially leases reported balance sheet rightofuse assets lease liabilities well additional disclosures new standard effective january 1 2019 early adoption permitted evaluating provisions standard including period adopt determined impact adoption asu 201602 consolidated financial statements may 2014 fasb issued asu 201409 revenue contracts customers supersedes revenue recognition requirements accounting standards codification asc topic 605 new guidance result joint project fasb international accounting standards board clarify principles recognizing revenue develop common revenue standards us gaap international financial reporting standards core principle new guidance revenue recognized depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services august 2015 fasb elected defer effective date asu 201409 one year annual periods beginning december 15 2017 early application permitted original effective date new guidance may applied retrospective basis prior periods presented modified retrospective basis cumulative effect new guidance date initial application new guidance effective us january 1 2018 currently intend use modified retrospective transition method substantially completed impact assessment phase evaluation asu 201409 new guidance specific criteria determine performance obligation recognized time point time accordingly identified certain projectbased orders best segment cbrne detection orders bruker calid group timing recognize revenue may impacted due complexity projectbased orders revenue recognition new standard highly dependent specific contract terms fourth quarter 2017 substantially completed assessment impact new standard consolidated balance sheets preliminarily expect recognize adjustment approximately 60 million retained earnings january 1 2018 reflect cumulative effect accounting changes made upon adoption standard finalization assessment may result significant changes estimates may materially impact preliminary estimate cumulative effect transactions related parties lease certain office space certain principal shareholders including director executive officer another member board directors members immediate families expiration dates ranging 2017 2020 total rent expense leases 35 million 39 million 18 million years ended december 31 2017 2016 2015 respectively years ended december 31 2017 2016 2015 recorded revenue 26 million 11 million 07 million respectively arising commercial transactions life sciences company member board directors chairman chief executive officer year ended december 31 2016 2015 recorded revenue 02 million 05 million respectively commercial transactions thermal analysis company member board directors serves consultant item 7aitem 7 management’s discussion analysis financial condition results operations read following discussion analysis financial condition results operations conjunction consolidated financial statements notes statements appearing elsewhere report contains forwardlooking statements reflecting current expectations involve risks uncertainties statements plans objectives expectations intentions cautionary statements made report read applying related forwardlooking statements wherever appear report actual results may differ materially indicated forwardlooking statements due number factors including discussed item 1a risk factors elsewhere report following management’s discussion analysis financial condition results operations mda describes principal factors affecting results operations financial condition changes financial condition well critical accounting policies estimates mda organized follows ●nongaap measures section provides appropriate disclosures regarding forward looking statements use nongaap financial measures ●overview section provides brief discussion reportable segments’ results operations significant recent developments businesses challenges risks may impact businesses future ●results operations section provides analysis significant line items consolidated statements income comprehensive income loss year ended december 31 2020 compared year ended december 31 2019 year ended december 31 2019 compared year ended december 31 2018 ●liquidity capital resources section provides analysis liquidity cash flow discussion outstanding debt commitments ●critical accounting policies estimates section discusses accounting estimates considered important financial condition results operations require us exercise subjective complex judgments application significant accounting policies summarized note 2 consolidated financial statements item 8 annual report form 10k ●recent accounting pronouncements section provides summary recent accounting pronouncements discusses potential impact consolidated financial statements nongaap measures although consolidated financial statements prepared accordance generally accepted accounting principles united states america gaap believe describing revenue expenses excluding effects foreign currency acquisitions divestitures well certain charges net provides meaningful supplemental information regarding performance rely internally certain measures calculated according gaap measures organic revenue free cash flow nongaap gross profit margin nongaap operating margin management believes financial measures provide relevant useful information widely used equity analysts investors competitors industry well management assessing consolidated business unit performance define term organic revenue gaap revenue excluding effect foreign currency translation changes effect acquisitions divestitures define term nongaap gross profit margin gaap gross profit margin certain nongaap measures excluded nongaap operating margin gaap operating margin certain nongaap measures excluded nongaap measures exclude costs related restructuring actions acquisition related integration expenses amortization acquired intangible assets costs associated global information technology transition initiative nonoperational costs believe useful measures evaluate continuing business define free cash flow net cash provided operating activities less additions property plant equipment believe free cash flow useful measure evaluate business indicates amount cash generated additions property plant equipment available among things investments business acquisitions share repurchases dividends repayment debt regularly use nongaap financial measures internally understand manage evaluate business results make operating decisions also measure employees compensate part based nongaap measures use information planning forecasting activities measures may also useful investors evaluating underlying operating performance business presentation nongaap financial measures intended substitute superior financial information prepared presented accordance gaap may different nongaap financial measures used companies therefore may comparable among companies overview developer manufacturer distributor highperformance scientific instruments analytical diagnostic solutions enable customers explore life materials microscopic molecular cellular levels corporate headquarters located billerica massachusetts maintain major technical manufacturing centers europe asia north america sales offices located throughout world bruker organized three reportable segments bsi life science segment comprised bruker biospin group bruker calid group bsi nano segment bruker energy supercon technologies best segment revenue year ended december 31 2020 decreased 851 million 41 19875 million compared 20726 million comparable period 2019 decline revenue primarily related impact covid19 pandemic related economic slowdown included revenue increases approximately 294 million favorable impact foreign currency translation 105 million attributable recent acquisitions year ended december 31 2020 compared year ended december 31 2019 excluding effects foreign currency translation recent acquisitions organic revenue nongaap measure decreased 1250 million 60 gross profit margin decreased 473 year ended december 31 2020 compared 480 year ended december 31 2019 decrease gross margin result lower volume reduced productivity due disruptions covid19 pandemic related economic slowdown partially offset certain cost reduction measures operating margin decreased 125 year ended december 31 2020 145 year ended december 31 2019 decrease operating margin due lower revenue gross profit covid19 pandemic related economic slowdown partially offset cost control cost reduction measures income tax provision years ended december 31 2020 december 31 2019 644 million 824 million respectively representing effective tax rates 285 294 respectively decrease effective tax rate year ended december 31 2020 compared 2019 primarily attributable change jurisdictional income mix decrease foreign income inclusions due electing high tax exemption relating global intangible lowtaxed income “gilti” partially offset increase effective tax rate due change valuation allowance tax rate may change time amount mix jurisdictional income mix changes earnings per share decreased 102 per diluted share year ended december 31 2020 126 per diluted share year ended december 31 2019 decrease compared prior year driven primarily lower revenues covid19 pandemic related economic slowdown partially offset cost control cost reduction measures following table presents reconciliation net cash provided operating activities directly comparable gaap operating financial measure free cash flow used management millions year ended december 31 2020 free cash flow 67 higher period 2019 primarily increase customer advances cash receivables despite decline net income following table presents reconciliation gross profit directly comparable gaap operating performance measure nongaap gross profit margin used management millions nongaap gross profit margin 487 500 490 years ended december 31 2020 2019 2018 respectively nongaap gross profit margin decreased 2020 compared 2019 due lower volume reduced productivity due covid19 economic slowdown nongaap gross profit margin increased year ended december 31 2019 compared period 2018 primarily due operational improvements within bsi life science segment accretive acquisitions favorable foreign currency translation effects following table presents reconciliation operating income directly comparable gaap operating performance measure nongaap operating income used management millions nongaap operating margin 160 176 168 years ended december 31 2020 2019 2018 respectively nongaap operating margin decreased 2020 compared 2019 lower revenues partially offset cost control cost reduction measures experience quartertoquarter fluctuations operating results result various factors outside control ●the impact covid19 global pandemic customers supply chain manufacturing capabilities ●the timing governmental stimulus programs academic research budgets ●the time takes date customer orders deposits received systems shipped accepted customers full payment received ●foreign currency exchange rates ●the time takes us receive critical materials manufacture products ●general economic conditions including impact covid19 global economy ●the time takes satisfy local customs requirements exportimport requirements ●the time takes customers construct prepare facilities products ●the time required obtain governmental licenses several factors past affected amount timing revenue recognized sales products receipt related payments continue future accordingly operating results particular quarter may necessarily indication future quarter’s operating performance covid19 pandemic continues present challenging operating environment remain focused four key priorities health safety employees customers partners maintaining business continuity service levels customers executing prudent temporary cost reductions delivering enabling research diagnostic products help fight pandemic support essential priorities society health safety valued employees customers partners brukers businesses essential implemented strict social distancing enhanced cleaning protocols preventative measures temperature scanners companyissued face coverings major facilities many office colleagues working remotely placing enhanced focus service organization factory employees work home feasible customer sites accessible open field service organizations operate social distancing protocols ensure safety customer sites employees need site maintaining business continuity service levels customers ensuring ability supply enabling technologies solutions maintaining high service levels customers another top priority bruker late march parts april 2020 several manufacturing sites underwent temporary controlled shutdowns operating reduced capacity implement new safety protocols comply local rules manage cost inventory levels sites thereafter ramped back expanding capacity productivity levels however resurgence virus emergency additional strains virus may need consider temporary controlled shutdowns reduced capacity measures addition continuing capital investments production facilities efficiencies expansion supply chain remains resilient carry higher inventory levels address supply chain risks related pandemic currently anticipate supply capacity limited first quarter 2021 executing prudent temporary cost reductions effort mitigate negative impacts business covid19 slowdown global economy implemented temporary cost control cost reduction measures temporary measures included shorttime work many european operations temporary tiered salary reductions board directors global leadership team workforce oneto twoweek closures select manufacturing locations selective product manufacturing reductions hiring freeze curtailment nonstrategic discretionary spending time looked minimize disruption employees preserve ability ramp highly trained loyal work force pursuing cost savings throughout business maintained important investments key strategic initiatives many cost reduction measures relaxed revenue experiencing recovery delivering enabling research diagnostic products help fight pandemic support essential priorities society bruker providing critical technologies solutions help combat covid19 crisis notably microbiology infectious disease diagnostics portfolio added sarscov2 pcr tests nuclear magnetic resonance mass spectrometry systems used critical disease therapeutic vaccine research covid19 global pandemic driven volatility uncertainty global markets affected operations significantly continue work manage impact covid19 operations however full extent resurgence virus emergence new strains virus impact business directly indirectly cannot accurately predicted time 2020 covid19 pandemic affected productivity manufacturing facilities caused disruptions delays certain shipments customers closed facilities pandemic continue monitor impact covid19 business respond accordingly additional information various risks posed covid19 pandemic refer item 1a risk factors included report results operations year ended december 31 2020 compared year ended december 31 2019 consolidated results following table presents results years ended december 31 2020 2019 millions except per share data revenue decline revenue primarily related impact covid19 pandemic customers well certain operations lower global instrumentation superconductor demand due pandemic related economic slowdown gross profit decline gross profit result lower revenue volume reduced productivity given impact pandemic economic slowdown partially offset cost control cost reduction measures selling general administrative selling general administrative expenses year ended december 31 2020 decreased 236 total revenue 241 total revenue comparable period 2019 decrease percentage total revenue dollars result cost control cost reduction measures implemented covid19 pandemic 2020 research development research development expenses year ended december 31 2020 increased 100 total revenue 91 total revenue comparable period 2019 increase percentage revenue dollars result higher research development spending continued fund certain growth investments comparison lower revenue 2020 charges net charges net 249 million year ended december 31 2020 charges consisted primarily 120 million restructuring costs related closing facilities implementing outsourcing restructuring initiatives 59 million related professional fees 25 million costs associated global transformation initiative 24 million acquisitionrelated charges related acquisitions completed 2020 2019 21 million related longlived asset impairments charges net 65 million year ended december 31 2019 charges consisted primarily 39 million restructuring costs related closing facilities implementing outsourcing restructuring initiatives 46 million acquisitionrelated charges related acquisitions completed 2019 2018 37 million costs associated global transformation initiative 21 million related professional fees restructuring charges included gain sale building 77 million operating income decrease operating income due lower revenue gross profit covid19 pandemic related economic slowdown partially offset cost control cost reduction measures interest income expense net primary components within interest income expense net year ended december 31 2020 net interest expense 112 million realized unrealized losses foreign currency denominated transactions 80 million 33 million related pension plan year ended december 31 2019 primary components net interest expense 147 million realized unrealized losses foreign currency denominated transactions 34 million 25 million related pension plan expenses 01 million related income tax provision effective tax rates years ended 2020 2019 285 294 respectively decrease effective tax rate year ended december 31 2020 compared 2019 primarily attributable change jurisdictional income mix decrease foreign income inclusions due electing high tax exemption relating gilti partially offset increase effective tax rate due change valuation allowance tax rate may change time amount mix jurisdictional income changes net income attributable noncontrolling interests redeemable noncontrolling interest net income attributable noncontrolling interests represented minority shareholders proportionate share net income recorded majorityowned subsidiaries january 2020 acquired remaining interest redeemable noncontrolling interest net income attributable bruker corporation decrease net income earnings per diluted share primarily driven decline revenue gross profit operating profit result reduced demand covid19 pandemic related economic slowdown segment results revenue following table presents revenue change revenue growth reportable segment years ended december 31 2020 2019 dollars millions arepresents product service revenue reportable segments financial reporting purposes aggregate bruker biospin group bruker calid group bsi life science segment aggregation reflects similar economic characteristics production processes customer services provided types classes customers methods distribution regulatory environments bsi life science segment revenue approximately flat year decline biospin systems ftirnir molecular spectroscopy revenues due covid19 pandemic offset strong demand calid microbiology infectious disease diagnostics offering certain calid’s mass spectrometry systems decline revenues bsi nano segment due primarily impact covid19 pandemic related economic slowdown reduced academic industrial research demand decline revenue best segment due lower superconductor demand 2020 operating income following table presents operating income operating margins revenue reportable segment years ended december 31 2020 2019 dollars millions arepresents corporate costs eliminations allocated reportable segments operating margin decline bsi life science segment due higher operating expenses 2020 compared 2019 decline operating margin bsi nano segment due lower revenue gross profit partially offset cost reduction measures decline operating margin best segment due lower revenue unfavorable mix charges related planned restructuring actions partially offset reduced operating expenses year ended december 31 2019 compared year ended december 31 2018 consolidated results following table presents results years ended december 31 2019 2018 millions except per share data revenue increase revenue year ended december 31 2019 compared year ended december 31 2018 included 1184 million attributable recent acquisitions decrease approximately 503 million impact foreign currency translation excluding effects foreign currency translation recent acquisitions organic revenue nongaap measure increased 1089 million 57 gross profit gross profit margin 480 year ended december 31 2019 compared 475 year ended december 31 2018 included gross profit various charges amortization acquisitionrelated intangible assets acquisitionrelated costs restructuring costs totaling 417 million 287 million years ended december 31 2019 2018 respectively gross profit margin increased year ended december 31 2019 primarily due operational improvements within bsi life science segment accretive acquisitions favorable foreign currency translation effects selling general administrative selling general administrative expense 241 235 revenue 2019 2018 respectively increase primarily caused addition recent acquisitions select investments strategic growth areas partially offset favorable foreign currency translation effects research development research development expense 91 revenue 2019 2018 dollar increase research development driven primarily addition recent acquisitions partially offset favorable foreign currency translation effects charges net charges net 2019 consisted primarily net gain 39 million restructuring costs related closing facilities implementing outsourcing restructuring initiatives 46 million acquisitionrelated charges related acquisitions completed 2019 2018 37 million costs associated global transformation initiative 21 million related professional fees restructuring charges included gain sale building 77 million charges net 2018 consisted primarily 68 million restructuring costs related closing facilities implementing outsourcing restructuring initiatives 34 million acquisitionrelated charges related acquisitions completed 2018 2017 48 million costs associated global information technology transformation initiative 45 million related professional fees december 31 2019 2018 performed annual goodwill indefinitelived intangible impairment evaluation concluded fair values reporting units significantly greater carrying amounts therefore additional impairment required operating income operating margin increased 145 2019 compared 138 year ended december 31 2018 included operating income various charges amortization acquisitionrelated intangible assets acquisitionrelated costs restructuring costs totaling 631 million 555 million years ended december 31 2019 2018 respectively increase gaap operating margin due primarily volume operational improvements within bsi life science segment accretive acquisitions positive impact foreign currency translation interest income expense net increase net interest expense 2019 compared 2018 primarily attributable higher outstanding debt balances 2019 compared 2018 marginally offset interest income new 2019 us dollartoeuro us dollar swiss franc interest rate crosscurrency swap agreements year ended december 31 2019 major components within interest income expense net interest expense 147 million realized unrealized losses foreign currency denominated transactions 33 million 25 million related pension plan expenses year ended december 31 2018 major components within interest income expense net interest expense 114 million realized unrealized losses foreign currency denominated transactions 30 million 39 million related pension plan expenses income tax provision effective tax rate 294 260 years ended december 31 2019 2018 respectively increase effective tax rate year ended december 31 2019 compared 2018 primarily attributable benefit recorded 2018 associated reversal state foreign withholding taxes unremitted earnings recur 2019 additional tax reserves uncertain tax positions europe 2019 net income attributable noncontrolling interests redeemable noncontrolling interest net income attributable noncontrolling interests redeemable noncontrolling interest decreased 2019 result minority shareholders’ proportionate share net income recorded majorityowned indirect subsidiaries compared 2018 net income attributable bruker corporation year ended december 31 2019 diluted earnings per share 126 compared 114 per diluted share 2018 increase net income attributable bruker corporation 2019 compared prior year driven primarily revenue growth higher gross operating profit offset increase effective tax rate year ended december 31 2019 segment results revenue following table presents revenue change revenue growth reportable segment years ended december 31 2019 2018 dollars millions arepresents product service revenue reportable segments bsi life science segment revenue increased 1060 million 12449 million year ended december 31 2019 compared 11389 million year ended december 31 2018 bruker biospin group revenue increase primarily due growth system revenue included revenue recognition three ghz class systems well aftermarket revenue small contribution recent software acquisitions increase bruker calid group revenue result continued strong demand life science mass spectrometry microbiology products growth molecular spectroscopy ftir nir products contributions acquisition bsi nano segment revenue increase primarily result acquisitions well continued demand advanced xray nano analysis products partially offset sharp decline demand semiconductor metrology products unfavorable foreign currency translation best segment revenue increase primarily shipments superconductors healthcare applications offset part impact unfavorable foreign currency translation operating income following table presents operating income operating margins revenue reportable segment years ended december 31 2019 2018 dollars millions arepresents corporate costs eliminations allocated reportable segments operating margin expansion bsi life science best primarily due positive operating leverage higher sales mix operational improvements well favorable foreign currency translation bsi life science segment decline operating margin bsi nano segment due decline semiconductor metrology demand softness industrial research markets second half 2019 impact costs related recent acquisition liquidity capital resources anticipate existing cash equivalents credit facilities sufficient support operating investing needs least next twelve months future cash requirements could affected acquisitions may complete repurchases common stock payment dividends future addition ability access capital maintain liquidity may impacted volatile market conditions caused covid19 pandemic historically financed growth liquidity needs cash flow generation combination debt financings issuances common stock future assurances continue generate cash flow operations additional financing alternatives available us required available obtained terms favorable us cash equivalents shortterm investments december 31 2020 2019 totaled 7318 million 6849 million respectively 5149 million 3011 million respectively related cash equivalents shortterm investments held outside us foreign subsidiaries significantly netherlands switzerland hong kong following table presents cash flows operating activities investing activities financing activities periods presented millions operating activities year ended december 31 2020 net cash provided operating activities resulted primarily consolidated net income adjusted noncash items 2626 million addition net increase operating assets liabilities net acquisitions divestitures 696 million increase operating assets liabilities net acquisitions divestitures year ended december 31 2020 primarily caused decrease accounts receivable due increased cash collections increased customer advances related covid19 order increases late 2020 offset strategic inventory build 2021 orders supply chain management year ended december 31 2019 net cash provided operating activities resulted primarily consolidated net income adjusted noncash items 2879 million offset net decrease operating assets liabilities net acquisitions divestitures 745 million decrease operating assets liabilities net acquisitions divestitures year ended december 31 2019 primarily caused increase inventory build 2020 orders year ended december 31 2018 net cash provided operating activities resulted primarily consolidated net income adjusted noncash items 2819 million offset net decrease operating assets liabilities net acquisitions divestitures 422 million decrease operating assets liabilities net acquisitions divestitures year ended december 31 2018 primarily caused increase accounts receivable caused proportionately higher sales late fourth quarter 2018 inventory build 2019 orders offset part cash received customer advances investing activities year ended december 31 2020 increase net cash used investing activities year ended december 31 2020 primarily attributable net capital expenditures 972 million net cash paid acquisitions 592 million purchases shortterm investments net maturities 439 million year ended december 31 2019 increase net cash used investing activities primarily attributable net cash paid acquisitions 900 million net capital expenditures 620 million purchase shortterm investments 64 million year ended december 31 2018 increase net cash used investing activities primarily attributable net cash paid acquisitions 1916 million net capital expenditures 488 million activities offset part net cash proceeds shortterm investments 1170 million expect capital expenditures 2021 approximately 1000 million financing activities year ended december 31 2020 net cash used financing activities primarily caused 1232 million used purchase common stock repurchase program 246 million used payment dividends 76 million net payments borrowings 2019 revolving credit agreement 75 million payment contingent consideration year ended december 31 2019 increase net cash provided financing activities primarily caused 5979 million new debt borrowings described offset part 3619 million repayments revolving lines credit cash uses 1423 million used repurchase common shares 250 million payment dividends 150 million repayment 2012 note purchase agreement cash sources borrowings 2506 million revolving lines credit 109 million proceeds issuance common stock connection stock option exercises year ended december 31 2018 decrease net cash used financing activities primarily caused 2181 million repayments revolving lines credit 251 million used payment dividends cash uses partially offset borrowings 1294 million revolving lines credit 94 million proceeds issuance common stock connection stock option exercises share repurchase program may 2019 board directors approved share repurchase program authorizes purchase common stock amount 3000 million time amounts prices times management deems appropriate subject market conditions legal requirements considerations repurchased total 2711952 shares aggregate cost 1232 million year ended december 31 2020 repurchased total 3323104 shares aggregate cost 1423 million year ended december 31 2019 remaining authorization february 25 2021 53 million repurchase program expires may 13 2021 intend fund future purchases cash hand future cash flows operations available borrowings revolving credit facility income taxes december 31 2020 accordance 2017 tax cuts jobs act “2017 tax act” recorded state foreign withholding taxes well subsequent foreign currency translations withholding taxes obligation parent company cash liquid assets portion unremitted earnings profits ep foreign subsidiaries expected repatriated foreign subsidiaries united states continue indefinitely reinvested amount 436 million noncash ep subject 2017 tax act deemed repatriation ep ultimately distributed united states form dividends otherwise would likely subject additional withholding tax continue evaluate assertions cumulative historical outside basis differences foreign subsidiaries december 31 2020 amount unrecognized deferred withholding taxes undistributed ep 63 million december 31 2020 december 31 2020 approximately 652 million net operating loss carryforwards available reduce state taxable income expected expire various times beginning 2021 approximately 1084 million net operating losses available reduce german federal income trade taxes carried forward indefinitely 185 million foreign net operating losses expected expire various times beginning 2021 also us state research development tax credit carryforward 71 million utilization credits state net operating losses may subject annual limitations due ownership percentage change limitations provided section 382 internal revenue code 1986 amended “code” similar state provisions event deemed change control code section 382 annual limitation utilization net operating losses credits may result expiration portion net operating loss credit carryforwards uncertain tax contingencies positions taken expected taken income tax return may result additional payments tax authorities tax authority agrees tax position taken expected taken applicable statute limitations expires additional payments necessary credit facilities december 11 2019 entered 1 new revolving credit agreement establish new revolving credit facility aggregate principal amount 600 million 2 term loan agreement establish new term loan facility aggregate principal amount 300 million 3 note purchase agreement issue sell chf 297 million aggregate principal amount 101 senior notes due december 11 2029 floating interest rates term loan simultaneously fixed crosscurrency interest rate swap agreements euro 150 million swiss franc 150 million rates carrying average effective interest rates 094 hedge net investment euro swiss franc denominated net assets new revolving credit agreement replaced 500 million fiveyear revolving credit agreement established october 27 2015 terminated december 11 2019 addition designated chf 297 million senior notes hedge net investment swiss franc denominated net assets proceeds financing used repay outstanding borrowings prior 2015 revolving credit facility intend use remaining proceeds general corporate purposes support corporate strategic objectives december 2019 entered us dollar euro crosscurrency swaps existing 2012 private placement notes 105 million 431 series 2012a senior notes tranche c due january 18 2022 existing 100 million 446 series 2012a senior notes tranche due january 18 2024 resulting average effective interest rate 225 instruments crosscurrency swaps hedge net investment euro denominated net assets december 31 2020 entered several crosscurrency interest rate swap agreements notional value 150 million us dollar swiss franc notional value 355 million us dollar euro hedge variability movement foreign currency exchange rates portions euro swiss franc denominated net asset investments result entering agreements lowered net interest expense 72 million 06 million year ended december 31 2020 2019 respectively anticipate swap agreements lower net interest expense approximately 88 million 2021 48 million 2022 following debt outstanding millions amount outstanding 2019 credit agreement december 31 2020 2019 december 31 2020 offbalance sheet arrangements compliance financial covenants debt arrangements following summary maximum commitments net amounts available us 2019 credit agreement banking working capital lines guarantees credit various financial institutions located primarily germany switzerland unsecured typically due upon demand december 31 2020 dollars millions december 31 2020 compliance covenants debt agreements liquidity matters following table summarizes maturities significant financial obligations december 31 2020 millions 1 interest payable longterm debt net impact crosscurrency interest rate swap agreements 2 unconditional purchase commitments include agreements purchase goods services fixed assets enforceable legally binding specify significant terms including fixed minimum quantities purchased fixed minimum variable price provisions approximate timing transaction purchase commitments exclude agreements cancellable time without penalty 3 acquisitionrelated contingent consideration represents estimated fair value future payments former shareholders applicable acquired companies based achieving annual revenue gross margin targets certain years specified purchase sale agreements critical accounting policies estimates discussion analysis financial condition results operations based upon consolidated financial statements prepared accordance accounting principles generally accepted united states america us gaap preparation financial statements requires make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments including related revenue recognition stockbased compensation expense restructuring related charges income taxes including recoverability deferred tax assets allowances doubtful accounts inventory reductions excess obsolete inventories estimated fair values longlived assets used measure recoverability longlived assets intangible assets goodwill expected future cash flows used measure recoverability intangible assets longlived assets warranty costs derivative financial instruments contingent liabilities base estimates judgments historical experience current market economic conditions industry trends assumptions believe reasonable form basis making judgments carrying value assets liabilities readily apparent sources actual results could differ estimates believe following critical accounting policies estimates important portrayal financial position results operations require estimation subjective judgment revenue recognition recognize revenue accordance accounting standards codification 606 revenue contracts customers asc 606 key elements asc 606 1 identifying contract customer 2 identifying performance obligations contract 3 determining transaction price 4 allocating transaction price performance obligations contract 5 recognizing revenue performance obligation satisfied recognize revenue systems sales upon transfer control amount reflects consideration expect receive transfer control generally occurs upon shipment certain systems based upon customer acceptance system delivered installed customer facility systems include customerspecific acceptance criteria required assess demonstrate acceptance criteria met generally upon successful factory acceptance testing customer acceptance evidence installation systems require installation system revenue recognized upon shipment standalone selling price installation deferred customer acceptance products sold independent distributor strategic distribution partner recognize system sale upon transfer control typically shipment responsible installation standalone selling price installation deferred customer acceptance distributors price protection rights return however products typically warranted free defect period one year contracts include multiple performance obligations transaction price allocated distinct performance obligation based relative standalone selling prices goods services provided customer best evidence standalone selling price normal selling pricing discounting practices specific product service sold standalone basis alternatively may determine standalone selling price using expected cost plus margin approach analyze selling prices used allocation transaction price minimum annual basis selling prices analyzed frequently significant change business factors necessitate frequent analysis experience significant variances selling prices revenue accessories parts generally recognized based shipment service revenue recognized services performed ratably contractual obligation includes maintenance contracts extended warranties training application support ondemand services performance obligations recognized time revenue measured progress toward completion performance obligation reflects transfer control particular certain contracts recognized time apply costtocost method based costs incurred date relative total estimated costs contract upon completion application costtocost method requires us make reasonable estimates extent progress toward completion total costs incur losses recorded immediately estimate contracts ultimately result loss changes estimates could affect timing revenue recognition include costs incurred connection shipping handling products within selling general administrative costs amounts billed customers connection costs included total revenues control goods transfers prior completion obligation ship products customers elected practical expedient account shipping services fulfillment cost expense incremental costs obtaining contract incurred expected amortization period one year less amount immaterial exclude transaction price taxes assessed governmental authority revenueproducing transactions collected us customer require advance deposit based terms conditions contracts customers many contracts typically revenue recognized within one year receiving advance deposit material payment terms extend beyond one year contracts advance payment received greater one year expected revenue recognition portion payment due extends beyond one year determined constitute significant financing component minimal variable consideration included transaction price contracts revenues primarily comprised development arrangements recognized costplusfixedfee basis licensing arrangements recognized either licenses provided ratably contract term depending nature arrangement contract assets liabilities contract assets represent unbilled receivables revenue recognized exceeds amount billed customer right payment subject passage time contract assets typically result system revenue recorded portion transaction price billable future event customer acceptance contracts recognized costtocost costplusfixedfee basis revenue exceeds amount billed customer amounts may exceed net realizable value contract assets generally classified current contract liabilities consist customer advances deferred revenue billings excess revenue contracts recognized costtocost costplusfixedfee basis contract liabilities classified current longterm based timing expect recognize revenue contract assets liabilities reported net position contractbycontract basis end reporting period income taxes determination income tax expense requires us make certain estimates judgments concerning annual effective tax rate calculation deferred tax assets liabilities forecasted profitability subsidiaries certain geographic jurisdictions well deductions carryforwards credits available reduce taxable income deferred tax assets liabilities arise differences timing recognition revenue expenses financial statement tax purposes deferred tax assets liabilities measured using tax rates effect year temporary differences expected settled estimate degree tax assets loss carryforwards result benefit based expected profitability tax jurisdiction provide valuation allowance tax assets loss carryforwards believe likely go unused becomes likely tax asset loss carryforward used valuation allowance provided reverse related valuation allowance actual future taxable income tax jurisdiction differs estimates additional allowances reversals valuation allowance may necessary addition recognize benefits tax positions believe likely sustained upon review taxing authority knowledge relevant information reevaluate uncertain tax positions quarterly basis changes positions result tax audits tax laws facts circumstances could result additional charges credits operations expiration statutes limitations affecting estimates made uncertain tax positions cause higher earnings december 22 2017 enactment date former president trump signed 2017 tax act enacted wide range changes us corporate income tax system many differ significantly provisions previous us tax law completed assessment tax effects associated enactment 2017 tax act changes tax rates laws accounted period enactment inventories stated lower cost net realizable value costs determined firstin firstout method majority subsidiaries average cost certain subsidiaries record provisions account excess obsolete inventory reflect expected nonsaleable nonrefundable inventory based evaluation slowmoving products longer offered sale inventories also include demonstration units located demonstration laboratories installed sites potential customers consider demonstration units available sale history selling demonstration units reduce carrying value demonstration inventories differences cost estimated net realizable value taking consideration usage preceding twelve months expected demand technological obsolescence information including physical condition unit ultimate usage demand varies significantly expected usage demand additional writedowns may required resulting additional charges operations goodwill intangible assets longlived assets evaluate goodwill indefinite lived intangible assets impairment annually events occur circumstances change test goodwill impairment reporting unit level operating segment one level operating segment option performing qualitative assessment determine whether impairment testing necessary performing quantitative assessment result qualitative assessment morelikelythannot fair value reporting unit less carrying amount quantitative impairment test required otherwise testing required quantitative impairment test performed compare fair values applicable reporting units aggregate carrying values including goodwill determine fair value reporting units using weighting market income methodologies estimating fair value reporting units requires significant judgment management carrying amount reporting unit exceeds fair value reporting unit impairment charge recognized amount carrying value amount exceeds reporting unit’s fair value total amount goodwill allocated reporting unit january 2017 fasb issued asu 201704 intangiblesgoodwill topic 350 simplifying test goodwill impairment new standard simplifies subsequent measurement goodwill eliminating second step goodwill impairment test adoption asu january 1 2020 material impact consolidated financial statements also review definitelived intangible assets longlived assets indications potential impairment exist fair value longlived assets decline reduced operating performance market declines indicators impairment charge operations impairment may necessary business combinations account business combinations acquisition method accounting accordingly date acquisition measure fair value identifiable assets acquired including intangible assets liabilities assumed remaining noncontrolling interests allocates amounts paid items measured fair value identifiable intangible assets acquired based valuations use information assumptions determined management consider management’s best estimates inputs assumptions market participant would use recent accounting pronouncements information regarding recently issued accounting pronouncements may found note 3 consolidated financial statements included annual report form 10k item 7a item 7a quantitative qualitative disclosures market risk information required item incorporated reference section labeled quantitative qualitative disclosures market risk item 7 managements discussion analysis financial condition results operation item 8item 7a quantitative qualitative disclosures market risk information required item incorporated reference section labeled quantitative qualitative disclosures market risk item 7 managements discussion analysis financial condition results operations item 8item 7a quantitative qualitative disclosures market risk information required item incorporated reference section labeled quantitative qualitative disclosures market risk item 7 managements discussion analysis financial condition results operations item 8item 7a quantitative qualitative disclosures market risk information required item incorporated reference section labeled quantitative qualitative disclosures market risk item 7 managements discussion analysis financial condition results operations item 8item 7a quantitative qualitative disclosures market risk potentially exposed market risk associated changes foreign exchange interest rates selectively use financial instruments reduce related market risks instrument treated hedge effective offsetting impact volatility underlying exposure also entered instruments effective derivatives requirements sfas 133 therefore instruments designated hedges transactions authorized executed pursuant policies procedures analytical techniques used manage monitor foreign exchange interest rate risk include market valuations sensitivity analysis company regularly invests excess cash overnight repurchase agreements interestbearing investmentgrade securities hold duration term respective instrument subject changes shortterm interest rates company believes market risk arising holding financial instruments minimal company’s exposure market risks associated changes interest rates relates primarily increase decrease amount interest income earned investment portfolio company ensures safety preservation invested funds limiting default risks market risk reinvestment risk company mitigates default risk investing investment grade securities declines interest rates time however reduce company’s interest income impact foreign currencies sell products many countries substantial portion sales expenses denominated foreign currencies principally euro japanese yen fluctuations rate exchange us dollar foreign currencies could adversely affect financial results costs related sales largely denominated respective currencies thereby limiting transaction risk exposure however sales denominated us dollars increase rate foreign currency exchanged us dollars require foreign currency equal specified amount us dollars rate increase cases price products foreign currency receive less us dollars rate increase went effect price products us dollars competitors price products local currency increase relative strength us dollar could result prices competitive market business transacted local currency may time hedge specifically identified cash flows foreign currencies using forward contracts foreign currency activity historically material maturities forward exchange contracts entered generally would coincide settlement dates related transactions realized unrealized gains losses contracts would recognized period gains losses hedged items december 31 2005 foreign currency forward contracts outstanding realized foreign exchange gains losses approximately 02 million 08 million years ended december 31 2005 2004 respectively continue expand internationally evaluate currency risks may enter foreign exchange contracts consistent basis time circumstances require mitigate foreign currency exposure entered foreigndenominated debt obligations currency effects debt obligations reflected interest income expense net consolidated statement operations also foreigndenominated intercompany borrowing arrangements bruker daltonik gmbh subsidiary germany bruker axs gmbh subsidiary germany bruker nonius subsidiary netherlands affected accumulated comprehensive income loss 10 increase decrease respective foreign exchange rate bruker daltonik gmbh subsidiary germany would result change accumulated comprehensive income loss approximately 09 million 10 increase decrease respective foreign exchange rate bruker axs subsidiary germany would result transaction gain loss approximately 07 million 05 million respectively 10 increase decrease respective foreign exchange rate bruker nonius subsidiary netherlands would result change accumulated comprehensive income loss approximately 10 million 08 million respectively impact interest rates exposure related adverse movements interest rates derived primarily outstanding floating rate debt instruments indexed shortterm market rates cash equivalents objective managing exposure interest rates decrease volatility changes interest rates might earnings cash flows achieve objective use fixed rate agreement adjust portion debt subject variable interest rates united states entered interest rate swap arrangement limit interest rate exposure 20 million industrial revenue bond fixed rate 46 pay 46 fixed rate interest receive variable rate interest based bond market association municipal swap index 20 million notional amount net interest payments receipts recorded adjustments interest expense addition instrument recorded fair market value balance sheet changes fair market value recorded current earnings since arrangement considered effective hedge december 31 2005 fair value instrument approximately 01 million net tax recorded liability balance sheet 2002 entered two derivative financial instruments cross currency interest rate swap interest rate swap cross currency interest rate swap 20 million euro secures fixed interest rate 175 per annum january 4 2012 interest rate swap 30 million euro reduces 6month euribor rate 180 per annum january 4 2007 entered financial instruments manage exposure interest rates foreign exchange risk year ended december 31 1999 entered three financial instruments interest rate cap interest rate swap cross currency interest rate swap entering financial instruments obtained right borrow money lower rates interest continue hold financial instruments elect exercise options borrow money instruments become effective hedge instruments considered speculative markedtomarket interest income expense net consolidated statement operations fair value instruments appreciated depreciated 01 million 01 million years ended december 31 2005 2004 respectively december 31 2005 fair value instruments approximately 01 million net tax recorded liability balance sheet 10 increase decrease average cost variable rate debt would result material change pretax interest expense inflation believe inflation material impact business operating results periods presented recent accounting pronouncements may 2005 fasb issued sfas 154 “accounting changes error corrections replacement apb opinion 20 accounting changes fasb statement 3 reporting accounting changes interim financial statements” “sfas 154” sfas 154 provides guidance accounting reporting accounting changes error corrections establishes unless impracticable retrospective application required method reporting change accounting principle absence explicit transition requirements specific newly adopted accounting principle sfas 154 also provides guidance determining whether retrospective application change accounting principle impracticable reporting change retrospective application impracticable provisions statement effective accounting changes corrections errors made fiscal periods beginning december 15 2005 adoption provisions sfas 154 expected material impact company’s financial position results operations december 2004 fasb issued sfas 123 revised 2004 “sharebased payment” “sfas 123r” addresses accounting sharebased payment transactions company receives employee services exchange equity instruments company b liabilities based fair value company’s equity instruments may settled issuance equity instruments sfas 123r addresses forms sharebased payment awards including shares issued employee stock purchase plans stock options restricted stock appreciation rights sfas 123r eliminates ability account sharebased compensation transactions using apb opinion 25 “accounting stock issued employees” provided sfas 123 originally issued permitted sfas 123r company currently accounts sharebased payments employees using intrinsic value method allowed apb opinion 25 generally recognizes compensation cost employee stock options accordingly adoption sfas 123r fair value method significant impact company’s results operations although impact overall financial position impact adoption sfas 123r cannot predicted time depend levels sharebased payments granted future however adopted sfas 123r prior periods impact would approximated amounts calculated using sfas 123 described disclosure pro forma net income loss net income loss per share note 2 consolidated financial statements november 2004 fasb issued sfas 151 inventory costs statement amends guidance arb 43 chapter 4 inventory pricing clarify accounting abnormal amounts idle facility expense freight handling costs wasted material spoilage addition statement requires allocation fixed production overhead costs conversion based normal capacity production facilities provisions statement effective company beginning fiscal year ending 2006 currently evaluating impact new standard believe material impact financial position results operations cash flows item 8item 7a quantitative qualitative disclosures market risk potentially exposed market risk associated changes foreign exchange interest rates selectively use financial instruments reduce related market risks instrument treated hedge effective offsetting impact volatility underlying exposure also entered instruments effective derivatives requirements sfas 133 therefore instruments designated hedges transactions authorized executed pursuant policies procedures analytical techniques used manage monitor foreign exchange interest rate risk include market valuations sensitivity analysis company regularly invests excess cash overnight repurchase agreements interestbearing investmentgrade securities hold duration term respective instrument subject changes shortterm interest rates company believes market risk arising holding financial instruments minimal company’s exposure market risks associated changes interest rates relates primarily increase decrease amount interest income earned investment portfolio company ensures safety preservation invested funds limiting default risk market risk reinvestment risk company mitigates default risk investing investment grade securities declines interest rates time however reduce company’s interest income impact foreign currencies sell products many countries substantial portion sales expenses denominated foreign currencies principally euro japanese yen fluctuations rate exchange us dollar foreign currencies could adversely affect financial results costs related sales largely denominated respective currencies thereby limiting transaction risk exposure however sales denominated us dollars increase rate foreign currency exchanged us dollars require foreign currency equal specified amount us dollars rate increase cases price products foreign currency receive less us dollars rate increase went effect price products us dollars competitors price products local currency increase relative strength us dollar could result prices competitive market business transacted local currency entered option forward currency exchange contracts maturities less twelve months notional amounts aggregating 144 contracts involve purchase euro currency fixed us dollar amounts notional amounts contracts intended hedge receivables us dollars transactions qualify hedge accounting sfas 133 accordingly instruments markedtomarket corresponding gains losses recorded income expense current period end reporting period obtain thirdparty verification fair value instruments december 31 2006 2005 currency exchange contracts favorable fair value 14 million unfavorable fair value 27 million respectively instruments’ fair market values recorded net balance sheet connection instruments recorded net gain 41 million net loss 28 million years ended december 31 2006 2005 respectively realized foreign exchange gains losses approximately 16 million 13 million years ended december 31 2006 2005 respectively continue expand internationally evaluate currency risks may enter foreign exchange contracts consistent basis time circumstances require mitigate foreign currency exposure entered foreigndenominated debt obligations currency effects debt obligations reflected interest income expense net consolidated statement operations also foreigndenominated intercompany borrowing arrangements bruker daltonik gmbh subsidiary germany affected accumulated comprehensive income loss 10 increase decrease respective foreign exchange rate bruker daltonik gmbh subsidiary germany would result change accumulated comprehensive income loss approximately 29 million 24 million respectively impact interest rates exposure related adverse movements interest rates derived primarily outstanding floating rate debt instruments indexed shortterm market rates cash equivalents objective managing exposure interest rates decrease volatility changes interest rates might earnings cash flows achieve objective use fixed rate agreement adjust portion debt subject variable interest rates united states entered interest rate swap arrangement limit interest rate exposure 20 million industrial revenue bond fixed rate 46 pay 46 fixed rate interest receive variable rate interest based securities industry financial markets municipal swap index 17 million notional amount net interest payments receipts recorded adjustments interest expense addition instrument recorded fair market value balance sheet changes fair market value recorded current earnings since arrangement considered effective hedge december 31 2006 fair value instrument approximately 01 million net tax recorded liability balance sheet 2002 entered two derivative financial instruments cross currency interest rate swap interest rate swap cross currency interest rate swap 50 million euro receive semiannual interest payments euro based variable interest rate equal sixmonth euribor rate exchange semiannual payments swiss francs fixed rate 497 interest rate swap 30 million euro reduces 6month euribor rate 180 per annum january 4 2007 entered financial instruments manage exposure interest rates foreign exchange risk instruments become effective hedge instruments considered speculative markedtomarket interest income expense net consolidated statement operations december 31 2006 2005 cross currency interest rate swap favorable fair value 02 million unfavorable value 03 million respectively december 31 2006 2005 interest rate swap unfavorable fair values approximately 00 million 01 million respectively 10 increase decrease average cost variable rate debt would result material change pretax interest expense inflation believe inflation material impact business operating results periods presented recent accounting pronouncements february 2007 fasb issued statement financial accounting standard “sfas” 159 fair value option financial assets liabilities including amendment fasb statement 115 “sfas 159” statement permits entities choose measure many financial instruments certain items fair value currently required measured fair value sfas 159 effective beginning fiscal 2008 yet assessed effect adoption sfas 159 results operations financial position september 2006 fasb issued sfas 158 employers accounting defined benefit pension postretirement planswhich amends sfas 87 employers’ accounting pensions sfas 88 employers’ accounting settlements curtailments defined benefit pension plans termination benefits sfas 106 employers accounting postretirement benefits pensions sfas 132r employers’ disclosures pensions postretirement benefits statement requires employer recognize overfunded underfunded status defined benefit pension postretirement defined benefit plans previously disclosed footnotes financial statements asset liability statement financial position recognize changes funded status year changes occur comprehensive income statement also requires employer measure funded status plan date year end statement financial position addition statement require disclosure effects unrecognized gains losses prior service costs transition asset obligation next fiscal year’s net periodic benefit cost statement effective financial statements issued fiscal years ending december 15 2006 retrospective application statement permitted adopted sfas 158 december 31 2006 incurred incremental increase benefit obligation 02 million september 2006 fasb issued sfas 157 fair value measurements “sfas 157” statement effective financial statements issued fiscal years beginning november 15 2007 sfas 157 provides common fair value hierarchy companies follow determining fair value measurements preparation financial statements expands disclosure requirements relating fair value measurements developed sfas 157 clarifies principle fair value based assumptions marketplace would use pricing asset liability rather company specific data currently assessing impact sfas 157 results operations financial position july 2006 financial accounting standards board issued interpretation 48 accounting uncertainty income taxes interpretation sets forth recognition threshold valuation method recognize measure income tax position taken expected taken tax return evaluation based twostep approach first step requires entity evaluate whether tax position would “more likely not” based upon technical merits sustained upon examination appropriate taxing authority second step requires tax position measured largest amount tax benefit greater 50 percent likely realized upon ultimate settlement addition previously recognized benefits tax positions longer meet new criteria would longer recognized application interpretation considered change accounting principle cumulative effect change recorded opening balance retained earnings period adoption interpretation effective company january 1 2007 currently evaluating interpretation impact may results operations financial condition item 8item 7a quantitative qualitative disclosures market risk potentially exposed market risks associated changes foreign exchange rates interest rates selectively use financial instruments reduce risks transactions related risk management techniques authorized executed pursuant policies procedures analytical techniques used manage monitor foreign exchange interest rate risk include market valuations sensitivity analysis impact foreign currencies generate substantial portion revenues international markets principally europe japan subjects operations exposure exchange rate fluctuations impact currency exchange rate movement positive negative period costs related sales foreign currencies largely denominated respective currencies limiting transaction risk exposure however sales denominated us dollars increase rate foreign currency exchanged us dollars require foreign currency equal specified amount us dollars rate increase cases price products foreign currency receive less us dollars rate increase went effect price products us dollars competitors price products local currency increase relative strength us dollar could result prices competitive market business transacted local currency foreign exchange losses net 112 million 39 million years ended december 31 2008 2007 respectively continue evaluate currency risks may utilize foreign currency contracts frequently order mitigate foreign currency exposure time entered foreign currency contracts order minimize volatility fluctuations exchange rates cash flows related purchases sales denominated foreign currencies outstanding forward contracts december 31 2008 impact interest rates regularly invest excess cash shortterm investments subject changes interest rates believe market risk arising holding financial instruments minimal exposure related adverse movements interest rates derived primarily outstanding floating rate debt instruments indexed shortterm market rates objective managing exposure interest rates decrease volatility changes interest rates might earnings cash flows achieve objective entered interest rate swaps cross currency rate swaps order minimize volatility changes interest rates might earnings cash flows 10 increase decrease average cost variable rate debt would result material change pretax interest expense april 2008 entered interest rate swap arrangement pay fixed rate approximately 38 receive variable rate based three month libor december 31 2012 initial notional amount interest swap 900 million amortizes proportion term debt component credit agreement december 31 2008 outstanding notional amount swap 866 million determined swap effective hedge variability cash flows interest payments entered cross currency interest rate swap arrangement 2002 initial notional amount €50 million receive semiannual interest payments euros based variable interest rate equal sixmonth euribor rate exchange semiannual payments swiss francs fixed rate 497 terminated cross currency interest rate swap 2008 ineffectiveness offsetting changes cash flows entered interest rate swap arrangement initial notional amount 22 million 1999 receive variable rate interest based securities industry financial markets municipal swap index exchange 460 fixed rate interest also terminated interest rate swap 2008 related debt repaid full inflation believe inflation material impact business operating results periods presented item 8item 7a quantitative qualitative disclosures market risk potentially exposed market risks associated changes foreign exchange rates interest rates selectively use financial instruments reduce risks transactions related risk management techniques authorized executed pursuant policies procedures analytical techniques used manage monitor foreign exchange interest rate risk include market valuations sensitivity analysis impact foreign currencies generate substantial portion revenues international markets principally europe japan subjects operations exposure exchange rate fluctuations impact currency exchange rate movement positive negative period costs related sales foreign currencies largely denominated respective currencies limiting transaction risk exposure however sales denominated us dollars increase rate foreign currency exchanged us dollars require foreign currency equal specified amount us dollars rate increase cases price products foreign currency receive less us dollars rate increase went effect price products us dollars competitors price products local currency increase relative strength us dollar could result prices competitive market business transacted local currency foreign exchange gains losses net 19 million 112 million years ended december 31 2009 2008 respectively time entered foreign currency contracts order minimize volatility fluctuations exchange rates cash flows related purchases sales denominated foreign currencies continue evaluate currency risks future may utilize foreign currency contracts frequently part transactional hedging program impact interest rates regularly invest excess cash shortterm investments subject changes interest rates believe market risk arising holding financial instruments minimal policy investing shortterm financial instruments issued highly rated financial institutions exposure related adverse movements interest rates derived primarily outstanding floating rate debt instruments indexed shortterm market rates objective managing exposure interest rates decrease volatility changes interest rates might earnings cash flows achieve objective entered interest rate swap 10 increase decrease average cost variable rate debt would result material change interest expense april 2008 entered interest rate swap arrangement pay fixed rate approximately 38 receive variable rate based three month libor december 31 2012 initial notional amount interest swap 900 million amortizes proportion term debt component credit agreement december 31 2009 outstanding notional amount swap 788 million determined swap effective hedge variability cash flows interest payments inflation believe inflation material impact business operating results periods presented item 8item 7a quantitative qualitative disclosures market risk potentially exposed market risks associated changes foreign exchange rates interest rates commodity prices selectively use financial instruments reduce risks transactions related risk management techniques authorized executed pursuant policies procedures analytical techniques used manage monitor foreign exchange interest rate risk include market valuations sensitivity analysis impact foreign currencies generate substantial portion revenues international markets principally germany countries european union switzerland japan exposes operations risk exchange rate fluctuations impact currency exchange rate movement positive negative period costs related sales foreign currencies largely denominated respective currencies limiting transaction risk exposure however sales denominated us dollars increase rate foreign currency exchanged us dollars require foreign currency equal specified amount us dollars rate increase cases price products foreign currency receive less us dollars rate increase went effect price products us dollars competitors price products local currency increase relative strength us dollar could result prices competitive market business transacted local currency years ended december 31 2010 2009 revenue geography follows dollars millions changes foreign currency exchange rates decreased revenue approximately 1 years ended december 31 2010 2009 assets liabilities foreign subsidiaries functional currency local currency translated us dollars using yearend exchange rates revenues expenses foreign subsidiaries translated average exchange rates effect year adjustments resulting financial statement translations included separate component shareholders equity years ended december 31 2010 2009 recorded net gains currency translation adjustments 81 million 86 million respectively gains losses resulting foreign currency transactions reported interest income expense net consolidated statements income foreign exchange losses net 15 million 19 million years ended december 31 2010 2009 respectively time entered foreign currency contracts order minimize volatility fluctuations exchange rates cash flows related purchases sales denominated foreign currencies arrangements agree purchase fixed amount foreign currency exchange fixed amount us dollars currencies specified dates typically maturities less twelve months transactions qualify hedge accounting accordingly instrument recorded fair value corresponding gains losses recorded interest income expense net consolidated statements income december 31 2010 2009 foreign currency contracts notional amounts aggregating 822 million 253 million respectively december 31 2010 company following notional amounts outstanding foreign currency contracts millions based contractual maturities contracts exchange rates december 31 2010 anticipate contracts result net cash flows 07 million 2011 03 million 2012 december 31 2010 assuming variables constant us dollar weakened 10 market value foreign currency contracts would increase approximately 26 million us dollar strengthened 10 market value foreign currency contracts would decrease approximately 26 million continue evaluate currency risks future may utilize foreign currency contracts frequently part transactional hedging program impact interest rates regularly invest excess cash shortterm investments subject changes interest rates believe market risk arising holding financial instruments minimal policy investing shortterm financial instruments issued highly rated financial institutions exposure related adverse movements interest rates derived primarily outstanding floating rate debt instruments indexed shortterm market rates objective managing exposure interest rates decrease volatility changes interest rates might earnings cash flows achieve objective entered interest rate swap 10 increase decrease average cost variable rate debt would result material change interest expense determined interest rate swap effective hedge variability cash flows interest payments interest rate swap arrangement pay fixed interest rate approximately 38 receive variable interest rate based three month libor december 31 2012 initial notional amount interest swap 900 million amortizes proportion term debt component credit agreement december 31 2010 december 31 2009 outstanding notional amount swap 664 million 788 million respectively based interest rates december 31 2010 fair value swap 30 million anticipate interest rate swap result net cash flows 21 million 2011 09 million 2012 impact commodity prices exposed certain commodity risks associated prices various raw materials prices copper certain raw materials particularly niobium used manufacture superconductors increased significantly last decade copper niobium tin main components low temperature superconductors continued commodity price increases copper niobium well raw materials may negatively affect profitability periodically enter commodity forward purchase contracts minimize volatility fluctuations price copper sales commodities december 31 2010 december 31 2009 fixed price commodity contracts notional amounts aggregating 29 million 09 million respectively continue evaluate commodity risks may utilize commodity forward purchase contracts frequently future inflation believe inflation material impact business operating results periods presented item 8item 7a quantitative qualitative disclosures market risk potentially exposed market risks associated changes foreign exchange rates interest rates commodity prices selectively use financial instruments reduce risks transactions related risk management techniques authorized executed pursuant policies procedures analytical techniques used manage monitor foreign exchange interest rate risk include market valuations sensitivity analysis impact foreign currencies generate substantial portion revenues international markets principally germany countries european union switzerland japan exposes operations risk exchange rate fluctuations impact currency exchange rate movement positive negative period costs related sales foreign currencies largely denominated respective currencies limiting transaction risk exposure however sales denominated us dollars increase rate foreign currency exchanged us dollars require foreign currency equal specified amount us dollars rate increase cases price products foreign currency receive less us dollars rate increase went effect price products us dollars competitors price products local currency increase relative strength us dollar could result prices competitive market business transacted local currency years ended december 31 2011 2010 revenue geography follows dollars millions changes foreign currency exchange rates increased revenue approximately 6 year ended december 31 2011 decreased revenue 1 year ended december 31 2010 assets liabilities foreign subsidiaries functional currency local currency translated us dollars using yearend exchange rates historical rates appropriate revenues expenses foreign subsidiaries translated average exchange rates effect year adjustments resulting financial statement translations included separate component shareholders equity years ended december 31 2011 2010 recorded net gains losses currency translation adjustments 147 million 81 million respectively gains losses resulting foreign currency transactions reported interest income expense net consolidated statements income foreign exchange losses net 44 million 15 million years ended december 31 2011 2010 respectively time entered foreign currency contracts order minimize volatility fluctuations exchange rates cash flows related purchases sales denominated foreign currencies arrangements agree purchase fixed amount foreign currency exchange fixed amount us dollars currencies specified dates typically maturities less twelve months transactions qualify hedge accounting accordingly instrument recorded fair value corresponding gains losses recorded interest income expense net consolidated statements income december 31 2011 2010 foreign currency contracts notional amounts aggregating 802 million 822 million respectively december 31 2011 company following notional amounts outstanding foreign currency contracts millions based contractual maturities contracts exchange rates december 31 2011 anticipate contracts result net cash flows 42 million 2012 december 31 2011 assuming variables constant us dollar weakened 10 market value foreign currency contracts would increase approximately 68 million us dollar strengthened 10 market value foreign currency contracts would decrease approximately 68 million continue evaluate currency risks future may utilize foreign currency contracts frequently part transactional hedging program impact interest rates regularly invest excess cash shortterm investments subject changes interest rates believe market risk arising holding financial instruments minimal policy investing shortterm financial instruments issued highly rated financial institutions exposure related adverse movements interest rates derived primarily outstanding floating rate debt instruments indexed shortterm market rates objective managing exposure interest rates decrease volatility changes interest rates might earnings cash flows achieve objective entered interest rate swap 10 increase decrease average cost variable rate debt would result material change interest expense determined interest rate swap effective hedge variability cash flows interest payments interest rate swap arrangement pay fixed interest rate approximately 38 receive variable interest rate based three month libor december 31 2012 initial notional amount interest swap 900 million amortizes proportion term debt component amended credit agreement december 31 2011 2010 outstanding notional amount swap 495 million 664 million respectively based interest rates december 31 2011 fair value swap 11 million assuming variables constant swap mature december 31 2012 interest rate swap result cash outflow 11 million 2012 impact commodity prices exposed certain commodity risks associated prices various raw materials prices copper certain raw materials particularly niobium used manufacture superconductors increased significantly last decade copper niobium tin main components low temperature superconductors continued commodity price increases copper niobium well raw materials may negatively affect profitability periodically enter commodity forward purchase contracts minimize volatility fluctuations price copper sales products december 31 2011 december 31 2010 fixed price commodity contracts notional amounts aggregating 39 million 29 million respectively continue evaluate commodity risks may utilize commodity forward purchase contracts frequently future inflation believe inflation material impact business operating results periods presented item 8item 7a quantitative qualitative disclosures market risk potentially exposed market risks associated changes foreign exchange rates interest rates commodity prices selectively use financial instruments reduce risks transactions related risk management techniques authorized executed pursuant policies procedures analytical techniques used manage monitor foreign exchange interest rate risk include market valuations sensitivity analysis impact foreign currencies generate substantial portion revenues international markets principally germany countries european union switzerland japan exposes operations risk exchange rate fluctuations impact currency exchange rate movement positive negative period costs related sales foreign currencies largely denominated respective currencies limiting transaction risk exposure however sales denominated us dollars increase rate foreign currency exchanged us dollars require foreign currency equal specified amount us dollars rate increase cases price products foreign currency receive less us dollars rate increase went effect price products us dollars competitors price products local currency increase relative strength us dollar could result prices competitive market business transacted local currency years ended december 31 2012 2011 revenue geography follows dollars millions changes foreign currency exchange rates decreased revenue approximately 5 year ended december 31 2012 increased revenue 6 year ended december 31 2011 assets liabilities foreign subsidiaries functional currency local currency translated us dollars using yearend exchange rates historical rates appropriate revenues expenses foreign subsidiaries translated average exchange rates effect year adjustments resulting financial statement translations included separate component shareholders equity years ended december 31 2012 2011 recorded net gains losses currency translation adjustments 88 million 147 million respectively gains losses resulting foreign currency transactions reported interest income expense net consolidated statements income comprehensive income foreign exchange losses net 68 million 44 million years ended december 31 2012 2011 respectively time entered foreign currency contracts order minimize volatility fluctuations exchange rates cash flows related purchases sales denominated foreign currencies arrangements agree purchase fixed amount foreign currency exchange fixed amount us dollars currencies specified dates typically maturities less twelve months transactions qualify hedge accounting accordingly instrument recorded fair value corresponding gains losses recorded interest income expense net consolidated statements income comprehensive income december 31 2012 2011 foreign currency contracts notional amounts aggregating 943 million 802 million respectively december 31 2012 company following notional amounts outstanding foreign currency contracts millions based contractual maturities contracts exchange rates december 31 2012 anticipate contracts result net cash flows 18 million 2013 december 31 2012 assuming variables constant us dollar weakened 10 market value foreign currency contracts would increase approximately 02 million us dollar strengthened 10 market value foreign currency contracts would decrease approximately 02 million continue evaluate currency risks future may utilize foreign currency contracts frequently part transactional hedging program impact interest rates regularly invest excess cash shortterm investments subject changes interest rates believe market risk arising holding financial instruments minimal policy investing shortterm financial instruments issued highly rated financial institutions exposure related adverse movements interest rates derived primarily outstanding floating rate debt instruments indexed shortterm market rates manage exposure interest rate volatility might earnings cash flows historically entered interest rate swap arrangements december 31 2012 interest rate swap amount 900 million matured currently higher level fixed rate debt limits exposure adverse movements interest rates impact commodity prices exposed certain commodity risks associated prices various raw materials prices copper certain raw materials particularly niobium used manufacture superconductors increased significantly last decade copper niobium tin main components low temperature superconductors continued commodity price increases copper niobium well raw materials may negatively affect profitability periodically enter commodity forward purchase contracts minimize volatility fluctuations price copper sales products december 31 2012 december 31 2011 fixed price commodity contracts notional amounts aggregating 34 million 39 million respectively fair value fixed price commodity contracts december 31 2012 december 31 2011 02 million 00 million respectively continue evaluate commodity risks may utilize commodity forward purchase contracts frequently future inflation believe inflation material impact business operating results periods presented item 8item 7a quantitative qualitative disclosures market risk potentially exposed market risks associated changes foreign exchange rates interest rates commodity prices selectively use financial instruments reduce risks transactions related risk management techniques authorized executed pursuant policies procedures analytical techniques used manage monitor foreign exchange interest rate risk include market valuations sensitivity analysis impact foreign currencies generate substantial portion revenues international markets principally germany countries european union switzerland japan exposes operations risk exchange rate fluctuations impact currency exchange rate movement positive negative period costs related sales foreign currencies largely denominated respective currencies limiting transaction risk exposure however foreign currency denominated sales certain regions japan incur significant costs denominated foreign currency exposed impact foreign currency fluctuations sales denominated us dollars increase rate foreign currency exchanged us dollars require foreign currency equal specified amount us dollars rate increase cases price products foreign currency receive less us dollars rate increase went effect price products us dollars competitors price products local currency increase relative strength us dollar could result prices competitive market business transacted local currency years ended december 31 2013 2012 revenue geography follows dollars millions changes foreign currency exchange rates decreased revenue approximately 03 year ended december 31 2013 decreased revenue 47 year ended december 31 2012 assets liabilities foreign subsidiaries functional currency local currency translated us dollars using yearend exchange rates historical rates appropriate revenues expenses foreign subsidiaries translated average exchange rates effect year adjustments resulting financial statement translations included separate component shareholders equity years ended december 31 2013 2012 recorded net gains currency translation adjustments 273 million 88 million respectively gains losses resulting foreign currency transactions reported interest income expense net consolidated statements income comprehensive income foreign exchange losses net 104 million 68 million years ended december 31 2013 2012 respectively time entered foreign currency contracts order minimize volatility fluctuations exchange rates cash flows related purchases sales denominated foreign currencies arrangements agree purchase fixed amount foreign currency exchange fixed amount us dollars currencies specified dates typically maturities less twelve months transactions qualify hedge accounting accordingly instrument recorded fair value corresponding gains losses recorded interest income expense net consolidated statements income comprehensive income december 31 2013 2012 foreign currency contracts notional amounts aggregating 959 million 943 million respectively december 31 2013 company following notional amounts outstanding foreign currency contracts millions based contractual maturities contracts exchange rates december 31 2013 anticipate contracts result net cash flows 23 million 2014 december 31 2013 assuming variables constant us dollar weakened 10 market value foreign currency contracts would increase approximately 98 million us dollar strengthened 10 market value foreign currency contracts would decrease approximately 98 million continue evaluate currency risks future may utilize foreign currency contracts frequently part transactional hedging program impact interest rates regularly invest excess cash shortterm investments subject changes interest rates believe market risk arising holding financial instruments minimal policy investing shortterm financial instruments issued highly rated financial institutions exposure related adverse movements interest rates derived primarily outstanding floating rate debt instruments indexed shortterm market rates currently higher level fixed rate debt variable rate debt limits exposure adverse movements interest rates impact commodity prices exposed certain commodity risks associated prices various raw materials prices copper certain raw materials particularly niobium used manufacture superconductors increased significantly last decade copper niobium tin main components low temperature superconductors continued commodity price increases copper niobium well raw materials may negatively affect profitability periodically enter commodity forward purchase contracts minimize volatility fluctuations price copper sales products december 31 2013 december 31 2012 fixed price commodity contracts notional amounts aggregating 34 million fair value fixed price commodity contracts december 31 2013 december 31 2012 01 million 02 million respectively continue evaluate commodity risks may utilize commodity forward purchase contracts frequently future inflation believe inflation material impact business operating results periods presented item 8item 7a quantitative qualitative disclosures market risk potentially exposed market risks associated changes foreign exchange rates interest rates commodity prices selectively use financial instruments reduce risks transactions related risk management techniques authorized executed pursuant policies procedures analytical techniques used manage monitor foreign exchange interest rate risk include market valuations sensitivity analysis impact foreign currencies generate substantial portion revenues international markets principally germany countries european union switzerland japan exposes operations risk exchange rate fluctuations impact currency exchange rate movement positive negative period costs related sales foreign currencies largely denominated respective currencies limiting transaction risk exposure however foreign currency denominated sales certain regions japan incur significant costs denominated foreign currency exposed impact foreign currency fluctuations sales denominated us dollars increase rate foreign currency exchanged us dollars require foreign currency equal specified amount us dollars rate increase cases price products foreign currency receive less us dollars would received rate increase went effect price products us dollars competitors price products local currency increase relative strength us dollar could result prices competitive market business transacted local currency years ended december 31 2014 2013 revenue geography follows dollars millions changes foreign currency exchange rates decreased revenue approximately 14 03 years ended december 31 2014 2013 respectively assets liabilities foreign subsidiaries functional currency local currency translated us dollars using yearend exchange rates historical rates appropriate revenues expenses foreign subsidiaries translated average exchange rates effect year adjustments resulting financial statement translations included separate component shareholders equity year ended december 31 2014 recorded net losses currency translation adjustments 1316 million year ended december 31 2013 recorded net gains currency translation 273 million gains losses resulting foreign currency transactions reported interest income expense net consolidated statements income comprehensive income foreign exchange losses net 20 million 104 million years ended december 31 2014 2013 respectively time entered foreign currency contracts order minimize volatility fluctuations exchange rates cash flows related purchases sales denominated foreign currencies arrangements agree purchase fixed amount foreign currency exchange fixed amount us dollars currencies specified dates typically maturities less twelve months transactions qualify hedge accounting accordingly instrument recorded fair value corresponding gains losses recorded interest income expense net consolidated statements income comprehensive income december 31 2014 2013 foreign currency contracts notional amounts aggregating 998 million 959 million respectively december 31 2014 company following notional amounts outstanding foreign currency contracts millions based contractual maturities contracts exchange rates december 31 2014 anticipate contracts result net cash outflows 51 million 2015 december 31 2014 assuming variables constant us dollar weakened 10 market value foreign currency contracts would increase approximately 95 million us dollar strengthened 10 market value foreign currency contracts would decrease approximately 95 million continue evaluate currency risks future may utilize foreign currency contracts frequently part transactional hedging program impact interest rates regularly invest excess cash shortterm investments subject changes interest rates believe market risk arising holding financial instruments minimal policy investing shortterm financial instruments issued highly rated financial institutions exposure related adverse movements interest rates derived primarily outstanding floating rate debt instruments indexed shortterm market rates currently higher level fixed rate debt variable rate debt limits exposure adverse movements interest rates impact commodity prices exposed certain commodity risks associated prices various raw materials prices copper certain raw materials particularly niobium used manufacture superconductors increased significantly last decade copper niobium tin main components low temperature superconductors continued commodity price increases copper niobium well raw materials may negatively affect profitability periodically enter commodity forward purchase contracts minimize volatility fluctuations price copper sales products december 31 2014 december 31 2013 fixed price commodity contracts notional amounts aggregating 27 million 34 million respectively fair value fixed price commodity contracts december 31 2014 december 31 2013 02 million 01 million respectively continue evaluate commodity risks may utilize commodity forward purchase contracts frequently future inflation believe inflation material impact business operating results periods presented item 8item 7a quantitative qualitative disclosures market risk potentially exposed market risks associated changes foreign currency translation rates interest rates commodity prices selectively use financial instruments reduce risks transactions related risk management techniques authorized executed pursuant policies procedures analytical techniques used manage monitor foreign currency translation interest rate risk include market valuations sensitivity analysis impact foreign currencies generate substantial portion revenues international markets principally germany countries european union switzerland japan exposes operations risk exchange rate fluctuations impact currency exchange rate movement positive negative period costs related sales foreign currencies largely denominated respective currencies limiting transaction risk exposure however foreign currency denominated sales certain regions japan incur significant costs denominated foreign currency exposed impact foreign currency fluctuations sales denominated us dollars increase rate foreign currency exchanged us dollars require foreign currency equal specified amount us dollars rate increase cases price products foreign currency receive less us dollars would received rate increase went effect price products us dollars competitors price products local currency increase relative strength us dollar could result prices competitive market business transacted local currency years ended december 31 2015 2014 revenue geography follows dollars millions changes foreign currency exchange rates decreased revenue approximately 102 14 years ended december 31 2015 2014 respectively assets liabilities foreign subsidiaries functional currency local currency translated us dollars using yearend exchange rates historical rates appropriate revenues expenses foreign subsidiaries translated average exchange rates effect year adjustments resulting financial statement translations included separate component shareholders equity year ended december 31 2015 recorded net losses currency translation adjustments 638 million year ended december 31 2014 recorded net losses currency translation 1317 million 10 depreciation functional currencies relative us dollar december 31 2015 would result reduction shareholders equity approximately 90 million gains losses resulting foreign currency transactions reported interest income expense net consolidated statements income comprehensive income loss foreign currency translation losses net 55 million 20 million years ended december 31 2015 2014 respectively time entered foreign currency contracts order minimize volatility fluctuations exchange rates cash flows related purchases sales denominated foreign currencies arrangements agree purchase fixed amount foreign currency exchange fixed amount us dollars currencies specified dates typically maturities less twelve months transactions qualify hedge accounting accordingly instrument recorded fair value corresponding gains losses recorded interest income expense net consolidated statements income comprehensive income loss december 31 2015 2014 foreign currency contracts notional amounts aggregating 362 million 998 million respectively december 31 2015 company following notional amounts outstanding foreign currency contracts millions based contractual maturities contracts exchange rates december 31 2015 anticipate contracts result net cash outflows 13 million 2016 december 31 2015 assuming variables constant us dollar weakened 10 market value foreign currency contracts would increase approximately 23 million us dollar strengthened 10 market value foreign currency contracts would decrease approximately 23 million continue evaluate currency risks future may utilize foreign currency contracts frequently part transactional hedging program impact interest rates regularly invest excess cash shortterm investments subject changes interest rates believe market risk arising holding financial instruments minimal policy investing shortterm financial instruments issued highly rated financial institutions exposure related adverse movements interest rates derived primarily outstanding floating rate debt instruments indexed shortterm market rates currently higher level fixed rate debt variable rate debt limits exposure adverse movements interest rates impact commodity prices exposed certain commodity risks associated prices various raw materials prices copper certain raw materials particularly niobiumtin used manufacture superconductors increased significantly last decade copper niobiumtin main components low temperature superconductors continued commodity price increases copper niobium well raw materials may negatively affect profitability periodically enter commodity forward purchase contracts minimize volatility fluctuations price copper sales products december 31 2015 2014 fixed price commodity contracts notional amounts aggregating 20 million 27 million respectively fair value fixed price commodity contracts december 31 2015 2014 04 million 02 million respectively continue evaluate commodity risks may utilize commodity forward purchase contracts frequently future inflation believe inflation material impact business operating results periods presented item 8item 7a quantitative qualitative disclosures market risk potentially exposed market risks associated changes foreign currency translation rates interest rates commodity prices selectively use financial instruments reduce risks transactions related risk management techniques authorized executed pursuant policies procedures analytical techniques used manage monitor foreign currency translation interest rate risk include market valuations sensitivity analysis impact foreign currencies generate substantial portion revenues international markets principally germany countries european union switzerland japan exposes operations risk exchange rate fluctuations impact currency exchange rate movement positive negative period costs related sales foreign currencies largely denominated respective currencies limiting transaction risk exposure however foreign currency denominated sales certain regions japan incur significant costs denominated japanese yen exposed impact foreign currency fluctuations sales denominated us dollars increase rate foreign currency exchanged us dollars require foreign currency equal specified amount us dollars rate increase cases price products foreign currency receive less us dollars would received rate increase went effect price products us dollars competitors price products local currency increase relative strength us dollar could result prices competitive market business transacted local currency years ended december 31 2016 2015 revenue geography follows dollars millions changes foreign currency exchange rates decreased revenue approximately 05 102 years ended december 31 2016 2015 respectively assets liabilities foreign subsidiaries functional currency local currency translated us dollars using yearend exchange rates historical rates appropriate revenues expenses foreign subsidiaries translated average exchange rates effect year adjustments resulting financial statement translations included separate component shareholders equity year ended december 31 2016 recorded net losses currency translation adjustments 276 million year ended december 31 2015 recorded net losses currency translation 638 million 10 depreciation functional currencies relative us dollar december 31 2016 would resulted reduction shareholders equity approximately 833 million gains losses resulting foreign currency transactions reported interest income expense net consolidated statements income comprehensive income loss foreign currency translation gains losses net 41 million 55 million years ended december 31 2016 2015 respectively time entered foreign currency contracts order minimize volatility fluctuations exchange rates cash flows related purchases sales denominated foreign currencies arrangements agree purchase fixed amount foreign currency exchange fixed amount us dollars currencies specified dates typically maturities less twelve months transactions qualify hedge accounting accordingly instrument recorded fair value corresponding gains losses recorded interest income expense net consolidated statements income comprehensive income loss december 31 2016 2015 foreign currency contracts notional amounts aggregating 407 million 362 million respectively december 31 2016 company following notional amounts outstanding foreign currency contracts millions based contractual maturities contracts exchange rates december 31 2016 anticipate contracts result net cash outflows 14 million 2017 december 31 2016 assuming variables constant us dollar weakened 10 market value foreign currency contracts would increased approximately 13 million us dollar strengthened 10 market value foreign currency contracts would decreased approximately 13 million continue evaluate currency risks future may utilize foreign currency contracts frequently part transactional hedging program impact interest rates regularly invest excess cash shortterm investments subject changes interest rates believe market risk arising holding financial instruments minimal policy investing shortterm financial instruments issued highly rated financial institutions exposure related adverse movements interest rates derived primarily outstanding floating rate debt instruments indexed shortterm market rates currently higher level fixed rate debt variable rate debt limits exposure adverse movements interest rates impact commodity prices exposed certain commodity risks associated prices various raw materials prices copper certain raw materials particularly niobiumtin used manufacture superconductors increased significantly last decade copper niobiumtin main components low temperature superconductors continued commodity price increases copper niobium well raw materials may negatively affect profitability periodically enter commodity forward purchase contracts minimize volatility fluctuations price copper sales products december 31 2016 2015 fixed price commodity contracts notional amounts aggregating 27 million 20 million respectively fair value fixed price commodity contracts december 31 2016 2015 02 million 04 million respectively continue evaluate commodity risks may utilize commodity forward purchase contracts frequently future inflation believe inflation material impact business operating results periods presented item 8item 7a quantitative qualitative disclosures market risk potentially exposed market risks associated changes foreign currency translation rates interest rates commodity prices selectively use financial instruments reduce risks transactions related risk management techniques authorized executed pursuant policies procedures analytical techniques used manage monitor foreign currency translation interest rate risk include market valuations sensitivity analysis estimated market risk exposure using sensitivity analysis test sensitivity market risk exposure estimated changes fair value market risk sensitive instruments assuming hypothetical 10 percent adverse change market prices rates results sensitivity analyses summarized impact foreign currencies generate substantial portion revenues international markets principally germany countries european union switzerland japan exposes operations risk exchange rate fluctuations impact currency exchange rate movement positive negative period costs related sales foreign currencies largely denominated respective currencies limiting transaction risk exposure however foreign currency denominated sales certain regions japan incur significant costs denominated japanese yen exposed impact foreign currency fluctuations sales denominated us dollars increase rate foreign currency exchanged us dollars require foreign currency equal specified amount us dollars rate increase cases price products foreign currency receive less us dollars would received rate increase went effect price products us dollars competitors price products local currency increase relative strength us dollar could result prices competitive market business transacted local currency years ended december 31 2018 2017 revenue geography follows dollars millions changes foreign currency exchange rates increased revenue approximately 14 year ended december 31 2018 increased revenue approximately 12 year ended december 31 2017 assets liabilities foreign subsidiaries functional currency local currency translated us dollars using yearend exchange rates historical rates appropriate revenues expenses foreign subsidiaries translated average exchange rates effect year adjustments resulting financial statement translations included separate component shareholders equity year ended december 31 2018 recorded net losses currency translation adjustments 255 million year ended december 31 2017 recorded net gains currency translation 971 million 10 depreciation functional currencies relative us dollar december 31 2018 would resulted reduction shareholders equity approximately 1739 million gains losses resulting foreign currency transactions reported interest income expense net consolidated statements income comprehensive income foreign currency translation gains losses net 30 million 55 million years ended december 31 2018 2017 respectively impact currency exchange rate movement positive negative period periodically enter foreign currency contracts order minimize volatility fluctuations currency translation monetary transactions arrangements typically agree purchase fixed amount foreign currency exchange fixed amount us dollars currencies specified dates maturities less twelve months agreements extending longer periods transactions qualify hedge accounting accordingly instrument recorded fair value corresponding gains losses recorded consolidated statements income comprehensive income december 31 2018 2017 foreign currency contracts notional amounts aggregating 1024 million 842 million respectively december 31 2018 following notional amounts outstanding foreign currency contracts millions based contractual maturities contracts exchange rates december 31 2018 anticipate contracts result net cash outflows 26 million 2019 december 31 2018 assuming variables constant us dollar weakened 10 market value foreign currency contracts would increased approximately 37 million us dollar strengthened 10 market value foreign currency contracts would decreased approximately 37 million continue evaluate currency risks future may utilize foreign currency contracts frequently part transactional hedging program impact interest rates regularly invest excess cash shortterm investments subject changes interest rates believe market risk arising holding financial instruments minimal policy investing shortterm financial instruments issued highly rated financial institutions exposure related adverse movements interest rates derived primarily outstanding floating rate debt instruments indexed shortterm market rates currently higher level fixed rate debt variable rate debt limits exposure adverse movements interest rates impact commodity prices exposed certain commodity risks associated prices various raw materials prices copper certain raw materials particularly niobiumtin used manufacture superconductors increased significantly last decade copper niobiumtin main components low temperature superconductors continued commodity price increases copper niobium well raw materials may negatively affect profitability periodically enter commodity forward purchase contracts minimize volatility fluctuations price copper sales products december 31 2018 2017 fixed price commodity contracts notional amounts aggregating 68 million 30 million respectively fair value fixed price commodity contracts december 31 2018 2017 05 million 08 million respectively continue evaluate commodity risks may utilize commodity forward purchase contracts frequently future inflation believe inflation material impact business operating results periods presented item 8item 7a quantitative qualitative disclosures market risk potentially exposed market risks associated changes foreign currency translation rates interest rates commodity prices selectively use financial instruments reduce risks transactions related risk management techniques authorized executed pursuant policies procedures analytical techniques used manage monitor foreign currency translation interest rate risk include market valuations sensitivity analysis estimated market risk exposure using sensitivity analysis test sensitivity market risk exposure estimated changes fair value market risk sensitive instruments assuming hypothetical 10 percent adverse change market prices rates results sensitivity analyses summarized impact foreign currencies generate substantial portion revenues international markets principally germany countries european union switzerland japan exposes operations risk exchange rate fluctuations impact currency exchange rate movement positive negative period costs related sales foreign currencies largely denominated respective currencies limiting transaction risk exposure however foreign currency denominated sales certain regions japan incur significant costs denominated japanese yen exposed impact foreign currency fluctuations sales denominated us dollars increase rate foreign currency exchanged us dollars require foreign currency equal specified amount us dollars rate increase cases price products foreign currency receive less us dollars would received rate increase went effect price products us dollars competitors price products local currency increase relative strength us dollar could result prices competitive market business transacted local currency years ended december 31 2019 2018 revenue geography follows dollars millions changes foreign currency exchange rates decreased revenue approximately 27 year ended december 31 2019 increased revenue approximately 14 year ended december 31 2018 assets liabilities foreign subsidiaries functional currency local currency translated us dollars using yearend exchange rates historical rates appropriate revenues expenses foreign subsidiaries translated average exchange rates effect year adjustments resulting financial statement translations included separate component shareholders’ equity years ended december 31 2019 2018 recorded net losses currency translation adjustments 200 million 255 million respectively 10 depreciation functional currencies relative us dollar december 31 2019 would resulted reduction shareholders’ equity approximately 1886 million gains losses resulting foreign currency transactions reported interest income expense net consolidated statements income comprehensive income foreign currency translation losses net 33 million 30 million years ended december 31 2019 2018 respectively impact currency exchange rate movement positive negative period periodically enter foreign currency contracts order minimize volatility fluctuations currency translation monetary transactions arrangements typically agree purchase fixed amount foreign currency exchange fixed amount us dollars currencies specified dates maturities less twelve months agreements extending longer periods transactions qualify hedge accounting accordingly instrument recorded fair value corresponding gains losses recorded consolidated statements income comprehensive income december 31 2019 entered several crosscurrency interest rate swap agreements notional value 150 million us dollar swiss franc notional value 355 million us dollar euro hedge variability movement foreign currency exchange rates portions euro swiss franc denominated net asset investments us gaap hedge accounting guidance changes fair value derivative relates changes foreign currency spot rate recorded currency translation adjustment comprehensive income loss remain accumulated comprehensive income loss stockholders’ equity sale substantial liquidation foreign operation difference interest rate received paid interest rate crosscurrency swap derivative agreement recorded interest income statement income december 31 2019 2018 foreign currency contracts crosscurrency interest rate swap agreements notional amounts aggregating 5794 million 1024 million respectively december 31 2019 2018 following notional amounts outstanding foreign currency contracts millions 1derivatives designated accounting hedges 2derivatives designated accounting hedges based contractual maturities contracts exchange rates december 31 2019 anticipate contracts result net cash outflows 63 million 2020 december 31 2019 assuming variables constant us dollar weakened 10 market value foreign currency contracts would increased approximately 28 million us dollar strengthened 10 market value foreign currency contracts would decreased approximately 28 million continue evaluate currency risks future may utilize foreign currency contracts frequently part transactional hedging program impact interest rates regularly invest excess cash shortterm investments subject changes interest rates believe market risk arising holding financial instruments minimal policy investing shortterm financial instruments issued highly rated financial institutions exposure related adverse movements interest rates derived primarily outstanding floating rate debt instruments indexed shortterm market rates currently higher level fixed rate debt variable rate debt limits exposure adverse movements interest rates impact commodity prices exposed certain commodity risks associated prices various raw materials prices copper certain raw materials particularly niobiumtin used manufacture superconductors increased significantly last decade copper niobiumtin main components low temperature superconductors continued commodity price increases copper niobium well raw materials may negatively affect profitability periodically enter commodity forward purchase contracts minimize volatility fluctuations price copper sales products december 31 2019 2018 fixed price commodity contracts notional amounts aggregating 56 million 68 million respectively fair value fixed price commodity contracts december 31 2019 2018 03 million 05 million respectively continue evaluate commodity risks may utilize commodity forward purchase contracts frequently future inflation believe inflation material impact business operating results periods presented item 8item 7a quantitative qualitative disclosures market risk information required item incorporated reference section labeled quantitative qualitative disclosures market risk item 7 managements discussion analysis financial condition results operation item 8item 7a quantitative qualitative disclosures market risk potentially exposed market risks associated changes foreign exchange rates interest rates selectively use financial instruments reduce risks transactions related risk management techniques authorized executed pursuant policies procedures analytical techniques used manage monitor foreign exchange interest rate risk include market valuations sensitivity analysis impact foreign currencies generate substantial portion revenues international markets principally europe japan subjects operations exposure exchange rate fluctuations impact currency exchange rate movement positive negative period costs related sales foreign currencies largely denominated respective currencies limiting transaction risk exposure however sales denominated us dollars increase rate foreign currency exchanged us dollars require foreign currency equal specified amount us dollars rate increase cases price products foreign currency receive less us dollars rate increase went effect price products us dollars competitors price products local currency increase relative strength us dollar could result prices competitive market business transacted local currency realized foreign exchange gains losses net 21 million 16 million years ended december 31 2007 2006 respectively continue expand internationally continue evaluate currency risks may utilize foreign exchange rate contracts frequently order mitigate foreign currency exposure time enter foreign exchange rate contracts order minimize volatility fluctuations currency exchange rates cash flows related purchases sales denominated foreign currencies december 31 2007 outstanding forward currency exchange contracts notional amounts aggregating 150 million contracts involved purchase euro currency fixed us dollar amounts specified dates maturities less twelve months notional amounts contracts intended hedge receivables us dollars however transactions qualify hedge accounting sfas 133 accounting derivative instruments hedging activities accordingly instruments markedtomarket corresponding gains losses recorded income expense consolidated statements operations december 31 2007 currency exchange contracts fair values less 01 million impact interest rates regularly invest excess cash overnight repurchase agreements interestbearing investmentgrade securities hold duration term respective instrument subject changes shortterm interest rates believe market risk arising holding financial instruments minimal exposure related adverse movements interest rates derived primarily outstanding floating rate debt instruments indexed shortterm market rates objective managing exposure interest rates decrease volatility changes interest rates might earnings cash flows achieve objective entered interest rate swaps cross currency rate swaps order minimize volatility changes interest rates might earnings cash flows determined interest rate swaps effective offsetting change interest cash flows hedged defined sfas 133 accordingly changes swaps fair value recorded current earnings interest income expense consolidated statements operations 1999 entered interest rate swap arrangement pay 460 fixed rate interest receive variable rate interest based securities industry financial markets municipal swap index december 2013 notional amount interest rate swap 17 million december 31 2007 fair value 01 million 2002 entered cross currency interest rate swap arrangement receive semiannual interest payments euros based variable interest rate equal sixmonth euribor rate exchange semiannual payments swiss francs fixed rate 497 december 2011 notional amount swap €50 million fair value 06 million 10 increase decrease average cost variable rate debt would result material change pretax interest expense inflation believe inflation material impact business operating results periods presented item 8item 7a quantitative qualitative disclosures market risk potentially exposed market risks associated changes foreign currency translation rates interest rates commodity prices selectively use financial instruments reduce risks transactions related risk management techniques authorized executed pursuant policies procedures analytical techniques used manage monitor foreign currency translation interest rate risk include market valuations sensitivity analysis impact foreign currencies generate substantial portion revenues international markets principally germany countries european union switzerland japan exposes operations risk exchange rate fluctuations impact currency exchange rate movement positive negative period costs related sales foreign currencies largely denominated respective currencies limiting transaction risk exposure however foreign currency denominated sales certain regions japan incur significant costs denominated japanese yen exposed impact foreign currency fluctuations sales denominated us dollars increase rate foreign currency exchanged us dollars require foreign currency equal specified amount us dollars rate increase cases price products foreign currency receive less us dollars would received rate increase went effect price products us dollars competitors price products local currency increase relative strength us dollar could result prices competitive market business transacted local currency years ended december 31 2017 2016 revenue geography follows dollars millions changes foreign currency exchange rates increased revenue approximately 12 year ended december 31 2017 decreased revenue approximately 05 year ended december 31 2016 assets liabilities foreign subsidiaries functional currency local currency translated us dollars using yearend exchange rates historical rates appropriate revenues expenses foreign subsidiaries translated average exchange rates effect year adjustments resulting financial statement translations included separate component shareholders equity year ended december 31 2017 recorded net gains currency translation adjustments 971 million year ended december 31 2016 recorded net losses currency translation 276 million 10 depreciation functional currencies relative us dollar december 31 2017 would resulted reduction shareholders equity approximately 1372 million gains losses resulting foreign currency transactions reported interest income expense net consolidated statements income comprehensive income foreign currency translation gains losses net 55 million 41 million years ended december 31 2017 2016 respectively time entered foreign currency contracts order minimize volatility fluctuations exchange rates cash flows related purchases sales denominated foreign currencies arrangements agree purchase fixed amount foreign currency exchange fixed amount us dollars currencies specified dates typically maturities less twelve months transactions qualify hedge accounting accordingly instrument recorded fair value corresponding gains losses recorded interest income expense net consolidated statements income comprehensive income december 31 2017 2016 foreign currency contracts notional amounts aggregating 842 million 407 million respectively december 31 2017 company following notional amounts outstanding foreign currency contracts millions based contractual maturities contracts exchange rates december 31 2017 anticipate contracts result net cash inflows 44 million 2018 december 31 2017 assuming variables constant us dollar weakened 10 market value foreign currency contracts would increased approximately 86 million us dollar strengthened 10 market value foreign currency contracts would decreased approximately 86 million continue evaluate currency risks future may utilize foreign currency contracts frequently part transactional hedging program impact interest rates regularly invest excess cash shortterm investments subject changes interest rates believe market risk arising holding financial instruments minimal policy investing shortterm financial instruments issued highly rated financial institutions exposure related adverse movements interest rates derived primarily outstanding floating rate debt instruments indexed shortterm market rates currently approximately equal levels fixed floating rate debt limits exposure adverse movements interest rates impact commodity prices exposed certain commodity risks associated prices various raw materials prices copper certain raw materials particularly niobiumtin used manufacture superconductors increased significantly last decade copper niobiumtin main components low temperature superconductors continued commodity price increases copper niobium well raw materials may negatively affect profitability periodically enter commodity forward purchase contracts minimize volatility fluctuations price copper sales products december 31 2017 2016 fixed price commodity contracts notional amounts aggregating 30 million 27 million respectively fair value fixed price commodity contracts december 31 2017 2016 08 million 02 million respectively continue evaluate commodity risks may utilize commodity forward purchase contracts frequently future inflation believe inflation material impact business operating results periods presented item 8item 7a quantitative qualitative disclosures market risk potentially exposed market risks associated changes foreign currency translation rates interest rates commodity prices selectively use financial instruments reduce risks transactions related risk management techniques authorized executed pursuant policies procedures analytical techniques used manage monitor foreign currency translation interest rate risk include market valuations sensitivity analysis estimated market risk exposure using sensitivity analysis test sensitivity market risk exposure estimated changes fair value market risk sensitive instruments assuming hypothetical 10 percent adverse change market prices rates results sensitivity analyses summarized foreign currency risk generate substantial portion revenues international markets principally germany countries european union switzerland japan exposes operations risk exchange rate fluctuations impact currency exchange rate movement positive negative period costs related sales foreign currencies largely denominated respective currencies reducing transaction risk exposure however foreign currency denominated sales certain regions japan incur significant costs denominated japanese yen exposed impact foreign currency fluctuations sales denominated us dollars increase rate foreign currency exchanged us dollars require foreign currency equal specified amount us dollars rate increase cases price products foreign currency receive less us dollars would received rate increase went effect price products us dollars competitors price products local currency increase relative strength us dollar could result prices competitive market business transacted local currency example us dollar strengthened japanese yen japanesebased competitors would greater pricing advantage us revenue geography follows dollars millions changes foreign currency exchange rates increased revenue approximately 14 year ended december 31 2020 decreased revenue approximately 27 year ended december 31 2019 assets liabilities foreign subsidiaries functional currency local currency translated us dollars using period end exchange rates historical rates appropriate revenues expenses foreign subsidiaries translated average exchange rates effect year adjustments resulting financial statement translations included separate component shareholders’ equity years ended december 31 2020 2019 recorded net gains 220 million net losses 200 million respectively currency translation adjustments 10 depreciation functional currencies relative us dollar december 31 2020 would resulted reduction shareholders’ equity approximately 1701 million gains losses resulting foreign currency transactions reported interest income expense net consolidated statements income comprehensive income foreign currency translation gain loss net losses 79 million 33 million years ended december 31 2020 2019 respectively impact currency exchange rate movement positive negative period periodically enter foreign currency contracts order minimize volatility fluctuations currency translation monetary transactions arrangements typically agree purchase fixed amount foreign currency exchange fixed amount us dollars currencies specified dates maturities less twelve months agreements extending longer periods transactions qualify hedge accounting accordingly instrument recorded fair value corresponding gains losses recorded consolidated statements income comprehensive income december 31 2020 2019 entered several crosscurrency interest rate swap agreements notional value 150 million us dollar swiss franc notional value 355 million us dollar euro hedge variability movement foreign currency exchange rates portions euro swiss franc denominated net asset investments us gaap hedge accounting guidance changes fair value derivative relates changes foreign currency spot rate recorded currency translation adjustment comprehensive income loss remain accumulated comprehensive income loss stockholders’ equity sale substantial liquidation foreign operation difference interest rate received paid interest rate crosscurrency swap derivative agreement recorded interest income statement income time entered forward currency contracts designed minimize volatility fluctuations foreign currency cash flows related purchases sales denominated foreign currencies arrangements agree purchase fixed amount foreign currency exchange fixed amount us dollars currencies specified dates typically maturities less twelve months agreements extending longer periods transactions recorded fair value corresponding gains losses recorded interest income expense net unaudited condensed consolidated statements income comprehensive income december 31 2020 2019 forward currency contracts notional amounts aggregating 2783 million 744 million respectively continue evaluate currency risks future may utilize foreign currency contracts frequently interest rate risk regularly invest excess cash shortterm investments subject changes interest rates believe market risk arising holding financial instruments minimal policy investing shortterm financial instruments issued highly rated financial institutions exposure related adverse movements interest rates derived primarily outstanding floating rate debt instruments indexed shortterm market rates currently higher level fixed rate debt variable rate debt limits exposure adverse movements interest rates commodity price risk exposed certain commodity risks associated prices various raw materials prices copper certain raw materials particularly niobiumtin used manufacture superconductors increased significantly last decade copper niobiumtin main components low temperature superconductors continued commodity price increases copper niobium well raw materials may negatively affect profitability arrangements certain customers firm committment deliver copper based superconductor wire fixed price order minimize volatility fluctuations price copper sales commodities enter commodity hedge contracts december 31 2020 2019 fixed price commodity contracts notional amounts aggregating 88 million 56 million respectively fair value fixed price commodity contracts december 31 2020 2019 31 million 03 million respectively commodity contracts settle gains losses result changes fair values adjusted contracts customers revenues continue evaluate commodity risks may utilize commodity forward purchase contracts frequently future inflation risk believe inflation material impact business operating results periods presented item 8 item 8 financial statements supplementary data consolidated financial statements required response item submitted part item 14a report item 9item 8 financial statements supplementary data report independent auditors consolidated balance sheets december 31 2001 2002 consolidated statements operations years ended december 31 2000 2001 2002 consolidated statements stockholders equity years ended december 31 2000 2001 2002 consolidated statements cash flows years ended december 31 2000 2001 2002 notes financial statements report independent auditors board directors shareholders bruker daltonics inc audited accompanying consolidated balance sheets bruker daltonics inc company december 31 2001 2002 related consolidated statements operations stockholders equity cash flows three years period ended december 31 2002 audits also included financial statement schedule listed index item 15d financial statements schedule responsibility companys management responsibility express opinion financial statements schedule based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position bruker daltonics inc december 31 2001 2002 consolidated results operations cash flows three years period ended december 31 2002 conformity accounting principles generally accepted united states also opinion related financial statement schedule considered relation basic financial statements taken whole presents fairly material respects information set forth therein ernst young llp boston massachusetts february 19 2003 bruker daltonics inc consolidated balance sheets amounts thousands except share data accompanying notes integral part statements bruker daltonics inc consolidated statements operations amounts thousands except per share data accompanying notes integral part statements bruker daltonics inc consolidated statements stockholders equity amounts thousands accompanying notes integral part statements bruker daltonics inc consolidated statements cash flows dollar amounts thousands accompanying notes integral part statements bruker daltonics inc notes financial statements 1 description business bruker daltonics inc whollyowned subsidiaries company design manufacture market proprietary life science systems based mass spectrometry core technology platforms company also sells broad range field analytical systems substance detection pathogen identification company maintains major technical centers europe north america japan company allocates substantial capital resources research development party various collaborations strategic alliances companys diverse customer base includes pharmaceutical companies biotechnology companies proteomic companies academic institutions government agencies financial statements include accounts bruker daltonics inc subsidiaries significant intercompany accounts transactions eliminated consolidation 2 summary significant accounting policies use estimates preparation financial statements conformity accounting principles generally accepted united states requires management make estimates assumptions affect amounts reported financial statements accompanying footnotes actual results could differ estimates cash equivalents company considers highly liquid investments original maturities 90 days less date purchase cash equivalents cash equivalents carried cost approximates fair market value year end shortterm investments company accounts shortterm investments accordance statement financial accounting standards sfas 115 accounting certain investments debt equity securities companys investments carried fair value consist funds comprised shortterm money market bond instruments classified availableforsale december 31 2001 2002 december 31 2000 2001 2002 0 90000 realized losses respectively realized gains basis cost securities sold determined specific identification method concentration credit risk financial instruments subject company credit risk consist cash equivalents shortterm investments accounts receivables risk respect cash equivalents shortterm investments minimized companys policy investing shortterm financial instruments issued highlyrated financial institutions risk respect accounts receivable minimized credit worthiness companys customers company performs periodic credit evaluations customers financial condition generally require collateral credit losses within managements expectations years ended december 31 2000 2001 2002 two customers accounted aggregate 11 17 respectively companys product revenue accounts receivables two customers accounted aggregate 10 14 total receivables december 31 2001 2002 inventories stated lower cost market cost determined firstin firstout fifo method allowance excess obsolete inventory maintained reflect expected unsaleable unrefundable inventory based evaluation slow moving products inventories include demonstration equipment company offers sale current potential customers company amortizes demonstration equipment straightline basis three year period amortization expense demonstration equipment approximately 952000 18 million 39 million years ended december 31 2000 2001 2002 respectively property plant equipment property plant equipment includes land buildings machinery equipment furniture fixtures leasehold improvements recorded cost depreciated straightline basis estimated useful lives follows software costs purchased software capitalized cost amortized estimated useful life generally three years software developed use companys products expensed incurred classified research development expense intangible assets intangible assets consist principally patents licenses patents patent applications rights recorded acquisition cost amortized using straightline method legal lives patents generally periods ranging ten years accumulated amortization assets approximately 14 million 20 million december 31 2001 2002 respectively investments companies investment companies consists equity securities privatelyheld companies accounted cost method companys ownership interest companies less 20 periodically evaluate carrying value investments potential impairment evaluation identifies impairment deem temporary investments written estimated fair value charge current earnings longlived assets company reviews longlived assets impairment accordance statement financial accounting standard sfas 144 accounting impairment disposal longlived assets fas 144 facts circumstances indicate companys longlived assets might impaired estimated future undiscounted cash flows associated longlived asset would compared carrying amount determine writedown fair value necessary writedown required amount determined estimation present value net discounted cash flows accordance fas 144 date indicators impairment identified warranty costs company generally provides one year parts labor warranty purchase equipment anticipated cost one year warranty accrued upon recognition sale included current liability accompanying balance sheets extent company experiences increased warranty claim activity increased costs associated servicing claims warranty accrual increase resulting decreased gross profit changes product liability period follows thousands contingencies company subject proceedings lawsuits claims related patents product matters company assesses likelihood adverse judgments outcomes matters well potential ranges probable losses determination amount reserves required contingencies made careful analysis individual issue required reserves may change future due new developments matter changes approach change settlement strategy dealing matters company records charges costs anticipates incurring connection litigation claims company management reasonably estimate costs customer deposits terms conditions contracts certain customers company may require advance deposit amounts recorded liability revenue recognized specific contract time acceptance system earnings per share basic earnings per share calculated dividing net earnings weightedaverage number common shares outstanding period diluted earnings per share computation includes effect shares would issuable upon exercise outstanding stock options reduced number shares assumed purchased company resulting proceeds average market price period fair value financial instruments companys financial instruments consist primarily cash equivalents shortterm investments accounts receivable accounts payable amounts due fromto affiliated companies longterm debt carrying amounts companys cash equivalents shortterm investments accounts receivable accounts payable amounts due fromto affiliated companies approximate fair value due shortterm nature fair value longterm debt estimated based current interest rates offered company financing arrangements similar maturities recorded value financial instruments approximate fair value december 31 2001 2002 foreign currency translation accordance statement financial accounting standards sfas 52 foreign currency translation balance sheet accounts foreign subsidiaries translated united states dollars current exchange rate income statement items translated average exchange rate period resulting translation adjustments made directly accumulated comprehensive income loss stockholders equity realized exchange gains losses foreign currency transactions included income expenses gains approximately 332000 2000 losses 113000 2001 379000 2002 revenue recognition revenue recognized system sales including hardware embedded software product accepted customer except sold independent distributor strategic distribution partner unconsolidated bruker affiliated distributor assumes responsibility installation case system sale recognized products shipped distributor title transferred distributor companys distributors price protection rights return however companys products warranted free defect period typically one year revenue accessories parts recognized upon shipment revenue services performed company also offers customers warranty service agreements extending beyond initial year warranty fee fees recorded deferred revenue amortized revenue life agreements revenues principally comprised research development grants recognized grant work performed company believes revenue recognition policies comply sec staff accounting bulletin 101 revenue recognition financial statements american institute certified public accountants aicpa statement position sop 972 software revenue recognition shipping handling costs company records costs incurred connection shipping handling products marketing selling expenses amounts billed customers connection costs included revenues shipping handling costs 700000 10 million 11 million years ended december 31 2000 2001 2002 respectively advertising costs advertising costs expensed incurred advertising expenses included sales marketing approximately 793000 958000 10 million years ended december 31 2000 2001 2002 respectively income taxes company provides income taxes liability method prescribed sfas 109 accounting income taxes method deferred tax assets liabilities determined based difference financial statements tax basis assets liabilities using enacted tax rates effect year difference expected reverse valuation allowances established necessary reduce deferred tax assets amounts expected realized stock compensation arrangements company accounts stock compensation arrangements intrinsic value method accordance accounting principles board apb opinion 25 accounting stock issued employees fasb interpretation 44 accounting certain transactions involving stock compensation company adopted disclosureonly provisions fasb statement 123 accounting stockbased compensation cost fixed awards pro rata vesting recognized straightline basis awards vesting period company elected recognize compensation expense granting options stock option plans based fair values grant dates consistent methodology prescribed statement 123 net income loss net income loss per share years ended december 31 2000 2001 2002 would reported following pro forma amounts accounting developments june 2002 fasb issued statement 146 accounting costs associated exit disposal activities effective exit disposal activities initiated december 31 2002 statement 146 nullifies emerging issues task force issue 943 liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring statement 146 requires liability costs associated exit disposal activity recognized measured fair value liability incurred rather date entitys commitment exit disposal plan company adopted provisions statement 146 effective january 1 2003 statement 146 impact accounting restructuring plan approved announced december 31 2002 however pronouncement impact accounting future exit disposal activities november 2002 fasb issued interpretation 45 guarantors accounting disclosure requirements guarantees including indirect guarantees indebtedness others interpretation 45 requires liability recognized time company issues guarantee fair value obligations assumed certain guarantee agreements additional disclosures guarantee agreements also required interim annual financial statements disclosure provisions interpretation 45 effective company december 31 2002 provisions initial recognition measurement guarantee agreements effective prospective basis guarantees issued modified december 31 2002 company expect recognition provisions interpretation 45 materially impact consolidated financial statements december 2002 fasb issued statement 148 accounting stockbased compensationtransition disclosure statement 148 amends statement 123 provide alternative methods transition statement 123s fair value method accounting stockbased employee compensation statement 148 also amends disclosure provisions statement 123 apb opinion 28 interim financial reporting require disclosure summary significant accounting policies effects entitys accounting policy respect stockbased employee compensation reported net income earnings per share annual interim financial statements company adopted disclosure provisions statement 148 january 2003 fasb issued fasb interpretation 46 consolidation variable interest entities interpretation arb 51 fin 46 requires certain variable interest entities consolidated primary beneficiary entity equity investors entity characteristics controlling financial interest sufficient equity risk entity finance activities without additional subordinated financial support parties fin 46 effective new variable interest entities created acquired january 31 2003 variable interest entities created acquired prior february 1 2003 provisions fin 46 must applied first interim annual period beginning june 15 2003 company currently evaluating effect adoption fin 46 results operations financial condition reclassifications certain prior period amounts accompanying consolidated financial statements reclassified conform 2002 presentation 3 investments companies geneprot inc november 2000 company acquired 909091 shares series b preferred stock geneprot inc exchange 70 million cash 79218 shares companys common stock acquired securities included investments companies accounted cost method due uncertain outlook geneprot concluded investment suffered impairment deemed temporary recorded 83 million charge earnings 2002 write investment geneprot estimated fair market value affinium pharmaceutials inc march 2001 company acquired 369004 shares series iia preferred stock affinium pharmaceuticals inc formerly integrative proteomics inc exchange 500005 cash 28425 shares companys common stock acquired securities included investments companies accounted cost method due uncertain outlook affinium pharmaceuticals concluded investment suffered impairment deemed temporary recorded 603000 charge earnings 2002 write investment affinium pharmaceuticals estimated fair market value geneformatics inc october 2001 company acquired 333334 shares series c preferred stock geneformatics inc exchange 500013 cash 30693 shares companys common stock acquired securities included investments companies accounted cost method due uncertain outlook geneformatics concluded investment suffered impairment deemed temporary recorded 721000 charge earnings 2002 write investment geneformatics estimated fair market value 4 inventories components inventories follows 5 property plant equipment property plant equipment consisted following depreciation expense years ended december 31 2000 2001 2002 approximately 32 million 39 million 42 million respectively amortization leasehold improvements included depreciation accompanying financial statements 6 income taxes components income loss continuing operations provision income taxes consisted following significant components provision income taxes follows reconciliation income tax computed united states federal statutory tax rate income tax expense years ended december 31 2000 2001 2002 follows components companys deferred income taxes follows december 31 2002 company approximately 46 million net operating loss carryforwards available reduce future tax liabilities losses various expiration dates 2022 company also research development tax credits approximately 803000 available offset future tax liabilities expire various dates 2022 december 31 2001 2002 valuation allowance established offset certain deferred tax assets due uncertainty respect future realization assets undistributed earnings foreign subsidiaries aggregated approximately 250 million december 31 2002 existing law subject united states tax distributed dividends earnings intended indefinitely reinvested foreign operations provision made united states income taxes may applicable thereto 7 financing arrangements december 2002 company entered demand revolving line credit citizens bank amount 25 million line secured certain inventory receivables equipment united states used provide working capital expiration date interest line credit lower libor plus 175 basis points 320 december 31 2002 prime rate 425 december 31 2002 commitment fee unused portion line december 31 2002 company amounts outstanding line credit company also maintained revolving lines credit 2001 2002 approximately 67 million 142 million respectively among german banks interest rates ranging 625 875 december 31 2002 53 million outstanding credit facilities lines secured certain inventory accounts receivable germany renewable february october 2003 company one shortterm note payable two longterm notes payable outstanding balances aggregating 113 million 134 million december 31 2001 2002 respectively one note 45 million 54 million december 31 2001 2002 respectively interest rate 510 payable full 2003 two notes 68 million 80 million aggregate december 31 2001 2002 respectively interest rate 465 due 2008 interest due monthly obligations collateralized land buildings bruker daltonik gmbh company also entered revolving lines credit approximately 12 million 47 million 2001 2002 respectively japanese banks interest rates ranging 081 089 december 31 2002 approximately 47 million outstanding lines credit lines credit unsecured interest expense years ended december 31 2000 2001 2002 12 million 13 million 817000 respectively 8 stockholders equity initial public offering august 3 2000 company issued 9200000 shares common stock 119600000 13 per share company incurred 9912000 offering costs result transaction preferred stock december 31 2002 5000000 shares blank check preferred stock stated par value 001 per share authorized none issued stock split february 14 2000 board directors bruker daltonics inc authorized sevenforone stock split form stock dividend stockholders record received six additional shares common stock every share owned common shares per share data accompanying financial statements restated reflect stock split stock repurchase program august 7 2002 board directors approved stock repurchase program allowing company repurchase 1000000 shares common stock costs shares recorded treasury stock consolidated balance sheet purchases may made time open market privately negotiated transactions block purchases pursuant program company repurchased 457200 shares common stock average price 510 per share restricted common stock november 28 2002 company issued 109800 shares restricted common stock par value 001 per share dr dieter koch managing director bruker daltonik gmbh director bruker daltonics inc valued approximately 593000 exchange minority interest bruker saxonia analytik gmbh majorityowned subsidiary bruker daltonik gmbh shares common stock issued pursuant exemption registration requirements securities act 1933 amended afforded section 42 act stock options february 2000 board directors adopted stockholders approved 2000 stock option plan provides issuance 2188000 shares common stock connection awards plan allows committee board directors committee grant incentive stock options nonqualified stock options stock appreciation rights stock awards including use restricted stock phantom shares committee authority determine employees receive rewards amount awards terms conditions award options purchase shares common stock granted committee vest threetofive year periods stock option activity years ended december 31 2000 2001 2002 follows following table summarizes information stock options outstanding exercisable december 31 2002 company accounts stockbased compensation using intrinsic value method accordance accounting principles board opinion 25 accounting stock issued employees apb 25 adopted disclosureonly alternative sfas 123 accounting stockbased compensation sfas 123 sfas 148 accounting stockbased compensationtransition disclosure sfas 148 apb 25 exercise price companys stock options granted employees equaled fair market value underlying stock date grant compensation expense recognized stock options granted nonemployees including scientific advisory board members accounted accordance emerging issues task force issue 9618 accounting equity instruments issued employees acquiring conjunction selling goods services requires value options remeasured vest performance period fair value options determined using blackscholes model resulting charge recognized related services performed company recorded approximately 181000 238000 compensation expense 39000 compensation income relating nonemployee grants years ended december 31 2000 2001 2002 respectively pro forma information disclosed significant accounting policies regarding net income earnings per share required sfas 123 sfas 148 also requires information determined company accounted employee stock options fair value method fair value options estimated date grant using blackscholes option pricing model following weightedaverage assumptions 2002 riskfree interest rates ranging 163 420 expected dividend yield 0 volatility factor 1169 weightedaverage expected life options threetofive years following weightedaverage assumptions 2001 riskfree interest rates ranging 218 380 expected dividend yield 0 volatility factor 1362 weightedaverage expected life options threetofive years following weightedaverage assumptions 2000 riskfree interest rates ranging 545 665 expected divided yield 0 volatility factor 0051 0386 weightedaverage expected life options threetofive years blackscholes option valuation model developed use estimating fair value traded options vesting restrictions fully transferable addition option valuation models require input highly subjective assumptions including expected stock price volatility companys employee stock options characteristics significantly different traded options changes subjective input assumptions materially affect fair value estimate managements opinion existing models necessarily provide reliable single measure fair value employee stock options 9 segment geographic information company operates one business segment engages design manufacturing marketing proprietary life science systems process analysis systems analytical instruments based primarily mass spectrometry technology geographic areas information concerning principal geographic areas follows 1net revenues attributable geographic areas based region sale 10 relatedparty transactions company affiliated common stockholders several entities use bruker name company affiliates entered sharing agreement provides sharing specified intellectual property rights services facilities related items company recognized sales affiliated entities approximately 94 million 2000 41 million 2001 58 million 2002 purchases affiliated entities approximately 56 million 2000 35 million 2001 53 million 2002 company investments three nonaffiliated companies company recognized sales companies geneprot inc geneformatics inc affinium pharmaceuticals inc approximately 14 million 0 respectively 2000 60 million 03 million 0 respectively 2001 510000 0 194000 respectively 2002 sales recorded arms length conditions normal course business purchases companies 2000 2001 2002 2000 2001 2002 various bruker affiliates provided administrative services including office space company cost approximately 443000 894000 939000 respectively based assessment estimated fair market value services november 28 2002 company issued 109800 shares restricted common stock par value 001 per share dr dieter koch managing director bruker daltonik gmbh director bruker daltonics inc valued approximately 593000 cash 593000 exchange minority interest bruker saxonia analytik gmbh majorityowned subsidiary bruker daltonik gmbh shares common stock issued pursuant exemption registration requirements securities act 1933 amended afforded section 42 act 2000 company purchased land principal shareholder 742000 estimated fair market value 11 employee benefit plans company maintains sponsors various defined contribution retirement plans cover domestic international employees company may make contributions plans discretion retirement benefits earned generally based years service compensation active employment eligibility generally determined accordance local statutory requirements however level benefits terms vesting may vary among plans company contributed approximately 199000 315000 300000 2000 2001 2002 respectively 12 commitments contingencies license agreements company entered license agreements allowing utilize certain patents used connection commercial product sale company pays royalties ranging 015 500 related product revenues licensing fees years ended december 31 2000 2001 2002 approximately 238000 405000 12 million respectively grants company grant national institute standards technology nist advanced technology program commenced march 1 1995 ran february 28 2000 grant development dna sequencing timeofflight mass spectrometer total project cost 70 million 35 million reimbursed nist companys expenditures 703000 0 2000 2001 2002 respectively amounts reimbursed nist approximately 226000 0 2000 2001 2002 respectively classified revenues companys whollyowned subsidiary bruker daltonik gmbh recipient grants german government authorities grants made connection companys development specific spectrometers components spectrometers total grants awarded amount 56 million expire june 30 2005 amounts received grants 2000 2001 2002 totaled 12 million 926000 218000 respectively classified revenues total expenditures related grants 27 million 10 million 13 million 2000 2001 2002 respectively legal since december 31 1996 company involved patent litigation competitor finnigan subsidiary thermo electron corporation august 2001 companies reached comprehensive settlement agreement related litigation settlement agreement provides dismissal pending suits waiving damages framework licensing arbitration potential future patent disputes companies field ion trap mass spectrometry itms settlement allows companies well distributors sell unmodified itms systems effective immediately result company reduced patent litigation accrual approximately 19 million third quarter 2001 985000 2002 additional reduction 2002 brought patent litigation accrual zero company believes liability exists company incurred special charge fourth quarter 2002 connection contract german swiss subsidiaries uk ministry defense consisted additional reserve amount 700000 represents projected increase cost rework retesting contract due various technical problems associated meeting contract requirements company previously incurred charge contract fourth quarter 2000 company required make considerable design changes product time increased cost contract performance earlier reserve fourth quarter 2000 still companys books 800000 addition company previously reported third quarter 2001 company also books reserve 17 million connection possible imposition liquidated damages pursuant contract even though company strongly disputes applicability believes fact company owed additional development funding uk mod time companys german swiss subsidiaries making strong efforts deliver product deemed acceptable uk mod tests currently occurring auspices mod management continue monitor situation closely lawsuits claims proceedings nature considered normal businesses may pending time company believes outcome proceedings material impact companys financial position results operations restructuring charge company recorded restructuring charge three months ended june 30 2002 approximately 15 million primarily related workforce reduction approximately 50 employees charge consisted primarily employee severance professional fees outplacement services third fourth quarters 2002 company recorded credit approximately 10 million reserve reflect revised estimate actual employee severance costs credit reflected income statement heading special charges credits december 31 2002 total 300000 paid date accrual 200000 remains accrued expenses 27 employees affected workforce reduction 13 earnings per share following table sets computation basic diluted average shares outstanding period indicated thousands 14 quarterly information unaudited summary operating results quarterly periods two years ended december 31 2002 set forth second fourth quarters 2002 company took 44 million 52 million charge respectively due writedown investments companies item 9item 8 financial statements supplementary data report independent auditors board directors shareholders bruker biosciences corporation audited accompanying consolidated balance sheets bruker biosciences corporation company december 31 2003 2002 related consolidated statements operations shareholders equity comprehensive income loss cash flows three years period ended december 31 2003 audits also included financial statement schedule listed index item 15d financial statements schedule responsibility companys management responsibility express opinion financial statements schedule based audits audit financial statements bruker axs inc whollyowned subsidiary statements reflect total assets 139051000 december 31 2002 total revenues 104290000 82588000 years ended december 31 2002 2001 respectively statements financial statement schedule audited auditors whose report furnished us included explanatory paragraph describes companys adoption statement financial accounting standards 142 goodwill intangible assets effective january 1 2002 opinion insofar relates amounts included bruker axs inc december 31 2002 two years ended based solely report auditors conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits report auditors provide reasonable basis opinion based audits report auditors financial statements referred present fairly material respects consolidated financial position bruker biosciences corporation december 31 2003 2002 consolidated results operations cash flows three years period ended december 31 2003 conformity accounting principles generally accepted united states also opinion based audits report auditors related financial statement schedule considered relation basic financial statements taken whole presents fairly material respects information set forth therein discussed note 7 consolidated financial statements company adopted statement financial accounting standards 142 goodwill intangible assets effective january 1 2002 ernst young llp boston massachusetts february 27 2004 report independent accountants board directors shareholders bruker axs inc opinion consolidated balance sheets related consolidated statements operations shareholders equity comprehensive income loss cash flows bruker axs inc subsidiaries presented separately herein present fairly material respects financial position december 31 2002 results operations cash flows two years period ended december 31 2002 conformity accounting principles generally accepted united states america addition opinion financial statement schedule bruker axs inc subsidiaries presented separately herein present fairly material respects information set forth therein read conjunction related consolidated financial statements bruker axs inc financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements based audits conducted audits statements accordance auditing standards generally accepted united states america require plan perform audits obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion bruker axs inc adopted statement financial accounting standards sfas 142 goodwill intangible assets effective january 1 2002 pricewaterhousecoopers llp milwaukee wisconsin february 25 2003 bruker biosciences corporation consolidated balance sheets thousands except per share data accompanying notes integral part financial statements bruker biosciences corporation consolidated statements operations thousands except per share data accompanying notes integral part financial statements bruker biosciences corporation consolidated statements shareholders equity comprehensive income loss thousands except share data accompanying notes integral part financial statements bruker biosciences corporation consolidated statements cash flows thousands accompanying notes integral part statements bruker biosciences corporation notes condensed consolidated financial statements 1 description business bruker biosciences corporation formerly bruker daltonics inc whollyowned subsidiaries company design manufacture service market proprietary life science systems based mass spectrometry core technology platforms xray technology company also sells broad range field analytical systems nbc detection company maintains major technical centers europe north america japan companys diverse customer base includes pharmaceutical companies biotechnology companies proteomics companies academic institutions semiconductor companies government agencies july 1 2003 company merged bruker axs inc company surviving merger note 5 prior merger approximately 69 bruker axs inc owned majority shareholders merger represented combination companies common control consolidated financial statements share data 2002 2001 include retroactive effects merger accordingly consolidated financial statements recast pro rata basis combining historical consolidated financial statements bruker biosciences corporation bruker axs periods presented connection merger company formed two operating subsidiaries bruker daltonics inc bruker axs inc transferred substantially respective assets liabilities except cash formerly belonged bruker daltonics bruker axs respectively cash remains bruker biosciences corporation parent company two subsidiaries bruker daltonics bruker axs reportable operating segments company see note 10 financial statements represent consolidated accounts bruker biosciences corporation majorityowned subsidiaries significant intercompany accounts transactions eliminated consolidation consolidated financial statements december 31 2003 fiscal year ended december 31 2003 2002 2001 prepared accordance accounting principles generally accepted united states 2 summary significant accounting policies use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates cash equivalents company considers highly liquid investments original maturities 90 days less cash equivalents cash equivalents primarily include cash hand money market funds municipal notes time deposits time deposits represent amounts deposit banks temporarily invested instruments maturities 90 days less time purchase certain investments represent deposits insured fdic united states government agency cash equivalents carried cost approximates fair market value restricted cash company required maintain restricted cash balance classified noncurrent guarantee lessor building located delft netherlands throughout lease term addition certain customers require company provide bank guarantee customer advances generally lines credit facilitate requirement however extent required guarantee exceeds local line credit availability company maintains current restricted cash balances december 31 2003 2002 restricted cash balances 155000 128000 respectively shortterm investments company accounts shortterm investments accordance statement financial accounting standards sfas 115 accounting certain investments debt equity securities companys investments carried fair value consist funds comprised shortterm money market bond instruments classified availableforsale december 31 2003 2002 basis cost securities sold determined specific identification method december 31 2003 company held 142 million shortterm investments maturity values year company carried unrealized loss investments 0 20000 years ended december 31 2003 2002 respectively decreases market values individual securities cost duration six nine months deemed indicative temporary impairment company writes carrying amount investments market value income expense net accompanying statement operations december 31 2003 2002 2001 0 90000 0 realized losses respectively realized gains concentration credit risk financial instruments subject company credit risk consist cash equivalents shortterm investments accounts receivables risk respect cash equivalents shortterm investments minimized companys policy investing shortterm financial instruments issued highlyrated financial institutions risk respect accounts receivables minimized credit worthiness companys customers company performs periodic credit evaluations customers financial condition generally require collateral credit losses within managements expectations years ended december 31 2003 2002 2001 customers exceeded 10 companys product revenue accounts receivable inventories stated lower cost market cost determined firstin firstout fifo method allowance excess obsolete inventory maintained reflect expected unsaleable unrefundable inventory based evaluation slow moving products inventories include demonstration equipment company provides current potential customers considered available sale company amortizes demonstration equipment straightline basis threeyear period amortization expense demonstration equipment 62 million 55 million 33 million years ended december 31 2003 2002 2001 respectively inventories also include systems shipped companys customers installed accepted customer december 31 2003 2002 inventoryintransit 201 million 234 million respectively property equipment property equipment stated cost less accumulated depreciation amortization depreciation amortization calculated straightline basis estimated useful lives assets follows depreciation expense years ended december 31 2003 2002 2001 approximately 105 million 61 million 50 million respectively amortization leasehold improvements included depreciation accompanying financial statements goodwill intangible assets company adopted sfas 142 goodwill intangible assets first quarter fiscal 2002 sfas 142 requires goodwill intangible assets indefinite useful lives amortized instead assets tested impairment reportable operating segment basis annually interim basis events changes circumstances warrant reportable operating segment represents either bruker daltonics bruker axs impairment test consists comparison fair value goodwill intangible asset carrying amount related impairment losses recognized earnings incurred transitional provisions sfas 142 company tested goodwill intangible assets indefinite useful lives impairment january 1 2002 pursuant method prescribed sfas 142 also company recorded impairment loss associated bruker axs reporting unit note 7 result companys evaluation impairment deemed necessary 2003 investments companies investment companies consists equity securities privately held companies accounted cost method companys ownership interest companies less 20 periodically evaluate carrying value investments potential impairment evaluation identifies impairment deem temporary investments written estimated fair value charge current earnings 2002 company recorded 10938000 writedown related investments note 8 customer advances company requires advance deposit terms conditions contracts certain customers deposits recorded liability revenue recognized specific contract longlived assets company reviews longlived assets impairment accordance sfas 144 accounting impairment disposal longlived assets facts circumstances indicate companys longlived assets might impaired estimated future undiscounted cash flows associated longlived asset would compared carrying amount determine writedown fair value necessary writedown required amount determined estimation present value net discounted cash flows accordance sfas 144 date indicators impairment identified warranty costs deferred revenue company provides one year parts labor warranty purchase equipment anticipated cost oneyear warranty accrued upon recognition sale included current liability accompanying balance sheets extent company experiences increased warranty claim activity increased costs associated servicing claims warranty accrual increase resulting decreased gross profit company also offers customers extended warranty service agreements extending beyond initial year warranty fee fees recorded deferred revenue amortized income life extended warranty contract changes warranty liability follows thousands minority interest consolidated subsidiaries minority interest consolidated subsidiaries 26623 balance sheet december 31 2002 primarily represents minority public shareholders proportionate share equity bruker axs inc minority interest consolidated subsidiaries 212000 427000 consolidated statement operations year ended december 31 2002 2001 primarily represents minority public shareholders proportionate share net loss bruker axs year december 31 2003 company owns 100 bruker axs see note 5 minority interest consolidated subsidiaries 853000 statement operations year ended december 31 2003 primarily represents minority common shareholders proportionate share net loss prior merger july 1 2003 minority interest consolidated subsidiaries 124000 balance sheet december 31 2003 represents minority common shareholders proportionate share equity incoatec gmbh baltic scientific instruments see note 5 income taxes company provides income taxes liability method prescribed sfas 109 accounting income taxes method deferred tax assets liabilities determined based difference financial statements tax basis assets liabilities using enacted tax rates effect year difference expected reverse valuation allowances established necessary reduce deferred tax assets amounts expected realized comprehensive income loss comprehensive income includes net loss income transition adjustment adoption sfas 133 changes fair market value financial instruments designated hedges foreign currency translation adjustments fair value financial instruments companys financial instruments consist primarily cash equivalents shortterm investments accounts receivable accounts payable amounts due fromto affiliated companies longterm debt carrying amounts companys cash equivalents shortterm investments accounts receivable accounts payable amounts due fromto affiliated companies approximate fair value due shortterm nature fair value longterm debt estimated based current interest rates offered company financing arrangements similar maturities recorded value financial instruments approximates fair value december 31 2003 2002 company time engaged derivative instruments see note 12 derivative instruments effective hedges markedtomarket appreciationdepreciation instruments included income expense net consolidated statements operations foreign currency translation accordance sfas 52 foreign currency translation balance sheet accounts foreign subsidiaries translated united states dollars current exchange rate income statement items translated average exchange rate period resulting translation adjustments made directly accumulated comprehensive income loss shareholders equity realized foreign exchange gains losses approximately 12 million 15 million 03 million years ended december 31 2003 2002 2001 respectively revenue recognition revenue recognized system sales including hardware embedded software product accepted customer except sold independent distributor strategic distribution partner unconsolidated bruker affiliated distributor assumes responsibility installation case system sale recognized products shipped distributor title transferred distributor companys distributors price protection rights return however companys products warranted free defect period typically one year revenue accessories parts recognized upon shipment revenue services performed company also offers customers warranty service agreements extending beyond initial year warranty fee fees recorded deferred revenue amortized revenue life agreements revenues principally comprised research development grants recognized grant work performed research development research development costs expensed incurred software costs purchased software capitalized cost amortized estimated useful life generally three years software developed use companys products expensed incurred classified research development expense advertising company expenses advertising costs incurred advertising expenses 21 million 21 million 19 million years ended december 31 2003 2002 2001 respectively shipping handling costs company records costs incurred connection shipping handling products selling expenses amounts billed customers connection costs included revenues shipping handling costs 25 million 11 million 10 million years ended december 31 2003 2002 2001 respectively prior merger july 1 2003 bruker axs inc recorded amounts cost product revenue contingencies company subject proceedings lawsuits claims related patents product matters company assesses likelihood adverse judgments outcomes matters well potential ranges probable losses determination amount reserves required contingencies made careful analysis individual issue required reserves may change future due new developments matter changes approach change settlement strategy dealing matters stockbased compensation company accounts stockbased compensation arrangements intrinsic value method accordance accounting principles board apb opinion 25 accounting stock issued employees fasb interpretation 44 accounting certain transactions involving stock compensation company adopted disclosureonly provisions sfas 123 accounting stockbased compensation cost fixed awards pro rata vesting recognized straightline basis awards vesting period company elected recognize compensation expense granting options stock option plans based fair values grant dates consistent methodology prescribed sfas 123 net income loss net income loss per share years ended december 31 2003 2002 2001 would reported following pro forma amounts thousands except per share data company accounts stockbased compensation nonemployees using fair value method prescribed sfas 123 eitf issue 9618 accounting equity instruments issued employees acquiring conjunction selling goods services accordingly compensation cost stock options granted nonemployees measured fair value option date grant remeasured underlying options vest net loss income per share basic net loss income per share calculated dividing net loss income weightedaverage shares outstanding period diluted net loss income per share computation includes effect shares would issuable upon exercise outstanding stock options reduced number shares assumed purchased company resulting proceeds average market price period following table sets computation basic diluted average shares outstanding period indicated thousands stock options purchase shares common stock periods fiscal year 2003 2002 2001 antidilutive excluded computation diluted earnings per share due net losses periods july 1 2003 company merged bruker axs inc company surviving merger note 5 common share per share data prior periods recast include effects merger bruker axs accounting pronouncements january 2003 financial accounting standards board fasb issued fasb interpretation 46 consolidation variable interest entities interpretation arb 51 fin 46 fin 46 requires certain variable interest entities consolidated primary beneficiary entity equity investors entity characteristics controlling financial interest sufficient equity risk entity finance activities without additional subordinated financial support parties fin 46 effective new variable interest entities created acquired january 31 2003 variable interest entities created acquired prior february 1 2003 provisions fin 46 must applied first interim annual period beginning june 15 2003 however october 2003 fasb deferred effective date fin 46 end first interim annual period ending december 15 2003 arrangements involving special purpose entities entered prior february 1 2003 arrangements within scope fin 46 subject provisions beginning 2004 company adopted fin 46 required material impact consolidated financial position results operations company believe adoption remaining provisions fin 46 2004 material impact financial position results operations reclassifications certain reclassifications made financial statements prior year conform current year presentation reclassifications effect previously reported net loss income shareholders equity 3 balance sheet components inventories comprised following thousands property equipment comprised following thousands current liabilities comprised following thousands accumulated comprehensive income comprised following thousands 4 income statement components special charges follows thousands components interest income expense net follows thousands 5 merger acquisitions bruker axs inc merger april 4 2003 company bruker axs inc entered definitive merger agreement pursuant company acquired outstanding shares bruker axs merger intended form leading tools supplier life science materials research emphasis advancing proteomics agreement signed following unanimous approval board directors company well unanimous recommendations independent special committees companies boards june 27 2003 merger approved shareholders bruker axs company official closing merger occurred july 1 2003 upon closing merger outstanding share common stock bruker axs converted right receive election holder either 063 share companys common stock consideration intended substantially equivalent value payable 75 companys common stock 25 cash merger represents business combination companies common control due majority ownership companies five related individuals affiliated shareholder group result merger relates shares owned affiliated shareholders approximately 69 accounted manner similar poolingofinterest historical carrying value acquisition shares nonaffiliated shareholders approximately 31 accounted using purchase method accounting fair value manner similar acquisition minority interest excess purchase price interest common control fair value related net assets accounted goodwill fair value consideration paid acquisition minority interest 381 million including cash 54 million common stock valued 285 million stock options value 30 million merger transaction costs 12 million value 966 million shares common stock issued nonaffiliated shareholders connection merger determined using closing market price 295 bruker daltonics stock date terms merger agreed announced fair value stock options issued determined using blackscholes option pricing model following table summarizes estimated fair values assets acquired liabilities assumed date acquisition minority interest company engaged third party valuation firm independently appraise fair value certain assets acquired purchase price 31 minority interest acquired allocated net assets acquired pro rata basis accordance fasb statement 141 business combinations accordingly intangible assets acquired allocated follows 15 million existing technology related patents estimated weightedaverage useful life four years 03 million customer relationships weightedaverage useful life five years 03 million trade names weightedaverage useful life ten years addition 25 million acquired intangible assets assigned inprocess research development projects written date acquisition accordance fasb interpretation 4 applicability fasb statement 2 business combinations accounted purchase method writeoff included special charges consolidated statement operations projects qualify acquired inprocess research development projects represent yet reached technology feasibility future alternative uses existed value assigned inprocess research development projects determined using discounted probable future cash flow analysis financial assumptions used estimate future cash flows based pricing margins expense levels historically realized bruker axs discount rate 45 utilized discount net cash flows generated acquired inprocess research development estimates used valuing acquired inprocess research development based upon assumptions believed reasonable inherently uncertain unpredictable result actual results may differ estimates 107 million goodwill acquired bruker axs connection merger assigned companys bruker axs subsidiary reportable operating segment deductible tax purposes since merger taxfree merger conjunction merger company formulated plan consolidate production exit certain activities life science xray business production capacity life science xray systems produced bruker nonius facility delft netherlands outsourced absorbed within facilities throughout company result restructuring activities company recorded approximately 22 million purchase accounting liabilities reserves approximately 15 million 69 purchase accounting liabilities reserves charged special charges cost product revenue inventory reserves remaining 07 million 31 included allocation purchase price goodwill purchase accounting liabilities reserves included 08 million severance costs approximately 19 employees 10 million reserve inventory longer used production 04 million costs upgrade xray systems longer produced miscellaneous restructuring costs charges purchase accounting liabilities reserves recorded connection activities follows thousands addition company wroteoff remaining balance goodwill 15 million trade names trademarks 02 million associated bruker nonius entity approximately 12 million 69 writeoff goodwill trade names trademarks charged special charges remaining 05 million 31 included allocation purchase price goodwill connection merger company formed two operating subsidiaries bruker axs inc bruker daltonics inc transferred substantially respective assets liabilities except cash formerly belonged bruker axs bruker daltonics respectively cash remains bruker biosciences corporation parent company june 27 2003 addition approving merger companys shareholders voted increase total number shares company authority issue 100000000 shares common stock par value 001 per share 150000000 shares common stock par value 001 per share shareholders also approved increase companys stock option pool 2220000 6320000 shares approved changing name company bruker daltonics bruker biosciences corporation preceding approvals contingent upon closing merger baltic scientific instruments ltd acquisition april 2 2003 bruker axs acquired 51 outstanding common shares baltic scientific instruments ltd bsi riga latviabased company bsi focuses solid state xray detector technology materials research elemental composition supplier bruker axs since 2001 acquisition gives companies opportunity explore additional research development projects results bsi operation included accompanying consolidated financial statements since date acquisition aggregate purchase price bsi approximately 267000 paid cash total assets acquired 903000 total liabilities assumed 636000 may 2003 bsi issued additional shares bruker axs increased companys ownership 755 bsis minority shareholders receive additional shares may 2003 pro forma statements operations information reflect bsi acquisition presented impact net sales loss income cumulative effect accounting change net loss income net loss income per share would immaterial mac science ltd may 13 2002 bruker axs inc acquired substantially assets certain liabilities mac science ltd yokohama japanbased company focused xray analysis instrumentation results mac science operation included accompanying consolidated financial statements since date acquisition anticipated acquisition result new product introductions well penetration japanese life science advanced materials research markets aggregate purchase price 3407000 including 274000 cash plus assumption liabilities 3133000 following table summarizes estimated fair values assets acquired liabilities assumed date acquisition thousands entire goodwill balance 825000 expected deductible tax purposes conjunction acquisition company formulated plan relocate manufacturing facility 22 employees fukui japan yokohama japan company completed activities third quarter 2002 result completing activities allocation purchase price adjusted 82000 third quarter 2002 charges purchase accounting liabilities recorded connection activities follows thousands nonius group april 10 2001 company completed acquisition nonius group nonius transaction whereby company acquired nonius bv subsidiary four affiliates delft instruments nv dutch company nonius developer manufacturer single crystal xray diffraction equipment company paid cash approximately 62 million net cash acquired plus assumption approximately 18 million debt plus additional liabilities 43 million acquisition accounted purchase second quarter fiscal 2001 accordingly results operations nonius period subsequent consummation acquisition included accompanying financial statements excess purchase price fair value assets acquired 32 million recorded goodwill first quarter 2002 company recorded impairment loss 1046000 617000 net tax related goodwill note 7 conjunction acquisition nonius company acquired certain inprocess research development iprd projects included next generation high brilliancy optics microsources high brilliance rotating anode generator successors biological crystallography high sensitivity large area detector systems next generation software data acquisition processing time acquisition projects various stages completion ranging 50 70 projects expected completed 2002 estimated cost 615000 high brilliancy optics rotating anode generator projects completed 2002 large area detector systems software projects expected completed second quarter 2003 company determined absence technological feasibility alternative future use iprd company utilized discounted probable future cash flows analysis prepare valuation fair value iprd company performed cash flow analysis projectbyproject basis applied adjusted discount rates 4045 projects cash flow company used financial assumptions based pricing margins expense levels historically realized nonius consistent industry standards material net cash inflows projects began 2003 management primarily responsible estimating fair value purchased inprocess research development valuation resulted estimate fair value 3590000 2118000 net tax charged research development expense immediately following close transaction second quarter 2001 bruker nonius operations located delft netherlands part purchase agreement delft instruments bruker nonius entered rental service agreements 20 months services provided delft instruments included facility maintenance telephone systems networks payroll handling may 2002 bruker nonius moved operations delft instruments facility new facility delft netherlands december 31 2002 2001 rental service fee recognized since acquisition 339000 270000 services terminated december 31 2002 unaudited pro forma information following unaudited pro forma income statement information thousands except per share data assumes mac science nonius acquisitions taken place beginning periods presented accordance sfas 141 business combinations unaudited pro forma combined income statement information prepared informational purposes may indicative either operating results actually would resulted acquisition made beginning periods presented operating results may occur subsequent acquisition 6 restructuring charges bruker biosciences 2003 restructuring plan see note 5 information regarding companys restructuring activities undertaken result merger bruker axs bruker daltonics 2002 restructuring plan companys subsidiary bruker daltonics reportable operating segment recorded restructuring charge six months ended june 30 2002 approximately 15 million related workforce reduction approximately 50 employees charge consisted primarily employee severance professional fees outplacement services third fourth quarters 2002 company recorded credit approximately 10 million reserve reflect revised estimate actual employee severance costs december 31 2002 total 300000 paid accrual 200000 remained accrued expenses 27 employees affected workforce reduction year ended december 31 2003 company paid additional 200000 workforce reduction leaving zero balance accrued expenses december 31 2003 charges adjustments incurred throughout fourth quarter ending december 31 2003 following table summarizes restructuring charge activity balance restructuring accrual december 31 2003 bruker axs 2002 restructuring plan companys subsidiary bruker axs reportable operating segment implemented restructuring program year ended december 31 2002 order reduce costs improve productivity eliminating redundant positions streamlining production initiating cost reduction programs operating areas result company recorded restructuring charge approximately 1767000 1043000 net tax third quarter 2002 third quarter 2003 company recorded additional restructuring charge 122000 charge included increase workforce reduction accrual 294000 related additional costs associated early retirement program germany increase offset reduction contractual obligations accrual 172000 due company renegotiating penalties terminating contract outsourced information technology services following table summarizes restructuring charge activity balance restructuring accrual december 31 2003 thousands due impact certain german regulatory requirements applicable benefits companys german employees workforce reduction accrual fully paid 2008 7 goodwill intangible assets changes carrying amount goodwill year ended december 31 2003 2002 follows thousands company adopted sfas 142 goodwill intangible assets first quarter fiscal 2002 transitional provisions sfas 142 company recorded goodwill impairment loss associated bruker nonius reporting unit 1046000 617000 net tax fair value reporting unit based projected discounted future net cash flows accordance transitional provisions sfas 142 impairment loss recorded first quarter 2002 cumulative effect change accounting principle application nonamortization provisions sfas 142 reduced amortization expense approximately 165000 fiscal 2002 following sets forth reconciliation net income loss years ended december 31 2003 2002 2001 adjusted nonamortization provisions sfas 142 nonamortization provisions sfas 142 impact basic diluted earnings loss per share years ended december 31 2003 2002 2001 previously described note 5 companys acquired intangible assets december 31 2003 december 31 2002 comprised following thousands amortization expense related intangible assets 236000 0 74000 year ended december 31 2003 2002 2001 respectively estimated future amortization expense related intangible assets december 31 2003 follows 8 investments companies geneprot inc november 2000 company acquired 909091 shares series b preferred stock geneprot inc exchange 70 million cash 79218 shares companys common stock acquired securities included investments companies accounted cost method due uncertain outlook geneprot management concluded investment suffered impairment deemed temporary company recorded 82 million charge earnings 2002 write investment geneprot estimated fair market value companys evaluation determined writedowns necessary 2003 affinium pharmaceuticals inc 2001 company acquired 738008 shares series iia preferred stock affinium pharmaceuticals inc formerly integrative proteomics inc exchange approximately 1 million cash 64650 shares companys common stock acquired securities included investments companies accounted cost method due uncertain outlook affinium pharmaceuticals management concluded investment suffered impairment deemed temporary company recorded 13 million charge earnings 2002 write investment affinium pharmaceuticals estimated fair market value companys evaluation determined writedowns necessary 2003 cengent therapeutics 2001 company acquired 666667 shares series c preferred stock cengent therapeutics formerly geneformatics inc exchange approximately 1 million cash 61742 shares companys common stock acquired securities included investments companies accounted cost method due uncertain outlook geneformatics management concluded investment suffered impairment deemed temporary company recorded 14 million charge earnings 2002 write investment cengent therapeutics estimated fair market value 2003 geneformatics inc merged structural bioinformatics inc create cengent therapeutics resulted company converting shares 222878 shares cengent therapeutics series f preferred stock companys evaluation determined writedowns necessary 2003 9 income taxes components income loss continuing operations provision income taxes consisted following thousands significant components provision income taxes follows thousands reconciliation income tax computed united states federal statutory tax rate income tax expense years ended december 31 2003 2002 2001 follows thousands components companys deferred income taxes follows 2003 company recorded noncash charge establish valuation allowance 96 million primarily writeoff deferred tax assets united states operations impact income tax valuation allowance net loss 012 per diluted share valuation allowance determined accordance provisions sfas 109 accounting income taxes requires assessment positive negative evidence determining whether likely deferred tax assets recoverable assessment required jurisdictionbyjurisdiction basis cumulative losses incurred us jurisdiction 2003 especially due merger related charges represented sufficient negative evidence difficult positive evidence overcome sfas 109 accordingly full valuation allowance recorded company intends maintain full valuation allowance sufficient positive evidence exists support reversal valuation allowance provision income taxes excluding income tax valuation allowance determined applying estimated tax rate income taxes subsidiaries years ended december 31 2003 2002 company computed provision income taxes excluding income tax valuation allowance 10 million 12 million loss taxes 86 million 36 million respectively company incurred income taxes despite net losses tax benefit applied us substantially losses incurred 2003 december 31 2003 company approximately 222 million net operating loss carryforwards available reduce future taxable income losses various expiration dates 2023 company also research development tax credits approximately 27 million available offset future tax liabilities expire various date 2023 undistributed earnings foreign subsidiaries aggregated approximately 249 million december 31 2003 existing law subject united states tax distributed dividends earnings intended indefinitely reinvested foreign operations provision made united states income taxes may applicable thereto 10 business segment information sfas 131 disclosures segments enterprise related information establishes standards reporting information operating segments annual financial statements public business enterprises also establishes standards related disclosures products service geographic areas major customers company evaluated business activities regularly reviewed chief executive officer discrete financial information available result evaluation company determined two subsidiaries reportable operating segments bruker daltonics bruker axs bruker daltonics business manufacturing distributing mass spectrometry instruments integrated used along analytical instruments bruker axs business manufacturing distributing advanced xray instrumentation used nondestructive molecular elemental analysis academic research industrial applications bruker biosciences corporation parent company bruker daltonics bruker axs corporate entity holds excess cash shortterm investments incurs public company costs net revenue operating loss income depreciation amortization bruker daltonics bruker axs bruker biosciences provided assets information bruker daltonics bruker axs bruker biosciences provided thousands following represents companys geographic segments thousands europe primarily includes united kingdom germany france italy spain belgium netherlands scandinavia poland russia hungary slovenia switzerland austria foreign includes countries included within north america europe 11 debt companys nonrelated party debt obligations consisted following thousands industrial revenue bonds irb entered state wisconsin 1999 connection construction bruker axs incs building madison wisconsin bruker axs inc interest rate swap designated hedge bruker axs inc pays 460 fixed rate interest receives variable rate interest based bond market association municipal swap index contract 2200000 notional value decreases conjunction irb payment schedule swap irb agreements terminate december 2013 fair value swap obtained dealer quotes unrealized loss 181000 224000 december 31 2003 2002 respectively interest payments receivable payable terms swap accrued period treated adjustment interest expense letter credit renewable upon mutual agreement bruker axs inc financial institution letter credit renewed bruker axs inc unable obtain similar letter credit another financial institution irb may callable option bond trustee companys outstanding letter credit expires december 2004 collateralized substantially assets bruker axs inc letter credit contains various financial covenants december 31 2003 company compliance debt covenants annual maturities longterm nonrelated party debt follows company maintains lines credit financial institutions us germany japan aggregate maximum credit amount approximately 329 million 288 million december 31 2003 2002 respectively december 31 2003 2002 company borrowings approximately 164 million 118 million respectively availability approximately 165 million 170 million respectively line credit us company entered demand revolving line credit citizens bank amount 25 million line secured certain inventory receivables equipment united states used provide working capital expiration date interest line credit either libor plus 175 basis points 287 december 31 2003 prime rate 400 december 31 2003 elect method interest calculation time draw line credit provided liborbased draws must 100000 multiples commitment fee unused portion line december 31 2003 company 15 million outstanding line credit lines credit germany unsecured interest paid monthly outstanding borrowings based banks variable interest rates 695875 december 31 2003 lines credit japan interest rates between089 101 december 31 2003 lines credit maturity date uncollateralized interest expense years ended december 31 2003 2002 2001 18 million 13 million 19 million respectively 12 derivative instruments hedging activities effective january 1 2001 company adopted sfas 133 accounting derivative instruments hedging activities amended interpreted sfas 133 requires derivative instruments recognized financial statements measured fair market value changes fair market value derivative instruments recognized period current earnings shareholders equity component comprehensive income loss depending whether derivative designated part hedge transaction type hedge transaction accordance sfas 133 company recorded transition adjustment resulted realized loss 20000 net tax january 1 2001 company party interest cross currency rate swaps order minimize volatility changes interest foreign currency rates might earnings cash flows company also periodically enters foreign exchange rate contracts order minimize volatility fluctuations currency exchange rates companys cashflows related purchases sales denominated foreign currencies company interest rate swap arrangement pay 460 fixed rate interest receive variable rate interest based bond market association municipal swap index ranging 118 167 year ending december 31 2002 22 million notional amount contract considered effective hedge changes amount future cash flows associated companys interest payments related variable rate debt obligations december 31 2002 accordingly changes fair value contract deferred shareholders equity component comprehensive income loss effective january 1 2003 company determined interest rate swap longer effective defined sfas 133 offsetting change interest cash flows hedged accordingly changes swaps fair value recorded current earnings interest income expense consolidated statements operations amount recognized earnings within next twelve months expected significant fair value instrument liability 181000 224000 109000 133000 net tax december 31 2003 december 31 2002 respectively fair values obtained dealer quotes april 2002 company entered cross currency interest rate swap interest rate swap currently designated hedges cross currency interest rate swap 2 million euro secures fixed rate 175 per annum payable japanese yen january 4 2012 interest rate swap 3 million euro reduces 6month euribor rate 180 per annum january 4 2007 company entered financial instruments manage exposure interest rates foreign exchange risk fluctuations fair value instruments recorded interest income expense notional amount financial instruments designated hedges approximately 16309000 13620000 december 31 2003 2002 respectively instruments become effective hedges defined sfas 133 considered speculative fluctuations fair value instruments recorded interest income expense fair value instruments appreciated depreciated 466000 264000 163000 years ended december 31 2003 2002 2001 respectively aggregate fair value speculative derivative instruments liability asset 151000 315000 december 31 2003 2002 respectively 13 related parties company affiliated common shareholders several entities use bruker name company affiliates entered sharing agreement provides sharing specified intellectual property rights services facilities related items december 31 2003 2002 company payables related parties included accounts payable balance 6209000 2025000 million respectively company receivables related parties included within accounts receivable balance 4556000 3507000 december 31 2003 2002 respectively payment terms accounts receivable balances related parties third party customers sales related parties subsidiaries bruker biosciences corporation included consolidated financial statements related parties affiliated sales offices countries company distribution network sales primarily resale companys products sales amounted 130 million 166 million 93 million years ended december 31 2003 2002 2001 respectively addition purchased 71 million 53 million 35 million affiliated entities year ended december 31 2003 2002 2001 respectively company shares various general administrative expenses items including umbrella insurance policies accounting services leases various related parties general administrative expenses amounted 14 million 12 million 16 million years ended december 31 2003 2002 2001 respectively company investments three nonaffiliated companies company recognized sales companies geneprot inc cengent therapeutics affinium pharmaceuticals inc approximately 21 million 0 respectively 2003 510000 0 194000 respectively 2002 60 million 03 million 04 million respectively 2001 sales recorded armslength conditions normal course business purchases companies 2003 2002 2001 november 28 2002 company issued 109800 shares restricted common stock par value 001 per share dr dieter koch managing director bruker daltonik gmbh director bruker daltonics inc valued approximately 593000 cash 593000 exchange minority interest bruker saxonia analytik gmbh majorityowned subsidiary bruker daltonik gmbh shares common stock issued pursuant exemption registration requirements securities act 1933 amended afforded section 42 act bruker axs inc line credit bruker biospin kk maximum credit amount 229000 december 31 2001 line credit interest rate 175 matured august 31 2002 company paid 14 million 849000 10 million law firm one directors partner 14 employee benefit plans company maintains sponsors various defined contribution defined benefit retirement plans cover domestic international employees company may make contributions plans discretion retirement benefits earned generally based years service compensation active employment eligibility generally determined accordance local statutory requirements however level benefits terms vesting may vary among plans company contributed approximately 811000 663000 652000 2003 2002 2001 respectively substantially bruker axs gmbh employees employed company september 30 1997 participate defined benefit pension plan provides pension benefits based upon final average salary years service benefits employees based fixed amount year service company elected recognize impact projected benefit obligation actual experience differs actuarial assumptions immediate basis company recognized actuarial losses gains approximately 143000 52000 53000 years ended december 31 2003 2002 2001 respectively following provides reconciliation funded status plan thousands value benefit obligation determined december 31 2003 using following actuarial assumptions 15 shareholders equity initial public offering august 3 2000 company issued 9200000 shares common stock 119600000 13 per share company incurred 9912000 offering costs result transaction december 14 2001 bruker axs inc issued sold 9000000 shares common stock 58500000 650 per share conjunction initial public offering upon closing initial public offering 5625000 shares redeemable preferred stock converted 6923077 shares common stock result merger company bruker axs inc 9000000 shares bruker axs common stock issued bruker axs initial public offering 6923077 shares bruker axs common stock issued upon conversion bruker axs redeemable preferred stock upon closing initial public offering converted 3912300 3009462 bruker biosciences shares respectively january 11 2002 underwriters initial public offering exercised overallotment option result bruker axs inc issued sold 1350000 shares common stock 8775000 650 per share result merger shares converted 586545 shares companys common stock blank check preferred stock december 31 2003 5000000 shares blank check preferred stock stated par value 001 per share authorized none issued redeemable preferred stock january 16 2001 bruker axs inc authorized sold 5625000 shares series convertible preferred stock 001 par value per share price 400 per share gross proceeds received totaled 22500000 company utilized proceeds pay related party debt accordance payment schedules pay third party lines credit full also conjunction preferred stock offering company incurred investment fees related offering totaled approximately 227000 fees included reduction preferred stock terms series preferred shares also provided cumulative cash dividends 8 annual rate paid may declared time board directors company beneficial conversion feature existed upon closing qualified public offering ipo closing price 600800 per share closing price 600800 per share preferred shareholders would receive additional shares common stock upon conversion additional number shares determined multiplying one fraction numerator equal eight denominator equal actual price per share closing ipo since beneficial conversion feature contingent number shares issued upon conversion could computed ipo occurred beneficial conversion feature recognized closing ipo outstanding carrying amount series preferred shares accreted using interest method fair market value january 16 2009 earliest redemption date 2001 company recorded approximately 833000 accretion recorded charges additional paidin capital redemption amount mandatorily redeemable series convertible preferred stock also included accrued dividends declared companys board directors accrued dividends 370000 included carrying value series convertible stock three months ended march 31 2001 however board directors declared dividends intention future accrual reversed three months ended june 30 2001 reversal dividends would increased basic diluted earnings per share 001 three months ended march 31 2001 upon closing companys initial public offering december 2001 preferred stock converted common stock offerings closing price 650 per share beneficial conversion feature existed additional 1298077 shares issued upon conversion resulting total conversion shares 6923077 intrinsic value beneficial conversion feature 5192000 recognized reduction net income available common shareholders reduction additional paidin capital december 2001 addition completion companys initial public offering preferred shareholders entitled certain rights respect registration 6923077 shares common stock company proposes register securities act either companys account security holders exercising registration rights holders 6923077 common shares entitled notice registration include shares common stock registration companys expense additionally holders shares entitled demand registration rights pursuant may require company file registration statement securities act companys expense respect shares common stock holders shares may require company file additional registration statements form s3 companys expense registration rights subject right underwriters offering limit number shares included registration rights terminate five years closing initial public offering stock repurchase programs august 7 2002 board directors bruker daltonics approved stock repurchase program authorizing repurchase 1000000 shares common stock costs shares recorded treasury stock consolidated balance sheet purchases may made time open market privately negotiated transactions block purchases pursuant program company repurchased 457200 shares common stock average price 510 per share august 2002 board directors bruker axs inc authorized repurchase 2500000 shares common stock purchases repurchase program made timetotime open market block trades otherwise discretion company management bruker axs repurchased 192422 shares weighted average price 393 per share total approximately 756000 year ended december 31 2002 shares retired connection merger july 1 2003 dividends terms companys indebtedness restrict ability pay dividends shareholders stock options february 2000 board directors adopted stockholders approved 2000 stock option plan provides issuance 2200000 shares common stock connection awards plan allows committee board directors committee grant incentive stock options nonqualified stock options stock appreciation rights stock awards including use restricted stock phantom shares committee authority determine employees receive rewards amount awards terms conditions award options purchase shares common stock granted committee vest threetofive year periods july 1 2003 board directors adopted stockholders approval amend restate 2000 stock option plan change plan name increase number shares available issuance name amended plan bruker biosciences corporation amended restated 2000 stock option plan amendment also registered 4132000 additional shares common stock bruker biosciences corporation issuable pursuant companys plan originally adopted 2000 total number shares issuable plan 6320000 july 1 2003 2200000 shares previously registered form s8 reg 33347836 stock option activity years ended december 31 2003 2002 2001 follows following table summarizes information stock options outstanding exercisable december 31 2003 thousands except per share amounts company recorded compensation income expense 2000 100000 415000 years ended december 31 2003 2002 2001 respectively stock options granted nonemployees compensation income expenses amortized straightline basis underlying vesting terms fair value option granted estimated date grant using blackscholes optionpricing model following assumptions 16 commitments contingencies operating leases certain vehicles office equipment buildings leased agreements accounted operating leases total rental expense operating leases 2292000 1540000 1543000 years ended december 31 2003 2002 2001 respectively future minimum lease payments noncancelable operating leases december 31 2003 follows license agreements company entered license agreements allowing utilize certain patents used connection commercial product sale company pays royalties ranging 015 500 related product revenues licensing fees years ended december 31 2003 2002 2001 approximately 08 million 12 million 04 million respectively grants companys whollyowned subsidiary bruker daltonik gmbh recipient grants german government authorities grants made connection companys development specific spectrometers components spectrometers total grants awarded amount 56 million expire june 30 2005 amounts received grants 2003 2002 2001 totaled 13 million 02 million 09 million respectively classified revenues total expenditures related grants 31 million 13 million 10 million 2003 2002 2001 respectively legal since december 31 1996 company involved patent litigation competitor finnigan subsidiary thermo electron corporation august 2001 companies reached comprehensive settlement agreement related litigation settlement agreement provides dismissal pending suits waiving damages framework licensing arbitration potential future patent disputes companies field ion trap mass spectrometry itms settlement allows companies well distributors sell unmodified itms systems effective immediately result company reduced patent litigation accrual approximately 19 million third quarter 2001 10 million 2002 additional reduction 2002 brought patent litigation accrual zero company believes liability exists company incurred special charge fourth quarter 2002 connection contract german swiss subsidiaries uk ministry defense mod consisted additional reserve amount 700000 represented projected increase cost rework retesting contract due various technical problems associated meeting contract requirements company previously incurred charge contract fourth quarter 2000 company required make considerable design changes product time increased cost contract performance addition third quarter 2001 company reserve 19 million liquidated damages pursuant contract mod strongly disputed applicability liquidated damages believed owed additional development funding mod 2003 german swiss subsidiaries delivered product met specifications contract understanding mod pursue claims liquidated damages previously paid pursuant contract pursue claims recovery additional research development expenses incurred connection contract therefore reserve 19 million liquidated damages reversed 2003 lawsuits claims proceedings nature considered normal businesses may pending time company believes outcome proceedings material impact companys financial position results operations letters credit guarantees december 31 2003 2002 company bank guarantees 82 million 70 million respectively customer advances guarantees affect availability lines credit indemnifications company enters standard indemnification arrangements ordinary course business pursuant arrangements company indemnifies holds harmless agrees reimburse indemnified parties losses suffered incurred indemnified party generally business partners customers connection patent copyright intellectual property infringement claim third party respect products term indemnification agreements generally perpetual anytime execution agreement maximum potential amount future payments company could required make agreements unlimited company never incurred costs defend lawsuits settle claims related indemnification agreements result company believes estimated fair value agreements minimal company entered indemnification agreements directors officers may require company indemnify directors officers liabilities may arise reason status service directors officers liabilities arising willful misconduct culpable nature advance expenses incurred result proceeding could indemnified obtain directors officers insurance available reasonable terms company currently place 17 quarterly financial data unaudited summary operating results quarterly periods two years ended december 31 2003 set forth thousands except per share data first second third quarters 2003 company recorded 32 million 31 million 54 million special charges related merger bruker axs second fourth quarters 2002 company recorded 44 million 65 million charge respectively due writedown investments companies item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders bruker biosciences corporation audited accompanying consolidated balance sheets bruker biosciences corporation company december 31 2004 2003 related consolidated statements operations shareholders equity comprehensive income loss cash flows three years period ended december 31 2004 audits also included financial statement schedule listed index item 15d financial statements schedule responsibility companys management responsibility express opinion financial statements schedule based audits audit financial statements financial statement schedule bruker axs inc whollyowned subsidiary statements reflect total revenues 104290000 year ended december 31 2002 statement financial statement schedule audited auditors whose report furnished us included explanatory paragraph describes companys adoption statement financial accounting standards 142 goodwill intangible assets effective january 1 2002 opinion insofar relates amounts included bruker axs inc year ended december 31 2002 based solely report auditors conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits report auditors provide reasonable basis opinion based audits report auditors financial statements referred present fairly material respects consolidated financial position bruker biosciences corporation december 31 2004 2003 consolidated results operations cash flows three years period ended december 31 2004 conformity accounting principles generally accepted united states also opinion based audits report auditors related financial statement schedule considered relation basic financial statements taken whole presents fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states effectiveness bruker biosciences corporations internal controls financial reporting december 31 2004 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated march 24 2005 expressed unqualified opinion managements assessment adverse opinion effectiveness internal control financial reporting ernst young llp boston massachusetts march 24 2005 report independent registered public accounting firm board directors shareholders bruker biosciences corporation audited managements assessment included managements report internal control financial reporting included item 9a bruker biosciences corporation maintain effective internal control financial reporting december 31 2004 company maintain significant subsidiary effective control environment entitylevel sufficient controls application labor overhead sufficient controls reconciliation physical existence certain units systems related inventory balance significant subsidiary based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso criteria bruker biosciences corporations management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinion managements assessment opinion effectiveness companys internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting evaluating managements assessment testing evaluating design operating effectiveness internal control performing procedures considered necessary circumstances believe audit provides reasonable basis opinion companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate material weakness control deficiency combination control deficiencies results remote likelihood material misstatement annual interim financial statements prevented detected following material weaknesses identified certain subsidiary whose operations financial condition significant companys consolidated financial statements weaknesses identified management included assessment internal controls december 31 2004 follows company maintained entitylevel significant subsidiary effective control environment due lack financial resources accounting function significant subsidiary ensure transactions account analyses reconciliations performed conjunction financial statement close process adequately performed reviewed maintained sufficient controls significant subsidiary application labor overhead end period inventory balances maintained sufficient controls reconciliation physical existence certain units systems related inventory balance books records significant subsidiary result weaknesses postclosing adjustments reflected accompanying financial statements year ended december 31 2004 quarterly periods included therein effect decreasing accounts receivable inventory revenue cost product sales increasing inventory cost product sales material weaknesses considered determining nature timing extent audit tests applied audit fiscal 2004 financial statements report affect report dated march 24 2005 financial statements opinion managements assessment bruker biosciences corporation maintain effective internal control financial reporting december 31 2004 fairly stated material respects based coso control criteria also opinion effect material weaknesses described achievement objectives control criteria bruker biosciences corporation maintained effective internal control financial reporting december 31 2004 based coso control criteria ernst young llp march 24 boston massachusetts report independent registered public accounting firm board directors shareholders bruker axs inc opinion consolidated statements operations shareholders equity comprehensive income loss cash flows bruker axs inc subsidiaries presented separately herein present fairly material respects results operations cash flows year ended december 31 2002 conformity accounting principles generally accepted united states america addition opinion financial statement schedule bruker axs inc subsidiaries presented separately herein present fairly material respects information set forth therein read conjunction related consolidated financial statements bruker axs inc financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements based audit conducted audit statements accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement audit financial statements includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion bruker axs inc adopted statement financial accounting standards sfas 142 goodwill intangible assets effective january 1 2002 pricewaterhousecoopers llp milwaukee wisconsin february 25 2003 bruker biosciences corporation consolidated balance sheets thousands except per share data accompanying notes integral part financial statements bruker biosciences corporation consolidated statements operations thousands except per share data accompanying notes integral part financial statements bruker biosciences corporation consolidated statements shareholders equity comprehensive income loss thousands except share data accompanying notes integral part financial statements bruker biosciences corporation consolidated statements cash flows thousands accompanying notes integral part statements bruker biosciences corporation notes consolidated financial statements note 1description business bruker biosciences corporation whollyowned subsidiaries company design manufacture service market proprietary life science systems based mass spectrometry core technology platforms xray technology company also sells broad range field analytical systems nuclear biological chemical nbc detection company maintains major technical centers europe north america japan companys diverse customer base includes pharmaceutical biotechnology proteomics companies academic institutions semiconductor industries government agencies july 1 2003 company merged bruker axs inc bruker axs company surviving merger consolidated financial statements years ended december 31 2003 2002 include retroactive effects merger bruker axs consolidated financial statements restated combining historical consolidated financial statements bruker biosciences corporation bruker axs years ended december 31 2003 2002 connection merger company formed two operating subsidiaries bruker daltonics inc bruker daltonics bruker axs transferred substantially respective assets liabilities except cash remains parent company bruker biosciences corporation bruker daltonics bruker axs reportable segments company bruker daltonics business manufacturing distributing mass spectrometry instruments integrated used along analytical instruments bruker axs business manufacturing distributing advanced xray instrumentation used nondestructive molecular elemental analysis academic research industrial applications note 2summary significant accounting policies principles consolidation financial statements include accounts company majority whollyowned subsidiaries intercompany accounts transactions eliminated cash equivalents cash equivalents consist primarily highly liquid investments original maturities three months less date acquisition cash equivalents primarily include cash hand money market funds time deposits time deposits represent amounts deposit banks temporarily invested instruments maturities three months less time purchase certain investments represent deposits insured fdic united states government agency cash equivalents carried cost approximates market value restricted cash company required maintain restricted cash balance classified noncurrent guarantee lessor building located delft netherlands throughout lease term addition certain customers require company provide bank guarantee customer advances generally lines credit facilitate requirement however extent required guarantee exceeds local line credit availability company maintains current restricted cash balances december 31 2004 2003 restricted cash balances approximately 07 million 02 million respectively shortterm investments company accounts shortterm investments accordance statement financial accounting standards sfas 115 accounting certain investments debt equity securities companys investments carried fair value consist funds comprised auctionrated securities bond instruments classified availableforsale december 31 2004 2003 basis cost securities sold determined specific identification method market values individual securities decrease cost period six nine months company deems indicative temporary impairment writes carrying amount investments market value income expense net accompanying statement operations december 31 2004 2003 2002 material realized gains losses concentration credit risk financial instruments subject company credit risk consist cash equivalents shortterm investments accounts receivables risk respect cash equivalents shortterm investments minimized companys policy investing shortterm financial instruments issued highlyrated financial institutions risk respect accounts receivables minimized credit worthiness companys customers company performs periodic credit evaluations customers financial condition generally require collateral credit losses within managements expectations years ended december 31 2004 2003 2002 sales receivables single customer exceeded 10 companys product revenue accounts receivable inventories inventoriescomponents inventory include raw materials workin process demonstration units finished goods demonstration units include units located companys demonstration laboratories potential customer sites considered available sale finished goods include intransit systems shipped companys customers installed accepted customer inventories stated lower cost market cost determined principally firstin firstout fifo method majority subsidiaries averagecost certain international location company reduces carrying value inventories differences cost estimated net realizable value taking consideration usage preceding twelve months expected demand technological obsolescence information including physical condition demonstration intransit inventories company records charge cost sales amount required reduce carrying value inventory net realizable value costs associated procurement warehousing inventories inbound freight charges purchasing receiving costs included cost sales line item within statement operations property plant equipment property equipment stated cost less accumulated depreciation amortization major improvements capitalized expenditures maintenance repairs minor improvements charged expense assets retired otherwise disposed assets related accumulated depreciation eliminated accounts resulting gain loss reflected statement operations depreciation amortization calculated straightline basis estimated useful lives assets follows depreciation expense years ended december 31 2004 2003 2002 approximately 98 million 105 million 61 million respectively amortization leasehold improvements included depreciation accompanying financial statements goodwill company adopted sfas 142 goodwill intangible assets first quarter fiscal 2002 sfas 142 requires goodwill intangible assets indefinite useful lives amortized instead assets tested impairment reportable operating segment basis annually interim basis events changes circumstances warrant reportable operating segment represents either bruker daltonics bruker axs impairment test consists comparison fair value goodwill intangible asset carrying amount related impairment losses recognized earnings incurred transitional provisions sfas 142 company tested goodwill impairment january 1 2002 pursuant method prescribed sfas 142 company performs annual test indications impairment december 31 year company annually tests impairment december 31 2004 2003 determined goodwill indefinitelived intangible assets impaired intangible assets intangible assets finite useful life amortized straightline basis estimated useful lives periods ranging 4 10 years investments companies investment companies consists equity securities privately held companies accounted cost method companys ownership interest companies less 20 company periodically evaluates carrying value investments potential impairment evaluation identifies impairment deem temporary investments written estimated fair value charge current earnings three years ended december 31 2004 company recorded charges impairments investments totaling approximately 23 million 2004 109 million 2002 impairment longlived assets impairment losses recorded longlived assets used operations indicators impairment present quoted market price available estimated undiscounted operating cash flows generated assets less assets carrying value impairment losses charged statement operations difference fair value carrying value asset impairment losses recorded longlived assets years ended december 31 2004 2003 2002 warranty costs deferred revenue company provides one year parts labor warranty purchase equipment anticipated cost oneyear warranty accrued upon recognition sale included current liability accompanying balance sheets extent company experiences increased warranty claim activity increased costs associated servicing claims warranty accrual increase resulting decreased gross profit company also offers customers extended warranty service agreements extending beyond initial year warranty fee fees recorded deferred revenue amortized ratably income life extended warranty contract minority interest consolidated subsidiaries minority interest consolidated subsidiaries 02 million consolidated statement operations year ended december 31 2002 represents minority public shareholders proportionate share net loss bruker axs year december 31 2004 2003 company owns 100 bruker axs see note 3 minority interest consolidated subsidiaries 09 million statement operations year ended december 31 2003 primarily represents minority common shareholders proportionate share net loss prior merger july 1 2003 minority interest statement operations 01 million year ended december 31 2004 represents minority common shareholders proportionate share net loss incoatec gmbh baltic scientific instruments income taxes company accounts income taxes accordance statement financial accounting standard 109 accounting income taxes sfas 109 sfas 109 requires asset liability approach account income taxes recognizing deferred tax assets liabilities expected future tax consequences differences financial statement basis tax basis assets liabilities calculated using enacted tax rates effect year differences expected reflected tax return company records valuation allowance reduce deferred tax assets amount likely realized customer advances company requires advance deposit terms conditions contracts certain customers deposits recorded liability revenue recognized specific contract comprehensive income loss comprehensive income loss refers revenues expenses gains losses accounting principles generally accepted united states included comprehensive income loss excluded net income amounts recorded directly adjustment stockholders equity net tax companys comprehensive income loss composed unrealized gains losses availableforsale securities unrealized losses cash flow hedges foreign currency translation adjustments fair value financial instruments companys financial instruments consist primarily cash equivalents accounts receivable accounts payable amounts due fromto affiliated companies longterm debt carrying amounts companys cash equivalents availableforsale securities accounts receivable accounts payable amounts due fromto affiliated companies approximate fair value due shortterm nature fair value longterm debt estimated based current interest rates offered company financing arrangements similar maturities recorded value financial instruments approximates fair value december 31 2004 2003 derivative financial instruments company accounts derivative financial instruments accordance statement financial accounting standards 133 accounting derivative instruments hedging activities sfas 133 amended derivatives whether designated hedging relations recorded balance sheet fair value derivative designated fair value hedge changes fair value derivative hedged item attributable hedged risk recognized results operations derivative designated cash flow hedge effective portions changes fair value derivative recorded accumulated comprehensive income oci recognized results operations hedged item affects earnings ineffective portions changes fair value cash flow hedges recognized results operations derivative instruments designated hedging instruments changes fair value recognized results operations current period foreign currency translation assets liabilities companys foreign subsidiaries functional currency local currency translated us dollars using yearend exchange rates revenues expenses foreign subsidiaries translated average exchange rates effect year adjustments resulting financial statement translations included separate component stockholders equity gains losses resulting foreign currency transactions reported statement operations caption interest income expense net periods presented revenue recognition company recognizes revenue system sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectibility resulting receivable reasonably assured title risk loss generally transferred customer upon receipt signed customer acceptance form system shipped installed customer trained result timing customer acceptance readiness could cause companys reported revenues differ materially expectations products sold independent distributor strategic distribution partner unconsolidated affiliated distributor assumes responsibility installation company recognizes system sale product shipped title risk loss transferred companys distributors price protection rights return however products warranted free defect period one year arrangements multiple elements company recognizes revenue element based fair value element provided criteria revenue recognition met fair value element provided multiple element arrangements typically determined referencing historical pricing policies element sold separately changes companys ability establish fair value element multiple element arrangements could affect timing revenue recognition revenue sale accessories parts recognized upon shipment service revenue recognized services performed research development research development costs expensed incurred software costs purchased software capitalized cost amortized estimated useful life generally three years software developed use companys products expensed incurred technological feasibility reasonably assured classified research development expense subsequent achievement technological feasability amounts capitalizable however date amounts material advertising company expenses advertising costs incurred advertising expenses 22 million 21 million 21 million years ended december 31 2004 2003 2002 respectively shipping handling costs company records costs incurred connection shipping handling products selling expenses amounts billed customers connection costs included revenues contingencies company subject proceedings lawsuits claims related patents product matters company assesses likelihood adverse judgments outcomes matters well potential ranges probable losses determination amount reserves required contingencies made careful analysis individual issue required reserves may change future due new developments matter changes approach change settlement strategy dealing matters stockbased compensation company measures compensation expense stockbased employee compensation plans using intrinsic value method accordance accounting principles board apb opinion 25 accounting stock issued employees fasb interpretation 44 accounting certain transactions involving stock compensation company adopted disclosureonly provisions statement financial accounting standards 148 accounting stockbased compensationtransition disclosure amendment fasb statement 123 sfas 148 compensation expense companys stock option plans determined based fair value grant date consistent methodology prescribed sfas 148 companys net loss net loss per common share years ended december 31 2004 2003 2002 would approximated following pro forma amounts thousands except per share data fair value stock option included preceding pro forma amounts estimated using blackscholes optionpricing model following weighted average assumptions earnings per share net loss per share calculated dividing net loss weightedaverage shares outstanding period diluted net loss per share computation includes effect shares would issuable upon exercise outstanding stock options reduced number shares assumed purchased company resulting proceeds average market price period following table sets forth computation basic diluted average shares outstanding years ended december 31 2004 2003 2002 thousands stock options purchase shares common stock periods fiscal year 2004 2003 2002 antidilutive excluded computation diluted earnings per share due net losses periods july 1 2003 company merged bruker axs inc company surviving merger see note 3 common share per share data prior periods recast include effects merger bruker axs use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates reclassifications certain reclassifications made financial statements prior years conform current year presentation reclassifications effect previously reported net loss income shareholders equity company made adjustments previously issued consolidated financial statements years ended december 31 2003 2002 adjustments reflect reclassifications made certain costs historically classified sales marketing research development expense cost sales years ended december 31 2003 2002 aggregate 65 million 55 million respectively writedown demonstration inventory net realizable value reclassified sales marketing research development expense cost product sales addition years ended december 31 2003 2002 30 million 16 million respectively service costs historically classified sales marketing expense reclassified cost service sales note 3merger acquisitions bruker axs inc merger april 4 2003 company bruker axs entered definitive merger agreement pursuant company acquired outstanding shares bruker axs june 27 2003 merger approved shareholders bruker axs company official closing merger occurred july 1 2003 upon closing merger outstanding share common stock bruker axs converted right receive election holder either 063 share companys common stock consideration intended substantially equivalent value payable 75 companys common stock 25 cash merger represented business combination companies common control due majority ownership companies five related individuals affiliated shareholder group result merger related shares owned affiliated shareholders approximately 69 accounted manner similar poolingofinterest historical carrying value acquisition shares nonaffiliated shareholders approximately 31 accounted using purchase method accounting fair value manner similar acquisition minority interest excess purchase price interest common control fair value related net assets recorded goodwill fair value consideration paid acquisition minority interest approximately 381 million including cash 54 million common stock valued 285 million stock options valued 30 million merger transaction costs 12 million value 966 million shares common stock issued nonaffiliated shareholders connection merger determined using closing market price bruker daltonics stock date terms merger agreed announced fair value stock option issued determined using blackscholes optionpricing model company engaged third party valuation firm assist management appraising fair value certain assets acquired following table summarizes estimated fair values assets acquired liabilities assumed date acquisition minority interest thousands purchase price 31 minority interest acquired allocated net assets acquired pro rata basis accordance financial accounting standards board fasb statement 141 business combinations accordingly intangible assets acquired allocated follows 15 million existing technology related patents estimated weightedaverage useful life four years 03 million customer relationships weightedaverage useful life five years 03 million trade names weightedaverage useful life ten years addition 25 million acquired intangible assets assigned inprocess research development projects written date acquisition accordance fasb interpretation 4 applicability fasb statement 2 business combinations accounted purchase method projects qualified acquired inprocess research development projects yet reached technology feasibility future alternative uses existed value assigned inprocess research development projects determined using discounted probable future cash flow analysis financial assumptions used estimate future cash flows based pricing margins expense levels historically realized bruker axs discount rate 45 utilized discount net cash flows generated acquired inprocess research development estimates used valuing acquired inprocess research development based upon assumptions believed reasonable inherently uncertain unpredictable result actual results may differ estimates december 31 2004 projects substantially complete 107 million goodwill acquired bruker axs connection merger assigned companys bruker axs subsidiary reportable operating segment deductible tax purposes since merger taxfree merger conjunction merger company formulated plan consolidate production exit certain activities life science xray business production capacity life science xray systems produced bruker nonius facility delft netherlands outsourced absorbed within facilities throughout company result restructuring activities upon closing merger company recorded approximately 22 million purchase accounting liabilities reserves approximately 15 million 69 purchase accounting liabilities reserves charged operations remaining 07 million 31 included allocation purchase price goodwill purchase accounting liabilities reserves included 08 million severance costs approximately 19 employees 10 million reserve inventory longer used production 04 million costs upgrade xray systems longer produced miscellaneous restructuring costs charges purchase accounting liabilities reserves recorded connection activities years ended december 31 2004 2003 follows thousands addition upon closing merger company wroteoff remaining balance goodwill 15 million trade names trademarks 02 million associated bruker nonius entity approximately 12 million 69 writeoff goodwill trade names trademarks charged operations remaining 05 million 31 included allocation purchase price goodwill baltic scientific instruments ltd acquisition april 2 2003 bruker axs acquired 51 outstanding common shares baltic scientific instruments ltd bsi riga latviabased company bsi focuses solid state xray detector technology materials research elemental composition supplier bruker axs since 2001 bsi acquisition provided company opportunity explore additional research development projects aggregate purchase price bsi approximately 03 million funded cash hand total assets acquired 09 million total liabilities assumed 06 million may 2003 bsi issued additional shares bruker axs increased companys ownership 755 bsis minority shareholders receive additional shares may 2003 results bsi included bruker axs segment date acquisition mac science ltd may 13 2002 bruker axs inc acquired substantially assets certain liabilities mac science ltd yokohama japanbased company focused xray analysis instrumentation results mac science operation included bruker axs segment date acquisition aggregate purchase price 34 million including 03 million cash plus assumption liabilities 31 million pro forma information reflect bsi mac science ltd acquisitions presented impact net sales net loss net loss per common share would material note 4accounts receivable following summary trade accounts receivable december 31 thousands note 5inventories inventories consisted following december 31 thousands demonstration units include systems located companys demonstration laboratories potential customer sites considered available sale finished goods inventories include intransit systems shipped companys customers installed accepted customer december 31 2004 2003 inventoryintransit 181 million 201 million respectively note 6property plant equipment following summary property plant equipment major class asset december 31 thousands note 7goodwill intangible assets following summary intangible assets subject amortization december 31 thousands years end december 31 2004 2003 company recorded amortization expense approximately 05 million 02 million respectively related amortizable intangible assets amortization recorded year ended december 31 2002 estimated future amortization expense related amortizable intangible assets follows thousands carrying amount goodwill december 31 2004 2003 107 million included bruker axs segment company performs annual test indications impairment december 31st year company completed annual test impairment december 31 2004 2003 determined goodwill impaired time company adopted sfas 142 goodwill intangible assets first quarter fiscal 2002 transitional provisions sfas 142 company recorded goodwill impairment loss associated bruker nonius reporting unit 10 million 06 million net tax fair value reporting unit based projected discounted future net cash flows accordance transitional provisions sfas 142 impairment loss recorded first quarter 2002 cumulative effect change accounting principle note 8accrued current liabilities following summary accrued current liabilities december 31 thousands company typically provides oneyear parts labor warranty purchase equipment anticipated cost oneyear warranty accrued upon recognition sale included current liability balance sheet company also offers customers warranty service agreements extending beyond initial year warranty fee fees recorded deferred revenue amortized income life extended warranty contract changes companys accrued warranty liability years ended december 31 2004 2003 follows thousands note 9debt companys nonrelated party debt obligations consisted following thousands industrial revenue bonds irb entered state wisconsin 1999 connection construction bruker axs incs building madison wisconsin bruker axs inc interest rate swap designated hedge bruker axs inc pays 460 fixed rate interest receives variable rate interest based bond market association municipal swap index contract 22 million notional value decreases conjunction irb payment schedule swap irb agreements terminate december 2013 fair value swap obtained dealer quotes unrealized loss 01 million 02 million december 31 2004 2003 respectively interest payments receivable payable terms swap accrued period treated adjustment interest expense letter credit renewable upon mutual agreement bruker axs inc financial institution letter credit renewed bruker axs inc unable obtain similar letter credit another financial institution irb may callable option bond trustee companys outstanding letter credit expires december 2006 collateralized substantially assets bruker axs inc letter credit contains various financial covenants december 31 2004 company compliance debt covenants annual maturities longterm nonrelated party debt follows company maintains lines credit financial institutions us germany japan aggregate maximum credit amount approximately 311 million 329 million december 31 2004 2003 respectively december 31 2004 2003 company borrowings approximately 102 million 164 million respectively availability approximately 184 million 165 million respectively line credit us company entered demand revolving line credit citizens bank amount 25 million line secured certain inventory receivables equipment united states used provide working capital expires june 2005 interest line credit either libor plus 175 basis points prime rate company elects method interest calculation time line credit drawn provided liborbased draws must 01 million multiples commitment fee unused portion line december 31 2004 22 million companys us line credit available lines credit germany unsecured interest paid monthly outstanding borrowings based banks variable interest rates 625875 december 31 2004 lines credit japan interest rates 086 112 december 31 2004 lines credit maturity date uncollateralized interest expense years ended december 31 2004 2003 2002 22 million 18 million 13 million respectively note 10derivative instruments hedging activities company party interest cross currency rate swaps order minimize volatility changes interest foreign currency rates might earnings cash flows company occasion entered foreign exchange rate contracts order minimize volatility fluctuations currency exchange rates companys cash flows related purchases sales denominated foreign currencies company interest rate swap arrangement pay 460 fixed rate interest receive variable rate interest based bond market association municipal swap index 22 million notional amount contract considered effective hedge changes amount future cash flows associated companys interest payments related variable rate debt obligations december 31 2002 accordingly changes fair value contract deferred shareholders equity component comprehensive income loss effective january 1 2003 company determined interest rate swap longer effective defined sfas 133 offsetting change interest cash flows hedged accordingly changes swaps fair value recorded current earnings interest income expense consolidated statements operations amount recognized earnings within next twelve months expected significant fair value instrument liability 01 million 02 million 01 million net tax december 31 2004 december 31 2003 respectively fair values obtained dealer quotes 2002 company entered cross currency interest rate swap interest rate swap currently designated hedges cross currency interest rate swap 20 million euro secures fixed rate 175 per annum payable japanese yen january 4 2012 interest rate swap 30 million euro reduces 6month euribor rate 180 per annum january 4 2007 company entered financial instruments manage exposure interest rates foreign exchange risk fluctuations fair value instruments recorded interest income expense notional amount financial instruments designated hedges approximately 111 million 163 million december 31 2004 2003 respectively instruments considered speculative fluctuations fair value instruments recorded interest income expense fair value instruments appreciated depreciated 01 million 05 million 03 million years ended december 31 2004 2003 2002 respectively aggregate fair value speculative derivative instruments liability asset 03 million 02 million december 31 2004 2003 respectively note 11income taxes domestic foreign components income loss income taxes follows years ended december 31 thousands components income tax provision follows years ended december 31 thousands company recognized income tax provision three years period ended december 31 2004 2003 2002 due losses companys us operations tax benefit recognizable due uncertainty recovery likely basis reconciliation united states federal statutory tax rate effective income tax rate follows years ended december 31 tax effects temporary items give rise significant portions deferred tax assets liabilities follows december 31 thousands 2003 company recorded noncash charge establish valuation allowance 87 million primarily related deferred tax assets united states operations valuation allowance determined accordance provision sfas 109 accounting income taxes requires assessment positive negative evidence determining whether likely deferred tax assets recoverable assessment required jurisdictionbyjurisdiction basis 2004 company fully reserved tax benefit 110 attributable companys us tax loss cumulative losses incurred us jurisdiction december 31 2004 represented sufficient negative evidence record valuation allowance sfas 109 company intends maintain full valuation allowance sufficient positive evidence exists support reversal valuation allowance december 31 2004 company approximately 298 million primarily us net operating loss carryforwards available reduce future taxable income net operating losses various expiration dates 2024 company also tax credits approximately 27 million available offset future tax liabilities expire various dates 2024 undistributed earnings foreign subsidiaries aggregated approximately 310 million december 31 2004 american jobs creation act 2004 jobs act enacted october 22 2004 provides temporary 85 dividends received deduction certain foreign earnings repatriated one year period deduction would result approximately 525 federal tax rate repatriated earnings qualify deduction earnings must reinvested united states pursuant domestic reinvestment plan established companys chief executive officer approved companys board directors certain criteria jobs act must satisfied well company process evaluating whether repatriate foreign earnings provisions jobs act company expects determine amounts sources foreign earnings repatriated 2005 company position determine impact qualifying repatriation choose make one income tax expense 2005 note 12employee benefit plans company maintains sponsors various defined contribution plans defined benefit retirement plan cover domestic international employees company may make contributions plans discretion retirement benefits earned generally based years service compensation active employment eligibility generally determined accordance local statutory requirements however level benefits terms vesting may vary among plans company contributed approximately 10 million 08 million 07 million plans 2004 2003 2002 respectively substantially bruker axs gmbh employees employed company september 30 1997 participate defined benefit pension plan provides pension benefits based upon final average salary years service benefits german entity employees based fixed amount year service company elected recognize impact projected benefit obligation actual experience differs actuarial assumptions immediate basis company recognized actuarial losses gains approximately 03 million 01 million 01 million years ended december 31 2004 2003 2002 respectively changes benefit obligations plan assets defined benefit pension plans accumulated benefit obligations funded status plan follows december 31 thousands weightedaverage assumptions used determine projected benefit obligations years ended december 31 2004 2003 2002 follows net periodic pension benefit cost includes following components years ended december 31 2004 2003 2002 thousands date company funded plan required make contributions 2005 company expects pay approximately 4000 benefits per year next five years plan note 13restructuring charges bruker biosciences 2003 restructuring plan see note 3 information regarding companys restructuring activities undertaken result merger bruker axs bruker axs 2002 restructuring plan companys subsidiary bruker axs reportable operating segment implemented restructuring program year ended december 31 2002 order reduce costs improve productivity eliminating redundant positions streamlining production initiating cost reduction programs operating areas result company recorded restructuring charge approximately 18 million 10 million net tax third quarter 2002 third quarter 2003 company recorded additional restructuring charge 01 million charge included increase workforce reduction accrual 03 million related additional costs associated early retirement program germany increase offset reduction contractual obligations accrual 02 million due company renegotiating penalties terminating contract outsourced information technology services following table summarizes restructuring activity balance restructuring accrual december 31 2004 thousands due impact certain german regulatory requirements applicable benefits companys german employees workforce reduction accrual remains approximately 06 million december 31 2004 fully paid 2008 bruker daltonics 2002 restructuring plan companys subsidiary bruker daltonics reportable operating segment recorded restructuring charge year ended december 31 2002 approximately 15 million related workforce reduction approximately 50 employees charge consisted primarily employee severance professional fees outplacement services 2002 company also recorded credit approximately 10 million reserve reflect revised estimate actual employee severance costs amounts related restructuring fully paid 2002 2003 note 14commitments contingencies operating leases certain vehicles office equipment buildings leased agreements accounted operating leases total rental expense operating leases 21 million 23 million 15 million years ended december 31 2004 2003 2002 respectively future minimum lease payments noncancelable operating leases december 31 2004 next five years follows thousands license agreements company entered license agreements allowing utilize certain patents used connection commercial product sale company pays royalties ranging 015 500 related product revenues licensing fees years ended december 31 2004 2003 2002 approximately 09 million 08 million 12 million respectively grants companys whollyowned subsidiary bruker daltonik gmbh recipient grants german government authorities grants made connection companys development specific spectrometers components spectrometers total grants awarded date amount 74 million agreement grants awarded expires june 2005 amounts received grants 2004 2003 2002 totaled 18 million 13 million 02 million respectively classified revenues total expenditures related grants approximately 40 million 31 million 13 million 2004 2003 2002 respectively companys whollyowned subsidiary bruker daltonics recipient grant agency united states government grants made connection companys development standalone monitor chemical agents grants awarded date occurred 2004 totaled 05 million agreement grant awarded completed december 2004 total expenditures related grant approximate grant revenues received legal since december 31 1996 company involved patent litigation competitor finnigan subsidiary thermo electron corporation august 2001 companies reached comprehensive settlement agreement related litigation settlement agreement provides dismissal pending suits waiving damages framework licensing arbitration potential future patent disputes companies field ion trap mass spectrometry itms settlement allows companies well distributors sell unmodified itms systems effective immediately result company reduced patent litigation accrual approximately 10 million 2002 reduction 2002 brought patent litigation accrual zero company believes liability exists year ended december 31 2001 bruker daltonics established reserve 19 million possible imposition estimated liquidated damages pursuant contract uk ministry defense mod accrual represented projected additional costs rework retesting contract due various technical problems associated meeting contractual requirements year ended december 31 2003 companys swiss german subsidiaries delivered product mod met specifications contract upon delivery product mod agreed pursue claims liquidated damages previously paid pursuant contract bruker daltonics agreed pursue claims recovery additional research development expenses incurred connection contract result reserves associated mod contract 19 million reversed year ended december 31 2003 lawsuits claims proceedings nature considered normal businesses may pending time company believes outcome proceedings material impact companys financial position results operations december 31 2004 2003 accruals recorded potential contingencies letters credit guarantees december 31 2004 2003 company bank guarantees 73 million 82 million respectively customer advances guarantees affect availability lines credit indemnifications company enters standard indemnification arrangements companys ordinary course business pursuant arrangements company indemnifies holds harmless agrees reimburse indemnified parties losses suffered incurred indemnified party generally business partners customers connection patent copyright intellectual property infringement claim third party respect products term indemnification agreements generally perpetual anytime execution agreement maximum potential amount future payments company could required make agreements unlimited company never incurred costs defend lawsuits settle claims related indemnification agreements result company believes estimated fair value agreements minimal company entered indemnification agreements directors officers may require company indemnify directors officers liabilities may arise reason status service directors officers liabilities arising willful misconduct culpable nature advance expenses incurred result proceeding could indemnified obtain directors officers insurance available reasonable terms company currently place note 15shareholders equity public offering common stock april 28 2004 company group selling stockholders completed public offering 17250000 shares common stock 3450000 sold company 13800000 sold four selling stockholders 450 per share generating net proceeds approximately 144 million company approximately 582 million selling stockholders aggregate december 14 2001 bruker axs inc issued sold 9000000 shares common stock 58500000 650 per share conjunction initial public offering upon closing initial public offering 5625000 shares redeemable preferred stock converted 6923077 shares common stock result merger company bruker axs inc 9000000 shares bruker axs common stock issued bruker axs initial public offering 6923077 shares bruker axs common stock issued upon conversion bruker axs redeemable preferred stock upon closing initial public offering converted 3912300 3009462 bruker biosciences shares respectively january 11 2002 underwriters initial public offering exercised overallotment option result bruker axs inc issued sold 1350000 shares common stock 8775000 650 per share result merger shares converted 586545 shares companys common stock blank check preferred stock december 31 2004 5000000 shares blank check preferred stock stated par value 001 per share authorized none issued redeemable preferred stock 2001 bruker axs inc authorized sold 5625000 shares series convertible preferred stock 001 par value per share price 400 per share series preferred gross proceeds totaled 225 million used pay related party debt third party lines credit full upon closing companys initial public offering december 2001 series preferred converted common stock additional 1298077 shares issued due beneficial conversion feature resulting total conversion shares 6923077 addition connection completion companys initial public offering preferred shareholders entitled certain rights respect registration 6923077 shares common stock terms rights company proposes register securities act either companys account security holders exercising registration rights holders 6923077 common shares entitled notice registration include shares common stock registration companys expense additionally holders shares entitled demand registration rights pursuant may require company file registration statement securities act companys expense respect shares common stock holders shares may require company file additional registration statements form s3 companys expense registration rights subject right underwriters offering limit number shares included registration rights terminate five years closing initial public offering connection 2004 public offering registered rights exercised accordingly december 31 2004 number shares registration rights exist total 6923077 stock repurchase programs august 7 2002 board directors bruker daltonics approved stock repurchase program authorizing repurchase 1000000 shares common stock purchases may made time open market privately negotiated transactions block purchases pursuant program 2002 company repurchased 457200 shares common stock average price 510 per share april 28 2004 shares sold part public offering companys common stock august 2002 board directors bruker axs inc authorized repurchase 2500000 shares common stock purchases repurchase program made timetotime open market block trades otherwise discretion company management bruker axs repurchased 192422 shares weighted average price 393 per share total approximately 08 million year ended december 31 2002 shares retired connection merger july 1 2003 dividends terms companys indebtedness restrict ability pay dividends shareholders stock plans february 2000 board directors adopted stockholders approved 2000 stock option plan provides issuance 2200000 shares common stock connection awards plan allows committee board directors committee grant incentive stock options nonqualified stock options stock appreciation rights stock awards including use restricted stock phantom shares committee authority determine employees receive rewards amount awards terms conditions award stock options purchase shares common stock granted committee vest period threetofive years july 1 2003 board directors adopted stockholders approval amend restate 2000 stock option plan change plan name increase number shares available issuance name amended plan bruker biosciences corporation amended restated 2000 stock option plan amendment also registered 4132000 additional shares common stock bruker biosciences corporation issuable pursuant companys plan originally adopted 2000 total number shares issuable plan 6320000 july 1 2003 2200000 shares previously registered form s8 reg 33347836 stock option activity years ended december 31 2004 2003 2002 follows following table summarizes information stock options outstanding exercisable december 31 2004 company recorded compensation income expense 24000 2000 100000 years ended december 31 2004 2003 2002 respectively stock options granted nonemployees compensation expense amortized straightline basis underlying vesting terms fair value option granted estimated date grant using blackscholes optionpricing model note 16business segment information sfas 131 disclosures segments enterprise related information establishes standards reporting information operating segments annual financial statements public business enterprises also establishes standards related disclosures products service geographic areas major customers company evaluated business activities regularly reviewed chief executive officer discrete financial information available result evaluation company determined subsidiaries bruker daltonics bruker axs reportable operating segment bruker daltonics business manufacturing distributing mass spectrometry instruments integrated used along analytical instruments bruker axs business manufacturing distributing advanced xray instrumentation used nondestructive molecular elemental analysis academic research industrial applications bruker biosciences corporation parent company bruker daltonics bruker axs corporate entity holds excess cash shortterm investments incurs public company costs selected business segment information years ended december 31 2004 2003 2002 presented thousands total assets capital expenditures depreciation amortization segment years ended december 31 2004 2003 2002 follows thousands longlived assets revenue geographical area years ended december 31 2004 2003 2002 follows thousands locations primarily include among others united kingdom france italy spain belgium netherlands scandinavia poland russia hungary slovenia switzerland austria note 17income statement components reversal liability accrual reserves associated mod contract 19 million reversed year ended december 31 2003 see note 14 special charges components special charges years ended december 31 2003 2002 follows thousands income expense net components interest income expense net years ended december 31 2004 2003 2002 follows thousands geneprot inc november 2000 company acquired 909091 shares series b preferred stock geneprot inc exchange 70 million cash 79218 shares companys common stock acquired securities included investments companies accounted cost method due uncertain outlook geneprot management concluded investment suffered impairment deemed temporary company recorded charges 09 million earnings 2004 82 million earnings 2002 writeoff investment geneprot affinium pharmaceuticals inc 2001 company acquired 738008 shares series iia preferred stock affinium pharmaceuticals inc formerly integrative proteomics inc exchange approximately 1 million cash 64650 shares companys common stock acquired securities included investments companies accounted cost method due uncertain outlook affinium pharmaceuticals management concluded investment suffered impairment deemed temporary company recorded charges 07 million earnings 2004 13 million earnings 2002 writeoff investment affinium pharmaceuticals cengent therapeutics 2001 company acquired 666667 shares series c preferred stock cengent therapeutics formerly geneformatics inc exchange approximately 1 million cash 61742 shares companys common stock acquired securities included investments companies accounted cost method due uncertain outlook geneformatics management concluded investment suffered impairment deemed temporary company recorded charges 07 million earnings 2004 14 million earnings 2002 writeoff investment cengent therapeutics note 18related parties company affiliated common shareholders several entities use bruker name company affiliates entered sharing agreement provides sharing specified intellectual property rights services facilities related items december 31 2004 2003 company payables related parties 30 million 62 million respectively december 31 2004 2003 company receivables related parties 95 million 46 million respectively payment terms balances related parties similar third party customers sales related parties subsidiaries bruker biosciences corporation included revenues consolidated financial statements related parties represent affiliated sales offices countries company distribution network sales primarily resale companys products sales amounted 148 million 130 million 166 million years ended december 31 2004 2003 2002 respectively addition company purchased products services amounted 55 million 71 million 53 million affiliated entities year ended december 31 2004 2003 2002 respectively company shares various general administrative expenses items including umbrella insurance policies accounting services leases various related parties general administrative expenses amounted 13 million 14 million 12 million years ended december 31 2004 2003 2002 respectively company investments three nonaffiliated companies company recognized sales companies geneprot inc cengent therapeutics affinium pharmaceuticals inc 0 40000 respectively 2004 21 million 0 respectively 2003 05 million 0 02 million respectively 2002 sales recorded arms length terms conditions normal course business purchases companies years ended december 31 2004 2003 2002 november 28 2002 company issued 109800 shares restricted common stock par value 001 per share dr dieter koch managing director bruker daltonik gmbh director bruker daltonics inc valued approximately 06 million cash 06 million exchange minority interest bruker saxonia analytik gmbh majorityowned subsidiary bruker daltonik gmbh years ended december 31 2004 2003 2002 company paid 05 million 14 million 08 million law firm one directors partner note 19recent accounting pronouncements january 2003 fasb issued fasb interpretation fin 46r consolidation variable interest entities interpretation provides guidance identification financial reporting variable interest entities variable interest entities lack characteristics controlling financial interest lack sufficient equity finance activities without additional subordinated financial support fin 46r requires company consolidate variable interest entity company obligated absorb majority entitys expected losses entitled receive majority entitys residual returns adoption fin 46r effective january 1 2004 material impact companys consolidated financial statements november 2004 fasb issued sfas 151 inventory costs statement amends guidance arb 43 chapter 4 inventory pricing clarify accounting abnormal amounts idle facility expense freight handling costs wasted material spoilage addition statement requires allocation fixed production overhead costs conversion based normal capacity production facilities provisions statement effective company beginning fiscal year ending 2005 company currently evaluating impact new standard believe material impact financial position results operations cash flows december 2004 fasb issued sfas 123 revised 2004 sharebased payment sfas 123r addresses accounting sharebased payment transactions company receives employee services exchange equity instruments company b liabilities based fair value companys equity instruments may settled issuance equity instruments sfas 123r addresses forms sharebased payment awards including shares issued employee stock purchase plans stock options restricted stock appreciation rights sfas 123r eliminates ability account sharebased compensation transactions using apb opinion 25 accounting stock issued employees provided statement 123 originally issued permitted sfas 123r company currently accounts sharebased payments employees using opinion 25s intrinsic value method generally recognizes compensation cost employee stock options accordingly adoption sfas 123r fair value method significant impact results operations although impact overall financial position impact adoption sfas 123r cannot predicted time depend levels sharebased payments granted future however adopted sfas 123r prior periods impact would approximated amounts calculated using sfas 123 described disclosure pro forma net loss net loss per share note 2 consolidated financial statements note 20quarterly financial data unaudited companys common stock trading symbol brkr summary operating results quarterly periods two years ended december 31 2004 set forth thousands except per share data company reclassified previously issued consolidated financial statements quarters ended march 31 2004 june 30 2004 september 30 2004 accounting corrections related primarily inventory costing result corrections identified year end closing process company revised 2004 quarterly amounts previously reported follows first second third quarters 2003 company recorded 32 million 31 million 54 million special charges related merger bruker axs item 9item 8 financial statements supplementary data page report ernst young llp independent auditors consolidated balance sheets december 31 2005 2004 consolidated statements operations years ended december 31 2005 2004 2003 consolidated statements shareholders’ equity comprehensive income years ended december 31 2005 2004 consolidated statements cash flows years ended december 31 2005 2004 2003 notes consolidated financial statements report independent registered public accounting firm board directors shareholders bruker biosciences corporation audited accompanying consolidated balance sheets bruker biosciences corporation company december 31 2005 2004 related consolidated statements operations shareholders’ equity comprehensive income cash flows three years period ended december 31 2005 audits also included financial statement schedule listed index item 15a financial statements schedule responsibility company’s management responsibility express opinion financial statements schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position bruker biosciences corporation december 31 2005 2004 consolidated results operations cash flows three years period ended december 31 2005 conformity accounting principles generally accepted united states also opinion related financial statement schedule considered relation basic financial statements taken whole presents fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states effectiveness bruker biosciences corporation’s internal controls financial reporting december 31 2005 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated march 9 2006 expressed unqualified opinion thereon ernst young llp boston massachusetts march 9 2006 bruker biosciences corporation consolidated balance sheets thousands except per share data accompanying notes integral part financial statements bruker biosciences corporation consolidated statements operations thousands except per share data accompanying notes integral part financial statements bruker biosciences corporation consolidated statements shareholders’ equity comprehensive income thousands except share data bruker biosciences corporation consolidated statements cash flows thousands accompanying notes integral part financial statements bruker biosciences corporation notes consolidated financial statements note 1description business bruker biosciences corporation whollyowned subsidiaries “company” design manufacture service market proprietary life science systems based mass spectrometry core technology platforms xray technologies company also sells broad range field analytical systems nuclear biological chemical nbc detection company maintains major technical centers europe north america japan sales offices throughout world company’s diverse customer base includes pharmaceutical biotechnology proteomics companies academic institutions advanced materials semiconductor industries government agencies july 1 2003 company merged bruker axs inc “bruker axs” company surviving merger consolidated financial statements year ended december 31 2003 includes retroactive effects merger bruker axs restated combining historical consolidated financial statements bruker biosciences corporation bruker axs year ended december 31 2003 connection merger company formed two operating subsidiaries bruker daltonics inc “bruker daltonics” bruker axs transferred substantially respective assets liabilities except cash remained parent company bruker biosciences corporation company reports financial results basis following two business segments 1 bruker daltonics leading developer provider innovative life science tools based mass spectrometry also develops provides broad range field analytical systems nbc detection 2 bruker axs leading developer provider life science advanced materials research tools advanced xray instrumentation used nondestructive molecular elemental analysis academic research industrial applications note 2summary significant accounting policies principles consolidation financial statements include accounts company majority whollyowned subsidiaries intercompany accounts transactions eliminated cash equivalents cash equivalents consist primarily highly liquid investments original maturities three months less date acquisition cash equivalents primarily include cash hand money market funds time deposits time deposits represent amounts deposit banks temporarily invested instruments maturities three months less time purchase certain investments represent deposits insured fdic united states government agency cash equivalents carried cost approximates market value restricted cash certain customers require company provide bank guarantees customer advances amounts considered restricted cash classified noncurrent generally lines credit facilitate requirement however extent required guarantee exceeds available local line credit company maintains current restricted cash balances addition company required maintain restricted cash balance guarantee lessor building located delft netherlands throughout lease term also classified noncurrent december 31 2005 2004 restricted cash balances approximately 10 million 07 million respectively shortterm investments company accounts shortterm investments accordance statement financial accounting standards “sfas” 115 “accounting certain investments debt equity securities” company’s investments carried fair value consist funds comprised auctionrated securities bond instruments classified availableforsale december 31 2005 2004 basis cost securities sold determined specific identification method market values individual securities decrease cost period six nine months company deems indicative temporary impairment writes carrying amount investments market value income expense net accompanying statement operations december 31 2005 2004 2003 material unrealized gains losses concentration credit risk financial instruments subject company credit risk consist cash equivalents shortterm investments accounts receivables risk respect cash equivalents shortterm investments minimized company’s policy investing shortterm financial instruments issued highlyrated financial institutions risk respect accounts receivables minimized credit worthiness company’s customers company performs periodic credit evaluations customers’ financial condition generally require collateral credit losses within management’s expectations allowance doubtful accounts totaled 33 million 27 million december 31 2005 2004 respectively years ended december 31 2005 2004 2003 sales receivables single customer exceeded 10 company’s revenue accounts receivable inventories components inventory include raw materials workin process demonstration units finished goods demonstration units include units located company’s demonstration laboratories potential customer sites considered available sale finished goods include intransit systems shipped company’s customers yet installed accepted customer inventories stated lower cost market cost determined principally firstin firstout “fifo” method majority subsidiaries averagecost certain international location company reduces carrying value inventories differences cost estimated net realizable value taking consideration usage preceding twelve months expected demand technological obsolescence information including physical condition demonstration intransit inventories company records charge cost revenue amount required reduce carrying value inventory net realizable value costs associated procurement warehousing inventories inbound freight charges purchasing receiving costs also included cost revenue line item within statement operations property plant equipment property plant equipment stated cost less accumulated depreciation amortization major improvements capitalized expenditures maintenance repairs minor improvements charged expense assets retired otherwise disposed assets related accumulated depreciation eliminated accounts resulting gain loss reflected statement operations depreciation amortization calculated straightline basis estimated useful lives assets follows depreciation amortization expense associated property plant equipment years ended december 31 2005 2004 2003 approximately 86 million 98 million 105 million respectively goodwill intangible assets company accounts goodwill intangible assets accordance sfas 142 “goodwill intangible assets” sfas 142 requires goodwill intangible assets indefinite useful lives amortized instead assets tested impairment reportable operating segment basis annually interim basis events changes circumstances warrant impairment test consists comparison fair value goodwill intangible asset carrying amount related impairment losses recognized earnings incurred company performs annual test indications impairment december 31st year accordance sfas 142 company tested impairment december 31 2005 2004 determined goodwill indefinitelived intangible assets impaired intangible assets finite useful life amortized straightline basis estimated useful lives periods ranging 4 10 years investments companies investment companies consists equity securities privately held companies accounted cost method company’s ownership interest companies less 20 company periodically evaluates carrying value investments potential impairment company’s evaluation identifies impairment charge deemed temporary investment written estimated fair value charge current earnings december 31 2004 company writtenoff carrying value investments companies based impairment testing performed year ended december 31 2004 company recorded charges impairments investments totaling approximately 23 million charges recorded years ended december 31 2005 2003 impairment longlived assets impairment losses recorded longlived assets used operations indicators impairment present quoted market price available estimated undiscounted operating cash flows generated assets less assets’ carrying value impairment losses charged statement operations difference fair value carrying value asset impairment losses recorded longlived assets years ended december 31 2005 2004 2003 warranty costs deferred revenue company typically provides one year parts labor warranty purchase equipment anticipated cost oneyear warranty accrued upon recognition sale included current liability accompanying balance sheets company also offers customers extended warranty service agreements extending beyond initial year warranty fee fees recorded deferred revenue amortized ratably income life extended warranty contract minority interest consolidated subsidiaries minority interest statement operations 40000 69000 years ended december 31 2005 2004 represents minority common shareholders’ proportionate share net loss incoatec gmbh baltic scientific instruments minority interest consolidated subsidiaries 09 million statement operations year ended december 31 2003 primarily represents minority common shareholders’ proportionate share net loss prior bruker axs merger july 1 2003 income taxes company accounts income taxes accordance statement financial accounting standard 109 “accounting income taxes” “sfas 109” sfas 109 requires asset liability approach account income taxes recognizing deferred tax assets liabilities expected future tax consequences differences financial statement basis tax basis assets liabilities calculated using enacted tax rates effect year differences expected reflected tax return company records valuation allowance reduce deferred tax assets amount likely realized customer advances company typically requires advance deposit terms conditions contracts customers deposits recorded liability revenue recognized specific contract comprehensive income loss comprehensive income loss refers revenues expenses gains losses accounting principles generally accepted united states america included comprehensive income loss excluded net income loss amounts recorded directly adjustment stockholders’ equity net tax company’s comprehensive income loss primarily composed foreign currency translation adjustments fair value financial instruments company’s financial instruments consist primarily cash equivalents availableforsale securities accounts receivable accounts payable amounts due fromto affiliated companies longterm debt carrying amounts company’s cash equivalents availableforsale securities accounts receivable accounts payable amounts due fromto affiliated companies approximate fair value due shortterm nature fair value longterm debt estimated based current interest rates offered company financing arrangements similar maturities recorded value financial instruments approximates fair value december 31 2005 2004 derivative financial instruments company accounts derivative financial instruments accordance statement financial accounting standards 133 “accounting derivative instruments hedging activities” “sfas 133” amended derivatives whether designated hedging relations recorded balance sheet fair value derivative designated fair value hedge changes fair value derivative hedged item attributable hedged risk recognized results operations derivative designated cash flow hedge effective portions changes fair value derivative recorded accumulated comprehensive income “oci” recognized results operations hedged item affects earnings ineffective portions changes fair value cash flow hedges recognized results operations derivative instruments designated hedging instruments changes fair value recognized results operations current period foreign currency translation assets liabilities company’s foreign subsidiaries functional currency local currency translated us dollars using yearend exchange rates revenues expenses foreign subsidiaries translated average exchange rates effect year adjustments resulting financial statement translations included separate component stockholders’ equity gains losses resulting foreign currency transactions reported statement operations caption interest income expense net periods presented revenue recognition company recognizes revenue system sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectibility resulting receivable reasonably assured title risk loss generally transferred customer upon receipt signed customer acceptance system shipped installed customer trained result timing customer acceptance readiness could cause company’s reported revenues differ materially expectations products sold independent distributor strategic distribution partner unconsolidated affiliated distributor assumes responsibility installation company recognizes system revenue product shipped title risk loss transferred company’s distributors price protection rights return however products warranted free defect period one year revenue deferred cash received significant portion fee due one year delivery installation acceptance system arrangements multiple elements company recognizes revenue element based fair value element provided criteria revenue recognition met fair value element provided multiple element arrangements typically determined referencing historical pricing policies element sold separately changes company’s ability establish fair value element multiple element arrangements could affect timing revenue recognition revenue sale accessories parts recognized upon shipment service revenue recognized services performed research development research development costs expensed incurred software costs purchased software capitalized cost amortized estimated useful life generally three years software developed use company’s products expensed incurred technological feasibility reasonably assured classified research development expense subsequent achievement technological feasibility amounts capitalizable however date amounts material advertising company expenses advertising costs incurred advertising expenses 18 million 22 million 21 million years ended december 31 2005 2004 2003 respectively shipping handling costs company records costs incurred connection shipping handling products cost revenue amounts billed customers connection costs included revenues material periods presented accompanying financial statements contingencies company subject proceedings lawsuits claims related patents product matters company assesses likelihood adverse judgments outcomes matters well potential ranges probable losses determination amount reserves required contingencies made careful analysis individual issue required reserves may change future due new developments situation changes settlement strategy dealing matters stockbased compensation company measures compensation expense stockbased employee compensation plans using intrinsic value method accordance accounting principles board apb opinion 25 “accounting stock issued employees” fasb interpretation 44 “accounting certain transactions involving stock compensation” company adopted disclosureonly provisions statement financial accounting standards 148 “accounting stockbased compensationtransition disclosure” amendment fasb statement 123 sfas 148 compensation expense company’s stock option plans determined based fair value grant date consistent methodology prescribed sfas 148 company’s net income loss net income loss per common share years ended december 31 2005 2004 2003 would approximated following pro forma amounts thousands except per share data fair value stock option included preceding pro forma amounts estimated using blackscholes optionpricing model following weighted average assumptions earnings per share net income loss per share calculated dividing net income loss weightedaverage shares outstanding period diluted net income loss per share computation includes effect shares would issuable upon exercise outstanding stock options reduced number shares assumed purchased company resulting proceeds average market price period following table sets forth computation basic diluted average shares outstanding years ended december 31 2005 2004 2003 thousands stock options purchase shares common stock years ended december 31 2004 2003 antidilutive excluded computation diluted earnings per share due net losses periods use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates note 3acquisitions merger november 2005 company acquired roentec ag “roentec” xray microanalysis instrumentation company based berlin germany aggregate initial purchase price 44 million funded 09 million restricted stock company reminder cash hand additional consideration amount approximately 20 million may paid future based 2006 2007 revenue performance roentec payments required comprised either option company 50 restricted stock company 50 cash 100 cash allocation purchase price roentec made based upon management estimates third party valuations finalized revisions may necessary results roentec ag included bruker axs segment date acquisition november 2005 company acquired xray microanalysis business princeton gammatech instruments inc “pgt” company located rocky hill new jersey aggregate purchase price pgt 20 million funded cash hand results pgt included bruker axs segment date acquisition company merged bruker axs july 1 2003 company surviving merger upon closing merger outstanding share common stock bruker axs converted right receive election holder either 063 share company’s common stock consideration intended substantially equivalent value payable 75 company’s common stock 25 cash merger represented business combination companies common control due majority ownership companies five related individuals affiliated shareholder group result merger related shares owned affiliated shareholders approximately 69 accounted manner similar poolingofinterest historical carrying value acquisition shares nonaffiliated shareholders approximately 31 accounted using purchase method accounting fair value manner similar acquisition minority interest excess purchase price interest common control fair value related net assets recorded goodwill fair value consideration paid acquisition minority interest approximately 381 million including cash 54 million common stock valued 285 million stock options valued 30 million merger transaction costs 12 million value 966 million shares common stock issued nonaffiliated shareholders connection merger determined using closing market price bruker daltonics’ stock date terms merger agreed announced fair value stock option issued determined using blackscholes optionpricing model company engaged third party valuation firm assist management appraising fair value certain assets acquired following table summarizes estimated fair values assets acquired liabilities assumed date acquisition minority interest thousands purchase price 31 minority interest acquired allocated net assets acquired pro rata basis accordance sfas 141 “business combinations” accordingly intangible assets acquired allocated follows 15 million existing technology related patents estimated weightedaverage useful life four years 03 million customer relationships weightedaverage useful life five years 03 million trade names weightedaverage useful life ten years addition 25 million acquired intangible assets assigned inprocess research development projects written date acquisition accordance fasb interpretation 4 “applicability fasb statement 2 business combinations accounted purchase method” projects qualified acquired inprocess research development projects yet reached technology feasibility future alternative uses existed value assigned inprocess research development projects determined using discounted probable future cash flow analysis financial assumptions used estimate future cash flows based pricing margins expense levels historically realized bruker axs discount rate 45 utilized discount net cash flows generated acquired inprocess research development estimates used valuing acquired inprocess research development based upon assumptions believed reasonable inherently uncertain unpredictable result actual results may differ estimates december 31 2005 projects complete 107 million goodwill acquired bruker axs connection merger assigned company’s bruker axs subsidiary reportable operating segment deductible tax purposes since merger taxfree merger conjunction merger company formulated plan consolidate production exit certain activities life science xray business production capacity life science xray systems produced bruker nonius facility delft netherlands outsourced absorbed within facilities throughout company result restructuring activities upon closing merger company recorded approximately 22 million purchase accounting liabilities reserves approximately 15 million 69 purchase accounting liabilities reserves charged operations remaining 07 million 31 included allocation purchase price goodwill purchase accounting liabilities reserves included 08 million severance costs approximately 19 employees 10 million reserve inventory longer used production 04 million costs upgrade xray systems longer produced miscellaneous restructuring costs remaining purchase accounting liabilities reserves recorded connection activities material december 31 2005 2004 addition upon closing merger company wroteoff remaining balance goodwill 15 million trade names trademarks 02 million associated bruker nonius entity approximately 12 million 69 writeoff goodwill trade names trademarks charged operations remaining 05 million 31 included allocation purchase price goodwill april 2003 bruker axs acquired 51 outstanding common shares baltic scientific instruments ltd bsi riga latviabased company bsi focuses solid state xray detector technology materials research elemental composition aggregate purchase price bsi approximately 03 million funded cash hand may 2003 bsi issued additional shares bruker axs increased company’s ownership 755 bsi’s minority shareholders receive additional shares may 2003 results bsi included bruker axs segment date acquisition pro forma information reflect roentec pgt bsi acquisitions presented impact revenues net income loss net income loss per common share would material note 4accounts receivable following summary trade accounts receivable december 31 thousands note 5inventories inventories consisted following december 31 thousands demonstration units include systems located company’s demonstration laboratories potential customer sites considered available sale finished goods include intransit systems shipped company’s customers yet installed accepted customer december 31 2005 2004 inventoryintransit 184 181 million respectively note 6property plant equipment following summary property plant equipment major class asset december 31 thousands note 7goodwill intangible assets following summary intangible assets subject amortization december 31 thousands years ended december 31 2005 2004 2003 company recorded amortization expense approximately 05 million 05 million 02 million respectively related amortizable intangible assets estimated future amortization expense related amortizable intangible assets follows thousands carrying amount goodwill december 31 2005 2004 175 million 107 million respectively included bruker axs segment company performs annual test indications impairment december 31st year company completed annual test impairment december 31 2005 2004 determined goodwill impaired time note 8other current liabilities following summary accrued current liabilities december 31 thousands company typically provides oneyear parts labor warranty purchase equipment anticipated cost oneyear warranty accrued upon recognition sale included current liability balance sheet company also offers customers warranty service agreements extending beyond initial year warranty fee fees recorded deferred revenue amortized income life extended warranty contract note 9debt company’s debt obligations consist following december 31 2005 2004 thousands annual maturities longterm debt follows state wisconsin industrial revenue bonds irb entered 1999 connection construction bruker axs inc’s building madison wisconsin bruker axs inc interest rate swap associated irb designated hedge bruker axs inc pays 460 fixed rate interest receives variable rate interest based bond market association municipal swap index contract 20 million notional value decreases conjunction irb payment schedule swap irb agreements terminate december 2013 fair value swap obtained dealer quotes resulted loss 01 million years ended december 31 2005 2004 interest payments receivable payable terms swap accrued period treated adjustment interest expense letter credit renewable upon mutual agreement bruker axs inc financial institution letter credit renewed bruker axs inc unable obtain similar letter credit another financial institution irb may callable option bond trustee company’s outstanding letter credit expires december 2006 collateralized substantially assets bruker axs inc letter credit contains various financial covenants december 31 2005 latest measurement date company compliance required debt service coverage ratio associated irb february 10 2006 company received holder debt limited waiver quarterly measurement period ending december 31 2005 company maintains lines credit financial institutions united states germany japan aggregate maximum credit amount approximately 345 million 311 million december 31 2005 2004 respectively december 31 2005 2004 company outstanding borrowings approximately 69 million 102 million respectively availability taking consideration outstanding letters credit approximately 193 million 136 million respectively line credit united states company entered demand revolving line credit citizens bank amount 25 million line secured certain inventory receivables equipment united states used provide working capital expires june 2006 interest line credit either libor plus 175 basis points prime rate company elects method interest calculation time line credit drawn provided liborbased draws must 01 million multiples commitment fee unused portion line december 31 2005 2004 22 million 22 million respectively united states line credit available lines credit germany unsecured interest paid monthly outstanding borrowings based banks’ variable interest rates 600875 december 31 2005 lines credit japan interest rates 090 101 december 31 2005 lines credit maturity date uncollateralized interest expense years ended december 31 2005 2004 2003 29 million 22 million 18 million respectively note 10derivative instruments hedging activities company party interest cross currency rate swaps order minimize volatility changes interest foreign currency rates might earnings cash flows company occasion entered foreign exchange rate contracts order minimize volatility fluctuations currency exchange rates company’s cash flows related purchases sales denominated foreign currencies company interest rate swap arrangement pay 460 fixed rate interest receive variable rate interest based bond market association municipal swap index 20 million notional amount contract considered effective hedge changes amount future cash flows associated company’s interest payments related variable rate debt obligations december 31 2002 accordingly changes fair value contract deferred shareholders’ equity component comprehensive income loss effective january 1 2003 company determined interest rate swap longer effective defined sfas 133 offsetting change interest cash flows hedged accordingly changes swap’s fair value recorded current earnings interest income expense consolidated statements operations amount recognized earnings within next twelve months expected significant fair value instrument liability 01 million december 31 2005 2004 fair value obtained dealer quotes 2002 company entered cross currency interest rate swap interest rate swap currently designated hedges cross currency interest rate swap 20 million euros secures fixed rate 175 per annum payable japanese yen january 4 2012 interest rate swap 30 million euros reduces 6month euribor rate 180 per annum january 4 2007 company entered financial instruments manage exposure interest rates foreign exchange risk fluctuations fair value instruments recorded interest income expense net notional amount financial instruments designated hedges approximately 96 million 111 million december 31 2005 2004 respectively financial instruments designated hedges considered speculative fluctuations fair value instruments recorded interest income expense net fair value instruments appreciated depreciated 01 million 01 million 05 million years ended december 31 2005 2004 2003 respectively aggregate fair value speculative derivative instruments liability 02 million 03 million december 31 2005 2004 respectively note 11income taxes domestic foreign components income loss income taxes follows years ended december 31 thousands components income tax provision follows years ended december 31 thousands reconciliation united states federal statutory tax rate effective income tax rate follows years ended december 31 tax effects temporary items give rise significant portions deferred tax assets liabilities follows december 31 thousands valuation allowance determined accordance provision sfas 109 “accounting income taxes” requires assessment positive negative evidence determining whether likely deferred tax assets recoverable assessment required jurisdictionbyjurisdiction basis 2004 2005 company fully reserved us net deferred tax assets predominantly net operating losses tax credit carryforwards cumulative losses incurred us jurisdiction december 31 2004 2005 represented sufficient negative evidence record valuation allowance sfas 109 company intends maintain full valuation allowance sufficient positive evidence exists support reversal valuation allowance december 31 2005 company approximately 344 million primarily us net operating loss carryforwards available reduce future taxable income us net operating losses various expiration dates 2025 company also tax credits approximately 35 million available offset future tax liabilities expire various dates 2025 undistributed earnings foreign subsidiaries aggregated approximately 423 million december 31 2005 company acquired 14 million net operating losses acquisition roentec november 2005 full valuation allowance provided purchase price allocation utilization net operating loss could assured company subsequently realizes tax benefit approximately 05 million benefit recorded adjustment goodwill note 12employee benefit plans company maintains sponsors various defined contribution plans defined benefit retirement plan cover certain domestic international employees company may make contributions plans discretion retirement benefits earned generally based years service compensation active employment eligibility generally determined accordance local statutory requirements however level benefits terms vesting may vary among plans company contributed approximately 10 million 10 million 08 million plans 2005 2004 2003 respectively substantially bruker axs gmbh employees employed company september 30 1997 participate defined benefit pension plan provides pension benefits based upon average salary years service company elected recognize impact projected benefit obligation actual experience differs actuarial assumptions immediate basis company recognized actuarial losses gains approximately 3000 02 million years ended december 31 2004 2003 respectively gain loss recognized year ended december 31 2005 changes benefit obligations plan assets defined benefit pension plans accumulated benefit obligations funded status plan follows december 31 thousands weightedaverage assumptions used determine projected benefit obligations years ended december 31 2005 2004 2003 follows net periodic pension benefit cost includes following components years ended december 31 2005 2004 2003 thousands date company funded plan required make contributions 2006 company expects pay following benefits next five years plan thousands note 13commitments contingencies operating leases certain vehicles office equipment buildings leased agreements accounted operating leases total rental expense operating leases 21 million 21 million 23 million years ended december 31 2005 2004 2003 respectively future minimum lease payments noncancelable operating leases december 31 2005 next five years follows thousands license agreements company entered license agreements allowing utilize certain patents used connection commercial product sale company pays royalties ranging 015 500 related product revenues licensing fees years ended december 31 2005 2004 2003 approximately 10 million 09 million 08 million respectively grants company’s whollyowned subsidiary bruker daltonik gmbh recipient grants german government authorities grants made connection company’s development specific spectrometers components spectrometers total grants awarded date amount 94 million agreement grants awarded expires december 2006 amounts received grants 2005 2004 2003 totaled 20 million 18 million 13 million respectively classified revenue total expenditures related grants approximately 39 million 40 million 31 million 2005 2004 2003 respectively company’s whollyowned subsidiary bruker daltonics recipient grant agency united states government grant made connection company’s development standalone monitor chemical agents grants awarded date occurred 2004 totaled 05 million agreement grant awarded completed december 2004 total expenditures related grant approximate grant revenues received legal lawsuits claims proceedings nature considered normal businesses may pending time company believes outcome proceedings material impact company’s financial position results operations december 31 2005 2004 accruals recorded potential contingencies letters credit guarantees december 31 2005 2004 company bank guarantees 83 million 73 million respectively customer advances guarantees affect availability lines credit indemnifications company enters standard indemnification arrangements company’s ordinary course business pursuant arrangements company indemnifies holds harmless agrees reimburse indemnified parties losses suffered incurred indemnified party generally business partners customers connection patent copyright intellectual property infringement claim third party respect products term indemnification agreements generally perpetual anytime execution agreement maximum potential amount future payments company could required make agreements unlimited company never incurred costs defend lawsuits settle claims related indemnification agreements result company believes estimated fair value agreements minimal company entered indemnification agreements directors officers may require company indemnify directors officers liabilities may arise reason status service directors officers liabilities arising willful misconduct culpable nature advance expenses incurred result proceeding could indemnified obtain directors’ officers’ insurance available reasonable terms company currently place note 14shareholders’ equity public offerings common stock april 2004 company group selling stockholders completed public offering 17250000 shares common stock 3450000 sold company 13800000 sold four selling stockholders 450 per share generating net proceeds approximately 144 million company approximately 582 million selling stockholders aggregate december 2001 bruker axs inc issued sold 9000000 shares common stock 58500000 650 per share conjunction initial public offering upon closing initial public offering 5625000 shares redeemable preferred stock converted 6923077 shares common stock result merger company bruker axs inc 9000000 shares bruker axs common stock issued bruker axs’ initial public offering 6923077 shares bruker axs common stock issued upon conversion bruker axs redeemable preferred stock upon closing initial public offering converted 3912300 3009462 bruker biosciences shares respectively january 2002 underwriters initial public offering exercised overallotment option result bruker axs inc issued sold 1350000 shares common stock 8775000 650 per share result merger shares converted 586545 shares company’s common stock issuance restricted stock november 2005 company issued 209271 shares restricted stock connection acquisition roentec ag restrictions time based expire ratably shares vest period three years blank check preferred stock december 31 2005 5000000 shares blank check preferred stock stated par value 001 per share authorized none issued redeemable preferred stock 2001 bruker axs inc authorized sold 5625000 shares series convertible preferred stock 001 par value per share price 400 per share “series preferred” gross proceeds totaled 225 million used pay related party debt third party lines credit full upon closing company’s initial public offering december 2001 series preferred converted common stock additional 1298077 shares issued due beneficial conversion feature resulting total conversion shares 6923077 addition connection completion company’s initial public offering preferred shareholders entitled certain rights respect registration 6923077 shares common stock terms rights company proposes register securities act either company’s account security holders exercising registration rights holders 6923077 common shares entitled notice registration include shares common stock registration company’s expense additionally holders shares entitled demand registration rights pursuant may require company file registration statement securities act company’s expense respect shares common stock holders shares may require company file additional registration statements form s3 company’s expense registration rights subject right underwriters offering limit number shares included registration rights terminate five years closing initial public offering connection 2004 public offering registered rights exercised accordingly december 31 2005 number shares registration rights exist total 6923077 stock repurchase programs august 2002 board directors bruker daltonics approved stock repurchase program authorizing repurchase 1000000 shares common stock purchases may made time open market privately negotiated transactions block purchases pursuant program 2002 company repurchased 457200 shares common stock average price 510 per share april 2004 shares sold part public offering company’s common stock dividends terms company’s indebtedness restrict ability pay dividends shareholders stock plans 2000 board directors adopted stockholders approved 2000 stock option plan 2000 stock option plan provides issuance 2200000 shares common stock connection awards plan 2000 stock option plan allows committee board directors “committee” grant incentive stock options nonqualified stock options stock appreciation rights stock awards including use restricted stock phantom shares committee authority determine employees receive rewards amount awards terms conditions award awards granted committee typically vest period threetofive years july 1 2003 board directors adopted stockholders approval amend restate 2000 stock option plan change plan name increase number shares available issuance name amended plan bruker biosciences corporation amended restated 2000 stock option plan “plan” amendment also registered 4132000 additional shares common stock bruker biosciences corporation issuable pursuant company’s plan originally adopted 2000 total number shares issuable plan 6320000 2188000 shares previously registered form s8 reg 33347836 stock option activity years ended december 31 2005 2004 2003 follows following table summarizes information stock options outstanding exercisable december 31 2005 company recorded compensation expense 25000 24000 2000 years ended december 31 2005 2004 2003 respectively stock options granted nonemployees compensation expense amortized straightline basis underlying vesting terms fair value option granted estimated date grant using blackscholes optionpricing model accelerated vesting unvested stock options october 3 2005 compensation committee board directors company approved acceleration vesting unvested options purchase shares common stock company held current employees officers directors company exercise price per share equal greater 464 closing market price company’s common stock october 3 2005 options purchase 857923 shares common stock subject acceleration options exercise prices excess current market values “underwater” fully achieving original objectives incentive compensation employee retention company believes acceleration underwater options may positive effect employee morale retention accounting stock options accordance accounting principles board opinion 25 “accounting stock issued employees” fasb interpretation 44 “accounting certain transactions involving stock compensation” acceleration vesting options result compensation charge exercise prices affected options modified greater closing price company’s common stock date event occurred company estimated pretax charge eliminated future accounting periods approximately 37 million note 15business segment information sfas 131 “disclosures segments enterprise related information” establishes standards reporting information operating segments annual financial statements public business enterprises also establishes standards related disclosures products service geographic areas major customers company evaluated business activities regularly reviewed chief executive officer discrete financial information available result evaluation company determined subsidiaries bruker daltonics bruker axs reportable operating segment bruker daltonics business manufacturing distributing mass spectrometry instruments integrated used along analytical instruments bruker axs business manufacturing distributing advanced xray instrumentation used nondestructive molecular elemental analysis academic research industrial applications bruker biosciences corporation parent company bruker daltonics bruker axs corporate entity holds excess cash shortterm investments incurs certain public company costs selected business segment information years ended december 31 2005 2004 2003 presented thousands total assets capital expenditures depreciation amortization segment years ended december 31 2005 2004 2003 follows thousands longlived assets revenue geographical area years ended december 31 2005 2004 2003 follows thousands locations primarily include among others united kingdom france italy spain belgium netherlands scandinavia poland russia hungary slovenia switzerland austria note 16income statement components reversal liability accrual year ended december 31 2001 bruker daltonics established reserve 19 million possible imposition estimated liquidated damages pursuant contract uk ministry defense “mod” accrual represented projected additional costs rework retesting contract due various technical problems associated meeting contractual requirements year ended december 31 2003 company’s swiss german subsidiaries delivered product mod met specifications contract upon delivery product mod agreed pursue claims liquidated damages previously paid pursuant contract bruker daltonics agreed pursue claims recovery additional research development expenses incurred connection contract result reserves associated mod contract 19 million reversed year ended december 31 2003 special charges components special charges year ended december 31 2003 follows thousands income expense net components interest income expense net years ended december 31 2005 2004 2003 follows thousands affinium pharmaceuticals inc 2001 company acquired 738008 shares series iia preferred stock affinium pharmaceuticals inc formerly integrative proteomics inc exchange approximately 1 million cash 64650 shares company’s common stock acquired securities included investments companies accounted cost method due uncertain outlook affinium pharmaceuticals management concluded investment suffered impairment deemed temporary company recorded charges 07 million earnings 2004 writeoff investment affinium pharmaceuticals cengent therapeutics 2001 company acquired 666667 shares series c preferred stock cengent therapeutics formerly geneformatics inc exchange approximately 1 million cash 61742 shares company’s common stock acquired securities included investments companies accounted cost method due uncertain outlook geneformatics management concluded investment suffered impairment deemed temporary company recorded charges 07 million earnings 2004 writeoff investment cengent therapeutics geneprot inc 2000 company acquired 909091 shares series b preferred stock geneprot inc exchange 70 million cash 79218 shares company’s common stock acquired securities included investments companies accounted cost method due uncertain outlook geneprot management concluded investment suffered impairment deemed temporary company recorded charges 09 million earnings 2004 writeoff investment geneprot december 31 2004 company writtenoff carrying value associated investments identified based impairment testing performed periods presented financial statements prior periods note 17related parties company affiliated common shareholders several entities use bruker name company affiliates entered sharing agreement provides sharing specified intellectual property rights services facilities related items december 31 2005 2004 company payables related parties 39 million 30 million respectively december 31 2005 2004 company receivables related parties 49 million 95 million respectively payment terms balances related parties similar third party customers sales related parties subsidiaries bruker biosciences corporation included revenues consolidated financial statements related parties represent affiliated sales offices countries company distribution network sales primarily resale company’s products sales amounted 121 million 148 million 130 million years ended december 31 2005 2004 2003 respectively addition company purchased products services amounted 99 million 55 million 71 million affiliated entities year ended december 31 2005 2004 2003 respectively company shares various general administrative expenses items including umbrella insurance policies accounting services leases various related parties general administrative expenses amounted 14 million 13 million 14 million years ended december 31 2005 2004 2003 respectively company investments three nonaffiliated companies company recognized sales companies geneprot inc cengent therapeutics affinium pharmaceuticals inc 0 respectively 2005 0 40000 respectively 2004 21 million 0 respectively 2003 sales recorded arm’s length terms conditions normal course business purchases companies years ended december 31 2005 2004 2003 years ended december 31 2005 2004 2003 company paid 05 million 05 million 14 million law firm one directors partner years ended december 31 2005 2004 2003 company paid approximately 48500 24300 26700 financial services firm one directors partner note 18recent accounting pronouncements may 2005 fasb issued sfas 154 “accounting changes error corrections replacement apb opinion 20 accounting changes fasb statement 3 reporting accounting changes interim financial statements” “sfas 154” sfas 154 provides guidance accounting reporting accounting changes error corrections establishes unless impracticable retrospective application required method reporting change accounting principle absence explicit transition requirements specific newly adopted accounting principle sfas 154 also provides guidance determining whether retrospective application change accounting principle impracticable reporting change retrospective application impracticable provisions statement effective accounting changes corrections errors made fiscal periods beginning december 15 2005 adoption provisions sfas 154 expected material impact company’s financial position results operations december 2004 fasb issued sfas 123 revised 2004 “sharebased payment” “sfas 123r” addresses accounting sharebased payment transactions company receives employee services exchange equity instruments company b liabilities based fair value company’s equity instruments may settled issuance equity instruments sfas 123r addresses forms sharebased payment awards including shares issued employee stock purchase plans stock options restricted stock appreciation rights sfas 123r eliminates ability account sharebased compensation transactions using apb opinion 25 “accounting stock issued employees” provided sfas 123 originally issued permitted sfas 123r company currently accounts sharebased payments employees using intrinsic value method allowed apb opinion 25 generally recognizes compensation cost employee stock options accordingly adoption sfas 123r fair value method significant impact company’s results operations although impact overall financial position impact adoption sfas 123r cannot predicted time depend levels sharebased payments granted future however adopted sfas 123r prior periods impact would approximated amounts calculated using sfas 123 described disclosure pro forma net loss net loss per share note 2 consolidated financial statements november 2004 fasb issued sfas 151 inventory costs statement amends guidance arb 43 chapter 4 inventory pricing clarify accounting abnormal amounts idle facility expense freight handling costs wasted material spoilage addition statement requires allocation fixed production overhead costs conversion based normal capacity production facilities provisions statement effective company beginning fiscal year ending 2006 currently evaluating impact new standard believe material impact financial position results operations cash flows note 19quarterly financial data unaudited company’s common stock trading symbol brkr summary operating results quarterly periods two years ended december 31 2005 set forth thousands except per share data note 20subsequent events january 17 2006 company acquired socabim sas socabim privatelyheld company focused advanced xray analysis software materials research based paris france initial aggregate purchase price approximately 85 million paid issuance 267302 restricted shares common stock company socabim’s two largest shareholders aggregate value approximately 13 million date issuance aggregate 72 million paid socabim selling shareholders cash hand additional consideration amount approximately 19 million total may paid 2009 based future performance socabim item 9item 8 financial statements supplementary data page report ernst young llp independent registered public accounting firm consolidated balance sheets december 31 2006 2005 consolidated statements operations years ended december 31 2006 2005 2004 consolidated statements shareholder’s equity comprehensive income loss years ended december 31 2006 2005 2004 consolidated statements cash flows years ended december 31 2006 2005 2004 notes consolidated financial statements report independent registered public accounting firm board directors shareholders bruker biosciences corporation audited accompanying consolidated balance sheets bruker biosciences corporation company december 31 2006 2005 related consolidated statements operations shareholders’ equity comprehensive income loss cash flows three years period ended december 31 2006 audits also included financial statement schedule listed index item 15a financial statements schedule responsibility company’s management responsibility express opinion financial statements schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position bruker biosciences corporation december 31 2006 2005 consolidated results operations cash flows three years period ended december 31 2006 conformity us generally accepted accounting principles also opinion related financial statement schedule considered relation basic financial statements taken whole presents fairly material respects information set forth therein discussed note 2 consolidated financial statements january 1 2006 company adopted provisions statement financial accounting standards 123r sharebased payment requires company recognize expense related fair value sharebased compensation awards also audited accordance standards public company accounting oversight board united states effectiveness bruker biosciences corporation’s internal control financial reporting december 31 2006 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated march 14 2007 expressed unqualified opinion thereon boston massachusetts march 14 2007 bruker biosciences corporation consolidated balance sheets thousands except share data accompanying notes integral part financial statements bruker biosciences corporation consolidated statements operations thousands except per share data accompanying notes integral part financial statements bruker biosciences corporation consolidated statements shareholders’ equity comprehensive income loss thousands except share data accompanying notes integral part financial statements bruker biosciences corporation consolidated statements cash flows thousands accompanying notes integral part statements bruker biosciences corporation notes consolidated financial statements note 1description business bruker biosciences corporation whollyowned subsidiaries “company” “we’’ “us” “our” design manufacture service market proprietary life science materials research systems based mass spectrometry core technology platforms xray technologies optical emission spectroscopy oes infrared raman molecular spectroscopy technology company also sells broad range field analytical systems chemical biological radiological nuclear cbrn detection company maintains major technical manufacturing centers europe north america japan sales offices throughout world company’s diverse customer base includes pharmaceutical biotechnology proteomics companies academic institutions advanced materials semiconductor industries government agencies july 1 2006 company completed acquisition bruker optics inc “bruker optics” company bruker optics majority owned five affiliated stockholders prior acquisition result acquisition bruker optics company considered business combination companies common control accounted manner similar poolingofinterests accordingly acquisition bruker optics relates portion common ownership approximately 96 accounted historical carrying values date acquisition portion common ownership five affiliated stockholders approximately 4 accounted minority interest portion common control primarily represented stock options purchase shares common stock outstanding date acquisition excess purchase price interest common control fair value related net assets acquired accounted goodwill intangible assets consolidated balance sheets statements operations statements cash flows notes consolidated financial statements periods presented herein restated combining historical consolidated financial statements company bruker optics since integration bruker optics acquisition began changing way manage business consider provider instrumentation solutions life sciences industrial businesses throughout world continue focus addressing markets serve needs various customers including pharmaceutical biotechnology advanced raw materials companies academic governmental institutions less selling individual products technologies result change way manage business may change segment reporting future company currently reports financial results basis following three business segments 1 bruker daltonics leading developer provider life science tools based mass spectrometry also develops provides broad range field analytical systems cbrn detection 2 bruker axs leading developer provider life science advanced materials research tools based xray technology tools advanced xray sparkoes instrumentation used nondestructive molecular materials elemental analysis academic research industrial applications 3 bruker optics leading developer provider research analytical process analysis instruments solutions based infrared raman molecular spectroscopy technologies note 2summary significant accounting policies principles consolidation financial statements include accounts company majority whollyowned subsidiaries intercompany accounts transactions eliminated cash equivalents cash equivalents consist primarily highly liquid investments original maturities three months less date acquisition cash equivalents primarily include cash hand money market funds time deposits time deposits represent amounts deposit banks temporarily invested instruments maturities three months less time purchase certain investments represent deposits insured fdic united states government agency cash equivalents carried cost approximates market value restricted cash certain customers require company provide bank guarantees customer advances amounts considered restricted cash classified noncurrent generally lines credit facilitate requirement however extent required guarantee exceeds available local line credit company maintains current restricted cash balances addition company required maintain restricted cash balance guarantee lessor building located delft netherlands throughout lease term also classified noncurrent december 31 2006 2005 restricted cash balances approximately 11 million 10 million respectively shortterm investments company accounts shortterm investments accordance statement financial accounting standards “sfas” 115 accounting certain investments debt equity securities company’s investments carried fair value consist funds comprised auctionrated securities bond instruments classified availableforsale december 31 2005 basis cost securities sold determined specific identification method market values individual securities decrease cost period six nine months company deems indicative temporary impairment writes carrying amount investments market value income expense net accompanying statement operations december 31 2005 material unrealized gains losses company shortterm investments december 31 2006 concentration credit risk financial instruments subject company credit risk consist cash equivalents shortterm investments accounts receivables risk respect cash equivalents shortterm investments minimized company’s policy investing shortterm financial instruments issued highlyrated financial institutions risk respect accounts receivables minimized creditworthiness company’s customers company performs periodic credit evaluations customers’ financial condition generally require collateral credit losses within management’s expectations allowance doubtful accounts totaled 24 million 38 million december 31 2006 2005 respectively years ended december 31 2006 2005 2004 sales receivables single customer exceeded 10 company’s revenue accounts receivable inventories components inventory include raw materials workin process demonstration units finished goods demonstration units include units located company’s demonstration laboratories potential customer sites considered available sale finished goods include intransit systems shipped company’s customers yet installed accepted customer inventories stated lower cost market cost determined principally firstin firstout “fifo” method majority subsidiaries averagecost certain international location company reduces carrying value inventories differences cost estimated net realizable value taking consideration usage preceding twelve months expected demand technological obsolescence information including physical condition demonstration intransit inventories company records charge cost revenue amount required reduce carrying value inventory net realizable value costs associated procurement warehousing inventories inbound freight charges purchasing receiving costs also included cost revenue line item within statement operations property plant equipment property plant equipment stated cost less accumulated depreciation amortization major improvements capitalized expenditures maintenance repairs minor improvements charged expense assets retired otherwise disposed assets related accumulated depreciation eliminated accounts resulting gain loss reflected statement operations depreciation amortization calculated straightline basis estimated useful lives assets follows depreciation expense associated property plant equipment years ended december 31 2006 2005 2004 approximately 121 million 100 million 107 million respectively goodwill intangible assets company accounts goodwill intangible assets accordance sfas 142 goodwill intangible assets sfas 142 requires goodwill intangible assets indefinite useful lives amortized instead assets tested impairment reportable operating segment basis annually interim basis events changes circumstances warrant impairment test consists comparison fair value goodwill intangible asset carrying amount related impairment losses recognized earnings incurred company performs annual test indications impairment december 31st year accordance sfas 142 company tested impairment december 31 2006 2005 determined goodwill indefinitelived intangible assets impaired intangible assets finite useful life amortized straightline basis estimated useful lives periods ranging 4 10 years investments companies investment companies consists equity securities privately held companies accounted cost method company’s ownership interest companies less 20 company periodically evaluates carrying value investments potential impairment company’s evaluation identifies impairment charge deemed temporary investment written estimated fair value charge current earnings december 31 2004 company writtenoff carrying value investments companies based impairment testing performed year ended december 31 2004 company recorded charges impairments investments totaling approximately 23 million charges recorded years ended december 31 2006 2005 impairment longlived assets impairment losses recorded longlived assets used operations indicators impairment present quoted market price available estimated undiscounted operating cash flows generated assets less assets’ carrying value impairment losses charged statement operations difference fair value carrying value asset impairment losses recorded longlived assets years ended december 31 2006 2005 2004 warranty costs deferred revenue company typically provides one year parts labor warranty purchase equipment anticipated cost oneyear warranty accrued upon recognition sale included current liability accompanying balance sheets company also offers customers extended warranty service agreements extending beyond initial year warranty fee fees recorded deferred revenue amortized ratably income life extended warranty contract minority interest consolidated subsidiaries minority interest statement operations 8000 40000 69000 years ended december 31 2006 2005 2004 respectively represents minority common shareholders’ proportionate share net loss incoatec gmbh baltic scientific instruments income taxes company accounts income taxes accordance statement financial accounting standard 109 accounting income taxes “sfas 109” sfas 109 requires asset liability approach account income taxes recognizing deferred tax assets liabilities expected future tax consequences differences financial statement basis tax basis assets liabilities calculated using enacted tax rates effect year differences expected reflected tax return company records valuation allowance reduce deferred tax assets amount likely realized customer advances company typically requires advance deposit terms conditions contracts customers deposits recorded liability revenue recognized specific contract comprehensive income loss comprehensive income loss refers revenues expenses gains losses accounting principles generally accepted united states america included comprehensive income loss excluded net income loss amounts recorded directly adjustment stockholders’ equity net tax company’s comprehensive income loss primarily composed foreign currency translation adjustments fair value financial instruments company’s financial instruments consist primarily cash equivalents availableforsale securities accounts receivable accounts payable amounts due fromto affiliated companies longterm debt carrying amounts company’s cash equivalents availableforsale securities accounts receivable accounts payable amounts due fromto affiliated companies approximate fair value due shortterm nature fair value longterm debt estimated based current interest rates offered company financing arrangements similar maturities recorded value financial instruments approximates fair value december 31 2006 2005 derivative financial instruments company accounts derivative financial instruments accordance statement financial accounting standards 133 accounting derivative instruments hedging activities “sfas 133” amended derivatives whether designated hedging relations recorded balance sheet fair value derivative designated fair value hedge changes fair value derivative hedged item attributable hedged risk recognized results operations derivative designated cash flow hedge effective portions changes fair value derivative recorded accumulated comprehensive income “oci” recognized results operations hedged item affects earnings ineffective portions changes fair value cash flow hedges recognized results operations derivative instruments designated hedging instruments changes fair value recognized results operations current period foreign currency translation assets liabilities company’s foreign subsidiaries functional currency local currency translated us dollars using yearend exchange rates revenues expenses foreign subsidiaries translated average exchange rates effect year adjustments resulting financial statement translations included separate component stockholders’ equity gains losses resulting foreign currency transactions reported statement operations caption interest income expense net periods presented revenue recognition company recognizes revenue system sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectibility resulting receivable reasonably assured title risk loss generally transferred customer upon receipt signed customer acceptance system shipped installed customer trained result timing customer acceptance readiness could cause company’s reported revenues differ materially expectations products sold independent distributor strategic distribution partner unconsolidated affiliated distributor assumes responsibility installation company recognizes system revenue product shipped title risk loss transferred company’s distributors price protection rights return however products warranted free defect period one year revenue deferred cash received significant portion fee due one year delivery installation acceptance system arrangements multiple elements company recognizes revenue element based fair value element provided criteria revenue recognition met fair value element provided multiple element arrangements typically determined referencing historical pricing policies element sold separately changes company’s ability establish fair value element multiple element arrangements could affect timing revenue recognition revenue sale accessories parts recognized upon shipment service revenue recognized services performed research development research development costs expensed incurred software costs purchased software capitalized cost amortized estimated useful life generally three years software developed use company’s products expensed incurred technological feasibility reasonably assured classified research development expense subsequent achievement technological feasibility amounts capitalizable however date amounts material advertising company expenses advertising costs incurred advertising expenses 27 million 23 million 27 million years ended december 31 2006 2005 2004 respectively shipping handling costs company records costs incurred connection shipping handling products cost revenue amounts billed customers connection costs included revenues material periods presented accompanying financial statements contingencies company subject proceedings lawsuits claims related patents product matters company assesses likelihood adverse judgments outcomes matters well potential ranges probable losses determination amount reserves required contingencies made careful analysis individual issue required reserves may change future due new developments situation changes settlement strategy dealing matters stockbased compensation effective january 1 2006 company adopted statement financial accounting standards 123 revised 2004 sharebased payment “sfas 123r” using modified prospective method whereby prior periods restated comparability sfas 123r requires recognition stockbased compensation expense statement operations vesting period based fair value award grant date previously company used intrinsic value method accounting principles board opinion 25 accounting stock issued employees “apb 25” amended related interpretations financial accounting standards board “fasb” apb 25 compensation cost recognized stock options quoted market price stock grant date equal amount per share employee pay acquire stock fulfilling vesting period sfas 123r supersedes apb 25 well statement financial accounting standards 123 accounting stockbased compensation permitted pro forma footnote disclosures report difference fair value method intrinsic value method december 31 2006 company’s primary types sharebased compensation stock options restricted stock company recorded stockbased compensation expense year ended december 31 2006 follows thousands fair value option award estimated date grant using blackscholes optionpricing model assumptions regarding volatility expected term dividend yield riskfree interest rate required blackscholes model volatility expected term assumptions based company’s historical experience riskfree interest rate based us treasury note maturity similar option award’s expected life assumptions volatility expected life dividend yield riskfree interest rate presented table compensation expense company’s stock option plans years ended december 31 2005 2004 determined based fair value grant date consistent methodology prescribed sfas 148 accounting stockbased compensationtransition disclosure company’s net income loss net income loss per common share years ended december 31 2005 2004 would approximated following pro forma amounts thousands except per share data fair value stock option included preceding pro forma amounts estimated using blackscholes optionpricing model following weighted average assumptions earnings per share net income loss per share calculated dividing net income loss weightedaverage shares outstanding period diluted net income loss per share computation includes effect shares would issuable upon exercise outstanding stock options reduced number shares assumed purchased company resulting proceeds average market price period following table sets forth computation basic diluted average shares outstanding years ended december 31 2006 2005 2004 thousands stock options purchase shares common stock year ended december 31 2004 antidilutive excluded computation diluted earnings per share due net loss period total antidiluted shares outstanding years ended december 31 2006 2005 1056000 2624000 respectively use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates note 3acquisition bruker optics july 1 2006 company completed acquisition outstanding stock bruker optics accordance terms stock purchase agreement dated april 17 2006 acquisition bruker optics represented business combination companies common control due majority ownership companies five related individuals affiliated shareholder group result acquisition related shares owned affiliated shareholders approximately 96 accounted manner similar poolingofinterest historical carrying value acquisition shares nonaffiliated shareholders approximately 4 accounted using purchase method accounting fair value manner similar acquisition minority interest excess purchase price interest common control fair value related net assets recorded intangible assets goodwill upon completion acquisition company paid aggregate 135 million consideration bruker optics stockholders holders bruker optics stock options approximately 79 million paid cash approximately 56 million paid restricted unregistered shares company common stock fair value consideration paid acquisition minority interest approximately 52 million including cash 48 million common stock valued 04 million value shares common stock issued nonaffiliated shareholder connection merger determined using trailing average closing market prices company’s stock period ten consecutive trading days ending three days prior closing acquisition occurred july 1 2006 company engaged third party valuation firm assist management appraising fair value certain assets acquired valuation completed december 31 2006 information presented subject change upon completion third party valuation first quarter 2007 following table summarizes estimated fair values assets acquired liabilities assumed date acquisition minority interest thousands purchase price 41 minority interest acquired allocated net assets acquired pro rata basis accordance sfas 141 business combinations accordingly estimated acquisition related intangibles total 21 million amortized four years addition approximately 27 million acquired intangible assets assigned inprocess research development projects 41 minority interest approximately 01 million written date acquisition accordance fasb interpretation 4 applicability fasb statement 2 business combinations accounted purchase method projects estimated qualify acquired inprocess research development projects yet reached technology feasibility future alternative uses existed value assigned inprocess research development projects determined using estimates based historical acquisitions since third party valuation complete december 31 2006 23 million goodwill acquired bruker optics connection acquisition assigned company’s bruker optics subsidiary currently reportable operating segment deductible tax purposes since acquisition taxfree acquisition incremental effect represents total contribution bruker optics change reporting entity years ended december 31 2005 2004 follows thousands except per share data note 4other acquisitions september 6 2006 company acquired capital stock quantron gmbh sparkoes company based kleve germany “quantron” accordance stock purchase agreement closing company paid aggregate approximately 65 million consideration sellers approximately 52 million paid cash approximately 13 million paid issuance aggregate 202223 restricted unregistered shares company’s common stock par value 001 per share quantron’s two largest shareholders pursuant earnout provisions stock purchase agreement aggregate 49 million additional cash consideration may paid 2009 based future performance quantron treated additional purchase price results quantron included bruker axs segment date acquisition july 18 2006 company acquired capital stock keymaster technologies inc “keymaster” delaware corporation located kennewick washington aggregate purchase price keymaster 100 million funded incurring additional debt results keymaster included bruker axs segment date acquisition january 17 2006 company acquired socabim sas privatelyheld company focused advanced xray analysis software materials research based paris france initial aggregate purchase price approximately 86 million paid issuance 267302 restricted shares common stock company socabim’s two largest shareholders aggregate value approximately 13 million date issuance aggregate 73 million paid socabim selling shareholders cash hand additional cash consideration amount approximately 15 million total may paid 2009 based future performance socabim accounted additional purchase price prior acquisition company licensed socabim software used various bruker axs systems bruker axs socabim’s principal customer acquisition required company evaluate preexisting relationship socabim accordance emerging issues task force 041 accounting preexisting relationships parties business combination eitf 041 requires analysis performed determine whether effective settlement preexisting executory contract either favorable unfavorable acquirer extent executory contract either favorable unfavorable acquirer gain loss recognized management determined settlement preexisting executory contract acquisition socabim accordingly gain loss recognized results socabim included bruker axs segment date acquisition 195 million goodwill acquired quantron key master socabim 2006 assigned individual subsidiary within bruker axs currently reportable operating segment november 2005 company acquired roentec ag “roentec” xray microanalysis instrumentation company based berlin germany aggregate initial purchase price 44 million funded 09 million restricted stock company reminder cash hand additional consideration amount approximately 20 million may paid future based future revenue performance roentec payments required comprised either option company 50 restricted stock company 50 cash 100 cash allocation purchase price roentec made based upon management estimates third party review estimates results roentec included bruker axs segment date acquisition november 2005 company acquired xray microanalysis business princeton gammatech instruments inc “pgt” company located rocky hill new jersey aggregate purchase price pgt 20 million funded cash hand results pgt included bruker axs segment date acquisition pro forma information reflect quantron keymaster socabim roentec pgt acquisitions presented impact revenues net income net income per common share would material note 5accounts receivable following summary trade accounts receivable december 31 thousands note 6inventories inventories consisted following december 31 thousands demonstration units include systems located company’s demonstration laboratories potential customer sites considered available sale finished goods include intransit systems shipped company’s customers yet installed accepted customer december 31 2006 2005 inventoryintransit 241 252 million respectively note 7property plant equipment following summary property plant equipment major class asset december 31 thousands note 8goodwill intangible assets following summary intangible assets subject amortization december 31 thousands years ended december 31 2006 2005 2004 company recorded amortization expense approximately 12 million 05 million 05 million respectively related amortizable intangible assets estimated future amortization expense related amortizable intangible assets follows thousands carrying amount goodwill december 31 2006 2005 362 million 175 million respectively company performs annual test indications impairment december 31st year company completed annual test impairment december 31 2006 2005 determined goodwill impaired time note 9other current liabilities following summary accrued current liabilities december 31 thousands company typically provides oneyear parts labor warranty purchase equipment anticipated cost oneyear warranty accrued upon recognition sale included current liability balance sheet company also offers customers warranty service agreements extending beyond initial year warranty fee fees recorded deferred revenue amortized income life extended warranty contract note 10debt company’s debt obligations consist following december 31 2006 2005 thousands annual maturities longterm debt follows state wisconsin industrial revenue bonds irb entered 1999 connection construction bruker axs’ building madison wisconsin bruker axs interest rate swap associated irb designated hedge bruker axs pays 460 fixed rate interest receives variable rate interest based securities industry financial markets municipal swap index contract 17 million notional value decreases conjunction irb payment schedule swap irb agreements terminate december 2013 fair value swap obtained dealer quotes resulted loss 01 million years ended december 31 2006 2005 interest payments receivable payable terms swap accrued period treated adjustment interest expense letter credit renewable upon mutual agreement bruker axs financial institution letter credit renewed bruker axs unable obtain similar letter credit another financial institution irb may callable option bond trustee company’s outstanding letter credit expires december 2008 collateralized substantially assets bruker axs letter credit contains various financial covenants december 31 2006 latest measurement date company compliance required debt service coverage ratio associated irb january 30 2007 company received holder debt limited waiver quarterly measurement period ending december 31 2006 company maintains lines credit financial institutions united states germany japan france aggregate maximum credit amount approximately 753 million 427 million december 31 2006 2005 respectively december 31 2006 2005 company outstanding borrowings approximately 194 million 73 million respectively availability taking consideration outstanding letters credit approximately 468 million 252 million respectively line credit united states company issued demand promissory note citizens bank 40 million july 2006 note bears interest bank’s prime rate libor plus 1 libor advantage rate plus 1 request company’s obligations line credit secured pledge bank 100 capital stock company’s whollyowned domestic subsidiaries also pledged portion stock certain foreign subsidiaries december 31 2006 290 million united states line credit available lines credit germany unsecured interest paid monthly outstanding borrowings based banks’ variable interest rates 650925 december 31 2006 lines credit japan interest rates 137 148 december 31 2006 lines credit maturity date uncollateralized line credit france unsecured interest paid monthly outstanding borrowings based floating rate used french institutions tmm plus 075 432 december 31 2006 interest expense years ended december 31 2006 2005 2004 22 million 21 million 28 million respectively note 11derivative instruments hedging activities company party interest cross currency rate swaps order minimize volatility changes interest foreign currency rates might earnings cash flows company also entered foreign exchange rate contracts order minimize volatility fluctuations currency exchange rates company’s cash flows related purchases sales denominated foreign currencies company interest rate swap arrangement pay 460 fixed rate interest receive variable rate interest based securities industry financial markets municipal swap index 17 million notional amount contract considered effective hedge changes amount future cash flows associated company’s interest payments related variable rate debt obligations december 31 2002 accordingly changes fair value contract deferred shareholders’ equity component comprehensive income loss effective january 1 2003 company determined interest rate swap longer effective defined sfas 133 offsetting change interest cash flows hedged accordingly changes swap’s fair value recorded current earnings interest income expense consolidated statements operations amount recognized earnings within next twelve months expected significant fair value instrument liability 01 million december 31 2006 2005 fair value obtained dealer quotes 2002 company entered cross currency interest rate swap notional value euro 50 million agreement company receives semiannual interest payments euros based variable interest rate equal sixmonth euribor rate exchange semiannual payments swiss francs fixed rate 497 instrument considered speculative derivative financial instrument qualify hedge accounting sfas 133 accordingly instrument markedtomarket corresponding gains losses recorded income expense current period december 31 2006 2005 cross currency interest rate swap favorable fair value 02 million unfavorable fair value 03 million respectively 2002 company also entered interest rate swap currently designated hedge interest rate swap 30 million euros reduces 6month euribor rate 180 per annum january 4 2007 company entered financial instruments manage exposure interest rates foreign exchange risk fluctuations fair value instruments recorded interest income expense net december 31 2006 company option forward currency exchange contracts maturities less 12 months notional amounts aggregating 144 million contracts involved purchase euro currency fixed us dollar amounts notional amounts contracts intended hedge receivables us dollars transactions qualify hedge accounting sfas 133 accordingly instruments markedtomarket corresponding gains losses recorded expense current period end reporting period company obtains thirdparty verification fair value instruments december 31 2006 2005 currency exchange contracts favorable fair value 14 million unfavorable fair value 27 million respectively instruments’ fair market values recorded net accompanying balance sheets favorable net value 10 million recorded current assets december 31 2006 unfavorable net value 30 million recorded current liabilities december 31 2005 connection instruments company recorded net gain 41 million net loss 28 million 2006 2005 respectively net gain loss recorded income expense net notional amount financial instruments designated hedges approximately 267 million 345 million december 31 2006 2005 respectively financial instruments designated hedges considered speculative fluctuations fair value instruments recorded interest income expense net fair value instruments appreciated depreciated 47 million 27 million 01 million years ended december 31 2006 2005 2004 respectively aggregate fair value speculative derivative instruments asset 11 million liability 30 million december 31 2006 2005 respectively note 12income taxes domestic foreign components income loss income taxes follows years ended december 31 thousands components income tax provision benefit follows years ended december 31 thousands reconciliation united states federal statutory tax rate effective income tax rate follows years ended december 31 tax effects temporary items give rise significant portions deferred tax assets liabilities follows december 31 thousands valuation allowance determined accordance provision sfas 109 accounting income taxes requires assessment positive negative evidence determining whether likely deferred tax assets recoverable assessment required jurisdictionbyjurisdiction basis company fully reserved us net deferred tax assets predominantly net operating losses tax credit carryforwards cumulative losses incurred us jurisdiction december 31 2005 2006 represented sufficient negative evidence record valuation allowance sfas 109 company intends maintain full valuation allowance sufficient positive evidence exists support reversal valuation allowance december 31 2006 company approximately 109 million us net operating loss carryforward available reduce future taxable income expire various times year 2025 company also tax credits approximately 135 million available offset future tax liabilities expire various dates credits include foreign tax credits 99 million expiring year 2016 research development tax credits 31 million expiring 2025 alternative minimum tax credit 5 million expiration operating losses tax credit carryforwards may subject limitations provisions internal revenue code company permanently reinvested earnings subsidiaries cumulative amount approximately 72 million december 31 2006 therefore provided us income taxes could result distribution earnings us parent earnings ultimately distributed us form dividends otherwise shares subsidiaries sold transferred company would likely subject additional us income taxes net impact available foreign tax credits practicable estimate amount unrecognized deferred us income taxes undistributed earnings october 22 2004 american jobs creation act ajca signed law includes deduction 85 certain foreign earnings repatriated defined ajca bruker optics repatriated approximately 12 million 2005 06 million 2004 recognized related tax expense 01 million 2005 company acquired 14 million net operating losses acquisition roentec 2005 full valuation allowance provided purchase price allocation utilization net operating loss could assured tax benefit subsequently realized recorded adjustment goodwill note 13employee benefit plans company maintains sponsors various defined contribution plans defined benefit retirement plan cover certain domestic international employees company may make contributions plans discretion retirement benefits earned generally based years service compensation active employment eligibility generally determined accordance local statutory requirements however level benefits terms vesting may vary among plans company contributed approximately 16 million 13 million 13 million plans 2006 2005 2004 respectively substantially bruker axs gmbh employees employed company september 30 1997 participate defined benefit pension plan provides pension benefits based upon average salary years service company elected recognize impact projected benefit obligation actual experience differs actuarial assumptions immediate basis company recognized actuarial losses gains approximately 3000 year ended december 31 2004 gains losses recognized years ended december 31 2005 2006 changes benefit obligations plan assets defined benefit pension plans accumulated benefit obligations funded status plan follows december 31 thousands weightedaverage assumptions used determine projected benefit obligations years ended december 31 2006 2005 2004 follows net periodic pension benefit cost includes following components years ended december 31 2006 2005 2004 thousands date company funded plan required make contributions 2007 company expects pay following benefits plan thousands note 14commitments contingencies operating leases certain vehicles office equipment buildings leased agreements accounted operating leases total rental expense operating leases 32 million 26 million 25 million years ended december 31 2006 2005 2004 respectively future minimum lease payments noncancelable operating leases december 31 2006 next five years thereafter follows thousands license agreements company entered license agreements allowing utilize certain patents used connection commercial product sale company pays royalties ranging 015 500 related product revenues licensing fees years ended december 31 2006 2005 2004 approximately 16 million 10 million 09 million respectively grants company’s whollyowned subsidiary bruker daltonik gmbh recipient grants german government authorities grants made connection company’s development specific spectrometers components spectrometers total grants awarded date amount 101 million agreements grants awarded expire 2008 amounts received grants 2006 2005 2004 totaled 07 million 20 million 18 million respectively classified revenue total expenditures related grants approximately 21 million 39 million 40 million 2006 2005 2004 respectively company’s whollyowned subsidiary bruker daltonics recipient grant agency united states government grant made direct connection company’s development standalone monitor chemical agents total grants awarded date amount 09 million 04 million awarded 2006 05 million 2005 agreement grant awarded completed 2006 total expenditures related grant approximate grant revenues received company’s whollyowned subsidiary bruker optik gmbh recipient certain grants german government grants made connection company’s development specific advanced vibrational spectroscopy equipment total awards granted date total 15 million amounts received grants 2006 2005 2004 totaled 01 million 03 million 01 million respectively classified revenue total expenditures related grants approximated grant revenues received legal lawsuits claims proceedings nature considered normal businesses may pending time company believes outcome proceedings material impact company’s financial position results operations december 31 2006 2005 accruals recorded potential contingencies letters credit guarantees december 31 2006 2005 company bank guarantees 91 million 102 million respectively customer advances guarantees affect availability lines credit indemnifications company enters standard indemnification arrangements company’s ordinary course business pursuant arrangements company indemnifies holds harmless agrees reimburse indemnified parties losses suffered incurred indemnified party generally business partners customers connection patent copyright intellectual property infringement claim third party respect products term indemnification agreements generally perpetual anytime execution agreement maximum potential amount future payments company could required make agreements unlimited company never incurred costs defend lawsuits settle claims related indemnification agreements result company believes estimated fair value agreements minimal company entered indemnification agreements directors officers may require company indemnify directors officers liabilities may arise reason status service directors officers liabilities arising willful misconduct culpable nature advance expenses incurred result proceeding could indemnified obtain directors’ officers’ insurance available reasonable terms company currently place note 15shareholders’ equity public offerings common stock april 2004 company group selling stockholders completed public offering 17250000 shares common stock 2992800 sold company 13800000 sold four selling stockholders 450 per share generating net proceeds approximately 144 million company approximately 582 million selling stockholders aggregate issuance restricted stock september 2006 company issued 202223 shares restricted stock connection acquisition quantron restrictions time based expire ratably shares vest period three years january 2006 company issued 267302 shares restricted stock connection acquisition socabim sas restrictions time based expire ratably shares vest period three years november 2005 company issued 209271 shares restricted stock connection acquisition roentec ag restrictions time based expire ratably shares vest period three years restricted shares company’s common stock periodically awarded executive officers directors certain key employees company’s amended restated 2000 stock option plan see section “stock plans” information restricted stock awarded year ended december 31 2006 blank check preferred stock december 31 2006 5000000 shares blank check preferred stock stated par value 001 per share authorized none issued redeemable preferred stock 2001 former bruker axs inc authorized sold 5625000 shares series convertible preferred stock 001 par value per share price 400 per share “series preferred” gross proceeds totaled 225 million used pay related party debt third party lines credit full upon closing former bruker axs inc’s initial public offering december 2001 series preferred converted common stock additional 1298077 shares issued due beneficial conversion feature resulting total conversion shares 6923077 addition connection completion former bruker axs inc’s initial public offering preferred shareholders entitled certain rights respect registration 6923077 shares common stock terms rights company proposes register securities act either company’s account security holders exercising registration rights holders 6923077 common shares entitled notice registration include shares common stock registration company’s expense additionally holders shares entitled demand registration rights pursuant may require company file registration statement securities act company’s expense respect shares common stock holders shares may require company file additional registration statements form s3 company’s expense registration rights subject right underwriters offering limit number shares included registration rights terminate five years closing initial public offering connection 2004 public offering registered rights exercised accordingly december 31 2006 registration rights 6923077 shares terminated without exercised stock repurchase programs august 2002 board directors former bruker daltonics inc approved stock repurchase program authorizing repurchase 1000000 shares common stock purchases may made time open market privately negotiated transactions block purchases pursuant program 2002 company repurchased 457200 shares common stock average price 510 per share april 2004 shares sold part public offering company’s common stock dividends terms company’s indebtedness restrict ability pay dividends shareholders stock plans 2000 board directors adopted stockholders approved 2000 stock option plan 2000 stock option plan provides issuance 2200000 shares common stock connection awards plan 2000 stock option plan allows committee board directors “committee” grant incentive stock options nonqualified stock options stock appreciation rights stock awards including use restricted stock phantom shares committee authority determine employees receive rewards amount awards terms conditions award awards granted committee typically vest period threetofive years july 1 2003 company’s stockholders approved amendment restatement 2000 stock option plan change plan name increase number shares available issuance name amended plan bruker biosciences corporation amended restated 2000 stock option plan amendment authorized 4132000 additional shares common stock company issuable pursuant plan june 29 2006 company’s stockholders approved increase number shares available issuance plan 6320000 shares 8000000 shares increase 1680000 shares total number shares issuable plan 8000000 registered form s8s reg 33347836 333107294 333137090 restricted shares company’s common stock periodically awarded executive officers directors certain key employees company subject service restriction expires ratably period threetofive years restricted shares common stock may sold transferred restriction period stock compensation restricted stock recorded based stock price grant date charges expense ratably restriction period following table summarizes information restricted stock activity year ended december 31 2006 unrecognized pretax expense 25 million related restricted stock awards expected recognized weighted average remaining service period 43 years awards outstanding december 31 2006 stock option activity years ended december 31 2006 2005 2004 follows following table summarizes information stock options outstanding exercisable december 31 2006 intrinsic values based company’s closing stock price 751 december 31 2006 weightedaverage grantdate fair value options granted year ended december 31 2006 374 unrecognized pretax expense 24 million related stock options expected recognized weighted average remaining service period 11 years awards outstanding december 31 2006 company recorded compensation expense 0 27500 37052 years ended december 31 2006 2005 2004 respectively stock options granted nonemployees compensation expense amortized straightline basis underlying vesting terms fair value option granted estimated date grant using blackscholes optionpricing model accelerated vesting unvested stock options october 3 2005 compensation committee board directors company approved acceleration vesting unvested options purchase shares common stock company held current employees officers directors company exercise price per share equal greater 464 closing market price company’s common stock october 3 2005 primary purpose accelerated vesting enable us avoid recognizing income statement noncash compensation expense associated options future periods upon adoption fasb statement “sfas” 123r “sfas 123r” sharebased payment january 1 2006 options purchase 857923 shares common stock subject acceleration options exercise prices excess current market values “underwater” fully achieving original objectives incentive compensation employee retention company believes acceleration underwater options may positive effect employee morale retention accounting stock options accordance accounting principles board opinion 25 accounting stock issued employees fasb interpretation 44 accounting certain transactions involving stock compensation acceleration vesting options result compensation charge exercise prices affected options modified greater closing price company’s common stock date event occurred company estimated pretax charge eliminated future accounting periods approximately 37 million note 16business segment information sfas 131 disclosures segments enterprise related information establishes standards reporting information operating segments annual financial statements public business enterprises also establishes standards related disclosures products service geographic areas major customers company evaluated business activities regularly reviewed chief executive officer discrete financial information available result evaluation company determined subsidiaries bruker daltonics bruker axs bruker optics reportable operating segment bruker daltonics business manufacturing distributing mass spectrometry instruments integrated used along analytical instruments bruker axs business manufacturing distributing advanced xray sparkoes instrumentation used nondestructive molecular elemental analysis academic research industrial applications bruker optics leading developer provider research analytical process analysis instruments solutions based infrared raman molecular spectroscopy technologies bruker biosciences corporation parent company bruker daltonics bruker axs bruker optics corporate entity holds excess cash shortterm investments incurs certain public company costs selected business segment information years ended december 31 2006 2005 2004 presented thousands total assets capital expenditures depreciation amortization segment years ended december 31 2006 2005 2004 follows thousands longlived assets revenue geographical area years ended december 31 2006 2005 2004 follows thousands locations primarily include among others united kingdom france italy spain belgium netherlands scandinavia poland russia hungary slovenia switzerland austria hong kong note 17income statement components interest income expense net components interest income expense net years ended december 31 2006 2005 2004 follows thousands affinium pharmaceuticals inc 2001 company acquired 738008 shares series iia preferred stock affinium pharmaceuticals inc formerly integrative proteomics inc exchange approximately 1 million cash 64650 shares company’s common stock acquired securities included investments companies accounted cost method due uncertain outlook affinium pharmaceuticals management concluded investment suffered impairment deemed temporary company recorded charges 07 million earnings 2004 writeoff investment affinium pharmaceuticals cengent therapeutics 2001 company acquired 666667 shares series c preferred stock cengent therapeutics formerly geneformatics inc exchange approximately 1 million cash 61742 shares company’s common stock acquired securities included investments companies accounted cost method due uncertain outlook geneformatics management concluded investment suffered impairment deemed temporary company recorded charges 07 million earnings 2004 writeoff investment cengent therapeutics geneprot inc 2000 company acquired 909091 shares series b preferred stock geneprot inc exchange 70 million cash 79218 shares company’s common stock acquired securities included investments companies accounted cost method due uncertain outlook geneprot management concluded investment suffered impairment deemed temporary company recorded charges 09 million earnings 2004 writeoff investment geneprot december 31 2004 company writtenoff carrying value associated investments identified based impairment testing performed periods presented financial statements prior periods note 18related parties company affiliated common shareholders several entities use bruker name company affiliates entered sharing agreement provides sharing specified intellectual property rights services facilities related items december 31 2006 2005 company payables related parties 59 million 62 million respectively december 31 2006 2005 company receivables related parties 90 million 65 million respectively payment terms balances related parties similar third party customers sales related parties subsidiaries company included revenues consolidated financial statements related parties represent affiliated sales offices countries company distribution network sales primarily resale company’s products sales amounted 108 million 142 million 190 million years ended december 31 2006 2005 2004 respectively addition company purchased products services amounted 194 million 158 million 127 million affiliated entities year ended december 31 2006 2005 2004 respectively company shares various general administrative expenses items including umbrella insurance policies accounting services leases various related parties general administrative expenses amounted 37 million 28 million 26 million years ended december 31 2006 2005 2004 respectively company investments three nonaffiliated companies company recognized sales companies geneprot inc cengent therapeutics affinium pharmaceuticals inc 0 respectively 2006 0 respectively 2005 0 40000 respectively 2004 sales recorded arm’s length terms conditions normal course business purchases companies years ended december 31 2006 2005 2004 years ended december 31 2006 2005 2004 company paid 13 million 05 million 05 million law firm one directors partner years ended december 31 2006 2005 2004 company paid approximately 147000 48500 24300 financial services firm one directors partner bruker optics rents various office space principal stockholder lease agreements years ended december 31 2006 2005 2004 stockholder paid 03 million estimated equal estimated fair market value less cost certain capital improvements provided bruker optics 2004 bruker optics subleased portion office space affiliate 2006 2005 2004 received 31500 01 million rental income included charges utilities occupancy cost rental income recorded reduction rent utilities building maintenance expenses note 19recent accounting pronouncements february 2007 fasb issued statement financial accounting standard “sfas” 159 fair value option financial assets liabilities including amendment fasb statement 115 “sfas 159” statement permits entities choose measure many financial instruments certain items fair value currently required measured fair value sfas 159 effective beginning fiscal 2008 company yet assessed effect adoption sfas 159 results operations financial position september 2006 fasb issued sfas 158 employers accounting defined benefit pension postretirement planswhich amends sfas 87 employers’ accounting pensions sfas 88 employers’ accounting settlements curtailments defined benefit pension plans termination benefits sfas 106 employers accounting postretirement benefits pensions sfas 132r employers’ disclosures pensions postretirement benefits statement requires employer recognize overfunded underfunded status defined benefit pension postretirement defined benefit plans previously disclosed footnotes financial statements asset liability statement financial position recognize changes funded status year changes occur comprehensive income statement also requires employer measure funded status plan date year end statement financial position addition statement require disclosure effects unrecognized gains losses prior service costs transition asset obligation next fiscal year’s net periodic benefit cost statement effective financial statements issued fiscal years ending december 15 2006 retrospective application statement permitted adopted sfas 158 december 31 2006 incurred incremental increase benefit obligation 02 million september 2006 fasb issued sfas 157 fair value measurements “sfas 157” statement effective financial statements issued fiscal years beginning november 15 2007 sfas 157 provides common fair value hierarchy companies follow determining fair value measurements preparation financial statements expands disclosure requirements relating fair value measurements developed sfas 157 clarifies principle fair value based assumptions marketplace would use pricing asset liability rather company specific data company currently assessing impact sfas 157 results operations financial position july 2006 financial accounting standards board issued interpretation 48 accounting uncertainty income taxes interpretation sets forth recognition threshold valuation method recognize measure income tax position taken expected taken tax return evaluation based twostep approach first step requires entity evaluate whether tax position would “more likely not” based upon technical merits sustained upon examination appropriate taxing authority second step requires tax position measured largest amount tax benefit greater 50 percent likely realized upon ultimate settlement addition previously recognized benefits tax positions longer meet new criteria would longer recognized application interpretation considered change accounting principle cumulative effect change recorded opening balance retained earnings period adoption interpretation effective company january 1 2007 company currently evaluating interpretation impact may results operations financial condition note 20quarterly financial data unaudited company’s common stock trading symbol brkr summary operating results quarterly periods two years ended december 31 2006 set forth thousands except per share data note 21subsequent events february 12 2007 company group selling stockholders completed public offering 11960000 shares common stock 2530000 sold company 9430000 sold four selling stockholders 710 per share generating net proceeds approximately 170 million company approximately 632 million selling stockholders aggregate company anticipates using net proceeds offering repayment debt general corporate purposes potential acquisitions item 9item 8 financial statements supplementary data page report ernst young llp independent registered public accounting firm consolidated balance sheets december 31 2008 consolidated statements operations years ended december 31 2008 2007 2006 consolidated statements shareholders equity comprehensive income loss years ended december 31 2008 2007 2006 consolidated statements cash flows years ended december 31 2008 2007 2006 notes consolidated financial statements report independent registered public accounting firm board directors shareholders bruker corporation audited accompanying consolidated balance sheets bruker corporation december 31 2008 2007 related consolidated statements operations shareholders equity comprehensive income loss cash flows three years period ended december 31 2008 audits also included financial statement schedule listed index item 15a financial statements schedule responsibility companys management responsibility express opinion financial statements schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position bruker corporation december 31 2008 2007 consolidated results operations cash flows three years period ended december 31 2008 conformity us generally accepted accounting principles also opinion related financial statement schedule considered relation basic financial statements taken whole presents fairly material respects information set forth therein discussed note 2 consolidated financial statements effective january 1 2007 bruker corporation adopted financial accounting standards board interpretation 48 accounting uncertainty income taxesan interpretation fasb statement 109 additionally discussed note 2 consolidated financial statements effective december 31 2006 bruker corporation adopted sfas 158 employers accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r also audited accordance standards public company accounting oversight board united states bruker corporations internal control financial reporting december 31 2008 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated march 13 2009 expressed unqualified opinion thereon ernst young llp boston massachusetts march 13 2009 bruker corporation consolidated balance sheets millions except share data accompanying notes integral part financial statements bruker corporation consolidated statements operations millions except per share data accompanying notes integral part financial statements bruker corporation consolidated statements shareholders equity comprehensive income loss millions except share data bruker corporation consolidated statements shareholders equity comprehensive income loss continued millions except share data accompanying notes integral part financial statements bruker corporation consolidated statements cash flows millions accompanying notes integral part financial statements bruker corporation notes consolidated financial statements note 1description business bruker corporation whollyowned subsidiaries company design manufacture service market proprietary life science materials research systems based core technology platforms including xray technologies magnetic resonance technologies mass spectrometry technologies optical emission spectroscopy infrared raman molecular spectroscopy technologies company also sells broad range field analytical systems chemical biological radiological nuclear detection well superconducting wire products devices company maintains major technical manufacturing centers europe north america japan sales offices throughout world companys diverse customer base includes pharmaceutical biotechnology proteomics companies academic institutions advanced materials semiconductor industries government agencies february 2008 company completed acquisition bruker biospin group bruker biospin company bruker biospin majority owned six affiliated stockholders prior acquisition result acquisition bruker biospin considered business combination companies common control accounted historical carrying values date acquisition consolidated balance sheets statements operations statements cash flows notes consolidated financial statements periods presented herein restated combining historical consolidated financial statements company bruker biospin additionally transaction accounted business combination entities common control onetime transaction costs expensed incurred july 2006 company completed acquisition bruker optics inc bruker optics company bruker optics majority owned five affiliated stockholders prior acquisition result acquisition bruker optics considered business combination companies common control accordingly acquisition bruker optics relates portion common ownership accounted historical carrying values date acquisition portion common ownership five affiliated stockholders accounted minority interest portion common control primarily represented stock options purchase shares common stock outstanding date acquisition excess purchase price interest common control fair value related net assets acquired accounted goodwill intangible assets consolidated balance sheets statements operations statements cash flows notes consolidated financial statements periods presented herein restated combining historical consolidated financial statements company bruker optics additionally transaction accounted business combination entities common control onetime transaction costs expensed incurred following acquisition bruker biospin management reevaluated way company managed internal reporting structure result evaluation reports financial results basis following two reportable segments •bioscience operations segment include design manufacture distribution advanced instrumentation automated solutions based xray technology optical emission spectroscopy mass spectrometry technology infrared raman molecular spectroscopy technology typical customers bioscience segment include pharmaceutical biotechnology proteomics molecular diagnostic companies academic institutions government agencies semiconductor companies chemical cement metals petroleum companies raw material manufacturers food beverage agricultural companies •biospin operations segment include design manufacture distribution enabling life science tools based core technology magnetic resonance well manufacturing development low temperature superconductor high temperature superconductor wires use advanced magnet technology energy applications typical customers biospin segment include pharmaceutical biotechnology companies academic institutions government agencies note 2summary significant accounting policies principles consolidation financial statements include accounts company majority whollyowned subsidiaries intercompany accounts transactions eliminated cash equivalents cash equivalents consist primarily highly liquid investments original maturities three months less date acquisition cash equivalents primarily include cash hand money market funds time deposits time deposits represent amounts deposit banks temporarily invested instruments maturities three months less time purchase certain investments represent deposits insured fdic government agency cash equivalents carried cost approximates market value restricted cash certain customers require company provide bank guarantees customer advances generally lines credit facilitate requirement however extent required guarantee exceeds available local line credit company maintains restricted cash balances restricted cash balances classified noncurrent unless terms various agreements funds released restrictions within one year december 31 2008 company 34 million restricted cash 15 million released restrictions within one year december 31 2007 company 51 million restricted cash 31 million released restrictions within one year shortterm investments company accounts shortterm investments accordance financial accounting standards board fasb statement financial accounting standards sfas 115 accounting certain investments debt equity securities company hold shortterm investments december 31 2008 companys investments december 31 2007 consisted money market funds considered availableforsale bond instruments trading securities availableforsale securities reported fair value unrealized gains losses net tax included separate component comprehensive income trading securities reported fair value unrealized gains losses recorded component interest income expense net consolidated statements operations fair value availableforsale securities december 31 2007 83 million unrealized gains associated availableforsale securities 05 million 02 million years ended december 31 2007 2006 respectively value trading securities 08 million december 31 2007 decreases market values individual securities cost duration six nine months deemed indicative temporary impairment temporary impairments recorded writing carrying amount investment market value charge interest income expense net consolidated statements operations years ended december 31 2008 2007 2006 impairment charges fair value september 2006 fasb issued sfas 157 fair value measurements sfas 157 effective fiscal years beginning november 15 2007 company adopted sfas 157 january 1 2008 permitted fasb staff position fsp sfas 1572 effective date fasb statement 157 fsp sfas 1572 company elected defer adoption sfas 157 nonfinancial assets nonfinancial liabilities except recognized disclosed fair value financial statements recurring basis january 1 2009 adoption sfas 157 material impact companys financial position results operations cash flows company currently evaluating impact adoption fsp sfas 1572 financial position results operations cash flow sfas 157 establishes threelevel valuation hierarchy measuring fair value expands financial statement disclosures fair value measurements valuation hierarchy based upon transparency inputs valuation asset liability measurement date three levels defined follows level 1 inputs valuation methodology quoted prices unadjusted identical assets liabilities active markets level 2 inputs valuation methodology include quoted prices similar assets liabilities active markets inputs observable asset liability either directly indirectly substantially full term financial instrument level 3 inputs valuation methodology unobservable significant fair value measurement october 2008 fasb issued fsp 1573 determining fair value financial asset market asset active fsp sfas 1573 fsp sfas 1573 clarifies application sfas 157 markets active provides example illustrate key considerations determining fair value market financial asset active fsp sfas 1573 effective upon issued including prior periods financial statements issued adoption position effect companys financial position results operations cash flows companys financial instruments consist primarily cash equivalents shortterm investments restricted cash accounts receivable shortterm borrowings accounts payable longterm debt carrying amounts companys cash equivalents shortterm investments restricted cash accounts receivable shortterm borrowings accounts payable approximate fair value due shortterm nature companys longterm debt consists primarily variable rate arrangements interest rates reset every three months result reflect currently available terms conditions consequently carrying value companys longterm debt approximates fair value concentration credit risk financial instruments subject company credit risk consist cash equivalents accounts receivables risk respect cash equivalents minimized companys policy investing shortterm financial instruments issued highlyrated financial institutions risk respect accounts receivables minimized creditworthiness diversity companys customers company performs periodic credit evaluations customers financial condition generally requires advanced deposit portion purchase price credit losses within managements expectations allowance doubtful accounts totaled 54 million 61 million december 31 2008 2007 respectively years ended december 31 2008 2007 2006 single customer exceeded 10 companys revenue accounts receivable inventories components inventory include raw materials workinprocess demonstration units finished goods demonstration units include systems located companys demonstration laboratories installed sites potential customers considered available sale finished goods include intransit systems shipped companys customers yet installed accepted customer inventories stated lower cost market cost determined principally firstin firstout fifo method majority subsidiaries averagecost certain international subsidiaries company reduces carrying value inventories differences cost estimated net realizable value taking consideration usage preceding twelve months expected demand technological obsolescence information including physical condition demonstration intransit inventories company records charge cost revenue amount required reduce carrying value inventory net realizable value costs associated procurement warehousing inventories inbound freight charges purchasing receiving costs also included cost revenue line item within consolidated statements operations property plant equipment property plant equipment stated cost less accumulated depreciation amortization major improvements capitalized expenditures maintenance repairs minor improvements charged expense assets retired otherwise disposed assets related accumulated depreciation eliminated accounts resulting gain loss reflected consolidated statements operations depreciation amortization calculated straightline basis estimated useful lives assets follows goodwill intangible assets company accounts goodwill intangible assets accordance sfas 142 goodwill intangible assets sfas 142 sfas 142 requires goodwill intangible assets indefinite useful lives amortized instead assets tested impairment reporting unit basis annually interim basis events changes circumstances warrant impairment test consists comparison fair value reporting unit carrying amount related impairment losses recognized earnings incurred company performs annual test impairment december 31st year impairment losses recorded goodwill indefinitelived intangible assets years ended december 31 2008 2007 2006 intangible assets finite useful life amortized straightline basis estimated useful lives follows impairment longlived assets impairment losses recorded longlived assets used operations indicators impairment present quoted market price available estimated undiscounted operating cash flows generated assets less assets carrying value impairment losses charged consolidated statements operations difference fair value carrying value asset impairment losses recorded longlived assets years ended december 31 2008 2007 2006 warranty costs deferred revenue company typically provides one year parts labor warranty purchase equipment anticipated cost warranty accrued upon recognition sale included current liability accompanying consolidated balance sheets company also offers customers extended warranty service agreements extending beyond initial warranty fee fees recorded deferred revenue amortized ratably income life extended warranty contract minority interest consolidated subsidiaries minority interest consolidated statements operations 03 million 03 million 00 million years ended december 31 2008 2007 2006 respectively represents minority common shareholders proportionate share net income incoatec gmbh bruker baltic ltd income taxes company accounts income taxes accordance sfas 109 accounting income taxes sfas 109 sfas 109 requires asset liability approach account income taxes recognizing deferred tax assets liabilities expected future tax consequences differences financial statement basis tax basis assets liabilities calculated using enacted tax rates effect year differences expected reflected tax return company records valuation allowance reduce deferred tax assets amount likely realized january 1 2007 company adopted provisions fasb interpretation 48 accounting uncertainty income taxesan interpretation fasb statement 109 fin 48 among things fin 48 provides guidance address uncertainty tax positions clarifies accounting income taxes prescribing minimum recognition threshold income tax position must achieve recognized financial statements addition fin 48 requires expanded annual disclosures including rollforward beginning ending aggregate unrecognized tax benefits well specific detail related tax uncertainties reasonably possible amount unrecognized tax benefit significantly increase decrease within twelve months connection adoption fin 48 company recorded reduction retained earnings 19 million january 1 2007 company unrecognized tax benefits approximately 208 million january 1 2007 88 million recognized would result reduction companys effective tax rate customer advances company typically requires advance deposit terms conditions contracts customers deposits recorded liability revenue recognized specific contract comprehensive income loss comprehensive income loss refers revenues expenses gains losses accounting principles generally accepted united states included comprehensive income loss excluded net income loss amounts recorded directly adjustment shareholders equity net tax companys comprehensive income loss composed primarily foreign currency translation adjustments changes funded status defined benefit pension plans changes fair value derivatives designated cash flow hedges derivative financial instruments company accounts derivative financial instruments accordance sfas 133 accounting derivative instruments hedging activities sfas 133 amended derivatives whether designated hedging relations recorded consolidated balance sheets fair value derivative designated fair value hedge changes fair value derivative hedged item attributable hedged risk recognized results operations derivative designated cash flow hedge effective portions changes fair value derivative recorded accumulated comprehensive income recognized results operations hedged item affects earnings ineffective portions changes fair value cash flow hedges recognized results operations derivative instruments designated hedging instruments changes fair value recognized results operations current period foreign currency translation assets liabilities companys foreign subsidiaries functional currency local currency translated us dollars using yearend exchange rates revenues expenses foreign subsidiaries translated average exchange rates effect year adjustments resulting financial statement translations included separate component shareholders equity gains losses resulting foreign currency transactions reported interest income expense net consolidated statements operations periods presented employee retirement plans company adopted sfas 158 employers accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r sfas 158 december 31 2006 sfas 158 requires employer recognize overfunded underfunded status defined benefit pension postretirement defined benefit plans previously disclosed footnotes financial statements asset liability statement financial position recognize changes funded status year changes occur comprehensive income sfas 158 also requires employer measure funded status plan date yearend statement financial position addition sfas 158 requires disclosure effects unrecognized gains losses prior service costs transition asset obligation next fiscal years net periodic benefit cost revenue recognition company recognizes revenue system sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectibility resulting receivable reasonably assured title risk loss generally transferred customer upon receipt signed customer acceptance system shipped installed customer trained result timing customer acceptance readiness could cause companys reported revenues differ materially expectations products sold independent distributor strategic distribution partner assumes responsibility installation company recognizes system revenue product shipped title risk loss transferred companys distributors price protection rights return however products warranted free defect period one year revenue deferred cash received significant portion fee due one year delivery installation acceptance system arrangements multiple elements company recognizes revenue element based fair value element provided criteria revenue recognition met fair value element provided multiple element arrangements typically determined referencing historical pricing policies element sold separately changes companys ability establish fair value element multiple element arrangements could affect timing revenue recognition revenue sale accessories parts recognized upon shipment service revenue recognized services performed revenues comprised research grants licensing arrangements grant revenue recognized company completes services required grant licensing revenue recognized ratably term related contract shipping handling costs company records costs incurred connection shipping handling products marketing selling expenses shipping handling costs 147 million 133 million 108 million years ended december 31 2008 2007 2006 respectively amounts billed customers connection costs included revenues research development research development costs expensed incurred software costs purchased software capitalized cost amortized estimated useful life generally three years software developed use companys products expensed incurred technological feasibility reasonably assured classified research development expense subsequent achievement technological feasibility amounts capitalizable however date amounts material advertising company expenses advertising costs incurred advertising expenses 62 million 62 million 51 million years ended december 31 2008 2007 2006 respectively contingencies company subject proceedings lawsuits claims related patents product matters company assesses likelihood adverse judgments outcomes matters well potential ranges probable losses determination amount reserves required contingencies made careful analysis individual issue required reserves may change future due new developments situation changes settlement strategy dealing matters stockbased compensation effective january 1 2006 company adopted sfas 123 revised 2004 sharebased payment sfas 123r using modified prospective method sfas 123r requires recognition stockbased compensation expense consolidated statements operations vesting period based fair value award grant date companys primary types sharebased compensation stock options restricted stock company recorded stockbased compensation expense years ended december 31 2008 2007 2006 follows millions compensation expense amortized straightline basis underlying vesting terms fair value option award estimated date grant using blackscholes optionpricing model assumptions regarding volatility expected term dividend yield riskfree interest rate required blackscholes model assumptions volatility expected life dividend yield riskfree interest rate presented table riskfree interest rate yield zerocoupon us treasury securities period commensurate expected life assumption expected term determined simplified method defined securities exchange commission staff accounting bulletin 110 company believes best estimate expected term new option acquisition bruker biospin might alter historical exercise patterns expected volatility based number factors company currently believes exclusive use implied volatility results best estimate grantdate fair value employee stock options reflects markets current expectations future volatility expected dividend yield considered option pricing formula since company pay dividends current plans future terms companys indebtedness also currently restricts ability pay dividends shareholders earnings per share net income per share calculated dividing net income weightedaverage shares outstanding period diluted net income per share computation includes effect shares would issuable upon exercise outstanding stock options vesting restricted stock reduced number shares assumed purchased company resulting proceeds average market price period following table sets forth computation basic diluted average shares outstanding years ended december 31 millions stock options purchase approximately 1905000 shares 583000 shares 1056000 shares excluded computation diluted earnings per share years ended december 31 2008 2007 2006 respectively exercise price stock options exceeded average market price companys common stock result would antidilutive effect use estimates preparation financial statements conformity accounting principles generally accepted united states requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates reclassification certain amounts 2007 2006 reclassified conform 2008 presentation reclassifications effect previously reported net income shareholders equity note 3acquisition bruker biospin february 26 2008 company completed acquisition outstanding capital stock bruker biospin accordance terms various stock purchase agreements dated december 2 2007 acquisition bruker biospin represented combination companies common control due majority ownership companies six related individuals affiliated shareholder group result acquisition bruker biospin accounted historical carrying values technologies bruker biospin complementary companys accuratemass electrospray timeofflight mass spectrometers singlecrystal diffraction xray spectrometers expected create revenue synergies provide opportunities supply customers equipment packages broader range applications value addition bruker biospin also expected enhance companys worldwide distribution sales service infrastructure completion acquisition company paid aggregate 9140 million consideration shareholders bruker biospin financed 57544872 shares unregistered common stock valued 5260 million 3510 million cash obtained new credit facility balance cash hand value shares common stock issued connection merger determined using trailing average closing market prices companys stock period ten consecutive trading days ending two days prior signing various stock purchase agreements stock purchase agreements 988 million purchase price paid escrow accounts pending resolution indemnification obligations working capital obligations sellers unused portion 920 million indemnity escrow released sellers later 1 30th day following receipt company audited financial statements company year ended december 31 2008 2 resolution claim indemnification sellers received notice prior conclusion 30 day period described 1 68 million working capital escrow released may 2008 following receipt combined audited financial statements bruker biospin fiscal year ended december 31 2007 note 4acquisition bruker optics july 2006 company completed acquisition outstanding stock bruker optics accordance terms stock purchase agreement dated april 2006 acquisition bruker optics represented combination companies common control due majority ownership companies five related individuals affiliated shareholder group result acquisition related shares owned affiliated shareholders holding approximately 96 outstanding shares bruker optics accounted historical carrying value acquisition shares nonaffiliated shareholders approximately 4 accounted fair value manner similar acquisition minority interest excess purchase price interest common control fair value related net assets recorded intangible assets goodwill acquisition bruker optics diversified companys technology base market presence particularly pharmaceutical process analytical technologies pharmaforensics well food beverage feed agricultural analysis acquisition bruker optics also enhanced companys worldwide distribution sales service infrastructure upon completion acquisition company paid aggregate 135 million consideration bruker optics stockholders holders bruker optics stock options approximately 79 million paid cash approximately 56 million paid restricted unregistered shares company common stock fair value consideration paid acquisition minority interest approximately 52 million including cash 48 million common stock valued 04 million value shares common stock issued nonaffiliated shareholder connection merger determined using trailing average closing market prices companys stock period ten consecutive trading days ending three days prior closing acquisition occurred july 1 2006 company engaged rsm mcgladrey inc third party valuation firm assist management appraising fair value certain assets acquired appraisal completed second quarter 2007 following table summarizes estimated fair values assets acquired liabilities assumed date acquisition minority interest millions purchase price 41 minority interest acquired allocated net assets acquired pro rata basis accordance sfas 141 business combinations acquisition related intangibles total 22 million amortized four years addition approximately 27 million acquired intangible assets assigned inprocess research development projects 41 minority interest approximately 01 million written date acquisition accordance fasb interpretation 4 applicability fasb statement 2 business combinations accounted purchase method projects estimated qualify acquired inprocess research development projects yet reached technology feasibility future alternative uses existed 23 million goodwill acquired bruker optics connection merger assigned companys direct whollyowned subsidiary bruker optics inc deductible tax purposes since merger taxfree merger note 5other acquisitions august 2008 company acquired sis surface imaging systems gmbh sis privatelyheld company located herzogenrath germany acquisition sis accounted purchase method sis develops manufactures distributes advanced atomic forcescanning probe microscopy applications materials research including semiconductors data storage electronic materials solar cells polymers catalysts results sis included bioscience segment date acquisition aggregate purchase price sis 21 million addition company issued aggregate 59342 restricted unregistered shares companys common stock par value 001 per share certain siss shareholders shares included purchase price contingencies related continuing employment shareholders company recorded 21 million goodwill connection acquisition sis assigned goodwill bioscience segment goodwill 29 million initially recorded based preliminary purchase price allocation subsequently reduced 08 million based final allocation pro forma financial information reflecting acquisition sis presented impact revenues net income net income per common share would material january 2008 company acquired juwe laborgeraete gmbh juwe privatelyheld company located viersen germany acquisition juwe accounted purchase method juwe develops manufactures distributes advanced combustion analysis systems various carbon hydrogen nitrogen oxygen sulfur elemental applications juwes products complementary companys optical emission spectroscopy products results juwe included bioscience segment date acquisition aggregate purchase price juwe 16 million 12 million paid cash 04 million consisted net liabilities assumed company addition company issued aggregate 111000 restricted unregistered shares companys common stock par value 001 per share juwes shareholders shares included purchase price contingencies related continuing employment shareholders company recorded 11 million goodwill connection acquisition juwe assigned goodwill bioscience segment goodwill 22 million initially recorded based preliminary purchase price allocation subsequently reduced 11 million based final allocation pro forma financial information reflecting acquisition juwe presented impact revenues net income net income per common share would material june 2007 company acquired analyskonsult ab akab distributor service provider scientific instrumentation based sweden results akab included biosciences segment date acquisition aggregate purchase price akab approximately 08 million approximately 05 million paid cash approximately 03 million funded issuance aggregate 29740 restricted unregistered shares companys common stock par value 001 per share akabs shareholders pro forma financial information reflecting akab acquisition presented impact revenues net income net income per common share would material january 2007 company acquired assets keca metal products ltd keca texas partnership located spring texas results keca included biosciences segment date acquisition keca provides specialized machining services primarily bruker optics addition november 2007 company acquired assets micron optical systems inc micron results micron included biosciences segment date acquisition aggregate purchase price keca micron 06 million 08 million respectively funded primarily cash hand company recorded 16 million goodwill connection acquisitions akab keca micron 2007 goodwill assigned biosciences segment pro forma financial information reflecting acquisitions presented impact revenues net income net income per common share would material note 6fair value financial instruments company measures following financial assets liabilities fair value recurring basis fair value financial assets liabilities determined using following inputs december 31 2008 millions financial instruments categorization within valuation hierarchy based upon lowest level input significant fair value measurement note 7accounts receivable following summary trade accounts receivable december 31 millions note 8inventories inventories consisted following december 31 millions company reduces carrying value demonstration inventories differences cost estimated net realizable value charge cost revenue based number factors including age unit physical condition unit assessment technological obsolescence amounts recorded cost revenue related writedown demonstration units net realizable value 245 million 213 million 222 million years ended december 31 2008 2007 2006 respectively finished goods include intransit systems shipped companys customers yet installed accepted customer december 31 2008 2007 inventoryintransit 916 million 939 million respectively note 9property plant equipment following summary property plant equipment major asset class december 31 millions depreciation expense includes amortization leasehold improvements years ended december 31 2008 2007 2006 approximated 281 million 259 million 238 million respectively note 10goodwill intangible assets following table sets forth changes carrying amount goodwill years ended december 31 2008 2007 millions december 31 2008 2007 goodwill allocated bioscience segment following summary intangible assets subject amortization december 31 millions years ended december 31 2008 2007 2006 company recorded amortization expense approximately 18 million 20 million 22 million respectively amortizable intangible assets estimated future amortization expense related amortizable intangible assets december 31 2008 follows millions note 11other current liabilities following summary current liabilities december 31 millions company typically provides one year parts labor warranty purchase equipment anticipated cost warranty accrued upon recognition sale included current liability consolidated balance sheets company also offers customers warranty service agreements extending beyond initial year warranty fee fees recorded deferred revenue amortized income life extended warranty contract following table sets forth changes accrued warranty years ended december 31 2008 2007 millions note 12debt companys debt obligations consist following december 31 millions annual maturities longterm debt december 31 2008 follows millions connection acquisition bruker biospin company entered credit agreement syndication lenders credit agreement provides revolving credit line maximum commitment 2300 million term facility 1500 million outstanding principal interest term loan payable quarterly installments december 2012 borrowings credit agreement bear interest companys option either higher prime rate federal funds rate plus 050 ii adjusted libor plus margins ranging 040 125 facility fee ranging 010 020 december 31 2008 weighted average interest rate borrowings credit agreement approximately 39 borrowings credit agreement secured pledge banks 100 capital stock companys whollyowned domestic subsidiaries 65 capital stock certain companys direct indirect whollyowned foreign subsidiaries credit agreement also requires company maintain certain financial ratios related leverage ratios interest coverage ratios defined credit agreement addition financial ratios credit agreement restricts among things companys ability following make certain payments incur additional debt incur certain liens make certain investments including derivative agreements merge consolidate sell transfer substantially companys assets enter certain transactions affiliates december 31 2008 latest measurement date company compliance covenants credit agreement state wisconsin industrial revenue bonds irb entered 1999 connection construction bruker axs building madison wisconsin amount outstanding irb collateralized irrevocable letter credit contained various financial covenants companys outstanding letter credit scheduled expire december 2008 collateralized substantially assets bruker axs december 31 2008 company repaid amounts due irb company maintains several lines credit financial institutions united states germany switzerland japan france aggregate maximum credit amount approximately 3009 million 1455 million december 31 2008 2007 respectively 2008 agreements included 2300 million revolving credit line available credit agreement 2007 revolving lines credit included 750 million available commercial lender united states terminated replaced credit agreement december 31 2008 2007 company outstanding borrowings approximately 583 million 132 million respectively borrowings revolving lines credit december 31 2008 consisted 521 million outstanding credit agreement 62 million outstanding revolving lines credit 521 million outstanding credit agreement 356 million classified longterm debt company expect repay portion next twelve months taking outstanding letters credit consideration company availability approximately 1805 million 646 million december 31 2008 2007 respectively companys revolving lines credit typically due upon demand interest payable monthly december 31 2008 2007 weighted average interest rates revolving lines credit 30 20 respectively lines credit either unsecured secured accounts receivable inventory related subsidiary interest expense years ended december 31 2008 2007 2006 117 million 23 million 30 million respectively note 13derivative instruments hedging activities interest rate risk management company party interest rate swaps cross currency rate swaps order minimize volatility changes interest rates might earnings cash flows april 2008 company entered interest rate swap arrangement manage exposure interest rate movements related effect variable rate debt interest rate swap arrangement company pay fixed rate approximately 38 receive variable rate based three month libor initial notional amount interest rate swap 900 million amortizes proportion term debt component credit agreement december 2012 december 31 2008 notional amount interest rate swap 866 million company concluded swap met criteria qualify effective hedge variability cash flows interest payments accounts hedge cash flow hedge sfas 133 accordingly company reflected changes fair value interest rate swap accumulated comprehensive income component shareholders equity december 31 2008 company recorded liability 48 million related fair value interest rate swap recorded current liabilities consolidated balance sheets amounts recorded accumulated comprehensive income loss reclassified interest income expense net consolidated statement operations either forecasted transaction occurs becomes probable forecasted transaction occur company expects 22 million accumulated loss reclassified earnings next twelve months 2002 company entered cross currency interest rate swap arrangement company receives semiannual interest payments euros based variable interest rate equal sixmonth euribor rate exchange semiannual payments swiss francs fixed rate 497 december 2011 notional amount interest rate swap arrangement €50 million instrument qualify hedge accounting sfas 133 accordingly changes fair value swap recorded interest income expense net consolidated statements operations swap terminated 2008 ineffectiveness offsetting change cash flow hedged december 31 2007 currency exchange contract fair value 06 million recorded current assets consolidated balance sheets 1999 company entered interest rate swap arrangement pay 460 fixed rate interest receive variable rate interest based securities industry financial markets municipal swap index december 2013 initial notional amount interest rate swap arrangement 22 million amortized proportion state wisconsin industrial revenue bond december 2013 company determined interest rate swap effective hedge offsetting change interest cash flows defined sfas 133 accordingly changes swaps fair value recorded interest income expense net consolidated statements operations swap terminated 2008 state wisconsin industrial revenue bond repaid year december 31 2007 interest rate swap fair value 01 million recorded current liabilities consolidated balance sheets foreign exchange rate risk management company generates substantial portion revenues expenses international markets principally europe japan subjects operations exposure exchange rate fluctuations impact currency exchange rate movement positive negative period company time entered foreign currency contracts order minimize volatility fluctuations currency exchange rates companys cash flows related purchases sales denominated foreign currencies addition company periodically enters purchase sales contracts denominated currencies functional currency parties transaction accordance sfas 133 company accounts transactions separately valuing embedded derivative component contracts outstanding forward contracts december 31 2008 december 31 2007 company option forward currency exchange contracts notional amounts aggregating 150 million contracts involved purchase euro fixed us dollar amounts specified dates maturities less twelve months notional amounts contracts intended hedge receivables us dollars however transactions qualify hedge accounting sfas 133 accordingly instruments recorded fair value corresponding gains losses recorded interest income expense net consolidated statements operations company obtains thirdparty verification fair value end reporting period december 31 2007 currency exchange contracts fair value less 01 million recorded current assets consolidated balance sheets company various unsettled contracts related purchase delivery certain products contracts denominated currencies functional currency transacting parties amounted 442 million delivery products 54 million purchase products december 31 2008 152 million delivery products 18 million purchase products december 31 2007 changes fair value embedded derivatives recorded interest income expense net consolidated statements operations december 31 2008 2007 contracts fair value 22 million 04 million respectively recorded current liabilities consolidated balance sheets note 14restructuring activities fourth quarter 2008 company recorded restructuring charges 23 million consisted primarily severance costs associated restructuring certain operations netherlands program restructuring charges associated netherlands program allocated bioscience segment approximately 22 million restructuring charges relate involuntary severance program approximately 30 employees expected leave company balance relates exit costs associated terminating certain leases impact program reduce number employees sales marketing research development consolidate focus selling developments efforts companys single crystal diffraction products company expect incur additional costs related netherlands program expects made severance payments end 2009 liability restructuring charges recorded current liabilities consolidated balance sheets reserves related program follows millions note 15income taxes domestic foreign components income loss taxes follows years ended december 31 millions components income tax provision follows years ended december 31 millions reconciliation united states federal statutory rate effective income tax rate follows years ended december 31 tax effect temporary items give rise significant portions deferred tax assets liabilities follows december 31 millions valuation allowance determined accordance provisions sfas 109 requires assessment positive negative evidence determining whether likely deferred tax assets recoverable assessment required jurisdictionbyjurisdiction basis company fully reserved us net deferred tax assets predominantly net operating losses tax credit carryforwards cumulative losses incurred us jurisdiction december 31 2008 2007 2006 represent sufficient negative evidence record valuation allowance sfas 109 company intends maintain full valuation allowance sufficient positive evidence exists support reversal valuation allowance december 31 2008 company approximately 102 million us net operating loss carryforwards available reduce future taxable income expire various times 2028 company also approximately 478 million german trade tax net operating losses carried forward indefinitely company also tax credits approximately 194 million available offset future tax liabilities expire various dates credits include foreign tax credits 176 million expiring various times 2018 research development tax credits 18 million expiring various times 2025 operating loss tax credit carryforwards may subject limitations provisions internal revenue code 2008 two german subsidiaries biospin segment merged third german subsidiary result merger company able use certain net operating loss carryforwards existed merged entities previously fully reserved valuation allowance related net operating loss carryforwards reversed 2008 resulted tax benefit approximately 65 million additionally company established two profit loss sharing agreements 2008 first agreement established third quarter 2008 two german subsidiaries bruker axs second agreement established fourth quarter 2008 three german subsidiaries bruker biospin agreements allow losses one entity reduce taxable income another entity prior agreements put place certain deferred tax assets related entities full valuation allowance valuation allowances reversed 2008 resulting tax benefit approximately 12 million prior 2008 company paid certain foreign tax authorities withholding taxes certain intercorporate dividends expensed payments incurred uncertainty receiving refund 2008 company recorded tax benefit result swiss subsidiary company requesting receiving 05 million refund tax authorities france refund related withholding taxes dividends paid french subsidiary swiss parent company 2005 2006 refund filed withholding taxes paid 2007 dividends french subsidiary swiss parent facts circumstances around 2007 dividends 2005 2006 withholding taxes refunded french government company concluded likely 2007 withholding taxes also refunded tax authorities france company recorded tax benefit approximately 27 million 2008 2007 withholding taxes august 14 2007 german business tax reform 2008 signed federal president legislative process finalized august 17 2007 official publication law new legislation changes german federal corporate tax rate 25 15 addition german trade tax longer deductible corporate income tax law change due benefit revaluing companys deferred tax assets liabilities reduced companys effective tax rate 70 2007 company permanently reinvested earnings subsidiaries cumulative amount approximately 7036 million december 31 2008 therefore provided us income taxes could result distribution earnings us parent earnings ultimately distributed us form dividends otherwise shares subsidiaries sold transferred company would likely subject additional us income taxes net impact available foreign tax credits practical estimate amount unrecognized deferred us income taxes undistributed earnings company unrecognized tax benefits approximately 201 million december 31 2008 106 million recognized would result reduction companys effective tax rate one companys swiss entities currently audited tax years 20032006 audit expected completed first half 2009 addition companys german subsidiaries tax audit years 20032008 beginning first half 2009 company cannot reasonably predict outcome audits december 31 2008 company expect material changes except swiss tax audit mentioned previously unrecognized tax positions within next twelve months tabular reconciliation beginning ending amount unrecognized tax benefits follows millions company recognizes penalties interest related unrecognized tax benefits provision income taxes december 31 2008 company approximately 30 million accrued penalties interest related uncertain tax positions included liability consolidated balance sheets 12 million recorded twelve months ended december 31 2008 company considers significant tax jurisdictions include germany united states switzerland tax years 2003 2008 open tax years major taxing jurisdictions company files returns many foreign state jurisdictions varying statutes limitations note 16employee benefit plans defined benefit plans substantially companys employees switzerland france japan well certain employees germany covered companysponsored defined benefit pension plans retirement benefits generally earned based years service compensation active employment eligibility generally determined accordance local statutory requirements however level benefits terms vesting varies among plans net periodic pension cost components net periodic pension costs years ended december 31 follows millions changes benefit obligations plan assets defined benefit pension plans accumulated benefit obligation funded status plans follows december 31 millions accumulated benefit obligation defined benefit pension plans 1070 million 959 million december 31 2008 2007 respectively defined benefit pension plans accumulated benefit obligation projected benefit obligation excess plan assets december 31 2008 2007 following amounts recognized accompanying consolidated balance sheets companys defined benefit plans december 31 millions following pretax amounts recognized accumulated comprehensive income loss companys defined benefit plans december 31 millions range assumptions used defined benefit pension plans reflects different economic environments within various countries weighted average assumptions used determine projected benefit obligations years ended december 31 follows determine expected longterm rate return pension plan assets company considers current expected asset allocations well historical expected returns various asset categories plan assets principal pension plans company applies expected rate return marketrelated value assets stabilizes variability assets expected return applied asset allocations asset category companys weighted average pension plan asset allocation december 31 asset category follows millions plan fiduciaries set investment policies strategies plans longterm strategic investment objectives include preserving funded status plans balancing risk return plan fiduciaries oversee investment allocation process includes selecting investment managers setting longterm strategic targets monitoring asset allocations target allocation ranges guidelines limitations occasionally plan fiduciaries approve allocations target range longterm investment strategy achieve rate return assets 45 per year investment strategy limited investing maximum 35 equity securities maximum 30 foreign currencies company expects contribute approximately 27 million pension plans 2009 estimated future benefit payments estimated future benefit payments based assumptions used measure companys benefit obligation december 31 2008 following benefit payments reflect future employee service appropriate millions benefit plans company sponsors various defined contribution plans cover certain domestic international employees company may make contributions plans discretion company contributed 26 million 25 million 24 million plans years ended december 31 2008 2007 2006 respectively note 17commitments contingencies operating leases certain vehicles office equipment buildings leased agreements accounted operating leases total rental expense operating leases 107 million 78 million 54 million years ended december 31 2008 2007 2006 respectively future minimum lease payments noncancelable operating leases december 31 2008 next five years follows millions capital leases company leases two buildings agreements classified capital leases cost buildings capital leases included consolidated balance sheets property plant equipment 84 million 53 million december 31 2008 2007 respectively accumulated amortization leased buildings december 31 2008 2007 14 million 12 million respectively amortization assets capital leases included depreciation expense obligations related capital leases included component longterm debt consolidated balance sheets license agreements company entered various technology crosslicensing agreements allowing companies utilize certain patents related technologies periods ranging 21 30 years income agreements years ended december 31 2008 2007 2006 24 million 18 million 21 million respectively classified revenue consolidated statements operations unearned portions proceeds crosslicensing agreements classified shortterm longterm deferred revenue depending revenue earned company also entered license agreements allowing utilize certain patents used connection commercial product sale company pays royalties ranging 015 500 related product revenues licensing fees years ended december 31 2008 2007 2006 17 million 19 million 22 million respectively grants company received certain grants government authorities united states germany grants made connection companys development specific magnetic resonance core technology equipment spectrometers related components standalone monitor chemical agents agreements grants awarded expiration dates ranging 2009 2012 amounts received grants years ended december 31 2008 2007 2006 totaled 29 million 20 million 23 million respectively classified revenue consolidated statement operations total expenditures related grants 59 million 23 million 43 million respectively classified research development expenses consolidated statements operations legal lawsuits claims proceedings nature considered normal businesses may pending time company believes outcome proceedings material impact companys financial position results operations december 31 2008 2007 accruals recorded potential contingencies letters credit guarantees december 31 2008 2007 company bank guarantees 621 million 677 million respectively customer advances arrangements guarantee refund advance payments received customers event merchandise delivered compliance terms contract certain guarantees affect availability companys lines credit indemnifications company enters standard indemnification arrangements companys ordinary course business pursuant arrangements company indemnifies holds harmless agrees reimburse indemnified parties losses suffered incurred indemnified party generally business partners customers connection patent copyright intellectual property infringement claim third party respect products term indemnification agreements generally perpetual anytime execution agreement maximum potential amount future payments company could required make agreements unlimited company never incurred costs defend lawsuits settle claims related indemnification agreements result company believes estimated fair value agreements minimal company entered indemnification agreements directors officers may require company indemnify directors officers liabilities may arise reason status service directors officers liabilities arising willful misconduct culpable nature advance expenses incurred result proceeding could indemnified obtain directors officers insurance available reasonable terms company currently place note 18shareholders equity public offerings common stock february 12 2007 company group selling shareholders completed public offering 11960000 shares common stock 2530000 sold company 9430000 sold four selling shareholders 710 per share generating net proceeds approximately 169 million company approximately 632 million selling shareholders aggregate issuance restricted stock connection certain acquisitions company issued 170342 shares 38493 shares 469525 shares restricted stock 2008 2007 2006 respectively restrictions time based terms ranging three five years restricted shares companys common stock periodically awarded executive officers directors certain key employees company companys amended restated 2000 stock option plan see section stock plans information restricted stock awarded years ended december 31 2008 2007 blank check preferred stock december 31 2008 5000000 shares blank check preferred stock stated par value 001 per share authorized none issued dividends terms companys indebtedness currently restrict ability pay dividends shareholders prior acquisition bruker biospin group board directors bruker biospin invest ag declared dividends 1038 million 290 million years ended december 31 2007 2006 respectively additionally board directors bruker biospin inc declared dividends 50 million year ended december 31 2007 board directors bruker physik ag declared dividends 05 million year ended december 31 2006 stock plans 2000 board directors adopted shareholders approved 2000 stock option plan 2000 stock option plan provides issuance 2188000 shares common stock connection awards plan 2000 stock option plan allows committee board directors committee grant incentive stock options nonqualified stock options stock appreciation rights stock awards including use restricted stock phantom shares committee authority determine employees receive rewards amount awards terms conditions award awards granted committee typically vest period three five years 2003 companys shareholders approved amendment restatement 2000 stock option plan change plan name bruker biosciences corporation amended restated 2000 stock option plan increase number shares 4132000 shares 2006 companys shareholders approved amendment restatement bruker biosciences corporation amended restated 2000 stock option plan increase number shares available 1680000 shares february 2008 companys shareholders approved another amendment restatement bruker biosciences corporation amended restated 2000 stock option plan increase number shares available 2000000 shares total 10000000 shares restricted shares companys common stock periodically awarded executive officers directors certain key employees company subject service restrictions expire ratably periods three five years restricted shares common stock may sold transferred restriction period stock compensation restricted stock recorded based stock price grant date charged expense ratably restriction period following table summarizes information restricted stock activity years ended december 31 2008 2007 2006 unrecognized pretax expense 29 million related restricted stock awards expected recognized weighted average remaining service period 24 years awards outstanding december 31 2008 stock option activity years ended december 31 2008 2007 2006 follows arepresents number vested options december 31 2008 plus number unvested options expected vest december 31 2008 based unvested options outstanding december 31 2008 adjusted estimated forfeitures following table summarizes information stock options outstanding exercisable december 31 2008 intrinsic values based companys closing stock price 404 december 31 2008 unrecognized pretax expense 172 million related stock options expected recognized weighted average remaining service period 33 years awards outstanding december 31 2008 note 19accumulated comprehensive income loss following summary accumulated comprehensive income loss net tax december 31 millions note 20business segment information sfas 131 disclosures segments enterprise related information establishes standards reporting information operating segments annual financial statements public business enterprises also establishes standards related disclosures products service geographic areas major customers operating segments identified components enterprise separate discrete financial information available evaluation chief operating decision maker purpose allocating resources assessing performance february 2008 company completed acquisition bruker biospin result management reevaluated way company managed internal reporting structure company determined four operating segments representing four divisions bruker axs bruker daltonics bruker optics bruker biospin bruker axs business manufacturing distributing advanced xray oesspark instrumentation used nondestructive molecular elemental analysis bruker daltonics business manufacturing distributing mass spectrometry instruments integrated used along analytical instruments bruker optics business manufacturing distributing research analytical process analysis instruments solutions based infrared raman molecular spectroscopy technologies bruker biospin business manufacturing distributing enabling life science tools based magnetic resonance technology well development manufacturing low temperature superconductor high temperature superconductor wires use advanced magnet technology energy applications company combined bruker axs bruker daltonics bruker optics operating segments bruker biosciences reporting segment similar economic characteristics product processes services types classes customers methods distribution regulatory environments historical segment numbers retrospectively adjusted conform change reportable segments selected business segment information presented years ended december 31 millions arepresents product service revenue reportable segments brepresents corporate costs allocated reportable segments total assets capital expenditures depreciation amortization segment years ended december 31 follows millions arepresents corporate assets allocated reportable segments eliminations intercompany transactions revenue longlived assets geographical area years ended december 31 follows millions note 21interest income expense net components interest income expense net years ended december 31 2008 2007 2006 follows millions note 22related parties company rents office space principal shareholders multiple leases expiration dates ranging 2010 2017 total rent expense leases 18 million 15 million 14 million years ended december 31 2008 2007 2006 respectively november 2007 bruker biospin sold part office building zerocproject gmbh approximately 11 million zerocproject gmbh wholly owned one principal shareholders independent valuation building performed sales price based estimated market value building years ended december 31 2008 2007 2006 company incurred expenses 23 million 17 million 13 million respectively law firm one directors partner years ended december 31 2008 2007 2006 company incurred expenses 09 million 13 million 09 million respectively financial services firm one directors partner note 23recent accounting pronouncements march 2008 fasb issued sfas 161 disclosures derivative instruments hedging activitiesan amendment fasb statement 133 sfas 161 sfas 161 requires enhanced disclosures entitys derivative hedging activities thereby improves transparency financial reporting sfas 161 effective fiscal years beginning november 15 2008 company expect adoption sfas 161 material impact financial position results operations cash flows december 2007 fasb issued sfas 160 noncontrolling interests consolidated financial statementsan amendment arb 51 sfas 160 statement establishes new accounting reporting standards minority interest subsidiary deconsolidation subsidiary sfas 160 effective january 1 2009 early adoption prohibited company expect adoption sfas 160 material impact financial position results operations cash flows december 2007 fasb issued sfas 141r business combinations sfas 141r statement significantly change accounting business combinations sfas 141r acquiring entity required recognize assets acquired liabilities assumed transaction acquisition date fair value certain limited exceptions addition sfas 141r change accounting treatment acquisition costs inprocess research development restructuring costs associated business combinations changes deferred tax asset valuation allowances income tax uncertainties acquisition date sfas 141r also includes significant number new disclosure requirements early adoption sfas 141r prohibited company required apply sfas 141r acquisitions occur january 1 2009 note 24quarterly financial data unaudited companys common stock traded nasdaq global select market symbol brkr summary operating results quarterly periods two years ended december 31 2008 2007 set forth millions except per share data item 9item 8 financial statements supplementary data page report ernst young llp independent registered public accounting firm consolidated balance sheets december 31 2009 2008 consolidated statements operations years ended december 31 2009 2008 consolidated statements shareholders equity comprehensive income years ended december 31 2009 2008 2007 consolidated statements cash flows years ended december 31 2009 2008 notes consolidated financial statements report independent registered public accounting firm board directors shareholders bruker corporation audited accompanying consolidated balance sheets bruker corporation december 31 2009 2008 related consolidated statements operations shareholders equity comprehensive income cash flows three years period ended december 31 2009 audits also included financial statement schedule listed index item 15a financial statements schedule responsibility companys management responsibility express opinion financial statements schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position bruker corporation december 31 2009 2008 consolidated results operations cash flows three years period ended december 31 2009 conformity us generally accepted accounting principles also opinion related financial statement schedule considered relation basic financial statements taken whole presents fairly material respects information set forth therein discussed note 2 consolidated financial statements effective january 1 2009 company adopted fasb statement 160 noncontrolling interests consolidated financial statements amendment arb 51 codified fasb asc topic 810 consolidation also audited accordance standards public company accounting oversight board united states bruker corporations internal control financial reporting december 31 2009 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated march 12 2010 expressed unqualified opinion thereon ernst young llp boston massachusetts march 12 2010 bruker corporation consolidated balance sheets millions except share data accompanying notes integral part financial statements bruker corporation consolidated statements operations millions except per share data accompanying notes integral part financial statements bruker corporation consolidated statements shareholders equity comprehensive income millions except share data bruker corporation consolidated statements shareholders equity comprehensive income continued millions except share data bruker corporation consolidated statements shareholders equity comprehensive income continued millions except share data accompanying notes integral part financial statements bruker corporation consolidated statements cash flows millions accompanying notes integral part financial statements bruker corporation notes consolidated financial statements note 1description business bruker corporation whollyowned subsidiaries company designer manufacturer proprietary life science materials research systems associated products address rapidly evolving needs diverse array customers life science pharmaceutical biotechnology molecular diagnostics research well materials chemical analysis various industries government applications companys core technology platforms include xray technologies magnetic resonance technologies mass spectrometry technologies optical emission spectroscopy infrared raman molecular spectroscopy technologies company also manufactures distributes broad range field analytical systems chemical biological radiological nuclear explosives cbrne detection company also develops manufactures low temperature high temperature superconducting wire superconducting devices use advanced magnet technology physics research energy applications company maintains major technical manufacturing centers europe north america japan sales offices located throughout world companys diverse customer base includes life science pharmaceutical biotechnology molecular diagnostic research companies academic institutions advanced materials semiconductor industries government agencies february 2008 company completed acquisition bruker biospin group bruker biospin company bruker biospin majority owned six affiliated shareholders prior acquisition result acquisition bruker biospin considered business combination companies common control accounted historical carrying values date acquisition consolidated balance sheets statements operations statements cash flows notes consolidated financial statements periods presented herein restated combining historical consolidated financial statements company bruker biospin 2009 company reevaluated reporting segments following acquisition business engaged developing manufacturing superconducting devices advanced technologies alternative energy research result acquisition corresponding changes companys organizational structure management reports results basis following two segments •scientific instruments operations segment include design manufacture distribution advanced instrumentation automated solutions based xray technology sparkoptical emission spectroscopy technology atomic force microscopy magnetic resonance technology mass spectrometry technology infrared raman molecular spectroscopy technology typical customers scientific instruments segment include pharmaceutical biotechnology molecular diagnostic companies academic institutions medical schools nonprofit organizations clinical microbiology laboratories government departments agencies nanotechnology semiconductor chemical cement metals petroleum companies food beverage agricultural analysis companies laboratories •energy supercon technologies operations segment include development production low temperature superconducting high temperature superconducting wires use advanced magnet technology energy applications well electron ion linear accelerators superconducting normal conducting accelerator cavities accelerator components insertion devices prototype superconducting fault current limiters prototype crystal growth magnets highly specialized manufacturing services physics energy research variety scientific applications typical customers energy supercon technologies segment include companies medical power energy processing industries private public research development laboratories fields fundamental applied sciences energy research academic institutions government agencies note 2summary significant accounting policies principles consolidation financial statements include accounts company majority whollyowned subsidiaries intercompany accounts transactions eliminated cash equivalents cash equivalents consist primarily highly liquid investments original maturities three months less date acquisition cash equivalents primarily include cash hand money market funds time deposits time deposits represent amounts deposit banks temporarily invested instruments maturities three months less time purchase certain investments represent deposits insured fdic government agency cash equivalents carried cost approximates market value restricted cash certain customers require company provide bank guarantees customer advances generally lines credit satisfy requirement however extent required guarantee exceeds available local line credit company maintains restricted cash balances restricted cash balances classified noncurrent unless terms various agreements funds released restrictions within one year december 31 2009 company 50 million restricted cash 30 million classified noncurrent december 31 2008 company 34 million restricted cash 19 million classified noncurrent investments company classifies investments marketable debt equity securities heldtomaturity availableforsale trading time purchase heldtomaturity securities carried amortized cost include securities company positive ability intent hold maturity availableforsale securities reported fair value unrealized gains losses net tax included separate component comprehensive income trading securities reported fair value unrealized gains losses recorded component interest income expense net consolidated statements operations company hold shortterm investments december 31 2009 2008 companys investments december 31 2007 consisted money market funds considered availableforsale bond instruments trading securities fair value availableforsale securities december 31 2007 83 million fair value trading securities 08 million december 31 2007 unrealized gains associated availableforsale securities 05 million year ended december 31 2007 derivative financial instruments derivatives whether designated hedging relationship recorded consolidated balance sheets fair value accounting changes fair value derivative instrument depends whether designated qualifies part hedging relationship type hedging relationship derivative instruments designated qualify hedging instruments company must designate hedging instrument based exposure hedged fair value hedge cash flow hedge net investment foreign operation fair value hedge derivative instrument designated purpose hedging exposure changes fair value asset liability resulting particular risk derivative designated fair value hedge changes fair value derivative hedged item attributable hedged risk recognized caption consolidated statements operations cash flow hedge derivative instrument designated purpose hedging exposure variability future cash flows resulting particular risk derivative designated cash flow hedge effective portions changes fair value derivative recorded accumulated comprehensive income recognized results operations hedged item affects earnings ineffective portions changes fair value cash flow hedges recognized results operations hedge net investment foreign operation achieved derivative instrument designated purpose hedging exposure changes value investments foreign subsidiaries derivative designated hedge net investment foreign operation effective portions changes fair value derivative recorded comprehensive income part currency translation adjustment ineffective portions net investment hedges recognized results operations derivative instruments designated hedging instruments changes fair value recognized results operations current period fair value company applies following hierarchy prioritizes inputs used measure fair value three levels bases categorization within hierarchy upon lowest level input available significant fair value measurement levels hierarchy defined follows •level 1 inputs valuation methodology quoted prices unadjusted identical assets liabilities active markets •level 2 inputs valuation methodology include quoted prices similar assets liabilities active markets inputs observable asset liability either directly indirectly substantially full term financial instrument •level 3 inputs valuation methodology unobservable significant fair value measurement companys financial instruments consist primarily cash equivalents restricted cash derivative instruments consisting forward contracts interest rate swap accounts receivable shortterm borrowings accounts payable longterm debt carrying amounts companys cash equivalents shortterm investments restricted cash accounts receivable shortterm borrowings accounts payable approximate fair value due shortterm nature derivative assets liabilities measured fair value recurring basis companys longterm debt consists primarily variable rate arrangements interest rates reset every three months result reflect currently available terms conditions consequently carrying value companys longterm debt approximates fair value concentration credit risk financial instruments subject company credit risk consist cash equivalents derivative instruments accounts receivables risk respect cash equivalents minimized companys policy investing shortterm financial instruments issued highlyrated financial institutions risk respect derivative instruments minimized companys policy entering arrangements highlyrated financial institutions risk respect accounts receivables minimized creditworthiness diversity companys customers company performs periodic credit evaluations customers financial condition generally requires advanced deposit portion purchase price credit losses within managements expectations allowance doubtful accounts totaled 54 million december 31 2009 2008 years ended december 31 2009 2008 2007 single customer exceeded 10 companys revenue accounts receivable inventories components inventory include raw materials workinprocess demonstration units finished goods demonstration units include systems located companys demonstration laboratories installed sites potential customers considered available sale finished goods include intransit systems shipped companys customers yet installed accepted customer inventories stated lower cost market cost determined principally firstin firstout method majority subsidiaries averagecost certain international subsidiaries company reduces carrying value inventories differences cost estimated net realizable value taking consideration usage preceding twelve months expected demand technological obsolescence information including physical condition demonstration intransit inventories company records charge cost revenue amount required reduce carrying value inventory net realizable value costs associated procurement warehousing inventories inbound freight charges purchasing receiving costs also included cost revenue line item within consolidated statements operations property plant equipment property plant equipment stated cost less accumulated depreciation amortization major improvements capitalized expenditures maintenance repairs minor improvements charged expense assets retired otherwise disposed assets related accumulated depreciation eliminated accounts resulting gain loss reflected consolidated statements operations depreciation amortization calculated straightline basis estimated useful lives assets follows goodwill intangible assets goodwill amortized instead goodwill tested impairment reporting unit basis annually interim basis events changes circumstances warrant goodwill impairment test involves twostep process first step impairment test involves comparing fair values applicable reporting units aggregate carrying values including goodwill company generally determines fair value reporting units using income approach methodology valuation includes discounted cash flow method estimating fair value reporting units requires significant judgment management future cash flows carrying amount reporting unit exceeds fair value reporting unit perform second step goodwill impairment test measure amount impairment second step goodwill impairment test compare implied fair value reporting units goodwill carrying value goodwill company performs annual test impairment december 31st year intangible assets finite useful life amortized straightline basis estimated useful lives follows impairment longlived assets impairment losses recorded longlived assets used operations indicators impairment present quoted market price available estimated undiscounted operating cash flows generated assets less assets carrying value impairment losses charged consolidated statements operations difference fair value carrying value asset warranty costs deferred revenue company typically provides one year parts labor warranty purchase equipment anticipated cost warranty accrued upon recognition sale included current liability accompanying consolidated balance sheets company also offers customers extended warranty service agreements extending beyond initial warranty fee fees recorded deferred revenue recognized ratably income life extended warranty contract income taxes company accounts income taxes using asset liability approach recognizing deferred tax assets liabilities expected future tax consequences differences financial statement basis tax basis assets liabilities calculated using enacted tax rates effect year differences expected reflected tax return company records valuation allowance reduce deferred tax assets amount likely realized addition company accounts uncertain tax positions reached minimum recognition threshold 2007 company recorded reduction retained earnings 19 million connection adoption approach customer advances company typically requires advance deposit terms conditions contracts customers deposits recorded liability revenue recognized specific contract revenue recognition company recognizes revenue system sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectability resulting receivable reasonably assured title risk loss generally transferred customer upon receipt signed customer acceptance system shipped installed customer trained result timing customer acceptance readiness could cause companys reported revenues differ materially expectations products sold independent distributor strategic distribution partner assumes responsibility installation company recognizes system revenue product shipped title risk loss transferred companys distributors price protection rights return however products warranted free defect period typically one year revenue deferred cash received collectability reasonably assured significant portion fee due one year delivery installation acceptance system arrangements multiple elements company recognizes revenue element based relative fair value elements provided criteria revenue recognition met fair value element provided multiple element arrangements typically determined reference prices charged element sold separately objective reliable evidence fair value undelivered items arrangement evidence delivered items use residual method allocate arrangement consideration changes companys ability establish fair value element multiple element arrangements could affect timing revenue recognition revenue sale accessories parts recognized upon shipment service revenue recognized services performed revenues comprised research grants licensing arrangements grant revenue recognized company completes services required grant licensing revenue recognized ratably term related contract shipping handling costs company records costs incurred connection shipping handling products marketing selling expenses shipping handling costs 132 million 147 million 133 million years ended december 31 2009 2008 2007 respectively amounts billed customers connection costs included revenues research development research development costs expensed incurred include salaries wages personnel related costs material costs depreciation consulting costs facility costs software costs purchased software capitalized cost amortized estimated useful life generally three years software developed use companys products expensed incurred technological feasibility reasonably assured classified research development expense subsequent achievement technological feasibility amounts capitalizable however date amounts material advertising company expenses advertising costs incurred advertising expenses 69 million 62 million 62 million years ended december 31 2009 2008 2007 respectively stockbased compensation company recognizes stockbased compensation expense consolidated statements operations vesting period based fair value award grant date companys primary types sharebased compensation stock options restricted stock company recorded stockbased compensation expense years ended december 31 2009 2008 2007 follows millions compensation expense amortized straightline basis underlying vesting terms fair value option award estimated date grant using blackscholes optionpricing model assumptions regarding volatility expected term dividend yield riskfree interest rate required blackscholes model assumptions volatility expected life dividend yield riskfree interest rate presented table riskfree interest rate yield zerocoupon us treasury securities period commensurate expected life assumption expected term determined simplified method defined securities exchange commission staff accounting bulletin 110 company believes best estimate expected term new option acquisition bruker biospin might alter historical exercise patterns expected volatility based number factors company currently believes exclusive use implied volatility results best estimate grantdate fair value employee stock options reflects markets current expectations future volatility expected dividend yield considered option pricing formula since company pay dividends current plans future terms companys indebtedness also currently restricts ability pay dividends shareholders earnings per share net income per share calculated dividing net income weightedaverage shares outstanding period diluted net income per share computation includes effect shares would issuable upon exercise outstanding stock options vesting restricted stock reduced number shares assumed purchased company resulting proceeds average market price period following table sets forth computation basic diluted average shares outstanding years ended december 31 millions stock options purchase approximately 2326000 shares 1905000 shares 583000 shares excluded computation diluted earnings per share years ended december 31 2009 2008 2007 respectively exercise price stock options exceeded average market price companys common stock result would antidilutive effect employee retirement plans company recognizes overfunded underfunded status defined benefit pension postretirement defined benefit plans asset liability statement financial position recognizes changes funded status year changes occur comprehensive income comprehensive income comprehensive income refers revenues expenses gains losses accounting principles generally accepted united states included comprehensive income excluded net income amounts recorded directly adjustment shareholders equity net tax companys comprehensive income composed primarily foreign currency translation adjustments changes funded status defined benefit pension plans changes fair value derivatives designated cash flow hedges foreign currency translation assets liabilities companys foreign subsidiaries functional currency local currency translated us dollars using yearend exchange rates revenues expenses foreign subsidiaries translated average exchange rates effect year adjustments resulting financial statement translations included separate component shareholders equity gains losses resulting foreign currency transactions reported interest income expense net consolidated statements operations periods presented noncontrolling interests noncontrolling interests represents minority shareholders proportionate share companys five majorityowned indirect subsidiaries bruker baltic ltd bruker labmate pvt ltd incoatec gmbh perch solutions oy included scientific instruments segment ri research instruments gmbh included energy supercon technologies segment prior january 1 2009 noncontrolling interests previously reported companys financial statements minority interests recorded mezzanine section consolidated balance sheets separate caption liabilities shareholders equity beginning january 1 2009 noncontrolling interests reported separate component shareholders equity portion net income attributable noncontrolling interests presented net income loss attributable noncontrolling interests consolidated subsidiaries consolidated statement operations portion comprehensive income subsidiaries presented consolidated statements shareholders equity comprehensive income risk uncertainties company subject risks common industry including limited global economic conditions rapid technological change spending patterns customers protection intellectual property availability key raw materials components compliance existing future regulation government agencies dependence key personnel fluctuations foreign currency exchange rates contingencies company subject proceedings lawsuits claims related patents product matters company assesses likelihood adverse judgments outcomes matters well potential ranges probable losses determination amount reserves required contingencies made careful analysis individual issue required reserves may change future due new developments situation changes settlement strategy dealing matters use estimates preparation financial statements conformity accounting principles generally accepted united states requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates note 3acquisition bruker biospin february 26 2008 company completed acquisition outstanding capital stock bruker biospin accordance terms various stock purchase agreements dated december 2 2007 acquisition bruker biospin represented combination companies common control due majority ownership companies six related individuals affiliated shareholder group result acquisition bruker biospin accounted historical carrying values technologies bruker biospin complementary companys accuratemass electrospray timeofflight mass spectrometers singlecrystal diffraction xray spectrometers continue provide revenue synergies opportunities supply customers equipment packages broader range applications value addition bruker biospin enhanced companys worldwide distribution sales service infrastructure completion acquisition company paid aggregate 9140 million consideration shareholders bruker biospin financed 57544872 shares unregistered common stock valued 5260 million 3510 million cash obtained new credit facility balance cash hand value shares common stock issued connection merger determined using trailing average closing market prices companys stock period ten consecutive trading days ending two days prior signing various stock purchase agreements stock purchase agreements 988 million purchase price paid escrow accounts pending resolution indemnification obligations working capital obligations sellers working capital escrow 68 million released sellers may 2008 following receipt combined audited financial statements bruker biospin fiscal year ended december 31 2007 indemnity escrow 920 million released sellers later 1 30th day following receipt company audited financial statements company year ended december 31 2008 2 resolution claim indemnification sellers received notice prior conclusion 30 day period described 1 april 2009 indemnity escrow released following receipt audited financial statements company including bruker biospin year ended december 31 2008 note 4other acquisitions april 2009 company acquired substantially assets research instruments portion accel instruments gmbh ri business varian medical systems inc acquisition ri business accounted acquisition method ri business located bergisch gladbach germany consists development manufacture electron ion linear accelerators superconducting normal conducting accelerator cavities insertion devices superconducting fault current limiters accelerator components specialty superconducting magnets physics energy research variety scientific applications consideration transferred acquiring ri business approximately 04 million consisted entirely cash company acquired approximately 28 million receivables 44 million inventory 22 million current assets 49 million property plant equipment acquisition assumed approximately 121 million current liabilities company also recorded 05 million representing fair value noncontrolling interest connection acquisition ri business company recorded gain approximately 13 million recorded component acquisitionrelated charges consolidated statements operations gain 21 million initially recorded based preliminary purchase price allocation subsequently reduced 08 million fourth quarter 2009 based final allocation results ri business included energy supercon technologies segment date acquisition pro forma financial information reflecting acquisition ri business presented impact revenues net income net income per common share attributable bruker corporation shareholders material august 2008 company acquired sis surface imaging systems gmbh sis privatelyheld company located herzogenrath germany acquisition sis accounted purchase method sis develops manufactures distributes advanced atomic forcescanning probe microscopy applications materials research including semiconductors data storage electronic materials solar cells polymers catalysts results sis included scientific instruments segment date acquisition aggregate purchase price sis 21 million addition company issued aggregate 59342 restricted unregistered shares companys common stock par value 001 per share certain siss shareholders shares included purchase price contingencies related continuing employment shareholders company recorded 21 million goodwill connection acquisition sis assigned goodwill scientific instruments segment goodwill 29 million initially recorded based preliminary purchase price allocation subsequently reduced 08 million based final allocation pro forma financial information reflecting acquisition sis presented impact revenues net income net income per common share would material january 2008 company acquired juwe laborgeraete gmbh juwe privatelyheld company located viersen germany acquisition juwe accounted purchase method juwe develops manufactures distributes advanced combustion analysis systems various carbon hydrogen nitrogen oxygen sulfur elemental applications juwes products complementary companys optical emission spectroscopy products results juwe included scientific instruments segment date acquisition aggregate purchase price juwe 16 million 12 million paid cash 04 million consisted net liabilities assumed company addition company issued aggregate 111000 restricted unregistered shares companys common stock par value 001 per share juwes shareholders shares included purchase price contingencies related continuing employment shareholders company recorded 11 million goodwill connection acquisition juwe assigned goodwill scientific instruments segment goodwill 22 million initially recorded based preliminary purchase price allocation subsequently reduced 11 million based final allocation pro forma financial information reflecting acquisition juwe presented impact revenues net income net income per common share would material note 5fair value financial instruments company measures following financial assets liabilities fair value recurring basis fair value financial assets liabilities determined using following inputs december 31 2009 millions financial instruments categorization within valuation hierarchy based upon lowest level input significant fair value measurement note 6accounts receivable following summary trade accounts receivable december 31 millions allowance doubtful accounts managements estimate credit losses accounts receivable allowance doubtful accounts based number factors including evaluation customer credit worthiness age outstanding receivable economic trends historical experience allowance doubtful accounts reviewed quarterly basis changes estimates reflected period become known company writes account balances allowance becomes probable receivable collected note 7inventories inventories consisted following december 31 millions company reduces carrying value demonstration inventories differences cost estimated net realizable value charge cost revenue based number factors including age unit physical condition unit assessment technological obsolescence amounts recorded cost revenue related writedown demonstration units net realizable value 261 million 245 million 213 million years ended december 31 2009 2008 2007 respectively finished goods include intransit systems shipped companys customers yet installed accepted customer december 31 2009 2008 inventoryintransit 808 million 916 million respectively note 8property plant equipment following summary property plant equipment major asset class december 31 millions depreciation expense includes amortization leasehold improvements years ended december 31 2009 2008 2007 approximated 279 million 275 million 259 million respectively note 9goodwill intangible assets following table sets forth changes carrying amount goodwill years ended december 31 2009 2008 millions december 31 2009 2008 goodwill allocated scientific instruments segment goodwill acquired 2009 related number individually insignificant acquisitions goodwill acquired 2008 relates primarily acquisitions sis juwe impairment losses recorded goodwill years ended december 31 2009 2008 2007 following summary definitelived intangible assets subject amortization december 31 millions years ended december 31 2009 2008 2007 company recorded amortization expense approximately 18 million 18 million 20 million respectively general administrative expense consolidated statements operations impairment losses recorded related definitelived intangible assets years ended december 31 2009 2008 2007 estimated future amortization expense related amortizable intangible assets december 31 2009 follows millions note 10other current liabilities following summary current liabilities december 31 millions following table sets forth changes accrued warranty years ended december 31 2009 2008 millions note 11debt companys debt obligations consist following december 31 millions annual maturities longterm debt december 31 2009 follows millions connection acquisition bruker biospin company entered credit agreement syndication lenders credit agreement provides revolving credit line maximum commitment 2300 million term facility 1500 million outstanding principal interest term loan payable quarterly installments december 2012 borrowings credit agreement bear interest companys option either higher prime rate federal funds rate plus 050 ii adjusted libor plus margins ranging 040 125 facility fee ranging 010 020 december 31 2009 weighted average interest rate borrowings term facility credit agreement approximately 27 borrowings credit agreement secured pledge banks 100 capital stock companys whollyowned domestic subsidiaries 65 capital stock certain companys direct indirect whollyowned foreign subsidiaries credit agreement also requires company maintain certain financial ratios related leverage ratios interest coverage ratios defined credit agreement addition financial ratios credit agreement restricts among things companys ability following make certain payments incur additional debt incur certain liens make certain investments including derivative agreements merge consolidate sell transfer substantially companys assets enter certain transactions affiliates december 31 2009 latest measurement date company compliance covenants credit agreement addition longterm arrangements company following amounts outstanding revolving loan arrangements interest expense longterm revolving loan arrangements years ended december 31 2009 2008 2007 75 million 117 million 23 million respectively following summary maximum commitments net amounts available company revolving loans december 31 2009 millions revolving loans various financial institutions located primarily germany switzerland france companys revolving lines credit typically due upon demand interest payable monthly certain lines credit unsecured others secured accounts receivable inventory related subsidiary note 12derivative instruments hedging activities interest rate risks companys exposure interest rate risk relates primarily outstanding variable rate debt adverse movements related shortterm market rates significant component companys interest rate risk relates amounts outstanding credit agreement april 2008 company entered interest rate swap arrangement manage exposure interest rate movements related effect variable rate debt interest rate swap arrangement company pay fixed rate approximately 38 receive variable rate based three month libor initial notional amount interest rate swap 900 million amortizes proportion term debt component credit agreement december 2012 december 31 2009 notional amount interest rate swap 788 million company concluded swap met criteria qualify effective hedge variability cash flows interest payments accounts interest rate swap cash flow hedge accordingly company reflects changes fair value effective portion interest rate swap accumulated comprehensive income component shareholders equity december 31 2009 company recorded liability 35 million related fair value interest rate swap recorded current liabilities consolidated balance sheets amounts recorded accumulated comprehensive income loss reclassified interest income expense net consolidated statement operations either forecasted transaction occurs becomes probable forecasted transaction occur company expects 24 million accumulated loss reclassified earnings next twelve months foreign exchange rate risk management company generates substantial portion revenues expenses international markets principally europe japan subjects operations exposure exchange rate fluctuations impact currency exchange rate movement positive negative period company time entered foreign currency contracts order minimize volatility fluctuations currency exchange rates companys cash flows related purchases sales denominated foreign currencies addition company periodically enters purchase sales contracts denominated currencies functional currency parties transaction company accounts transactions separately valuing embedded derivative component contracts company periodically enters foreign currency contracts order minimize volatility fluctuations currency exchange rates companys cash flows related purchases sales denominated foreign currencies arrangements company typically agrees purchase fixed amount foreign currency exchange fixed amount us dollars currencies specified dates maturities less twelve months transactions qualify hedge accounting accordingly instrument recorded fair value corresponding gains losses recorded consolidated statements operations december 31 2009 following foreign currency contracts outstanding forward contracts december 31 2008 company various unsettled contracts related purchase delivery certain products contracts denominated currencies functional currency transacting parties amounted 304 million delivery products 02 million purchase products december 31 2009 442 million delivery products 54 million purchase products december 31 2008 changes fair value embedded derivatives recorded interest income expense net consolidated statements operations fair value derivative instruments described recorded consolidated balance sheets years ending december 31 2009 2008 follows millions losses recognized comprehensive income related effective portion interest rate swap designated hedging instrument years ending december 31 2009 2008 2007 follows millions losses related effective portion interest rate swap designated hedging instrument reclassified comprehensive income recognized net income years ending december 31 2009 2008 2007 follows millions company recognize amounts related ineffectiveness results operations years ended december 31 2009 2008 respectively impact net income changes fair value derivative instruments designated hedging instruments years ending december 31 2009 2008 2007 follows millions amounts recorded results operations related derivative instruments designated hedging instruments recorded interest income expense net note 13restructuring activities 2008 company recorded restructuring charges 23 million consisted primarily severance costs associated restructuring certain operations netherlands program restructuring charges associated netherlands program allocated scientific instruments segment approximately 22 million restructuring charges related involuntary severance program approximately 30 employees left company balance related exit costs associated terminating certain leases 2009 company recorded additional 02 million net restructuring charges related involuntary severance component netherlands program recorded general administrative expenses consolidated statements operations impact program reduced number employees sales marketing research development consolidated selling developments efforts companys single crystal xray diffraction products actions netherlands program completed december 31 2009 liability restructuring charges recorded current liabilities consolidated balance sheets reserves related program follows millions note 14impairment charges 2009 company recorded impairment charge 07 million consisted equipment used production certain superconducting wire impairment loss recorded company determined carrying value assets exceeded estimated undiscounted operating cash flows generated asset group amount impairment charge determined comparing fair value asset group carrying value company determined fair value asset group using income approach methodology valuation includes discounted cash flow method impairment charge allocated energy supercon technologies segment recorded component acquisitionrelated charges net bargain purchase consolidated statements operations note 15income taxes domestic foreign components income loss taxes follows years ended december 31 millions components income tax provision follows years ended december 31 millions reconciliation united states federal statutory rate effective income tax rate follows years ended december 31 tax effect temporary items give rise significant portions deferred tax assets liabilities follows december 31 millions valuation allowance determined assessment positive negative evidence whether likely deferred tax assets recoverable companys assessment made jurisdictionbyjurisdiction basis company fully reserved us net deferred tax assets predominantly net operating losses tax credit carryforwards companys inability project future profitability us beyond fiscal year 2010 represents sufficient negative evidence record valuation allowance certain deferred tax assets december 31 2009 company approximately 41 million us net operating loss carryforwards available reduce future taxable income expire various times 2028 company also approximately 490 million german trade tax net operating losses carried forward indefinitely company also us tax credits approximately 44 million available offset future tax liabilities expire various dates credits include foreign tax credits 25 million expiring various times 2019 research development tax credits 18 million expiring various times 2025 credits 01 million operating loss tax credit carryforwards may subject limitations provisions internal revenue code 2008 two german subsidiaries scientific instruments segment merged third german subsidiary result merger company able use certain net operating loss carryforwards existed merged entities previously fully reserved valuation allowance related net operating loss carryforwards reversed 2008 resulted tax benefit approximately 65 million additionally company established profit loss sharing agreement two german subsidiaries scientific instruments segment third quarter 2008 agreement allows losses one entity reduce taxable income entity prior agreement put place certain deferred tax assets related entities full valuation allowances valuation allowances reversed third quarter 2008 resulting tax benefit approximately 12 million additionally company received 05 million refund french taxes intercorporate dividends third quarter 2008 recorded tax benefit refund related withholding taxes paid connection dividends paid french subsidiary swiss parent company 2005 2006 end 2007 result tax law change france company determined refund withholding taxes uncertain meet morelikelythannot threshold recording tax receivable 2005 2006 2007 taxes paid dividends french subsidiary swiss parent expensed income tax provision corresponding tax receivable recorded facts circumstances around dividends withholding taxes three years 2005 2006 withholding taxes refunded french government company concluded likely 2007 french withholding taxes would also refunded company also recorded tax benefit approximately 27 million third quarter 2008 2007 withholding tax receivable company received refund withholding taxes third quarter 2009 august 14 2007 german business tax reform 2008 signed federal president legislative process finalized august 17 2007 official publication law new legislation changes german federal corporate tax rate 25 15 addition german trade tax longer deductible corporate income tax law change due benefit revaluing companys deferred tax assets liabilities reduced companys effective tax rate 70 2007 company permanently reinvested earnings subsidiaries cumulative amount approximately 7850 million december 31 2009 therefore provided us income taxes could result distribution earnings us parent earnings ultimately distributed us form dividends otherwise shares subsidiaries sold transferred company would likely subject additional us income taxes net impact available foreign tax credits practical estimate amount unrecognized deferred us income taxes undistributed earnings company unrecognized tax benefits approximately 232 million december 31 2009 141 million recognized would result reduction companys effective tax rate tabular reconciliation beginning ending amount unrecognized tax benefits follows millions company recognizes penalties interest related unrecognized tax benefits provision income taxes december 31 2009 company approximately 38 million accrued penalties interest related uncertain tax positions included liability consolidated balance sheets 08 million recorded year ended december 31 2009 company files returns many foreign state jurisdictions varying statutes limitations considers germany united states switzerland significant tax jurisdictions tax years 2003 2009 open tax years major taxing jurisdictions one companys swiss entities currently audited tax years 20032006 audit expected completed 2010 addition companys significant german subsidiaries tax audit years 20032008 audits expected completed 2011 company cannot predict final outcome audits anticipate material changes unrecognized tax positions next twelve months note 16employee benefit plans defined benefit plans substantially companys employees switzerland france japan well certain employees germany covered companysponsored defined benefit pension plans retirement benefits generally earned based years service compensation active employment eligibility generally determined accordance local statutory requirements however level benefits terms vesting varies among plans net periodic pension cost components net periodic pension costs years ended december 31 follows millions company measures benefit obligation fair value plan assets december 31st year changes benefit obligations plan assets defined benefit pension plans accumulated benefit obligation funded status plans follows december 31 millions accumulated benefit obligation defined benefit pension plans 1180 million 1070 million december 31 2009 2008 respectively defined benefit pension plans accumulated benefit obligation projected benefit obligation excess plan assets december 31 2009 2008 following amounts recognized accompanying consolidated balance sheets companys defined benefit plans december 31 millions following pretax amounts recognized accumulated comprehensive income loss companys defined benefit plans december 31 millions range assumptions used defined benefit pension plans reflects different economic environments within various countries weighted average assumptions used determine projected benefit obligations years ended december 31 follows determine expected longterm rate return pension plan assets company considers current expected asset allocations well historical expected returns various asset categories plan assets principal pension plans company applies expected rate return marketrelated value assets stabilizes variability assets expected return applied asset allocations asset category fair value companys pension plan assets december 31 2009 asset category level follows millions managing directors subsidiaries responsible setting policy serves framework allocating plan assets policy defines investment strategy including asset allocation ranges designed ensure benefit obligations plans met due investment strategy also targeted optimizing return investment within risk constraints plans managing directors appoint plan fiduciaries oversee investment allocation process includes selecting investment managers setting longterm strategic targets monitoring asset allocations target allocations 40 bonds including cash 35 equity investments 25 real estate mortgages target allocation ranges guidelines limitations occasionally plan fiduciaries approve allocations target range based number factors including market conditions company expects contribute approximately 27 million pension plans 2010 estimated future benefit payments estimated future benefit payments based assumptions used measure companys benefit obligation december 31 2009 following benefit payments reflect future employee service appropriate millions benefit plans company sponsors various defined contribution plans cover certain domestic international employees company may make contributions plans discretion company contributed 27 million 26 million 25 million plans years ended december 31 2009 2008 2007 respectively note 17commitments contingencies operating leases certain buildings office equipment vehicles leased agreements accounted operating leases total rental expense operating leases 138 million 107 million 78 million years ended december 31 2009 2008 2007 respectively future minimum lease payments noncancelable operating leases december 31 2009 next five years follows millions capital leases company leases certain buildings equipment agreements classified capital leases cost buildings capital leases included consolidated balance sheets property plant equipment 104 million 84 million december 31 2009 2008 respectively accumulated amortization leased buildings december 31 2009 2008 18 million 14 million respectively amortization expense related assets capital leases included depreciation expense obligations related capital leases recorded component longterm debt current portion longterm debt consolidated balance sheets depending lease payments due license agreements company entered crosslicensing agreements various technologies allow companies utilize certain patents related technologies periods ranging 21 30 years income agreements years ended december 31 2009 2008 2007 23 million 24 million 18 million respectively classified revenue consolidated statements operations unearned portions proceeds crosslicensing agreements classified shortterm longterm deferred revenue depending revenue earned company also entered license agreements allowing utilize certain patents used connection commercial product sale company pays royalties ranging 015 500 related product revenues licensing fees years ended december 31 2009 2008 2007 21 million 17 million 19 million respectively recorded cost product revenue consolidated statements operations grants company received certain grants government authorities united states germany grants made connection companys development specific magnetic resonance core technology equipment spectrometers related components standalone monitor chemical agents agreements grants awarded expiration dates ranging 2009 2013 amounts received grants years ended december 31 2009 2008 2007 totaled 45 million 29 million 20 million respectively classified revenue consolidated statement operations total expenditures related grants 58 million 59 million 23 million respectively classified research development expenses consolidated statements operations legal lawsuits claims proceedings nature considered normal businesses may pending time company believes outcome proceedings material impact companys financial position results operations december 31 2009 2008 accruals recorded potential contingencies letters credit guarantees december 31 2009 2008 company bank guarantees 870 million 621 million respectively customer advances arrangements guarantee refund advance payments received customers event merchandise delivered compliance terms contract certain guarantees affect availability companys lines credit indemnifications company enters standard indemnification arrangements companys ordinary course business pursuant arrangements company indemnifies holds harmless agrees reimburse indemnified parties losses suffered incurred indemnified party generally business partners customers connection patent copyright intellectual property infringement claim third party respect products term indemnification agreements generally perpetual anytime execution agreement maximum potential amount future payments company could required make agreements unlimited company never incurred costs defend lawsuits settle claims related indemnification agreements result company believes estimated fair value agreements minimal company entered indemnification agreements directors officers may require company indemnify directors officers liabilities may arise reason status service directors officers liabilities arising willful misconduct culpable nature advance expenses incurred result proceeding could indemnified obtain directors officers insurance available reasonable terms company currently place note 18shareholders equity public offerings common stock february 12 2007 company group selling shareholders completed public offering 11960000 shares common stock 2530000 sold company 9430000 sold four selling shareholders 710 per share generating net proceeds approximately 169 million company approximately 632 million selling shareholders aggregate dividends terms companys indebtedness currently restrict ability pay dividends shareholders prior acquisition bruker biospin board directors bruker biospin invest ag declared dividends 1038 million year ended december 31 2007 additionally board directors bruker biospin inc declared dividends 50 million year ended december 31 2007 stock plans bruker corporation stock plan 2000 board directors adopted shareholders approved 2000 stock option plan initially provided issuance 2188000 shares common stock connection awards plan companys shareholders approved number amendments plan generally increasing number shares issued 2003 change plan name bruker biosciences corporation amended restated 2000 stock option plan recently february 2008 companys shareholders approved amendment increase number shares available plan 2000000 shares total 10000000 shares plan allows committee board directors committee grant incentive stock options nonqualified stock options stock appreciation rights stock awards including use restricted stock phantom shares committee authority determine employees receive rewards amount awards terms conditions award awards granted committee typically vest period three five years stock option activity year ended december 31 2009 follows addition options exercisable december 31 2009 company expects portion unvested options become exercisable future options expected vest future determined applying estimated forfeiture rate options unvested december 31 2009 intrinsic value based companys closing stock price 1206 december 31 2009 unrecognized pretax expense 134 million related stock options expected recognized weighted average remaining service period 24 years awards outstanding december 31 2009 restricted shares companys common stock periodically awarded executive officers directors certain key employees company subject service restrictions expire ratably periods three five years restricted shares common stock may sold transferred restriction period stock compensation restricted stock recorded based stock price grant date charged expense ratably restriction period following table summarizes information restricted stock activity year ended december 31 2009 unrecognized pretax expense 25 million related restricted stock awards expected recognized weighted average remaining service period 15 years awards outstanding december 31 2009 bruker energy supercon technologies stock plan october 2009 board directors bruker energy supercon technologies inc best whollyowned direct subsidiary company adopted bruker energy supercon technologies inc 2009 stock option plan best plan best plan provides issuance 1600000 shares best common stock connection awards plan allows committee best board directors grant incentive stock options nonqualified stock options december 31 2009 730000 incentive stock options nonqualified stock options awarded key employees directors company vesting periods three five years 2009 company recorded approximately 01 million expense related awards granted best plan unrecognized pretax expense 17 million related stock options expected recognized weighted average remaining service period 45 years awards outstanding december 31 2009 note 19accumulated comprehensive income loss following summary accumulated comprehensive income loss net tax december 31 millions note 20business segment information company determined five operating segments based information reviewed chief operating decision maker representing five divisions bruker axs bruker biospin bruker daltonics bruker optics bruker energy supercon technologies bruker axs business manufacturing distributing advanced xray sparkoptical emission spectroscopy atomic force microscopy instrumentation used nondestructive molecular elemental analysis bruker biospin business manufacturing distributing enabling life science tools based magnetic resonance technology bruker daltonics business manufacturing distributing mass spectrometry instruments integrated used along analytical instruments cbrne detection products bruker optics business manufacturing distributing research analytical process analysis instruments solutions based infrared raman molecular spectroscopy technologies bruker energy supercon technologies business developing producing low temperature superconductor high temperature superconductor materials use advanced magnet technology energy applications well linear accelerators accelerator cavities insertion devices superconducting fault current limiters accelerator components specialty superconducting magnets physics energy research variety scientific applications companys reportable segments organized types products services provided company combined bruker axs bruker biospin bruker daltonics bruker optics operating segments scientific instruments reporting segment similar economic characteristics product processes services types classes customers methods distribution regulatory environments management evaluates segment operating performance allocates resources based operating income loss company uses measure helps provide understanding core operating results selected business segment information presented years ended december 31 millions arepresents product service revenue reportable segments brepresents corporate costs eliminations allocated reportable segments total assets segment years ended december 31 2009 2008 follows millions aassets allocated reportable segments eliminations intercompany transactions total capital expenditures depreciation amortization segment years ended december 31 2009 2008 2007 follows millions revenue longlived assets geographical area years ended december 31 2009 2008 2007 follows millions note 21interest income expense net components interest income expense net years ended december 31 2009 2008 2007 follows millions note 22related parties company rents office space certain principal shareholders multiple leases expiration dates ranging 2010 2017 total rent expense leases 21 million 18 million 15 million years ended december 31 2009 2008 2007 respectively november 2007 bruker biospin sold part office building zerocproject gmbh approximately 11 million zerocproject gmbh majority owned individual time sale one principal shareholders independent valuation building performed sales price based estimated market value building years ended december 31 2009 2008 2007 company incurred expenses 11 million 23 million 17 million respectively law firm one directors partner years ended december 31 2009 2008 2007 company incurred expenses 06 million 09 million 13 million respectively financial services firm one directors partner note 23recent accounting pronouncements june 2009 fasb issued codification topic 105 generally accepted accounting principles codification topic 105 effective fiscal years interim periods ending september 15 2009 codification topic 105 intended improve financial reporting identifying fasb accounting standards codification rules interpretive releases sec authority federal securities laws sole sources authoritative accounting principles used preparing financial statements presented conformity gaap sec registrants adoption codification topic 105 material impact companys results operations financial position cash flows january 2010 fasb issued accounting standards update 201006 fair value measurements disclosures topic 820improving disclosures fair value measurements accounting standards update 201006 require new disclosures transfers levels 1 2 fair value hierarchy activity including purchases sales issuances settlements level 3 fair value measurements requirements accounting standards update 201006 effective interim annual periods beginning december 15 2009 except disclosures purchases sales issuances settlements level 3 fair value measurements effective interim annual periods beginning december 15 2010 company currently assessing impact additional disclosure requirements results operations financial position company adopt requirements september 2009 emerging issues task force reached consensus fasb accounting standards update 200914 software topic 985certain revenue arrangements include software elements fasb accounting standards updates 200914 changes accounting model revenue arrangements include tangible products software elements guidance tangible products containing software components nonsoftware components function together deliver tangible products essential functionality excluded software revenue guidance subtopic 985605 softwarerevenue recognition addition hardware components tangible product containing software components always excluded software revenue guidance fasb accounting standards updates 200914 effective prospectively revenue arrangements entered materially modified fiscal years beginning june 15 2010 however early adoption permitted company currently assessing impact update results operations financial position company adopt requirements september 2009 emerging issues task force reached consensus fasb accounting standards update 200913 revenue recognition topic 605multipledeliverable revenue arrangements fasb accounting standards update 200913 addresses accounting multipledeliverable arrangements enable vendors account products services separately rather combined unit specifically guidance amends criteria subtopic 60525 revenue recognitionmultipleelement arrangements separating consideration multipledeliverable arrangements guidance establishes selling price hierarchy determining selling price deliverable based vendorspecific objective evidence b thirdparty evidence c estimates guidance also eliminates residual method allocation requires arrangement consideration allocated inception arrangement deliverables using relative selling price method addition guidance significantly expands required disclosures related vendors multipledeliverable revenue arrangements fasb accounting standards update 200913 effective prospectively revenue arrangements entered materially modified fiscal years beginning june 15 2010 however early adoption permitted company currently assessing impact update results operations financial position company adopt requirements note 24subsequent events unaudited march 9 2010 company announced entered definitive asset purchase agreement acquire certain product lines varian inc varian agilent technologies inc agilent committed divest connection obtaining regulatory approval agilents previously announced acquisition varian company acquire substantially assets assume certain liabilities varians inductively coupled plasma mass spectrometry instruments business laboratory gas chromatography instruments business gas chromatography triplequadrupole mass spectrometry instruments business cash consideration 375 million company still evaluating allocation purchase price acquisition subject customary closing conditions regulatory approvals company expects close second quarter 2010 note 25quarterly financial data unaudited companys common stock traded nasdaq global select market symbol brkr summary operating results quarterly periods two years ended december 31 2009 2008 set forth millions except per share data item 9item 8 financial statements supplementary data page report ernst young llp independent registered public accounting firm consolidated balance sheets december 31 2010 2009 consolidated statements income years ended december 31 2010 2009 2008 consolidated statements shareholders equity comprehensive income years ended december 31 2010 2009 2008 consolidated statements cash flows years ended december 31 2010 2009 notes consolidated financial statements report independent registered public accounting firm board directors shareholders bruker corporation audited accompanying consolidated balance sheets bruker corporation december 31 2010 2009 related consolidated statements income shareholders equity comprehensive income cash flows three years period ended december 31 2010 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position bruker corporation december 31 2010 2009 consolidated results operations cash flows three years period ended december 31 2010 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states bruker corporations internal control financial reporting december 31 2010 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated march 1 2011 expressed unqualified opinion thereon ernst young llp boston massachusetts march 1 2011 bruker corporation consolidated balance sheets millions except share per share data accompanying notes integral part financial statements bruker corporation consolidated statements income millions except per share data accompanying notes integral part financial statements bruker corporation consolidated statements shareholders equity comprehensive income millions except share data bruker corporation consolidated statements shareholders equity comprehensive income continued millions except share data bruker corporation consolidated statements shareholders equity comprehensive income continued millions except share data accompanying notes integral part financial statements bruker corporation consolidated statements cash flows millions accompanying notes integral part financial statements bruker corporation notes consolidated financial statements millions except per share data note 1description business bruker corporation whollyowned subsidiaries bruker company designer manufacturer proprietary life science materials research systems associated products address rapidly evolving needs diverse array customers life science pharmaceutical biotechnology clinical molecular diagnostics research well materials chemical analysis various industries government applications companys core technology platforms include xray technologies magnetic resonance technologies mass spectrometry technologies optical emission spectroscopy infrared raman molecular spectroscopy technologies company also manufactures distributes broad range field analytical systems chemical biological radiological nuclear explosives cbrne detection company also develops manufactures superconducting nonsuperconducting materials devices use renewable energy infrastructure healthcare big science research company maintains major technical manufacturing centers europe north america japan sales offices located throughout world companys diverse customer base includes life science pharmaceutical biotechnology molecular diagnostic research companies academic institutions advanced materials semiconductor manufacturers government agencies february 2008 company completed acquisition bruker biospin group bruker biospin company bruker biospin majority owned six affiliated shareholders prior acquisition result acquisition bruker biospin considered business combination companies common control accounted historical carrying values date acquisition consolidated statement income statement cash flows year ended december 31 2008 presented herein restated combining historical consolidated financial statements company bruker biospin management reports results basis following two segments •scientific instruments operations segment include design manufacture distribution advanced instrumentation automated solutions based magnetic resonance technology mass spectrometry technology gas chromatography technology xray technology sparkoptical emission spectroscopy technology atomic force microscopy technology stylus optical metrology technology infrared raman molecular spectroscopy technology typical customers scientific instruments segment include pharmaceutical biotechnology molecular diagnostic companies academic institutions medical schools nonprofit organizations clinical microbiology laboratories government departments agencies nanotechnology semiconductor chemical cement metals petroleum companies food beverage agricultural analysis companies laboratories •energy supercon technologies operations segment include design manufacture marketing superconducting materials primarily metallic low temperature superconductors use magnetic resonance imaging nuclear magnetic resonance fusion energy research applications ceramic high temperature superconductors primarily fusion energy research applications typical customers energy supercon technologies segment include companies medical industry private public research development laboratories fields fundamental applied sciences energy research academic institutions government agencies energy supercon technologies segment also developing superconductors superconductingenabled devices applications power energy well industrial processing industries note 2summary significant accounting policies principles consolidation financial statements include accounts company majority whollyowned subsidiaries intercompany accounts transactions eliminated subsequent events company evaluated subsequent events determined material recognized unrecognized subsequent events refer note 25 additional discussions subsequent events disclosed cash equivalents cash equivalents consist primarily highly liquid investments original maturities three months less date acquisition cash equivalents primarily include cash hand money market funds time deposits time deposits represent amounts deposit banks temporarily invested instruments maturities three months less time purchase certain investments represent deposits insured fdic government agency cash equivalents carried cost approximates market value restricted cash certain customers require company provide bank guarantees customer advances generally lines credit satisfy requirement however extent required guarantee exceeds available local line credit company maintains restricted cash balances restricted cash balances classified noncurrent unless terms various agreements funds released restrictions within one year december 31 2010 company 64 million restricted cash 35 million classified noncurrent december 31 2009 company 50 million restricted cash 30 million classified noncurrent derivative financial instruments derivatives whether designated hedging relationship recorded consolidated balance sheets fair value accounting changes fair value derivative instrument depends whether designated qualifies part hedging relationship type hedging relationship derivative instruments designated qualify hedging instruments company must designate hedging instrument based exposure hedged fair value hedge cash flow hedge net investment foreign operation fair value hedge derivative instrument designated purpose hedging exposure changes fair value asset liability resulting particular risk derivative designated fair value hedge changes fair value derivative hedged item attributable hedged risk recognized caption consolidated statements income cash flow hedge derivative instrument designated purpose hedging exposure variability future cash flows resulting particular risk derivative designated cash flow hedge effective portions changes fair value derivative recorded accumulated comprehensive income recognized results operations hedged item affects earnings ineffective portions changes fair value cash flow hedges recognized results operations hedge net investment foreign operation achieved derivative instrument designated purpose hedging exposure changes value investments foreign subsidiaries derivative designated hedge net investment foreign operation effective portions changes fair value derivative recorded comprehensive income part currency translation adjustment ineffective portions net investment hedges recognized results operations derivative instruments designated hedging instruments changes fair value recognized results operations current period fair value company applies following hierarchy prioritizes inputs used measure fair value three levels bases categorization within hierarchy upon lowest level input available significant fair value measurement levels hierarchy defined follows •level 1 inputs valuation methodology quoted prices unadjusted identical assets liabilities active markets •level 2 inputs valuation methodology include quoted prices similar assets liabilities active markets inputs observable asset liability either directly indirectly substantially full term financial instrument •level 3 inputs valuation methodology unobservable significant fair value measurement companys financial instruments consist primarily cash equivalents restricted cash derivative instruments consisting forward foreign exchange contracts commodity contracts derivatives embedded certain purchase sale contracts interest rate swap accounts receivable shortterm borrowings accounts payable longterm debt carrying amounts companys cash equivalents shortterm investments restricted cash accounts receivable shortterm borrowings accounts payable approximate fair value due shortterm nature derivative assets liabilities measured fair value recurring basis companys longterm debt consists variable rate arrangements interest rates reset every three months result reflect currently available terms conditions consequently carrying value companys longterm debt approximates fair value concentration credit risk financial instruments subject company credit risk consist cash equivalents derivative instruments accounts receivables risk respect cash equivalents minimized companys policy investing shortterm financial instruments issued highlyrated financial institutions risk respect derivative instruments minimized companys policy entering arrangements highlyrated financial institutions risk respect accounts receivables minimized creditworthiness diversity companys customers company performs periodic credit evaluations customers financial condition generally requires advanced deposit portion purchase price credit losses within managements expectations allowance doubtful accounts totaled 51 million 54 million december 31 2010 2009 respectively december 31 2010 2009 single customer exceeded 10 companys accounts receivable years ended december 31 2010 2009 2008 single customer exceeded 10 companys revenue inventories components inventory include raw materials workinprocess demonstration units finished goods demonstration units include systems located companys demonstration laboratories installed sites potential customers considered available sale finished goods include intransit systems shipped companys customers yet installed accepted customer inventories stated lower cost market cost determined principally firstin firstout method majority subsidiaries averagecost certain international subsidiaries company reduces carrying value inventories differences cost estimated net realizable value taking consideration usage preceding twelve months expected demand technological obsolescence information including physical condition demonstration intransit inventories company records charge cost revenue amount required reduce carrying value inventory net realizable value costs associated procurement warehousing inventories inbound freight charges purchasing receiving costs also included cost revenue line item within consolidated statements income property plant equipment property plant equipment stated cost less accumulated depreciation amortization major improvements capitalized expenditures maintenance repairs minor improvements charged expense incurred assets retired otherwise disposed assets related accumulated depreciation amortization eliminated accounts resulting gain loss reflected consolidated statements income depreciation amortization calculated straightline basis estimated useful lives assets follows goodwill intangible assets goodwill amortized instead goodwill tested impairment reporting unit basis annually interim basis events changes circumstances warrant goodwill impairment test involves twostep process first step impairment test involves comparing fair values applicable reporting units aggregate carrying values including goodwill company generally determines fair value reporting units using income approach methodology valuation includes discounted cash flow method estimating fair value reporting units requires significant judgment management future cash flows carrying amount reporting unit exceeds fair value reporting unit perform second step goodwill impairment test measure amount impairment second step goodwill impairment test compare implied fair value reporting units goodwill carrying value goodwill company performs annual test impairment december 31st year intangible assets finite useful life amortized straightline basis estimated useful lives follows acquired process research development iprd represents ongoing development work associated enhancements existing products well development next generation products iprd initially capitalized fair value intangible asset indefinite life assessed impairment annual basis indicators impairment identified iprd project complete reclassified finitelived intangible asset amortized estimated useful life typically three 10 years iprd project abandoned completion determined impaired value asset amount impairment charged consolidated statements income period project abandoned impaired impairment longlived assets impairment losses recorded longlived assets used operations indicators impairment present quoted market price available estimated undiscounted operating cash flows generated assets less assets carrying value impairment losses charged consolidated statements income difference fair value carrying value asset warranty costs deferred revenue company typically provides one year parts labor warranty purchase equipment anticipated cost warranty accrued upon recognition sale included current liability accompanying consolidated balance sheets company also offers customers extended warranty service agreements extending beyond initial warranty fee fees recorded deferred revenue based relative fair value recognized ratably income life extended warranty contract income taxes company accounts income taxes using asset liability approach recognizing deferred tax assets liabilities expected future tax consequences differences financial statement basis tax basis assets liabilities calculated using enacted tax rates effect year differences expected reflected tax return company records valuation allowance reduce deferred tax assets amount likely realized addition company accounts uncertain tax positions reached minimum recognition threshold customer advances company typically requires advance deposit terms conditions contracts customers deposits recorded liability revenue recognized specific contract accordance companys revenue recognition policy revenue recognition company recognizes revenue system sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectability resulting receivable reasonably assured title risk loss generally transferred customer upon receipt signed customer acceptance system shipped installed customer trained result timing customer acceptance readiness could cause companys reported revenues differ materially expectations products sold independent distributor strategic distribution partner assumes responsibility installation company recognizes system revenue product shipped title risk loss transferred companys distributors price protection rights return however products warranted free defect period typically one year revenue deferred cash received collectability reasonably assured significant portion fee due one year delivery installation acceptance system arrangements multiple elements company recognizes revenue element based relative fair value elements provided criteria revenue recognition met fair value element provided multiple element arrangements typically determined reference prices charged element sold separately objective reliable evidence fair value undelivered items arrangement evidence delivered items company uses residual method allocate arrangement consideration changes companys ability establish fair value element multiple element arrangements could affect timing revenue recognition revenue sale accessories parts recognized upon shipment service revenue recognized services performed company also contracts applies percentageofcompletion model revenue recognition milestone model revenue recognition application percentageofcompletion method requires us make reasonable estimates extent progress toward completion contract total costs incur contract changes estimates progress toward completion contract total costs could affect timing revenue recognition revenues comprised primarily research grants licensing arrangements grant revenue recognized requirements grant agreement achieved licensing revenue recognized ratably term related contract shipping handling costs company records costs incurred connection shipping handling products marketing selling expenses shipping handling costs 185 million 140 million 147 million years ended december 31 2010 2009 2008 respectively amounts billed customers connection costs included revenues research development research development costs expensed incurred include salaries wages personnel related costs material costs depreciation consulting costs facility costs software costs purchased software capitalized cost amortized estimated useful life generally three years software developed use companys products expensed incurred technological feasibility reasonably assured classified research development expense subsequent achievement technological feasibility amounts capitalizable however date amounts material advertising company expenses advertising costs incurred advertising expenses 91 million 69 million 62 million years ended december 31 2010 2009 2008 respectively stockbased compensation company recognizes stockbased compensation expense consolidated statements income based fair value sharebased award grant date companys primary types sharebased compensation stock options restricted stock company recorded stockbased compensation expense years ended december 31 2010 2009 2008 follows millions stockbased compensation expense amortized straightline basis underlying vesting terms sharebased award fair value option award estimated date grant using blackscholes optionpricing model assumptions regarding volatility expected term dividend yield riskfree interest rate required blackscholes model assumptions volatility expected life dividend yield riskfree interest rate presented table riskfree interest rate based yield zerocoupon us treasury securities period commensurate expected life assumption expected term determined simplified method defined securities exchange commission staff accounting bulletin 110 company believes best estimate expected term new option acquisition bruker biospin might alter historical exercise patterns expected volatility based number factors company currently believes exclusive use implied volatility results best estimate grantdate fair value employee stock options reflects markets current expectations future volatility expected dividend yield considered option pricing formula since company pay dividends current plans future terms companys debt facilities also currently restricts ability pay dividends shareholders addition company utilizes estimated forfeiture rate calculating stockbased compensation expense period company applied estimated forfeiture rates derived analysis historical data 54 58 62 years ended december 31 2010 2009 2008 respectively determining expense recorded accompanying consolidated statements income weighted average fair values options granted 856 583 817 years ended december 31 2010 2009 2008 respectively earnings per share net income per common share attributable bruker corporation shareholders calculated dividing net income attributable bruker corporation weightedaverage shares outstanding period diluted net income per share computation includes effect shares would issuable upon exercise outstanding stock options vesting restricted stock reduced number shares assumed purchased company treasury stock method following table sets forth computation basic diluted weighted average shares outstanding years ended december 31 millions except per share data stock options purchase approximately 07 million shares 23 million shares 19 million shares excluded computation diluted earnings per share years ended december 31 2010 2009 2008 respectively effect would antidilutive employee retirement plans company recognizes overfunded underfunded status defined benefit pension postretirement defined benefit plans asset liability statement financial position recognizes changes funded status year changes occur comprehensive income comprehensive income comprehensive income refers revenues expenses gains losses accounting principles generally accepted united states included comprehensive income excluded net income amounts recorded directly adjustment shareholders equity net tax companys comprehensive income composed primarily foreign currency translation adjustments changes funded status defined benefit pension plans changes fair value derivatives designated cash flow hedges foreign currency translation assets liabilities companys foreign subsidiaries functional currency local currency translated us dollars using yearend exchange rates revenues expenses foreign subsidiaries translated average exchange rates effect year adjustments resulting financial statement translations included separate component shareholders equity gains losses resulting foreign currency transactions reported interest income expense net consolidated statements income periods presented noncontrolling interests noncontrolling interests represents minority shareholders proportionate share companys majorityowned indirect subsidiaries beginning january 1 2009 noncontrolling interests reported separate component shareholders equity portion net income attributable noncontrolling interests presented net income loss attributable noncontrolling interests consolidated subsidiaries consolidated statements income portion comprehensive income subsidiaries presented consolidated statements shareholders equity comprehensive income risk uncertainties company subject risks common industry including limited global economic conditions rapid technological change spending patterns customers protection intellectual property availability key raw materials components compliance existing future regulation government agencies dependence key personnel fluctuations foreign currency exchange rates contingencies company subject proceedings lawsuits claims related patents product matters company assesses likelihood adverse judgments outcomes matters well potential ranges probable losses determination amount reserves required contingencies made careful analysis individual issue required reserves may change future due new developments situation changes settlement strategy dealing matters use estimates preparation financial statements conformity accounting principles generally accepted united states requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates prior year financial statement reclassification consolidated balance sheet december 31 2009 reflects amounts related commodity hedge contracts net associated fixed price commodity contract order conform current year presentation company shown 03 million commodity hedge contracts current assets 03 million fixed price commodity contracts current liabilities provide better reflection assets liabilities reclassification amounts effect companys previously reported results operations cash flows year ended december 31 2009 additionally certain amounts totaling 192 million consolidated balance sheet year ended december 31 2009 related prepaid income taxes reclassified deferred tax assets current assets conform current period presentation reclassification impact companys previously reported results operations cash flows years ended december 31 2009 2008 note 3acquisition bruker biospin february 2008 company completed acquisition outstanding capital stock bruker biospin accordance terms various stock purchase agreements dated december 2 2007 acquisition bruker biospin represented combination companies common control due majority ownership companies six related individuals affiliated shareholder group result acquisition bruker biospin accounted historical carrying values technologies bruker biospin complementary companys accuratemass electrospray timeofflight mass spectrometers singlecrystal diffraction xray spectrometers continue provide revenue synergies opportunities supply customers equipment packages broader range applications value addition bruker biospin enhanced companys worldwide distribution sales service infrastructure completion acquisition company paid aggregate 9140 million consideration shareholders bruker biospin financed 57544872 shares unregistered common stock valued 5260 million 3510 million cash obtained credit facility balance cash hand value shares common stock issued connection merger determined using trailing average closing market prices companys stock period ten consecutive trading days ending two days prior signing various stock purchase agreements stock purchase agreements 988 million purchase price paid escrow accounts pending resolution indemnification obligations working capital obligations sellers working capital escrow 68 million released sellers may 2008 following receipt combined audited financial statements bruker biospin fiscal year ended december 31 2007 indemnity escrow 920 million released sellers later 1 30th day following receipt company audited financial statements company year ended december 31 2008 2 resolution claim indemnification sellers received notice prior conclusion 30 day period described 1 april 2009 indemnity escrow released following receipt audited financial statements company including bruker biospin year ended december 31 2008 note 4other acquisitions completed 2010 october 2010 company completed acquisition veeco metrology inc scanning probe microscopy optical industrial metrology instruments business nano surfaces business veeco instruments inc veeco cash consideration 2304 million company financed acquisition 1676 million borrowed revolving credit agreement balance cash hand acquired business complements companys existing atomic force microscopy products expands companys offerings industrial applied markets specifically fields materials nanotechnology research analysis purchase agreement 229 million purchase price paid escrow pending resolution indemnification obligations working capital obligations seller december 31 2010 company completed local business transfer part acquired business china process establishing legal entity company paid approximately 72 million veeco net assets china recorded amount current assets company expects complete local business transfer next twelve months may 2010 company completed acquisition three former varian inc varian product lines agilent technologies inc agilent divested connection obtaining regulatory approval acquisition varian company acquired certain assets assumed certain liabilities varians inductively coupled plasma mass spectrometry instruments business laboratory gas chromatography instruments business gas chromatography triplequadrupole mass spectrometry instruments business collectively chemical analysis business cash consideration 375 million acquired business complements companys existing mass spectrometry products expands companys offerings industrial applied markets acquisition nano surfaces business chemical analysis business accounted acquisition method components consideration transferred allocation consideration transferred businesses follows millions company yet completed final allocation consideration transferred connection nano surfaces business complete final allocation within measurement period company finalized allocation consideration transferred connection chemical analysis business fourth quarter 2010 measurement period adjustments made acquisition date fair values chemical analysis business fourth quarter 2010 material acquisition nano surfaces business chemical analysis business made prices fair value net acquired assets resulting 510 million 04 million goodwill respectively company willing pay prices based expectations synergies result combining businesses synergies include expanded product offerings applied analytical markets company previously able address comprehensive manner leveraging selling general administrative expenses performing purchase price allocation company considered among factors intention future use acquired assets analyses historical financial performance estimates future cash flows nano surfaces chemical analysis business products services purchase price allocated based upon fair value identified assets acquired liabilities assumed acquisition date market participants perspective company used excessearnings method form income approach value existing technology patents related nano surfaces business customer distributor relationships related chemical analysis business principle behind method value intangible asset equal present value aftertax cash flows attributable intangible asset company used lostprofitavoided cost method form income approach value distributor relationships related nano surfaces business principle behind method economic value asset estimated based total costs avoided asset place company used relief royalty method value existing technology patents related chemical analysis business principle behind method value intangible asset equal present value aftertax royalty savings attributable owning intangible asset weightedaverage amortization periods intangible assets acquired connection nano surfaces business chemical analysis business 85 years existing technology related patents 96 years customer distributor relationships acquired iprd valued using discounted cash flows approach iprd carried initial fair value amortized expense upon completion development becomes unfeasible abandoned carrying value iprd expensed period occurs additionally company assumed certain liabilities acquisition including deferred revenue recorded fair value using costplus profit approach transaction costs associated acquisition nano surfaces chemical analysis businesses expensed incurred company incurred 46 million expenses included charges net consolidated statements income year ended december 31 2010 costs include 28 million transition costs whereby agilent veeco providing administrative services behalf company defined periods transaction expenses 18 million consisting various professional fees results nano surfaces business chemical analysis business included scientific instruments segment date acquisition following table sets forth pro forma financial information reflecting acquisition nano surfaces business acquisition occurred january 1 2009 years ended december 31 millions except per share date acquisition december 31 2010 nano surfaces business generated revenues 208 million net losses attributable bruker corporation 88 million net loss per diluted common share attributable bruker corporation 005 pro forma financial information reflecting acquisition chemical analysis business presented impact revenues net income net income per common share attributable bruker corporation shareholders material acquisitions completed 2009 april 2009 company acquired substantially assets research instruments portion accel instruments gmbh ri business varian medical systems inc acquisition ri business accounted acquisition method ri business located bergisch gladbach germany consists development manufacture electron ion linear accelerators superconducting normal conducting accelerator cavities insertion devices superconducting fault current limiters accelerator components specialty superconducting magnets physics energy research variety scientific applications consideration transferred acquiring ri business approximately 04 million consisted entirely cash company acquired approximately 28 million receivables 44 million inventory 22 million current assets 49 million property plant equipment acquisition assumed approximately 121 million current liabilities company also recorded 05 million representing fair value noncontrolling interest 2009 connection acquisition ri business company recorded gain approximately 13 million recorded component acquisitionrelated charges consolidated statements income gain 21 million initially recorded second quarter 2009 based preliminary purchase price allocation subsequently reduced 08 million fourth quarter 2009 based final allocation results ri business included energy supercon technologies segment date acquisition pro forma financial information reflecting acquisition ri business presented impact revenues net income attributable bruker corporation net income per common share attributable bruker corporation shareholders material note 5fair value financial instruments company measures following financial assets liabilities fair value recurring basis following table sets forth companys financial instruments presents within fair value hierarchy using lowest level input significant fair value measurement december 31 2010 millions note 6accounts receivable following summary trade accounts receivable december 31 millions allowance doubtful accounts managements estimate credit losses accounts receivable allowance doubtful accounts based number factors including evaluation customer credit worthiness age outstanding receivable economic trends historical experience allowance doubtful accounts reviewed quarterly basis changes estimates reflected period become known company writes account balances allowance becomes probable receivable collected following summary activity companys allowance doubtful accounts december 31 millions note 7inventories inventories consisted following december 31 millions company reduces carrying value demonstration inventories differences cost estimated net realizable value charge cost product revenue based number factors including age unit physical condition unit assessment technological obsolescence amounts recorded cost revenue related writedown demonstration units net realizable value 244 million 261 million 245 million years ended december 31 2010 2009 2008 respectively finished goods include intransit systems shipped companys customers yet installed accepted customer december 31 2010 2009 inventoryintransit 853 million 808 million respectively note 8property plant equipment following summary property plant equipment major asset class december 31 millions depreciation expense includes amortization leasehold improvements years ended december 31 2010 2009 2008 approximated 303 million 279 million 275 million respectively note 9goodwill intangible assets following table sets forth changes carrying amount goodwill years ended december 31 2010 2009 millions december 31 2010 2009 goodwill allocated scientific instruments segment goodwill acquired 2010 relates acquisition nano surfaces business chemical analysis business approximately 10 million related individually insignificant acquisitions goodwill acquired 2009 related number individually insignificant acquisitions impairment losses recorded goodwill years ended december 31 2010 2009 2008 following summary intangible assets december 31 millions years ended december 31 2010 2009 2008 company recorded amortization expense approximately 58 million 18 million 18 million respectively consolidated statements income impairment losses recorded related definitelived intangible assets years ended december 31 2010 2009 2008 estimated future amortization expense related amortizable intangible assets december 31 2010 follows millions note 10other current liabilities following summary current liabilities december 31 millions following table sets forth changes accrued warranty years ended december 31 2010 2009 millions note 11debt companys debt obligations consist following december 31 millions annual maturities longterm debt december 31 2010 follows millions company entered credit agreement syndication lenders credit agreement provides revolving credit line maximum commitment 2300 million term facility 1500 million outstanding principal interest term loan payable quarterly installments december 2012 borrowings credit agreement bear interest companys option either higher prime rate federal funds rate plus 050 ii adjusted libor plus margins ranging 040 125 facility fee ranging 010 020 december 31 2010 weighted average interest rate borrowings term facility credit agreement approximately 26 borrowings credit agreement secured pledge banks 100 capital stock companys whollyowned domestic subsidiaries 65 capital stock certain companys direct indirect whollyowned foreign subsidiaries credit agreement also requires company maintain certain financial ratios related leverage ratios interest coverage ratios defined credit agreement addition financial ratios credit agreement restricts among things companys ability following make certain payments incur additional debt incur certain liens make certain investments including derivative agreements merge consolidate sell transfer substantially companys assets enter certain transactions affiliates december 31 2010 latest measurement date company compliance covenants credit agreement addition longterm arrangements company following amounts outstanding revolving loan arrangements december 31 millions interest expense longterm revolving loan arrangements years ended december 31 2010 2009 2008 56 million 75 million 117 million respectively following summary maximum commitments net amounts available company revolving loans december 31 2010 millions revolving loans various financial institutions located primarily germany switzerland france companys revolving lines credit typically due upon demand interest payable monthly certain lines credit unsecured others secured accounts receivable inventory related subsidiary note 12derivative instruments hedging activities interest rate risks companys exposure interest rate risk relates primarily outstanding variable rate debt adverse movements related shortterm market rates significant component companys interest rate risk relates amounts outstanding credit agreement april 2008 company entered interest rate swap arrangement manage exposure interest rate movements related effect variable rate debt interest rate swap arrangement company pay fixed rate approximately 38 receive variable rate based three month libor initial notional amount interest rate swap 900 million amortizes proportion term debt component credit agreement december 2012 december 31 2010 2009 notional amount interest rate swap 664 million 788 million respectively company concluded swap met criteria qualify effective hedge variability cash flows interest payments accounts interest rate swap cash flow hedge accordingly company reflects changes fair value effective portion interest rate swap accumulated comprehensive income separate component shareholders equity amounts recorded accumulated comprehensive income reclassified interest income expense net consolidated statement income either forecasted transaction occurs becomes probable forecasted transaction occur foreign exchange rate risk management company generates substantial portion revenues expenses international markets principally germany countries european union switzerland japan subjects operations exposure exchange rate fluctuations impact currency exchange rate movement positive negative period arrangements company typically agrees purchase fixed amount foreign currency exchange fixed amount us dollars currencies specified dates maturities less twelve months transactions qualify hedge accounting accordingly instrument recorded fair value corresponding gains losses recorded consolidated statements income company following notional amounts outstanding foreign currency contracts december 31 millions addition company periodically enters purchase sales contracts denominated currencies functional currency parties transaction company accounts transactions separately valuing embedded derivative component contracts denominated currencies functional currency transacting parties amounted 161 million delivery products 03 million purchase products december 31 2010 304 million delivery products 02 million purchase products december 31 2009 changes fair value embedded derivatives recorded interest income expense net consolidated statements income commodity price risk management company arrangement customer company firm commitment deliver copper based superconductors fixed price order minimize volatility fluctuations price copper companys sales commodities company enters commodity hedge contracts december 31 2010 2009 company fixed price commodity contracts notional amounts aggregating 29 million 09 million respectively changes fair value commodity contracts recorded interest income expense net consolidated statements income fair value derivative instruments described recorded consolidated balance sheets years ending december 31 2010 2009 follows millions losses recognized comprehensive income related effective portion interest rate swap designated hedging instrument years ending december 31 follows millions losses related effective portion interest rate swap designated hedging instrument reclassified comprehensive income recognized net income years ending december 31 follows millions company expects 21 million accumulated losses reclassified earnings next twelve months company recognize amounts related ineffectiveness results operations years ended december 31 2010 2009 2008 respectively impact net income changes fair value derivative instruments designated hedging instruments years ending december 31 follows millions amounts recorded results operations related derivative instruments designated hedging instruments recorded interest income expense net note 13income taxes domestic foreign components income taxes follows years ended december 31 millions components income tax provision follows years ended december 31 millions reconciliation united states federal statutory rate effective income tax rate follows years ended december 31 tax effect temporary items give rise significant portions deferred tax assets liabilities follows december 31 millions valuation allowance determined assessment positive negative evidence whether likely deferred tax assets recoverable companys assessment made jurisdictionbyjurisdiction basis company fully reserved us net deferred tax assets predominantly net operating losses tax credit carryforwards companys inability project future profitability us beyond fiscal year 2011 represents sufficient negative evidence record valuation allowance certain deferred tax assets december 31 2010 company approximately 76 million us net operating loss carryforwards available reduce future taxable income expire various times 2021 company also approximately 456 million german trade tax net operating losses carried forward indefinitely company also us tax credits approximately 57 million available offset future tax liabilities expire various dates credits include research development tax credits 56 million expiring various times 2025 credits 01 million operating loss tax credit carryforwards may subject limitations provisions internal revenue code 2008 two german subsidiaries scientific instruments segment merged third german subsidiary result merger company able use certain net operating loss carryforwards existed merged entities previously fully reserved valuation allowance related net operating loss carryforwards reversed 2008 resulted tax benefit approximately 65 million additionally company established profit loss sharing agreement two german subsidiaries scientific instruments segment third quarter 2008 agreement allows losses one entity reduce taxable income entity prior agreement put place certain deferred tax assets related entities full valuation allowances valuation allowances reversed 2008 resulting tax benefit approximately 12 million additionally company received 05 million refund french taxes intercorporate dividends third quarter 2008 recorded tax benefit refund related withholding taxes paid connection dividends paid french subsidiary swiss parent company 2005 2006 end 2007 result tax law change france company determined refund withholding taxes uncertain meet morelikelythannot threshold recording tax receivable 2005 2006 2007 taxes paid dividends french subsidiary swiss parent expensed income tax provision corresponding tax receivable recorded facts circumstances around dividends withholding taxes three years 2005 2006 withholding taxes refunded french government company concluded likely 2007 french withholding taxes would also refunded company also recorded tax benefit approximately 27 million third quarter 2008 2007 withholding tax receivable company received refund withholding taxes third quarter 2009 company permanently reinvested earnings subsidiaries cumulative amount approximately 8460 million december 31 2010 therefore provided us income taxes could result distribution earnings us parent earnings ultimately distributed us form dividends otherwise shares subsidiaries sold transferred company would likely subject additional us income taxes net impact available foreign tax credits practical estimate amount unrecognized deferred us income taxes undistributed earnings company unrecognized tax benefits approximately 270 million december 31 2010 188 million recognized would result reduction companys effective tax rate tabular reconciliation beginning ending amount unrecognized tax benefits follows millions company recognizes penalties interest related unrecognized tax benefits provision income taxes december 31 2010 company approximately 43 million accrued penalties interest related uncertain tax positions included current liabilities consolidated balance sheets 05 million recorded year ended december 31 2010 company files returns many foreign state jurisdictions varying statutes limitations considers germany united states switzerland significant tax jurisdictions tax years 2003 2010 open tax years major taxing jurisdictions one companys swiss entities currently audited tax years 20032006 audit expected completed first half 2011 addition companys significant german subsidiaries tax audit years 20032008 audits expected completed second half 2011 company recorded additional 28 million reserves related audits 2010 note 14employee benefit plans defined benefit plans substantially companys employees switzerland france japan well certain employees germany covered companysponsored defined benefit pension plans retirement benefits generally earned based years service compensation active employment eligibility generally determined accordance local statutory requirements however level benefits terms vesting varies among plans net periodic pension cost components net periodic pension costs years ended december 31 follows millions company measures benefit obligation fair value plan assets december 31st year changes benefit obligations plan assets defined benefit pension plans accumulated benefit obligation funded status plans follows december 31 millions accumulated benefit obligation defined benefit pension plans 1448 million 1180 million december 31 2010 2009 respectively defined benefit pension plans accumulated benefit obligation projected benefit obligation excess plan assets december 31 2010 2009 following amounts recognized accompanying consolidated balance sheets companys defined benefit plans december 31 millions following pretax amounts recognized accumulated comprehensive income companys defined benefit plans december 31 millions range assumptions used defined benefit pension plans reflects different economic environments within various countries range assumptions used determine projected benefit obligations years ended december 31 follows determine expected longterm rate return pension plan assets company considers current expected asset allocations well historical expected returns various asset categories plan assets principal pension plans company applies expected rate return marketrelated value assets stabilizes variability assets expected return applied asset allocations asset category fair value companys pension plan assets december 31 2010 asset category level follows millions managing directors subsidiaries responsible setting policy serves framework allocating plan assets policy defines investment strategy including asset allocation ranges designed ensure benefit obligations plans met due investment strategy also targeted optimizing return investment within risk constraints plans managing directors appoint plan fiduciaries oversee investment allocation process includes selecting investment managers setting longterm strategic targets monitoring asset allocations target allocations 40 bonds including cash 35 equity investments 25 real estate mortgages target allocation ranges guidelines limitations occasionally plan fiduciaries approve allocations target range based number factors including market conditions estimated future benefit payments estimated future benefit payments based assumptions used measure companys benefit obligation december 31 2010 following benefit payments reflect future employee service appropriate millions benefit plans company sponsors various defined contribution plans cover certain domestic international employees company may make contributions plans discretion company contributed 25 million 27 million 26 million plans years ended december 31 2010 2009 2008 respectively note 15commitments contingencies operating leases certain buildings office equipment vehicles leased agreements accounted operating leases total rental expense operating leases 158 million 138 million 107 million years ended december 31 2010 2009 2008 respectively future minimum lease payments noncancelable operating leases december 31 2010 next five years follows millions capital leases company leases certain buildings equipment agreements classified capital leases cost buildings equipment capital leases included consolidated balance sheets property plant equipment 101 million 104 million december 31 2010 2009 respectively accumulated amortization leased buildings december 31 2010 2009 22 million 18 million respectively amortization expense related assets capital leases included depreciation expense obligations related capital leases recorded component longterm debt current portion longterm debt consolidated balance sheets depending lease payments due license agreements company entered crosslicensing agreements various technologies allow companies utilize certain patents related technologies periods ranging 21 30 years income agreements years ended december 31 2010 2009 2008 32 million 23 million 24 million respectively classified revenue consolidated statements income unearned portions proceeds crosslicensing agreements classified shortterm longterm deferred revenue depending revenue earned company also entered license agreements allowing utilize certain patents used connection commercial product sale company pays royalties ranging 015 500 related product revenues licensing fees years ended december 31 2010 2009 2008 18 million 21 million 17 million respectively recorded cost product revenue consolidated statements income grants company received certain grants government authorities united states germany grants made connection companys development specific magnetic resonance core technology equipment spectrometers related components standalone monitor chemical agents agreements grants awarded expiration dates ranging 2011 2014 amounts received grants years ended december 31 2010 2009 2008 totaled 38 million 45 million 29 million respectively classified revenue consolidated statement income total expenditures related grants 45 million 58 million 59 million respectively classified research development expenses consolidated statements income legal lawsuits claims proceedings nature considered normal businesses may pending time company believes outcome proceedings material impact companys financial position results operations december 31 2010 2009 accruals recorded potential contingencies letters credit guarantees december 31 2010 2009 company bank guarantees 1088 million 870 million respectively customer advances arrangements guarantee refund advance payments received customers event merchandise delivered compliance terms contract certain guarantees affect availability companys lines credit indemnifications company enters standard indemnification arrangements companys ordinary course business pursuant arrangements company indemnifies holds harmless agrees reimburse indemnified parties losses suffered incurred indemnified party generally companys business partners customers connection patent copyright intellectual property infringement claim third party respect products term indemnification agreements generally perpetual anytime execution agreement maximum potential amount future payments company could required make agreements unlimited company never incurred costs defend lawsuits settle claims related indemnification agreements result company believes estimated fair value agreements minimal company entered indemnification agreements directors officers may require company indemnify directors officers liabilities may arise reason status service directors officers liabilities arising willful misconduct culpable nature advance expenses incurred result proceeding could indemnified obtain directors officers insurance available reasonable terms company currently place environmental remediation former owner land building santa barbara california nano surfaces business headquartered disclosed hazardous substances present ground building management believes comprehensive indemnification clause part purchase agreement related acquisition nano surfaces business provides adequate protection environmental issues may arise note 16shareholders equity public offerings common stock company announced plans sell minority ownership position bruker energy supercon technologies inc best subsidiary initial public offering capital stock best company believes offering provide bruker shareholders greater visibility bests performance growth strengthen bests access financing revenue growth initiatives including development products renewable energy infrastructure markets dividends terms companys indebtedness currently restrict companys ability pay dividends shareholders stock plans bruker corporation stock plan february 2010 bruker biosciences corporation amended restated 2000 stock option plan 2000 plan expired end scheduled tenyear term march 9 2010 companys board directors unanimously approved adopted bruker corporation 2010 incentive compensation plan 2010 plan may 14 2010 plan approved companys stockholders 2010 plan provides issuance 8000000 shares companys common stock plan allows committee board directors committee grant incentive stock options nonqualified stock options restricted stock awards committee authority determine employees receive awards amount awards terms conditions award awards granted committee typically vest period three five years stock option activity year ended december 31 2010 follows addition options exercisable december 31 2010 company expects portion unvested options become exercisable future options expected vest future determined applying estimated forfeiture rate options unvested december 31 2010 aggregate intrinsic value based positive difference fair value companys common stock price 1660 december 31 2010 date exercises appropriate exercise price underlying stock options unrecognized pretax expense 138 million related stock options awarded 2000 2010 plans expected recognized weighted average remaining service period 22 years awards outstanding december 31 2010 restricted shares companys common stock periodically awarded executive officers directors certain key employees company subject service restrictions expire ratably periods three five years restricted shares common stock may sold transferred restriction period stock compensation restricted stock recorded based stock price grant date charged expense ratably restriction period following table summarizes information restricted stock activity year ended december 31 2010 unrecognized pretax expense 14 million related restricted stock awarded 2000 plan expected recognized weighted average remaining service period 13 years awards outstanding december 31 2010 bruker energy supercon technologies stock plan october 2009 board directors best adopted bruker energy supercon technologies inc 2009 stock option plan best plan best plan provides issuance 1600000 shares best common stock connection awards best plan best plan allows committee best board directors grant incentive stock options nonqualified stock options restricted stock awards compensation committee best board directors authority determine employees receive awards amount awards terms conditions awards december 31 2010 2009 800000 730000 incentive stock options nonqualified stock options respectively awarded key employees directors company vesting periods three five years december 31 2010 restricted stock awarded best plan 2010 2009 company recorded approximately 05 million 01 million respectively pretax compensation expense related awards granted best plan unrecognized pretax expense 17 million related stock options awarded best plan expected recognized weighted average remaining service period 33 years awards outstanding december 31 2010 note 17accumulated comprehensive income following summary components accumulated comprehensive income net tax december 31 millions note 18other charges net components charges net years ended december 31 2010 2009 2008 follows millions note 19restructuring activities 2010 company recorded restructuring charges 02 million related primarily severance incurred connection closing production facility herzogenrath germany relocating associated operations herzogenrath program charges relate entirely scientific instruments segment recorded component charges net consolidated statement income company expect incur additional costs related move related severance payments paid december 31 2010 2008 company recorded restructuring charges 23 million consisted primarily severance costs associated restructuring certain operations netherlands program charges relate entirely scientific instruments segment recorded component charges net consolidated statement income approximately 22 million restructuring charges related involuntary severance program approximately 30 employees left company balance related exit costs associated terminating certain leases 2009 company recorded additional 02 million net restructuring charges related involuntary severance component netherlands program recorded component charges net consolidated statement income impact program reduced number employees sales marketing research development consolidated selling developments efforts companys single crystal xray diffraction products following table sets forth changes reserves restructuring charges years ended december 31 2010 2009 millions note 20impairment charges 2009 company recorded impairment charge 07 million consisted equipment used production certain superconducting wire impairment loss recorded company determined carrying value assets exceeded estimated undiscounted operating cash flows generated asset group amount impairment charge determined comparing fair value asset group carrying value company determined fair value asset group using income approach methodology valuation includes discounted cash flow method impairment charge allocated energy supercon technologies segment recorded component charges net consolidated statements income note 21interest income expense net components interest income expense net years ended december 31 2010 2009 2008 follows millions note 22business segment information company determined five operating segments based information reviewed chief operating decision maker representing five divisions bruker biospin bruker daltonics bruker mat bruker optics bruker energy supercon technologies bruker biospin business designing manufacturing distributing enabling life science tools based magnetic resonance technology bruker daltonics business manufacturing distributing mass spectrometry gas chromatography instruments integrated used along analytical instruments companys cbrne detection products bruker mat business manufacturing distributing advanced xray sparkoptical emission spectroscopy atomic force microscopy stylus optical metrology instrumentation used nondestructive molecular elemental analysis bruker optics business manufacturing distributing research analytical process analysis instruments solutions based infrared raman molecular spectroscopy technologies bruker energy supercon technologies business developing producing low temperature superconductor high temperature superconductor materials use advanced magnet technology energy applications well linear accelerators accelerator cavities insertion devices superconducting fault current limiters accelerator components specialty superconducting magnets physics energy research variety scientific applications companys reportable segments organized types products services provided company combined bruker biospin bruker daltonics bruker mat bruker optics operating segments scientific instruments reporting segment similar economic characteristics product processes services types classes customers methods distribution regulatory environments management evaluates segment operating performance allocates resources based operating income loss company uses measure helps provide understanding core operating results selected business segment information presented years ended december 31 millions arepresents product service revenue reportable segments brepresents corporate costs eliminations allocated reportable segments total assets segment years ended december 31 follows millions aassets allocated reportable segments eliminations intercompany transactions total capital expenditures depreciation amortization segment years ended december 31 2010 2009 2008 follows millions revenue longlived assets geographical area years ended december 31 2010 2009 2008 follows millions geographic information presented reflects revenue based location customer net longlived assets based physical location asset note 23related parties company rents office space certain principal shareholders multiple leases expiration dates ranging 2011 2017 total rent expense leases 24 million 21 million 18 million years ended december 31 2010 2009 2008 respectively years ended december 31 2010 2009 2008 company incurred expenses 29 million 11 million 23 million respectively law firm one directors partner years ended december 31 2010 2009 2008 company incurred expenses 03 million 06 million 09 million respectively financial services firm one directors partner note 24recent accounting pronouncements september 2009 emerging issues task force eitf reached consensus financial accounting standards board fasb accounting standards update asu 200914 software topic 985certain revenue arrangements include software elements fasb asu 200914 changes accounting model revenue arrangements include tangible products software elements guidance tangible products containing software components nonsoftware components function together deliver tangible products essential functionality excluded software revenue guidance subtopic 985605 softwarerevenue recognition addition hardware components tangible product containing software components always excluded software revenue guidance fasb asu 200914 effective prospectively revenue arrangements entered materially modified fiscal years beginning june 15 2010 however early adoption permitted company expect adoption update material impact results operations financial position september 2009 eitf reached consensus fasb asu 200913 revenue recognition topic 605multipledeliverable revenue arrangements fasb asu 200913 addresses accounting multipledeliverable arrangements enable vendors account products services separately rather combined unit specifically guidance amends criteria subtopic 60525 revenue recognitionmultipleelement arrangements separating consideration multipledeliverable arrangements guidance establishes selling price hierarchy determining selling price deliverable based vendorspecific objective evidence b thirdparty evidence c estimates guidance also eliminates residual method allocation requires arrangement consideration allocated inception arrangement deliverables using relative selling price method addition guidance significantly expands required disclosures related vendors multipledeliverable revenue arrangements fasb asu 200913 effective prospectively revenue arrangements entered materially modified fiscal years beginning june 15 2010 however early adoption permitted company expect adoption update material impact results operations financial position note 25subsequent events unaudited february 2011 company entered definitive merger agreement acquire michrom bioresources inc privately owned company based california usa provides high performance liquid chromatography instrumentation accessories consumables life science market acquisition subject customary closing conditions company expects complete acquisition april 2011 note 26quarterly financial data unaudited summary operating results quarterly periods two years ended december 31 2010 2009 set forth millions except per share data item 9item 8 financial statements supplementary data page report ernst young llp independent registered public accounting firm consolidated balance sheets december 31 2011 2010 consolidated statements income years ended december 31 2011 2010 2009 consolidated statements shareholders equity comprehensive income years ended december 31 2011 2010 2009 consolidated statements cash flows years ended december 31 2011 2010 2009 notes consolidated financial statements report independent registered public accounting firm board directors shareholders bruker corporation audited accompanying consolidated balance sheets bruker corporation december 31 2011 2010 related consolidated statements income shareholders equity comprehensive income cash flows three years period ended december 31 2011 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position bruker corporation december 31 2011 2010 consolidated results operations cash flows three years period ended december 31 2011 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states bruker corporations internal control financial reporting december 31 2011 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated february 29 2012 expressed unqualified opinion thereon ernst young llp boston massachusetts february 29 2012 bruker corporation consolidated balance sheets millions except share per share data accompanying notes integral part financial statements bruker corporation consolidated statements income millions except per share data accompanying notes integral part financial statements bruker corporation consolidated statements shareholders equity comprehensive income millions except per share data bruker corporation consolidated statements shareholders equity comprehensive income continued millions except per share data bruker corporation consolidated statements shareholders equity comprehensive income continued millions except per share data accompanying notes integral part financial statements bruker corporation consolidated statements cash flows millions accompanying notes integral part financial statements bruker corporation notes consolidated financial statements note 1description business bruker corporation together consolidated subsidiaries bruker company designer manufacturer proprietary life science materials research systems associated products address rapidly evolving needs diverse array customers life science pharmaceutical biotechnology clinical molecular diagnostics research well materials chemical analysis various industries government applications companys core technology platforms include magnetic resonance technologies mass spectrometry technologies gas chromatography technologies xray technologies sparkoptical emission spectroscopy atomic force microscopy stylus optical metrology technology infrared raman molecular spectroscopy technologies company also manufactures distributes broad range field analytical systems chemical biological radiological nuclear explosives cbrne detection company develops manufactures superconducting nonsuperconducting materials devices use renewable energy infrastructure healthcare big science research company maintains major technical manufacturing centers europe north america japan sales offices located throughout world companys diverse customer base includes life science pharmaceutical biotechnology molecular diagnostic research companies academic institutions advanced materials semiconductor manufacturers government agencies management reports results basis following two segments •scientific instruments operations segment include design manufacture distribution advanced instrumentation automated solutions based magnetic resonance technology mass spectrometry technology gas chromatography technology xray technology sparkoptical emission spectroscopy technology atomic force microscopy technology stylus optical metrology technology infrared raman molecular spectroscopy technology typical customers scientific instruments segment include pharmaceutical biotechnology molecular diagnostic companies academic institutions medical schools nonprofit organizations clinical microbiology laboratories government departments agencies nanotechnology semiconductor chemical cement metals petroleum companies food beverage agricultural analysis companies laboratories •energy supercon technologies operations segment include design manufacture marketing superconducting materials primarily metallic low temperature superconductors use magnetic resonance imaging nuclear magnetic resonance fusion energy research applications ceramic high temperature superconductors primarily fusion energy research applications typical customers energy supercon technologies segment include companies medical industry private public research development laboratories fields fundamental applied sciences energy research academic institutions government agencies energy supercon technologies segment also developing superconductors superconductingenabled devices applications power energy well industrial processing industries note 2summary significant accounting policies accompanying consolidated financial statements reflect application certain significant accounting policies described elsewhere notes consolidated financial statements principles consolidation accompanying consolidated financial statements include accounts company majority whollyowned subsidiaries intercompany accounts transactions eliminated noncontrolling interests noncontrolling interests represents minority shareholders proportionate share companys majorityowned indirect subsidiaries portion net income net loss attributable noncontrolling interests presented net income loss attributable noncontrolling interests consolidated subsidiaries consolidated statements income portion comprehensive income subsidiaries presented consolidated statements shareholders equity comprehensive income subsequent events company evaluated subsequent events determined material recognized unrecognized subsequent events except disclosed note 10debt cash equivalents cash equivalents consist primarily highly liquid investments original maturities three months less date acquisition cash equivalents primarily include cash hand money market funds time deposits time deposits represent amounts deposit banks temporarily invested instruments maturities three months less time purchase certain investments represent deposits insured fdic government agency cash equivalents carried cost approximates market value restricted cash certain customers require company provide bank guarantees customer advances generally lines credit satisfy requirement however extent required guarantee exceeds available local line credit company maintains restricted cash balances restricted cash balances classified noncurrent unless terms various agreements funds released restrictions within one year balance sheet date december 31 2011 company 61 million restricted cash 39 million classified noncurrent december 31 2010 company 64 million restricted cash 35 million classified noncurrent derivative financial instruments derivatives whether designated hedging relationship recorded consolidated balance sheets fair value accounting changes fair value derivative instrument depends whether designated qualifies part hedging relationship type hedging relationship derivative instruments designated qualify hedging instruments company must designate hedging instrument based exposure hedged fair value hedge cash flow hedge net investment foreign operation fair value hedge derivative instrument designated purpose hedging exposure changes fair value asset liability resulting particular risk derivative designated fair value hedge changes fair value derivative hedged item attributable hedged risk recognized caption consolidated statements income cash flow hedge derivative instrument designated purpose hedging exposure variability future cash flows resulting particular risk derivative designated cash flow hedge effective portions changes fair value derivative recorded accumulated comprehensive income recognized results operations hedged item affects earnings ineffective portions changes fair value cash flow hedges recognized results operations hedge net investment foreign operation achieved derivative instrument designated purpose hedging exposure changes value investments foreign subsidiaries derivative designated hedge net investment foreign operation effective portions changes fair value derivative recorded comprehensive income part currency translation adjustment ineffective portions net investment hedges recognized results operations derivative instruments designated hedging instruments changes fair value recognized results operations current period fair value company applies following hierarchy prioritizes inputs used measure fair value three levels bases categorization within hierarchy upon lowest level input available significant fair value measurement levels hierarchy defined follows •level 1 inputs valuation methodology quoted prices unadjusted identical assets liabilities active markets •level 2 inputs valuation methodology include quoted prices similar assets liabilities active markets inputs observable asset liability either directly indirectly substantially full term financial instrument •level 3 inputs valuation methodology unobservable significant fair value measurement companys financial instruments consist primarily cash equivalents restricted cash derivative instruments consisting forward foreign exchange contracts commodity contracts derivatives embedded certain purchase sale contracts interest rate swap accounts receivable shortterm borrowings accounts payable longterm debt carrying amounts companys cash equivalents restricted cash accounts receivable shortterm borrowings accounts payable approximate fair value due shortterm nature derivative assets liabilities measured fair value recurring basis companys longterm debt consists variable rate arrangements interest rates reset every three months result reflect currently available terms conditions consequently carrying value companys longterm debt approximates fair value company evaluated estimated fair value financial instruments using available market information managements estimates use different market assumptions andor estimation methodologies could significant effect estimated fair value amounts concentration credit risk financial instruments subject company credit risk consist cash equivalents derivative instruments accounts receivables risk respect cash equivalents minimized companys policy investing shortterm financial instruments issued highlyrated financial institutions risk respect derivative instruments minimized companys policy entering arrangements highlyrated financial institutions risk respect accounts receivables minimized creditworthiness diversity companys customers company performs periodic credit evaluations customers financial condition generally requires advanced deposit portion purchase price credit losses within managements expectations allowance doubtful accounts totaled 56 million 51 million december 31 2011 2010 respectively december 31 2011 2010 single customer represented 10 companys accounts receivable years ended december 31 2011 2010 2009 single customer represented 10 companys revenue inventories components inventory include raw materials workinprocess demonstration units finished goods demonstration units include systems located companys demonstration laboratories installed sites potential customers considered available sale finished goods include intransit systems shipped companys customers yet installed accepted customer inventories stated lower cost market cost determined principally firstin firstout method majority subsidiaries averagecost certain international subsidiaries company reduces carrying value inventories differences cost estimated net realizable value taking consideration usage preceding twelve months expected demand technological obsolescence information including physical condition demonstration intransit inventories company records charge cost revenue amount required reduce carrying value inventory net realizable value costs associated procurement warehousing inventories inbound freight charges purchasing receiving costs also included cost revenue line item within consolidated statements income property plant equipment property plant equipment stated cost less accumulated depreciation amortization major improvements capitalized expenditures maintenance repairs minor improvements charged expense incurred assets retired otherwise disposed assets related accumulated depreciation amortization eliminated accounts resulting gain loss reflected consolidated statements income depreciation amortization calculated straightline basis estimated useful lives assets follows goodwill intangible assets goodwill amortized evaluated impairment reporting unit basis annually interim basis events changes circumstances indicate carrying value may recoverable assessing recoverability goodwill company must make assumptions regarding estimated future cash flows factors determine fair value assets estimates related assumptions change future company may required record impairment charges assets reporting period impairment determined goodwill impairment evaluation includes comparison carrying value reporting unit fair value reporting unit reporting units estimated fair value exceeds reporting units carrying value impairment goodwill exists fair value reporting unit exceed carrying value analysis would required determine amount impairment year ended december 31 2011 company elected adopt accounting standards update asu 201108 intangiblesgoodwill topic 350 testing goodwill impairment asu 201108 asu 201108 company option assess qualitative factors determine whether existence events circumstances leads determination likely fair value reporting unit less carrying amount determine whether impairment testing necessary based results qualitative review goodwill performed december 31 2011 company identify indicators impairment twophase process necessary intangible assets finite useful life amortized straightline basis estimated useful lives follows acquired process research development iprd represents ongoing development work associated enhancements existing products well development next generation products iprd initially capitalized fair value intangible asset indefinite life assessed impairment annual basis indicators impairment identified iprd project complete reclassified finitelived intangible asset amortized estimated useful life typically seven 10 years iprd project abandoned completion determined impaired value asset amount impairment charged consolidated statements income period project abandoned impaired impairment longlived assets impairment losses recorded longlived assets used operations indicators impairment present quoted market price available estimated undiscounted operating cash flows generated assets less assets carrying value impairment losses charged consolidated statements income difference fair value carrying value asset warranty costs deferred revenue company typically provides one year parts labor warranty purchase equipment anticipated cost warranty accrued upon recognition sale included current liability accompanying consolidated balance sheets companys warranty reserve reflects estimated material labor costs potential product issues company expects incur obligation companys estimates anticipated rates warranty claims costs primarily based historical information future forecasts company assesses adequacy warranty reserve quarterly basis adjusts amount necessary historical data used calculate adequacy warranty reserve indicative future requirements additional reduced warranty reserves may required company also offers customers extended warranty service agreements extending beyond initial warranty fee fees recorded deferred revenue based relative fair value recognized ratably income life extended warranty contract extended warranty period commenced income taxes company accounts income taxes using asset liability approach recognizing deferred tax assets liabilities expected future tax consequences differences financial statement basis tax basis assets liabilities calculated using enacted tax rates effect year differences expected reflected tax return addition company required record valuation allowance net deferred tax assets based upon available evidence likely deferred tax assets realized addition company accounts uncertain tax positions reached minimum recognition threshold customer advances company typically requires advance deposit terms conditions contracts customers deposits recorded liability revenue recognized specific contract accordance companys revenue recognition policy revenue recognition company recognizes revenue systems sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectability resulting receivable reasonably assured title risk loss generally transferred customer upon receipt signed customer acceptance system shipped installed customer trained result timing customer acceptance readiness could cause companys reported revenues differ materially expectations products sold independent distributor strategic distribution partner assumes responsibility installation company recognizes revenue products shipped title risk loss transferred companys distributors price protection rights return however products warranted free defect period typically one year revenue deferred cash received collectability reasonably assured significant portion fee due one year delivery installation acceptance system september 2009 financial accounting standards board fasb ratified asu 200913 revenue recognition topic 605multipledeliverable revenue arrangements asu 200913 amends existing revenue recognition accounting standards currently within scope accounting standards codification asc 605 subtopic 25multipleelement arrangements asu 200913 provides three significant changes existing guidance multiple element arrangements •removes requirement objective reliable evidence fair value undelivered elements arrangement may result deliverables treated separate units accounting •modifies manner arrangement consideration allocated separately identified deliverables asu 200913 requires entity allocate revenue arrangement based fair value deliverable using best estimate selling prices esp deliverables vendor vendorspecific objective evidence fair value vsoe thirdparty evidence fair value tpe vsoe available •eliminates use residual method requires entity allocate revenue using relative selling prices method results discount transaction evenly allocated separate units accounting additionally september 2009 fasb ratified asu 200914 software topic 985certain revenue arrangements include software elements amendments asu 200914 provide tangible products containing software components nonsoftware components function together deliver tangible products essential functionality longer within scope software revenue recognition guidance accounting standards codification asc topic 985605 software revenue recognition asc 985605 follow guidance asu 200913 multipleelement arrangements company adopted new accounting standards beginning first fiscal quarter 2011 prospective basis transactions originating materially modified january 1 2011 accounting standards generally change units accounting companys revenue transactions products services qualify separate units accounting case previous accounting guidance impact adopting new accounting standards material companys financial statements year ended december 31 2011 applied manner would material impact revenue recorded 2010 2009 interim periods therein transactions entered subsequent adoption asu 200913 include multiple elements arrangement consideration allocated element based relative selling prices elements arrangement using fair value hierarchy required asu 200913 company limits amount revenue recognized delivered elements amount contingent future delivery products services future performance obligations subject customerspecific return refund privileges company attempts determine fair value products services based vsoe company determines vsoe based normal selling pricing discounting practices specific product service sold standalone basis determining vsoe companys policy requires substantial majority selling prices product service within reasonably narrow range company also considers class customer method distribution geographies products services sold determining vsoe cannot established may occur instances product service sold separately standalone sales infrequent product pricing within sufficiently narrow range company attempts establish selling price based tpe determined based competitor prices similar deliverables sold separately company typically able determine tpe products services tpe determined based competitor prices similar elements sold licensed separately generally companys offerings contain significant level differentiation comparable pricing products similar functionality cannot determined furthermore company unable reliably determine selling prices standalone basis similar products offered competitors company cannot determine vsoe tpe uses esp allocation arrangement consideration objective esp determine price company would typically transact standalone sale product service esp determined considering number factors including companys pricing policies internal costs gross profit objectives method distribution market research information recent technological trends competitive landscape geographies company plans analyze selling prices used allocation arrangement consideration minimum annual basis selling prices analyzed frequently significant change companys business necessitates frequent analysis company experiences significant variances selling prices revenue sale accessories parts recognized upon shipment service revenue recognized services performed company also contracts applies percentageofcompletion model revenue recognition milestone model revenue recognition application percentageofcompletion method requires company make reasonable estimates extent progress toward completion contract total costs company incur contract changes estimates progress toward completion contract total costs could affect timing revenue recognition revenues comprised primarily research grants licensing arrangements grant revenue recognized requirements grant agreement achieved licensing revenue recognized ratably term related contract shipping handling costs company records costs incurred connection shipping handling products marketing selling expenses shipping handling costs 287 million 208 million 140 million years ended december 31 2011 2010 2009 respectively amounts billed customers connection costs included revenues research development research development costs expensed incurred include salaries wages personnel related costs material costs depreciation consulting costs facility costs software costs purchased software capitalized cost amortized estimated useful life generally three years software developed use companys products expensed incurred technological feasibility reasonably assured classified research development expense subsequent achievement technological feasibility amounts capitalizable however date amounts material advertising company expenses advertising costs incurred advertising expenses 81 million 91 million 69 million years ended december 31 2011 2010 2009 respectively stockbased compensation company recognizes stockbased compensation expense consolidated statements income based fair value sharebased award grant date companys primary types sharebased compensation stock options restricted stock company recorded stockbased compensation expense years ended december 31 2011 2010 2009 follows millions compensation expense amortized straightline basis underlying vesting terms sharebased award stock options purchase companys common stock periodically awarded executive officers employees company subject vesting period three five years fair value option award estimated date grant using blackscholes optionpricing model assumptions regarding volatility expected term dividend yield riskfree interest rate required blackscholes model presented table riskfree interest rate based yield zerocoupon us treasury securities period commensurate expected life assumption expected life determined simplified method defined securities exchange commission staff accounting bulletin 110 company believes best estimate expected term new option expected volatility based number factors company currently believes exclusive use historical volatility results best estimate grantdate fair value employee stock options reflects markets current expectations future volatility expected dividend yield considered option pricing formula since company pay dividends current plans future terms companys indebtedness also currently restrict ability pay dividends shareholders addition company utilizes estimated forfeiture rate calculating stockbased compensation expense period company applied estimated forfeiture rates derived analysis historical data 52 54 58 years ended december 31 2011 2010 2009 respectively determining expense recorded accompanying consolidated statements income weighted average fair values options granted 789 856 583 per share years ended december 31 2011 2010 2009 respectively earnings per share net income per common share attributable bruker corporation shareholders calculated dividing net income attributable bruker corporation weightedaverage shares outstanding period diluted net income per share computation includes effect shares would issuable upon exercise outstanding stock options vesting restricted stock reduced number shares assumed purchased company treasury stock method following table sets forth computation basic diluted weighted average shares outstanding years ended december 31 millions except per share data stock options purchase approximately 01 million shares 07 million shares 23 million shares excluded computation diluted earnings per share years ended december 31 2011 2010 2009 respectively effect would antidilutive employee retirement plans company recognizes overfunded underfunded status defined benefit pension postretirement defined benefit plans asset liability respectively consolidated statement financial position recognizes changes funded status year changes occur comprehensive income comprehensive income comprehensive income refers revenues expenses gains losses accounting principles generally accepted united states included comprehensive income excluded net income amounts recorded directly adjustment shareholders equity net tax companys comprehensive income composed primarily foreign currency translation adjustments changes funded status defined benefit pension plans changes fair value derivatives designated cash flow hedges foreign currency translation assets liabilities companys foreign subsidiaries functional currency local currency translated us dollars using yearend exchange rates historical rates appropriate revenues expenses foreign subsidiaries translated average exchange rates effect year adjustments resulting financial statement translations included separate component shareholders equity gains losses resulting foreign currency transactions reported interest income expense net consolidated statements income periods presented company may periodically certain intercompany foreign currency transactions deemed longterm investment nature exchange adjustments related transactions made directly separate component shareholders equity risk uncertainties company subject risks common industry including limited global economic conditions rapid technological change spending patterns customers protection intellectual property availability key raw materials components compliance existing future regulation government agencies dependence key personnel fluctuations foreign currency exchange rates contingencies company subject proceedings lawsuits claims related patents product matters company assesses likelihood adverse judgments outcomes matters well potential ranges probable losses determination amount reserves required contingencies made careful analysis individual issue required reserves may change future due new developments situation changes settlement strategy dealing matters use estimates preparation financial statements conformity accounting principles generally accepted united states requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant estimates judgments relied upon management preparing financial statements include revenue recognition allowances doubtful accounts reserves excess obsolete inventory expensing capitalization research development costs software estimated fair values longlived assets used record impairment charges related intangible assets goodwill intangible asset valuations amortization periods expected future cash flows used evaluate recoverability longlived assets stockbased compensation expense warranty allowances restructuring related charges contingent liabilities recoverability companys net deferred tax assets although company regularly reassesses assumptions underlying estimates actual results could differ materially estimates changes estimates recorded period become known company bases estimates historical experience various assumptions believes reasonable circumstances actual results may differ managements estimates results differ historical experience assumptions prove substantially accurate even assumptions reasonable made prior year financial statement reclassification consolidated statement income year ended december 31 2011 reflects amortization certain technologyrelated intangible assets recorded component cost revenue order conform current year presentation company shown 43 million 11 million amortization expense component cost revenue years ended december 31 2010 2009 respectively provide better reflection function underlying intangible assets amounts reclassified previously recorded selling general administrative expense component operating expenses reclassification amounts effect companys previously reported results operations cash flows years ended december 31 2010 2009 note 3acquisitions acquisitions completed 2011 october 2011 company completed acquisition center tribology inc tribology business privately owned company based california us acquired business provides nanomechanical tribological test instrumentation basic materials research industrial manufacturing range fields including biomedical petroleum microelectronics energy automotive markets tribology business expands companys nano surfaces business adjacent market company could previously address company acquired tribology business 127 million cash contingent consideration arrangement could require company pay former shareholder tribology business additional 15 million years 2012 2013 former shareholder tribology business earn contingent consideration certain revenue gross profit margin targets achieved 2012 2013 employment continues company purchase agreement 16 million purchase price paid escrow pending resolution indemnification obligations working capital obligations former shareholder acquired business company anticipates final settlement amounts escrow occur fourth quarter 2012 april 2011 company completed acquisition michrom bioresources inc hplc business privately owned company based california us provides high performance liquid chromatography instrumentation accessories consumables life science market high performance liquid chromatography chromatographic technique separate mixture compounds often used frontend mass spectrometer identify quantify purify individual components sample acquisition hplc business expands companys mass spectrometry businesses company acquired hplc business 11 million cash 134362 shares unrestricted common stock 156823 shares restricted common stock restricted common stock vest five year period contingent continuing employment company purchase agreement 01 million cash 10 total shares issued paid escrow pending resolution indemnification obligations working capital obligations former shareholders acquired business company anticipates final settlement amounts escrow occur fourth quarter 2012 acquisition tribology business hplc business accounted acquisition method components consideration transferred allocation consideration transferred businesses follows millions fair value 134362 shares unrestricted common stock issued connection hplc business determined based closing market price companys common shares acquisition date 2128 per share fair value contingent consideration arrangement acquisition tribology business included total consideration transferred forfeited former shareholders employment terminated similarly fair value restricted common stock issued acquisition hplc business included total consideration transferred forfeited former shareholders employment terminated arrangements forfeited employment terminated amounts considered compensation postcombination service accounted compensation expense period contingent amounts earned company yet completed final allocation consideration transferred connection tribology business expects complete final allocation within measurement period allocation consideration transferred connection hplc business completed fourth quarter 2011 acquisition tribology business hplc business made prices fair value net acquired assets resulting 35 million 12 million goodwill respectively company willing pay prices based expectations synergies result combining businesses companys existing operations synergies include expanded product offerings adjacent markets company previously able address comprehensive manner leveraging selling general administrative expenses performing purchase price allocation company considered among factors intention future use acquired assets analyses historical financial performance estimates future cash flows tribology hplc products services purchase price allocated based upon fair value identified assets acquired liabilities assumed acquisition date market participants perspective company used multiperiod excessearnings method form income approach value existing technology patents related tribology hplc businesses principle behind method value intangible asset equal present value aftertax cash flows attributable intangible asset company also used multiperiod excessearnings method value customer relationships acquired connection hplc business iprd acquired tribology business multiperiod excessearnings method used value customer relationships acquired connection hplc business customer relationships deemed one primary cash generating assets acquired transaction company used lostprofitavoided cost method form income approach value distributor relationships related tribology business principle behind method economic value asset estimated based total costs avoided asset place company used relief royalty method form income approach value tradenames acquired hplc business principle behind method value intangible asset equal present value aftertax royalty savings attributable owning intangible asset weightedaverage amortization periods intangible assets acquired connection tribology hplc businesses 71 years existing technology related patents 68 years customer distributor relationships 1 year tradenames iprd carried initial fair value amortized expense upon completion development becomes unfeasible abandoned carrying value iprd expensed period occurs transaction costs associated acquisition tribology hplc businesses expensed incurred company incurred 11 million expenses included charges net consolidated statements income year ended december 31 2011 costs consist primarily professional fees results tribology hplc businesses included scientific instruments segment date acquisition pro forma financial information reflecting acquisition businesses presented impact revenues net income net income per common share attributable bruker corporation shareholders material acquisitions completed 2010 october 2010 company completed acquisition veeco metrology inc scanning probe microscopy optical industrial metrology instruments business nano surfaces business veeco instruments inc veeco cash consideration 2304 million company financed acquisition 1676 million borrowed revolving credit agreement balance cash hand acquired business complements companys existing atomic force microscopy products expanded companys offerings industrial applied markets specifically fields materials nanotechnology research analysis purchase agreement 229 million purchase price paid escrow pending resolution indemnification obligations working capital obligations seller october 2011 escrow released veeco may 2010 company completed acquisition three former varian inc varian product lines agilent technologies inc agilent divested connection acquisition varian company acquired certain assets assumed certain liabilities varians inductively coupled plasma mass spectrometry instruments business gas chromatography instruments business gas chromatography triplequadrupole mass spectrometry instruments business collectively chemical analysis business cash consideration 375 million acquired business complements companys existing mass spectrometry products expands companys offerings industrial applied markets acquisitions nano surfaces business chemical analysis business accounted acquisition method components consideration transferred allocation consideration transferred businesses including measurement period adjustments recorded 2011 follows millions company finalized allocation consideration transferred connection nano surfaces business third quarter 2011 company finalized allocation consideration transferred connection chemical analysis business fourth quarter 2010 measurement period adjustments made acquisition date fair values nano surfaces business 2011 consisted reclassification 20 million goodwill intangible assets connection finalizing fair value license agreement acquired transaction acquisitions nano surfaces business chemical analysis business made prices fair value net acquired assets resulting 490 million 04 million goodwill respectively company willing pay prices based expectations synergies result combining businesses companys existing operations synergies include expanded product offerings applied analytical markets company previously able address comprehensive manner leveraging selling general administrative expenses transaction costs associated acquisitions nano surfaces chemical analysis businesses expensed incurred company incurred 31 million 46 million expenses included charges net consolidated statements income years ended december 31 2011 2010 respectively costs incurred 2011 consist primarily transition costs whereby agilent veeco providing administrative services behalf company defined periods transition service arrangements expired 2011 2010 transaction costs include 28 million transition costs provided agilent veeco transaction expenses 18 million consisting various professional fees results nano surfaces business chemical analysis business included scientific instruments segment date acquisition following table sets forth pro forma financial information reflecting acquisition nano surfaces business acquisition occurred january 1 2009 years ended december 31 millions except per share date pro forma financial information reflecting acquisition chemical analysis business presented impact revenues net income net income per common share attributable bruker corporation shareholders material note 4fair value financial instruments company measures following financial assets liabilities fair value recurring basis following table sets forth companys financial instruments presents within fair value hierarchy using lowest level input significant fair value measurement december 31 2011 millions derivative financial instruments classified within level 2 active market hedge contract however inputs used calculate value instruments obtained active markets company measures eligible assets liabilities fair value changes fair value recognized earnings fair value treatment may elected either upon initial recognition eligible asset liability existing asset liability event triggers new basis accounting company elect remeasure existing financial assets liabilities elect fair value option financial assets liabilities transacted year ended december 31 2011 2010 note 5accounts receivable following summary trade accounts receivable december 31 millions allowance doubtful accounts managements estimate credit losses accounts receivable allowance doubtful accounts based number factors including evaluation customer credit worthiness age outstanding receivable economic trends historical experience allowance doubtful accounts reviewed quarterly basis changes estimates reflected period become known company writes account balances allowance means collection exhausted potential recovery considered remote provisions doubtful accounts recorded general administrative expenses following summary activity companys allowance doubtful accounts december 31 millions note 6inventories inventories consisted following december 31 millions company reduces carrying value demonstration inventories differences cost estimated net realizable value charge cost product revenue based number factors including age unit physical condition unit assessment technological obsolescence amounts recorded cost revenue related writedown demonstration units net realizable value 300 million 244 million 261 million years ended december 31 2011 2010 2009 respectively finished goods include intransit systems shipped companys customers yet installed accepted customer december 31 2011 2010 inventoryintransit 1168 million 853 million respectively note 7property plant equipment following summary property plant equipment major asset class december 31 millions depreciation expense includes amortization leasehold improvements years ended december 31 2011 2010 2009 348 million 303 million 279 million respectively note 8goodwill intangible assets following table sets forth changes carrying amount goodwill years ended december 31 2011 2010 millions december 31 2011 2010 goodwill allocated scientific instruments segment goodwill acquired 2011 relates acquisition tribology business hplc business goodwill acquired 2010 relates acquisition nano surfaces business chemical analysis business approximately 10 million related individually insignificant acquisitions impairment losses recorded goodwill years ended december 31 2011 2010 2009 following summary intangible assets december 31 millions years ended december 31 2011 2010 2009 company recorded amortization expense approximately 181 million 58 million 18 million respectively consolidated statements income impairment losses recorded related definitelived intangible assets years ended december 31 2011 2010 2009 estimated future amortization expense related amortizable intangible assets december 31 2011 follows millions note 9other current liabilities following summary current liabilities december 31 millions following table sets forth changes accrued warranty years ended december 31 2011 2010 millions note 10debt companys debt obligations consist following december 31 millions february 2008 company entered credit agreement referred credit agreement syndicate lenders provided revolving credit line maximum commitment 2300 million term loan facility 1500 million outstanding principal term loan payable quarterly installments december 2012 borrowings credit agreement accrued interest companys option either higher prime rate federal funds rate plus 050 ii adjusted libor plus margins ranging 040 125 facility fee ranging 010 020 may 2011 company entered amendment restatement credit agreement referred amended credit agreement company accounted amendment modification fasb asc 470 debt asc 470 amended credit agreement increases maximum commitment companys revolving credit line 2500 million extends maturity date may 2016 borrowings revolving credit line amended credit agreement accrue interest companys option either higher prime rate ii federal funds rate plus 050 iii adjusted libor plus 100 iv libor plus margins ranging 080 165 facility fee ranging 020 035 amended credit agreement impact maturity pricing companys existing term loan december 31 2011 weighted average interest rate borrowings term facility amended credit agreement approximately 28 borrowings amended credit agreement secured guarantees certain material subsidiaries defined amended credit agreement bruker energy supercon technologies inc amended credit agreement also requires company maintain certain financial ratios related maximum leverage minimum interest coverage defined amended credit agreement specifically companys leverage ratio cannot exceed 30 companys interest coverage ratio cannot less 30 addition financial ratios amended credit agreement restricts among things companys ability following make certain payments incur additional debt incur certain liens make certain investments including derivative agreements merge consolidate sell transfer substantially assets enter certain transactions affiliates failure comply restrictions covenants may result event default applicable debt instrument could permit acceleration debt instrument require company prepay debt scheduled due date december 31 2011 2010 company amounts outstanding totaling 2165 million 1855 million respectively revolving loan facility december 31 2011 accordance asc 470 company classified amounts outstanding revolving loan facility longterm ability intent refinance shortterm obligation longterm basis refinancing revolving loan amount completed january 2012 december 31 2010 amounts outstanding revolving loan facility classified shortterm borrowings january 18 2012 company entered note purchase agreement referred note purchase agreement group accredited institutional investors pursuant note purchase agreement company issued sold 2400 million senior notes referred senior notes senior notes issued company private placement consist following •20 million 316 series 2012a senior notes tranche due january 18 2017 •15 million 374 series 2012a senior notes tranche b due january 18 2019 •105 million 431 series 2012a senior notes tranche c due january 18 2022 •100 million 446 series 2012a senior notes tranche due january 18 2024 terms note purchase agreement company may issue sell additional senior notes aggregate principal amount 600 million subject certain conditions interest senior notes payable semiannually january 18 july 18 year commencing july 18 2012 senior notes unsecured obligations company fully unconditionally guaranteed certain companys direct indirect subsidiaries senior notes rank pari passu right repayment companys senior unsecured indebtedness company may prepay senior notes time amount less 10 original aggregate principal amount senior notes prepaid price equal sum 100 principal amount thereof plus accrued unpaid interest b applicable makewhole amount upon less 30 60 days written notice holders senior notes event change control defined note purchase agreement company may required prepay notes price equal 100 principal amount thereof plus accrued unpaid interest note purchase agreement contains affirmative covenants including without limitation maintenance corporate existence compliance laws maintenance insurance properties payment taxes addition subsidiary guarantors furnishing notices information note purchase agreement also contains certain restrictive covenants restrict companys ability among things incur liens transfer sell assets engage certain mergers consolidations enter transactions affiliates note purchase agreement also includes customary representations warranties events default case event default arising specified events bankruptcy insolvency outstanding senior notes become due payable immediately without action notice case payment events defaults holder senior notes affected thereby may declare senior notes held due payable immediately case event default majority holders senior notes may declare senior notes due payable immediately pursuant note purchase agreement long senior notes outstanding company permit leverage ratio determined pursuant note purchase agreement end fiscal quarter exceed 350 100 ii interest coverage ratio determined pursuant note purchase agreement end fiscal quarter period four consecutive fiscal quarters less 250 1 iii priority debt time exceed 25 consolidated net worth determined pursuant note purchase agreement annual maturities longterm debt outstanding december 31 2011 excluding amounts outstanding revolving loan facility amended credit agreement refinanced january 2012 follows millions interest expense years ended december 31 2011 2010 2009 73 million 56 million 75 million respectively following summary maximum commitments net amounts available company revolving loan arrangements december 31 2011 millions revolving loans various financial institutions located primarily germany switzerland france companys revolving lines credit typically due upon demand interest payable monthly certain lines credit unsecured others secured accounts receivable inventory related subsidiary note 11derivative instruments hedging activities interest rate risks companys exposure interest rate risk relates primarily outstanding variable rate debt adverse movements related shortterm market rates significant component companys interest rate risk relates amounts outstanding amended credit agreement april 2008 company entered interest rate swap arrangement manage exposure interest rate movements related effect variable rate debt interest rate swap arrangement company pays fixed rate approximately 38 receives variable rate based three month libor initial notional amount interest rate swap 900 million amortizes proportion term debt component amended credit agreement december 2012 december 31 2011 2010 notional amount interest rate swap 495 million 664 million respectively company concluded swap met criteria qualify effective hedge variability cash flows interest payments accounts interest rate swap cash flow hedge accordingly company reflects changes fair value effective portion interest rate swap accumulated comprehensive income separate component shareholders equity amounts recorded accumulated comprehensive income reclassified interest income expense net consolidated statement income either forecasted transaction occurs becomes probable forecasted transaction occur foreign exchange rate risk management company generates substantial portion revenues expenses international markets principally germany countries european union switzerland japan subjects operations exposure exchange rate fluctuations impact currency exchange rate movement positive negative period company periodically enters foreign currency contracts order minimize volatility fluctuations exchange rates cash flows arrangements company typically agrees purchase fixed amount foreign currency exchange fixed amount us dollars currencies specified dates maturities less twelve months transactions qualify hedge accounting accordingly instrument recorded fair value corresponding gains losses recorded consolidated statements income company following notional amounts outstanding foreign currency contracts december 31 millions addition company periodically enters purchase sales contracts denominated currencies functional currency parties transaction company accounts transactions separately valuing embedded derivative component contracts denominated currencies functional currency transacting parties amounted 348 million delivery products 49 million purchase products december 31 2011 161 million delivery products 03 million purchase products december 31 2010 changes fair value embedded derivatives recorded interest income expense net consolidated statements income commodity price risk management company arrangement customer firm commitment deliver copper based superconductors fixed price order minimize volatility fluctuations price copper companys sales commodities company enters commodity hedge contracts december 31 2011 2010 company fixed price commodity contracts notional amounts aggregating 39 million 29 million respectively changes fair value commodity contracts recorded interest income expense net consolidated statements income fair value derivative instruments described recorded consolidated balance sheets years ending december 31 2011 2010 follows millions losses recognized comprehensive income related effective portion interest rate swap designated hedging instrument years ending december 31 follows millions losses related effective portion interest rate swap designated hedging instrument reclassified comprehensive income recognized net income years ending december 31 follows millions company expects 11 million accumulated losses reclassified earnings next twelve months company recognize amounts related ineffectiveness results operations years ended december 31 2011 2010 2009 respectively impact net income unrealized gains losses resulting changes fair value derivative instruments designated hedging instruments years ending december 31 follows millions amounts recorded results operations related derivative instruments designated hedging instruments recorded interest income expense net note 12income taxes domestic foreign components income taxes follows years ended december 31 millions components income tax provision follows years ended december 31 millions reconciliation united states federal statutory rate effective income tax rate follows years ended december 31 tax effect temporary items give rise significant portions deferred tax assets liabilities follows december 31 millions valuation allowance determined assessment positive negative evidence whether likely deferred tax assets recoverable companys assessment made jurisdictionbyjurisdiction basis company fully reserved us net deferred tax assets predominantly net operating losses tax credit carryforwards companys inability project future profitability us beyond fiscal year 2012 represents sufficient negative evidence record valuation allowance certain deferred tax assets december 31 2011 company approximately 02 million us net operating loss carryforwards available reduce future taxable income expire various times 2021 approximately 443 million german trade tax net operating losses carried forward indefinitely company also us tax credits approximately 141 million available offset future tax liabilities expire various dates include research development tax credits 96 million expiring various times 2031 foreign tax credits 45 million expiring various times 2021 us operating loss tax credit carryforwards may subject limitations provisions internal revenue code company able release portion valuation allowance deferred tax assets us deferred tax liabilities arising identified intangible assets acquired connection tribology hplc businesses company maintains full valuation allowance deferred tax assets us deferred tax liabilities recorded connection acquisitions represents source future taxable income allows us utilize portion deferred tax assets company permanently reinvested earnings subsidiaries cumulative amount approximately 9207 million december 31 2011 therefore provided us income taxes could result distribution earnings us parent earnings ultimately distributed us form dividends otherwise shares subsidiaries sold transferred company would likely subject additional us income taxes net impact available foreign tax credits practical estimate amount unrecognized deferred us income taxes undistributed earnings company unrecognized tax benefits approximately 346 million december 31 2011 277 million recognized would result reduction companys effective tax rate tabular reconciliation beginning ending amount unrecognized tax benefits follows millions company recognizes penalties interest related unrecognized tax benefits provision income taxes december 31 2011 company approximately 56 million accrued penalties interest related uncertain tax positions included current liabilities consolidated balance sheet 13 million recorded year ended december 31 2011 company files returns many foreign state jurisdictions varying statutes limitations considers germany united states switzerland significant tax jurisdictions tax years 2003 2011 open tax years major taxing jurisdictions one companys swiss entities currently audited tax years 20032006 audit expected completed first half 2012 addition companys significant german subsidiaries tax audit years 20032008 audits expected completed second half 2012 company recorded additional 63 million 28 million reserves related audits 2011 2010 respectively note 13employee benefit plans defined benefit plans substantially companys employees switzerland france japan well certain employees germany covered companysponsored defined benefit pension plans retirement benefits generally earned based years service compensation active employment eligibility generally determined accordance local statutory requirements however level benefits terms vesting varies among plans net periodic pension cost components net periodic pension costs years ended december 31 follows millions company measures benefit obligation fair value plan assets december 31st year changes benefit obligations plan assets defined benefit pension plans accumulated benefit obligation funded status plans follows december 31 millions accumulated benefit obligation defined benefit pension plans 1455 million 1448 million december 31 2011 2010 respectively defined benefit pension plans accumulated benefit obligation projected benefit obligation excess plan assets december 31 2011 2010 following amounts recognized accompanying consolidated balance sheets companys defined benefit plans december 31 millions following pretax amounts recognized accumulated comprehensive income companys defined benefit plans december 31 millions range assumptions used defined benefit pension plans reflects different economic environments within various countries range assumptions used determine projected benefit obligations years ended december 31 follows determine expected longterm rate return pension plan assets company considers current expected asset allocations well historical expected returns various asset categories plan assets principal pension plans company applies expected rate return marketrelated value assets stabilizes variability assets expected return applied asset allocations asset category fair value companys pension plan assets december 31 2011 asset category level fair value hierarchy follows millions managing directors subsidiaries responsible setting policy serves framework allocating plan assets policy defines investment strategy including asset allocation ranges designed ensure benefit obligations plans met due investment strategy also targeted optimizing return investment within risk constraints plans managing directors appoint plan fiduciaries oversee investment allocation process includes selecting investment managers setting longterm strategic targets monitoring asset allocations target allocations 40 bonds including cash 35 equity investments 25 real estate mortgages target allocation ranges guidelines limitations occasionally plan fiduciaries approve allocations target range based number factors including market conditions estimated future benefit payments estimated future benefit payments based assumptions used measure companys benefit obligation december 31 2011 following benefit payments reflect future employee service appropriate millions benefit plans company sponsors various defined contribution plans cover certain domestic international employees company may make contributions plans discretion company contributed 37 million 25 million 27 million plans years ended december 31 2011 2010 2009 respectively note 14commitments contingencies operating leases certain buildings office equipment vehicles leased agreements accounted operating leases total rental expense operating leases 185 million 158 million 138 million years ended december 31 2011 2010 2009 respectively future minimum lease payments noncancelable operating leases december 31 2011 next five years follows millions capital leases company leases certain buildings agreements classified capital leases cost buildings capital leases included consolidated balance sheets property plant equipment 99 million 101 million december 31 2011 2010 respectively accumulated amortization leased buildings december 31 2011 2010 26 million 22 million respectively amortization expense related assets capital leases included depreciation expense obligations related capital leases recorded component longterm debt current portion longterm debt consolidated balance sheets depending lease payments due license agreements company entered crosslicensing agreements various technologies allow companies utilize certain patents related technologies periods ranging 21 30 years income agreements years ended december 31 2011 2010 2009 29 million 32 million 23 million respectively classified revenue consolidated statements income unearned portions proceeds crosslicensing agreements classified shortterm longterm deferred revenue depending revenue earned company also entered license agreements allowing utilize certain patents used connection commercial product sale company pays royalties ranging 015 500 related product revenues licensing fees years ended december 31 2011 2010 2009 28 million 18 million 21 million respectively recorded cost product revenue consolidated statements income grants company received certain grants government authorities united states germany grants made connection companys development specific magnetic resonance core technology equipment spectrometers related components standalone monitor chemical agents agreements grants awarded expiration dates ranging 2012 2015 amounts received grants years ended december 31 2011 2010 2009 totaled 40 million 38 million 45 million respectively classified revenue consolidated statement income total expenditures related grants 55 million 45 million 58 million respectively classified research development expenses consolidated statements income legal lawsuits claims proceedings nature considered normal businesses may pending time company believes outcome proceedings individually aggregate material impact companys financial position results operations december 31 2011 2010 accruals recorded potential contingencies internal investigation compliance matters previously reported 2011 audit committee companys board directors commenced internal investigation assistance independent outside counsel independent forensic consulting firm response certain anonymous communications received company alleging improper conduct connection china operations companys bruker optics subsidiary audit committees investigation included review compliance bruker optics employees china hong kong requirements foreign corrupt practices act fcpa applicable laws regulations completed investigation found evidence indicating payments made improperly benefited employees agents governmentowned enterprises china hong kong investigation also found evidence certain employees bruker optics china hong kong failed comply companys policies standards conduct result company taken personnel actions including termination certain individuals company also terminated business relationships certain third party agents implemented enhanced fcpa compliance program strengthened financial controls oversight subsidiaries operating china hong kong company management also initiated review china operations subsidiaries conducted assistance independent audit firm company voluntarily contacted united states securities exchange commission united states department justice august 2011 advise agencies internal investigation audit committee october 2011 company also reported existence internal investigation hong kong joint financial intelligence unit independent commission corruption icac company cooperated united states federal agencies hong kong government authorities respect inquiries provided documents andor made witnesses available response requests governmental authorities reviewing matter company intends continue cooperate agencies connection inquiries previously case time company cannot reasonably assess timing outcome matters effect companys business fcpa related statutes regulations provide potential monetary penalties well criminal civil sanctions connection fcpa violations possible monetary penalties sanctions could assessed federal government connection matters additionally extent payments determined illegal local government authorities civil criminal penalties may assessed authorities companys ability conduct business jurisdiction may negatively impacted time company cannot predict extent sec doj icac governmental authorities pursue administrative civil injunctive criminal proceedings imposition fines penalties remedies sanctions given current status inquiries agencies company cannot reasonably estimate possible loss range possible loss may result proceedings may commenced sec doj icac governmental authorities accordingly provision respect matters recorded accompanying consolidated financial statements adverse findings negative outcomes proceedings could material impact companys consolidated financial statements future periods letters credit guarantees december 31 2011 2010 company bank guarantees 1154 million 1088 million respectively related primarily customer advances warranty obligations arrangements guarantee refund advance payments received customers event merchandise delivered warranty obligations fulfilled compliance terms contract guarantees affect availability companys lines credit indemnifications company enters standard indemnification arrangements companys ordinary course business pursuant arrangements company indemnifies holds harmless agrees reimburse indemnified parties losses suffered incurred indemnified party generally companys business partners customers connection patent copyright intellectual property infringement claim third party respect products term indemnification agreements generally perpetual anytime execution agreement maximum potential amount future payments company could required make agreements unlimited company never incurred costs defend lawsuits settle claims related indemnification agreements result company believes estimated fair value agreements minimal company entered indemnification agreements directors officers may require company indemnify directors officers liabilities may arise reason status service directors officers liabilities arising willful misconduct culpable nature advance expenses incurred result proceeding could indemnified obtain directors officers insurance available reasonable terms company currently place environmental remediation former owner land building santa barbara california serves headquarters companys nano surfaces business disclosed hazardous substances present ground building management believes comprehensive indemnification clause included purchase agreement related acquisition nano surfaces business provides adequate protection environmental issues may arise note 15shareholders equity public offerings common stock 2010 company announced plans sell minority ownership position bruker energy supercon technologies inc best subsidiary initial public offering capital stock best result economic market factors completion timing offering uncertain dividends terms companys indebtedness currently restrict companys ability pay dividends shareholders stock plans bruker corporation stock plan february 2010 bruker biosciences corporation amended restated 2000 stock option plan 2000 plan expired end scheduled tenyear term march 9 2010 companys board directors unanimously approved adopted bruker corporation 2010 incentive compensation plan 2010 plan may 14 2010 plan approved companys stockholders 2010 plan provides issuance 8000000 shares companys common stock plan allows committee board directors committee grant incentive stock options nonqualified stock options restricted stock awards committee authority determine employees receive awards amount awards terms conditions award awards granted committee typically vest period three five years stock option activity year ended december 31 2011 follows addition options vested december 31 2011 company expects portion unvested options vest future options expected vest future determined applying estimated forfeiture rate options unvested december 31 2011 bthe aggregate intrinsic value based positive difference fair value companys common stock price 1242 december 31 2011 date exercises appropriate exercise price underlying stock options unrecognized pretax stockbased compensation expense 141 million related stock options awarded 2000 2010 plans expected recognized weighted average remaining service period 22 years stock options outstanding december 31 2011 restricted shares companys common stock periodically awarded executive officers directors certain key employees company subject service restrictions expire ratably periods three five years restricted shares common stock may sold transferred restriction period stockbased compensation restricted stock recorded based stock price grant date charged expense ratably restriction period following table summarizes information restricted stock activity year ended december 31 2011 unrecognized pretax stockbased compensation expense 33 million related restricted stock awarded 2000 plan expected recognized weighted average remaining service period 33 years awards outstanding december 31 2011 bruker energy supercon technologies stock plan october 2009 board directors best adopted bruker energy supercon technologies inc 2009 stock option plan best plan best plan provides issuance 1600000 shares best common stock connection awards best plan best plan allows committee best board directors grant incentive stock options nonqualified stock options restricted stock awards compensation committee best board directors authority determine employees receive awards amount awards terms conditions awards december 31 2011 2010 800000 incentive stock options nonqualified stock options respectively awarded key employees directors company vesting periods three five years march 2011 compensation committee best board directors approved additional option grants 384000 shares issued certain key employees effective upon subject closing initial public offering capital stock best awarded exercise price option grants equal closing price shares best common stock nasdaq global market first day trading following closing best initial public offering december 31 2011 restricted stock awarded best plan 2011 2010 company recorded approximately 05 million 05 million respectively pretax stockbased compensation expense related awards granted best plan unrecognized pretax stockbased compensation expense 12 million related stock options awarded best plan expected recognized weighted average remaining service period 23 years awards outstanding december 31 2011 note 16accumulated comprehensive income following summary components accumulated comprehensive income net tax december 31 millions note 17deferred offering costs september 2010 company announced plans sell minority ownership position best subsidiary initial public offering capital stock best result economic market factors timing best initial public offering uncertain although best remains registration company expensed 34 million deferred offering costs 2011 based uncertainty timing future offering costs recorded writeoff deferred offering costs consolidated statements income note 18other charges net components charges net years ended december 31 2011 2010 2009 follows millions 2011 company initiated plan eliminate atomic force microscopy operations berlin germany consolidate nano surfaces business facility santa barbara california connection plan referred table berlin program company recorded restructuring charges 13 million fourth quarter 2011 consisting 09 million severance costs 03 million provisions excess obsolete inventory 01 million fees connection implementing plan restructuring charges relate entirely scientific instruments provision excess inventory recorded component cost product revenue consolidated statement income remaining charges recorded component charges net consolidated statement income company expects record additional 07 million connection plan 2012 consisting 04 million severance employees required provide services beyond minimum retention period 03 million costs related relocation 2010 company recorded restructuring charges 02 million related primarily severance incurred connection closing production facility herzogenrath germany relocating associated operations referred table herzogenrath program charges relate entirely scientific instruments segment recorded component charges net consolidated statement income company expect incur additional costs related move related severance payments paid december 31 2010 following table sets forth changes reserves restructuring charges millions 2009 company recorded impairment charge 07 million consisted equipment used production certain superconducting wire impairment loss recorded company determined carrying value assets exceeded estimated undiscounted operating cash flows generated asset group amount impairment charge determined comparing fair value asset group carrying value company determined fair value asset group using income approach methodology valuation impairment charge allocated energy supercon technologies segment recorded component charges net consolidated statements income note 19interest income expense net components interest income expense net years ended december 31 2011 2010 2009 follows millions note 20business segment information company determined five operating segments based information reviewed chief operating decision maker representing five divisions bruker biospin bruker daltonics bruker mat bruker optics bruker energy supercon technologies bruker biospin business designing manufacturing distributing enabling life science tools based magnetic resonance technology bruker daltonics business manufacturing distributing mass spectrometry gas chromatography instruments integrated used along analytical instruments companys cbrne detection products bruker mat business manufacturing distributing advanced xray sparkoptical emission spectroscopy atomic force microscopy stylus optical metrology instrumentation used nondestructive molecular elemental analysis bruker optics business manufacturing distributing research analytical process analysis instruments solutions based infrared raman molecular spectroscopy technologies bruker energy supercon technologies business developing producing low temperature superconductor high temperature superconductor materials use advanced magnet technology energy applications well linear accelerators accelerator cavities insertion devices superconducting fault current limiters accelerator components specialty superconducting magnets physics energy research variety scientific applications companys reportable segments organized types products services provided company combined bruker biospin bruker daltonics bruker mat bruker optics operating segments scientific instruments reporting segment similar economic characteristics product processes services types classes customers methods distribution regulatory environments management evaluates segment operating performance allocates resources based operating income loss company uses measure helps provide understanding core operating results selected business segment information presented years ended december 31 millions arepresents product service revenue reportable segments brepresents corporate costs eliminations allocated reportable segments total assets segment years ended december 31 follows millions aassets allocated reportable segments eliminations intercompany transactions total capital expenditures depreciation amortization segment presented years ended december 31 millions revenue property plant equipment geographical area year ended december 31 follows millions note 21related parties company rents office space certain principal shareholders certain also members board directors multiple leases expiration dates ranging 2012 2021 total rent expense leases 24 million 24 million 21 million years ended december 31 2011 2010 2009 respectively years ended december 31 2011 2010 2009 company incurred expenses 32 million 29 million 11 million respectively law firm one members board directors partner years ended december 31 2011 2010 2009 company incurred expenses 05 million 03 million 06 million respectively financial services firm one members board directors partner note 22recent accounting pronouncements september 2011 fasb amended asc 350 intangiblesgoodwill amendment intended reduce cost complexity annual goodwill impairment test providing entities option perform qualitative assessment determine whether impairment testing necessary amended provisions effective reporting periods beginning december 15 2011 however early adoption permitted entitys financial statements recent annual interim period yet issued company adopted provisions amendment annual test impairment december 31 2011 however amendment impacts testing steps therefore adoption impact companys consolidated financial position results operations cash flows june 2011 fasb amended asc 220 comprehensive income amendment issued enhance comparability entities report gaap international financial reporting standards ifrs provide consistent method presenting nonowner transactions affect entitys equity amendment requires companies present components net income comprehensive income either one continuous statement two separate consecutive statements eliminates option report comprehensive income components part statement changes shareholders equity amended provisions effective fiscal years interim periods within years beginning december 15 2011 early adoption permitted full retrospective application required amendment impacts presentation disclosure therefore adoption impact companys consolidated financial position results operations cash flows may 2011 fasb issued asu 201104 fair value measurement topic 820 amendments achieve common fair value measurement disclosure requirements us gaap ifrs asu 201104 amendments update apply reporting entities required permitted measure disclose fair value asset liability instrument classified reporting entitys shareholders equity financial statements asu 201104 extend use fair value accounting provides guidance applied use already required permitted standards within us gaap ifrs asu 201104 changes wording used describe many requirements us gaap measuring fair value disclosing information fair value measurements additionally asu 201104 clarifies fasbs intent application existing fair value measurements amendments update applied prospectively public entities amendments effective interim annual periods beginning december 15 2011 early application public entities permitted company expect provisions asu 201104 material effect financial position results operations cash flows note 23quarterly financial data unaudited summary operating results quarterly periods years ended december 31 2011 2010 set forth millions except per share data item 9item 8 financial statements supplementary data page report ernst young llp independent registered public accounting firm consolidated balance sheets december 31 2012 2011 consolidated statements income comprehensive income years ended december 31 2012 2011 2010 consolidated statements shareholders equity years ended december 31 2012 2011 consolidated statements cash flows years ended december 31 2012 2011 notes consolidated financial statements report independent registered public accounting firm board directors shareholders bruker corporation audited accompanying consolidated balance sheets bruker corporation december 31 2012 2011 related consolidated statements income comprehensive income statements shareholders equity cash flows three years period ended december 31 2012 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position bruker corporation december 31 2012 2011 consolidated results operations cash flows three years period ended december 31 2012 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states bruker corporations internal control financial reporting december 31 2012 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated february 28 2013 expressed unqualified opinion thereon ernst young llp boston massachusetts february 28 2013 bruker corporation consolidated balance sheets millions except share per share data accompanying notes integral part financial statements bruker corporation consolidated statements income comprehensive income millions except per share data accompanying notes integral part financial statements bruker corporation consolidated statements shareholders equity millions except per share data accompanying notes integral part financial statements bruker corporation consolidated statements shareholders equity continued millions except per share data accompanying notes integral part financial statements bruker corporation consolidated statements shareholders equity continued millions except per share data accompanying notes integral part financial statements bruker corporation consolidated statements cash flows millions accompanying notes integral part financial statements bruker corporation notes consolidated financial statements note 1description business bruker corporation together consolidated subsidiaries bruker company designer manufacturer proprietary life science materials research systems associated products address rapidly evolving needs diverse array customers life science pharmaceutical biotechnology clinical molecular diagnostics research well materials chemical analysis various industries government applications companys core technology platforms include magnetic resonance technologies mass spectrometry technologies gas chromatography technologies xray technologies sparkoptical emission spectroscopy atomic force microscopy stylus optical metrology technology infrared raman molecular spectroscopy technologies company also manufactures distributes broad range field analytical systems chemical biological radiological nuclear explosives cbrne detection additionally company develops manufactures superconducting nonsuperconducting materials devices use renewable energy infrastructure healthcare big science research company maintains major technical manufacturing centers europe north america japan sales offices located throughout world companys diverse customer base includes life science pharmaceutical biotechnology molecular diagnostic research companies academic institutions advanced materials semiconductor manufacturers government agencies management reports results basis following two segments •scientific instruments operations segment include design manufacture distribution advanced instrumentation automated solutions based magnetic resonance technology mass spectrometry technology gas chromatography technology xray technology sparkoptical emission spectroscopy technology atomic force microscopy technology stylus optical metrology technology infrared raman molecular spectroscopy technology typical customers scientific instruments segment include pharmaceutical biotechnology molecular diagnostic companies academic institutions medical schools nonprofit organizations clinical microbiology laboratories government departments agencies nanotechnology semiconductor chemical cement metals petroleum companies food beverage agricultural analysis companies laboratories •energy supercon technologies operations segment include design manufacture marketing superconducting materials primarily metallic low temperature superconductors use magnetic resonance imaging nuclear magnetic resonance fusion energy research applications ceramic high temperature superconductors primarily energy grid magnet applications typical customers energy supercon technologies segment include companies medical industry private public research development laboratories fields fundamental applied sciences energy research academic institutions government agencies energy supercon technologies segment also developing superconductors superconductingenabled devices applications power energy grid well industrial processing industries note 2summary significant accounting policies accompanying consolidated financial statements reflect application certain significant accounting policies described elsewhere notes consolidated financial statements principles consolidation accompanying consolidated financial statements include accounts company majority whollyowned subsidiaries intercompany accounts transactions eliminated noncontrolling interests noncontrolling interests represents minority shareholders proportionate share companys majorityowned indirect subsidiaries portion net income net loss attributable noncontrolling interests presented net income attributable noncontrolling interests consolidated subsidiaries consolidated statements income comprehensive income portion comprehensive income subsidiaries presented consolidated statements shareholders equity subsequent events company evaluated subsequent events determined material recognized unrecognized subsequent events cash equivalents cash equivalents consist primarily highly liquid investments original maturities three months less date acquisition cash equivalents primarily include cash hand money market funds time deposits time deposits represent amounts deposit banks temporarily invested instruments maturities three months less time purchase certain investments represent deposits insured fdic government agency cash equivalents carried cost approximates market value restricted cash certain customers require company provide bank guarantees customer advances generally lines credit satisfy requirement however extent required guarantee exceeds available local line credit company maintains restricted cash balances restricted cash balances classified noncurrent unless terms applicable agreements funds released restrictions within one year balance sheet date december 31 2012 company 76 million restricted cash 39 million classified noncurrent december 31 2011 company 61 million restricted cash 39 million classified noncurrent derivative financial instruments derivatives whether designated hedging relationship recorded consolidated balance sheets fair value accounting changes fair value derivative instrument depends whether designated qualifies part hedging relationship type hedging relationship derivative instruments designated qualify hedging instruments company must designate hedging instrument based exposure hedged fair value hedge cash flow hedge net investment foreign operation fair value hedge derivative instrument designated purpose hedging exposure changes fair value asset liability resulting particular risk derivative designated fair value hedge changes fair value derivative hedged item attributable hedged risk recognized caption consolidated statements income comprehensive income cash flow hedge derivative instrument designated purpose hedging exposure variability future cash flows resulting particular risk derivative designated cash flow hedge effective portions changes fair value derivative recorded accumulated comprehensive income recognized results operations hedged item affects earnings ineffective portions changes fair value cash flow hedges recognized results operations hedge net investment foreign operation achieved derivative instrument designated purpose hedging exposure changes value investments foreign subsidiaries derivative designated hedge net investment foreign operation effective portions changes fair value derivative recorded comprehensive income part currency translation adjustment ineffective portions net investment hedges recognized results operations derivative instruments designated hedging instruments changes fair value recognized results operations current period fair value company applies following hierarchy determine fair value financial instruments prioritizes inputs used measure fair value three levels bases categorization within hierarchy upon lowest level input available significant fair value measurement levels hierarchy defined follows •level 1 inputs valuation methodology quoted prices unadjusted identical assets liabilities active markets •level 2 inputs valuation methodology include quoted prices similar assets liabilities active markets inputs observable asset liability either directly indirectly substantially full term financial instrument •level 3 inputs valuation methodology unobservable significant fair value measurement valuation techniques may used company determine fair value level 2 level 3 financial instruments market approach income approach cost approach market approach uses prices relevant information generated market transactions involving identical comparable assets liabilities income approach uses valuation techniques convert future amounts single present value based current market expectations future amounts including present value techniques optionpricing models excess earnings method cost approach based amount would required replace service capacity asset replacement cost companys financial instruments consist primarily cash equivalents restricted cash derivative instruments consisting forward foreign exchange contracts commodity contracts derivatives embedded certain purchase sale contracts accounts receivable shortterm borrowings accounts payable contingent consideration longterm debt carrying amounts companys cash equivalents restricted cash accounts receivable shortterm borrowings accounts payable approximate fair value due shortterm nature derivative assets liabilities measured fair value recurring basis companys longterm debt consists principally private placement arrangement entered 2012 various fixed interest rates based maturity date company evaluated estimated fair value financial instruments using available market information managements estimates use different market assumptions andor estimation methodologies could significant effect estimated fair value amounts concentration credit risk financial instruments subject company credit risk consist cash equivalents derivative instruments accounts receivables restricted cash risk respect cash equivalents minimized companys policy investing shortterm financial instruments issued highlyrated financial institutions risk respect derivative instruments minimized companys policy entering arrangements highlyrated financial institutions risk respect accounts receivables minimized creditworthiness diversity companys customers company performs periodic credit evaluations customers financial condition generally requires advanced deposit portion purchase price credit losses within managements expectations allowance doubtful accounts totaled 79 million 56 million december 31 2012 2011 respectively december 31 2012 2011 single customer represented 10 companys accounts receivable years ended december 31 2012 2011 2010 single customer represented 10 companys total revenue inventories components inventory include raw materials workinprocess demonstration units finished goods demonstration units include systems located companys demonstration laboratories installed sites potential customers considered available sale finished goods include intransit systems shipped companys customers yet installed accepted customer inventories stated lower cost market cost determined principally firstin firstout method majority subsidiaries averagecost certain subsidiaries company reduces carrying value inventories differences cost estimated net realizable value taking consideration usage preceding twelve months expected demand technological obsolescence information including physical condition demonstration intransit inventories company records charge cost revenue amount required reduce carrying value inventory net realizable value costs associated procurement inventories inbound freight charges purchasing receiving costs capitalized part inventory also included cost revenue line item within consolidated statements income comprehensive income property plant equipment property plant equipment stated cost less accumulated depreciation amortization major improvements capitalized expenditures maintenance repairs minor improvements charged expense incurred assets retired otherwise disposed assets related accumulated depreciation amortization eliminated accounts resulting gain loss reflected consolidated statements income comprehensive income depreciation amortization calculated straightline basis estimated useful lives assets follows goodwill intangible assets goodwill indefinitelived intangible assets amortized evaluated impairment annual basis interim basis events changes circumstances indicate carrying value may recoverable assessing recoverability goodwill indefinitelived intangible assets company must make assumptions regarding estimated future cash flows factors determine fair value assets estimates related assumptions change future company may required record impairment charges assets reporting period impairment determined company tests goodwill impairment reporting unit level operating segment one level operating segment first step involves comparing fair values applicable reporting units aggregate carrying values including goodwill company generally determines fair value reporting units using weighting market income methodologies estimating fair value reporting units requires significant judgment management carrying amount reporting unit exceeds fair value reporting unit company performs second step goodwill impairment test measure amount impairment second step goodwill impairment test company compares implied fair value reporting units goodwill carrying value goodwill acquired process research development iprd acquired part business combinations acquisition method represents ongoing development work associated enhancements existing products well development next generation products iprd initially capitalized fair value intangible asset indefinite life assessed impairment annual basis indicators impairment identified iprd project complete reclassified finitelived intangible asset amortized estimated useful life typically seven ten years iprd project abandoned completion otherwise determined impaired value asset amount impairment charged consolidated statements income comprehensive income period project abandoned impaired intangible assets finite useful life amortized straightline basis estimated useful lives follows impairment longlived assets impairment losses recorded longlived assets used operations indicators impairment present quoted market price available estimated fair value assets less assets carrying value impairment losses charged consolidated statements income comprehensive income difference fair value carrying value asset warranty costs deferred revenue company typically provides one year parts labor warranty purchase equipment anticipated cost warranty accrued upon recognition sale included current liability accompanying consolidated balance sheets companys warranty reserve reflects estimated material labor costs potential product issues company expects incur obligation companys estimates anticipated rates warranty claims costs primarily based historical information future forecasts company assesses adequacy warranty reserve quarterly basis adjusts amount necessary historical data used calculate adequacy warranty reserve indicative future requirements additional reduced warranty reserves may required company also offers customers extended warranty service agreements extending beyond initial warranty fee fees recorded deferred revenue recognized ratably income life extended warranty contract extended warranty period commenced income taxes deferred tax assets liabilities recognized expected future tax consequences temporary differences financial statement carrying amounts income tax basis assets liabilities valuation allowance applied net deferred tax asset based available evidence likely deferred tax assets realized company records liabilities related uncertain tax positions accordance guidance clarifies accounting uncertainty income taxes recognized companys financial statements prescribing minimum recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return customer advances company typically requires advance deposit terms conditions contracts customers deposits recorded liability revenue recognized specific contract accordance companys revenue recognition policy revenue recognition company recognizes revenue systems sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectability resulting receivable reasonably assured title risk loss generally transferred upon customer acceptance system delivered customer products sold independent distributor strategic distribution partner assumes responsibility installation company recognizes system sale product shipped title risk loss transferred distributor companys distributors price protection rights return however companys products typically warranted free defect period one year revenue deferred cash received collectability reasonably assured price fixed determinable transactions entered subsequent adoption asu 200913 revenue recognition topic 605 multipledeliverable revenue arrangements include multiple elements arrangement consideration allocated element based relative selling prices elements arrangement using fair value hierarchy required asu 200913 company limits amount revenue recognized delivered elements amount contingent future delivery products services future performance obligations subject customerspecific return refund privileges company attempts determine fair value products services based vendor specific objective evidence vsoe company determines vsoe based normal selling pricing discounting practices specific product service sold standalone basis determining vsoe companys policy requires substantial majority selling prices product service within reasonably narrow range company also considers class customer method distribution geographies products services sold determining vsoe cannot established may occur instances product service sold separately standalone sales infrequent product pricing within sufficiently narrow range company attempts establish selling price based thirdparty evidence tpe determined based competitor prices similar deliverables sold separately company however typically able determine tpe products services generally companys offerings contain significant level differentiation comparable pricing products similar functionality cannot determined furthermore company unable reliably determine selling prices standalone basis similar products offered competitors company cannot determine vsoe tpe uses estimated selling price esp allocation arrangement consideration objective esp determine price company would typically transact standalone sale product service esp determined considering number factors including companys pricing policies internal costs gross profit objectives method distribution market research information recent technological trends competitive landscape geographies company analyzes selling prices used allocation arrangement consideration minimum annual basis selling prices analyzed frequently significant change companys business factors necessitate frequent analysis company experiences significant variances selling prices revenue accessories parts recognized upon shipment service revenue recognized services performed company also contracts applies percentageofcompletion model completed contract model revenue recognition application methods requires company make reasonable estimates extent progress toward completion contract total costs company incur contract changes estimates progress toward completion contract total costs could affect timing revenue recognition revenues primarily comprise research grants licensing arrangements grant revenue recognized requirements grant agreement achieved licensing revenue recognized ratably term related contract shipping handling costs company includes costs incurred connection shipping handling products within selling general administrative expenses accompanying statements income comprehensive income shipping handling costs 305 million 287 million 208 million years ended december 31 2012 2011 2010 respectively amounts billed customers connection costs included total revenues research development research development costs expensed incurred include salaries wages personnel related costs material costs depreciation consulting costs facility costs software costs purchased software capitalized cost amortized estimated useful life generally three years software developed use companys products expensed incurred technological feasibility reasonably assured classified research development expense subsequent achievement technological feasibility amounts capitalizable however date amounts material advertising company expenses advertising costs incurred advertising expenses 75 million 81 million 91 million years ended december 31 2012 2011 2010 respectively stockbased compensation company recognizes stockbased compensation expense consolidated statements income comprehensive income based fair value sharebased award grant date companys primary types sharebased compensation stock options restricted stock company recorded stockbased compensation expense years ended december 31 2012 2011 2010 follows millions compensation expense amortized straightline basis underlying vesting terms sharebased award stock options purchase companys common stock periodically awarded executive officers employees company subject vesting period three five years fair value option award estimated date grant using blackscholes optionpricing model assumptions regarding volatility expected term dividend yield riskfree interest rate required blackscholes model presented table riskfree interest rate based yield zerocoupon us treasury securities period commensurate expected life assumption expected life determined simplified method defined securities exchange commission staff accounting bulletin 110 company believes best estimate expected term new option expected volatility based number factors company currently believes exclusive use historical volatility results best estimate grantdate fair value employee stock options reflects markets current expectations future volatility expected dividend yield considered option pricing formula since company pay dividends current plans future terms certain companys indebtedness currently restrict ability pay dividends shareholders weighted average fair values options granted 711 789 856 per share years ended december 31 2012 2011 2010 respectively addition company utilizes estimated forfeiture rate calculating stockbased compensation expense period company applied estimated forfeiture rates derived analysis historical data 57 52 54 years ended december 31 2012 2011 2010 respectively determining expense recorded accompanying consolidated statements income comprehensive income earnings per share net income per common share attributable bruker corporation shareholders calculated dividing net income attributable bruker corporation weightedaverage shares outstanding period diluted net income per share computation includes effect shares would issuable upon exercise outstanding stock options vesting restricted stock reduced number shares assumed purchased company treasury stock method following table sets forth computation basic diluted weighted average shares outstanding years ended december 31 millions except per share data stock options purchase approximately 06 million shares 01 million shares 07 million shares excluded computation diluted earnings per share years ended december 31 2012 2011 2010 respectively effect would antidilutive employee retirement plans company recognizes overfunded underfunded status defined benefit pension postretirement defined benefit plans asset liability respectively consolidated balance sheets recognizes changes funded status year changes occur comprehensive income comprehensive income comprehensive income refers revenues expenses gains losses excluded net income amounts recorded directly adjustment shareholders equity net tax companys comprehensive income composed primarily foreign currency translation adjustments changes funded status defined benefit pension plans changes fair value derivatives designated cash flow hedges foreign currency translation assets liabilities companys foreign subsidiaries functional currency local currency translated us dollars using yearend exchange rates historical rates appropriate revenues expenses foreign subsidiaries translated average exchange rates effect year adjustments resulting financial statement translations included separate component shareholders equity gains losses resulting foreign currency transactions reported interest income expense net consolidated statements income comprehensive income periods presented company may periodically certain intercompany foreign currency transactions deemed longterm investment nature exchange adjustments related transactions made directly separate component shareholders equity risk uncertainties company subject risks common industry including limited global economic conditions rapid technological change spending patterns customers protection intellectual property availability key raw materials components compliance existing future regulation government agencies dependence key personnel fluctuations foreign currency exchange rates contingencies company subject proceedings lawsuits claims related patents product matters company assesses likelihood adverse judgments outcomes matters well potential ranges probable losses determination amount reserves required contingencies made analysis individual issue required reserves may change future due new developments situation changes settlement strategy assessing matters use estimates preparation financial statements conformity accounting principles generally accepted united states requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant estimates judgments made management preparing financial statements include revenue recognition allowances doubtful accounts writedowns excess obsolete inventoryestimated fair values used record impairment charges related intangible assets goodwill longlived assets amortization periods expected future cash flows used evaluate recoverability longlived assets stockbased compensation expense warranty allowances restructuring related charges contingent liabilities recoverability companys net deferred tax assets although company regularly reassesses assumptions underlying estimates actual results could differ materially estimates changes estimates recorded period become known company bases estimates historical experience various assumptions believes reasonable circumstances actual results may differ managements estimates results differ historical experience assumptions prove substantially accurate even assumptions reasonable made reclassifications certain line items prior period financial statements reclassified conform current period presentation note 3acquisitions acquisitions completed 2012 march 2012 company completed acquisition skyscan nv skyscan business privately owned company based belgium provides advanced highresolution microcomputed tomography systems threedimensional xray imaging preclinical imaging applications materials research markets company expects synergies combining skyscan business current product portfolio acquisition skyscan business accounted acquisition method components fair value allocation consideration transferred connection skyscan business follows millions fair value allocation includes contingent consideration amount 37 million represents estimated fair value future payments former shareholders skyscan business based achieving annual revenue targets years 20122014 maximum potential future payments related contingent consideration capped approximately 59 million companys allocation consideration transferred connection acquisition skyscan business finalized first quarter 2013 upon final valuation procedures final fair value allocation purchase price may differ information presented consolidated financial statements weightedaverage amortization period intangible assets acquired connection skyscan business 7 years existing technology 10 years customer relationships results skyscan business including amount allocated goodwill included scientific instruments segment date acquisition pro forma financial information reflecting acquisition skyscan business presented impact revenues net income net income per common share attributable bruker corporation shareholders material acquisitions completed 2011 october 2011 company completed acquisition center tribology inc tribology business privately owned company based california usa acquired business provides nanomechanical tribological test instrumentation basic materials research industrial manufacturing range fields including biomedical petroleum microelectronics energy automotive markets tribology business expands companys nano surfaces business adjacent market company could previously address company acquired tribology business 127 million cash contingent consideration arrangement could require company pay former shareholder tribology business additional 15 million years 2012 2013 former shareholder tribology business earn contingent consideration certain revenue gross profit margin targets achieved 2012 2013 employment continues company targets achieved 2012 purchase agreement 16 million purchase price paid escrow pending resolution indemnification obligations working capital obligations former shareholder acquired business company anticipates final settlement amounts escrow occur 2013 april 2011 company completed acquisition michrom bioresources inc hplc business privately owned company based california usa provides high performance liquid chromatography instrumentation accessories consumables life science market high performance liquid chromatography chromatographic technique separate mixture compounds often used frontend mass spectrometer identify quantify purify individual components sample acquisition hplc business expands companys mass spectrometry businesses company acquired hplc business 11 million cash 134362 shares unrestricted common stock 156823 shares restricted common stock restricted common stock vest five year period contingent continuing employment company purchase agreement 01 million cash 10 total shares issued paid escrow pending resolution indemnification obligations working capital obligations former shareholders acquired business final settlement amounts escrow occurred 2012 acquisition tribology business hplc business accounted acquisition method components consideration transferred allocation consideration transferred businesses follows millions fair value 134362 shares unrestricted common stock issued connection hplc business determined based closing market price companys common shares acquisition date 2128 per share fair value contingent consideration arrangement acquisition tribology business included total consideration transferred forfeited former shareholders employment terminated similarly fair value restricted common stock issued acquisition hplc business included total consideration transferred forfeited former shareholders employment terminated arrangements forfeited employment terminated amounts considered compensation postcombination service accounted compensation expense period contingent amounts earned allocation consideration transferred connection tribology business completed 2012 allocation consideration transferred connection hplc business completed 2011 acquisition tribology business hplc business made prices fair value net acquired assets resulting 35 million 12 million goodwill respectively company willing pay prices based expectations synergies result combining businesses companys existing operations synergies include expanded product offerings adjacent markets company previously able address comprehensive manner leveraging selling general administrative expenses performing purchase price allocation company considered among factors intention future use acquired assets analyses historical financial performance estimates future cash flows tribology hplc products services purchase price allocated based upon fair value identified assets acquired liabilities assumed acquisition date market participants perspective company used multiperiod excessearnings method form income approach value existing technology patents related tribology hplc businesses principle behind method value intangible asset equal present value aftertax cash flows attributable intangible asset company also used multiperiod excessearnings method value customer relationships acquired connection hplc business iprd acquired tribology business multiperiod excessearnings method used value customer relationships acquired connection hplc business customer relationships deemed one primary cash generating assets acquired transaction company used lostprofitavoided cost method form income approach value distributor relationships related tribology business principle behind method economic value asset estimated based total costs avoided asset place company used relief royalty method form income approach value tradenames acquired hplc business principle behind method value intangible asset equal present value aftertax royalty savings attributable owning intangible asset weightedaverage amortization periods intangible assets acquired connection tribology hplc businesses 71 years existing technology related patents 68 years customer distributor relationships 1 year tradenames iprd carried initial fair value amortized expense upon completion development becomes unfeasible abandoned carrying value iprd expensed period occurs transaction costs associated acquisition tribology hplc businesses expensed incurred company incurred 11 million expenses included charges net consolidated statements income comprehensive income year ended december 31 2011 costs consist primarily professional fees results tribology hplc businesses included scientific instruments segment date acquisition pro forma financial information reflecting acquisition businesses presented impact revenues net income net income per common share attributable bruker corporation shareholders material acquisitions completed 2010 october 2010 company completed acquisition veeco metrology inc scanning probe microscopy optical industrial metrology instruments business nano surfaces business veeco instruments inc veeco cash consideration 2304 million company financed acquisition 1676 million borrowed revolving credit agreement balance cash hand acquired business complements companys existing atomic force microscopy products expanded companys offerings industrial applied markets specifically fields materials nanotechnology research analysis 229 million purchase price paid escrow pending resolution indemnification obligations working capital obligations seller october 2011 escrow released veeco may 2010 company completed acquisition three former varian inc varian product lines agilent technologies inc agilent divested connection acquisition varian company acquired certain assets assumed certain liabilities varians inductively coupled plasma mass spectrometry instruments business gas chromatography instruments business gas chromatography triplequadrupole mass spectrometry instruments business collectively chemical analysis business cash consideration 375 million acquired business complements companys existing mass spectrometry products expands companys offerings industrial applied markets acquisitions nano surfaces business chemical analysis business accounted acquisition method components consideration transferred allocation consideration transferred businesses including measurement period adjustments recorded 2011 follows millions company finalized allocation consideration transferred connection nano surfaces business third quarter 2011 company finalized allocation consideration transferred connection chemical analysis business fourth quarter 2010 measurement period adjustments made acquisition date fair values nano surfaces business 2011 consisted reclassification 20 million goodwill intangible assets connection finalizing fair value license agreement acquired transaction acquisitions nano surfaces business chemical analysis business made prices fair value net acquired assets resulting 490 million 04 million goodwill respectively company willing pay prices based expectations synergies result combining businesses companys existing operations synergies include expanded product offerings applied analytical markets company previously able address comprehensive manner leveraging selling general administrative expenses transaction costs associated acquisitions nano surfaces chemical analysis businesses expensed incurred company incurred 31 million 46 million expenses included charges net consolidated statements income comprehensive income years ended december 31 2011 2010 respectively costs incurred 2011 consist primarily transition costs whereby agilent veeco provided administrative services behalf company defined periods transition service arrangements expired 2011 2010 transaction costs include 28 million transition costs provided agilent veeco transaction expenses 18 million consisting various professional fees results nano surfaces business chemical analysis business included scientific instruments segment date acquisition following table sets forth unaudited pro forma financial information reflecting acquisition nano surfaces business acquisition occurred january 1 2010 year ended december 31 2010 millions except per share date pro forma financial information reflecting acquisition chemical analysis business presented impact revenues net income net income per common share attributable bruker corporation shareholders material note 4fair value financial instruments company measures following financial assets liabilities fair value recurring basis following tables set forth companys financial instruments presents within fair value hierarchy using lowest level input significant fair value measurement december 31 2012 2011 millions derivative financial instruments classified within level 2 active market derivative contract however inputs used calculate value instruments obtained active markets interest rate swap matured december 31 2012 fair value longterm fixed interest rate debt classified level 2 2556 million december 31 2012 based market observable sources similar maturity dates company measures assets liabilities fair value changes fair value recognized earnings fair value treatment may elected either upon initial recognition eligible asset liability existing asset liability event triggers new basis accounting company elect remeasure existing financial assets liabilities year ended december 31 2012 part companys acquisition skyscan business company recorded contingent consideration liability classified level 3 fair value hierarchy contingent consideration represents estimated fair value future payments former shareholders skyscan business based achieving annual revenue targets years 20122014 company initially valued contingent consideration using discounted cash flow method changes fair value contingent consideration december 31 2012 material note 5accounts receivable following summary trade accounts receivable december 31 millions allowance doubtful accounts managements estimate credit losses accounts receivable allowance doubtful accounts based number factors including evaluation customer credit worthiness age outstanding receivable economic trends historical experience allowance doubtful accounts reviewed quarterly basis changes estimates reflected period become known company writes account balances allowance means collection exhausted potential recovery considered remote provisions doubtful accounts recorded selling general administrative expenses accompanying consolidated statements income comprehensive income following summary activity companys allowance doubtful accounts december 31 millions note 6inventories inventories consisted following december 31 millions finished goods include intransit systems shipped companys customers yet installed accepted customer december 31 2012 2011 inventoryintransit 939 million 1168 million respectively company reduces carrying value demonstration inventories differences cost estimated net realizable value charge cost product revenue based number factors including age unit physical condition unit assessment technological obsolescence amounts recorded cost revenue related writedown demonstration units net realizable value 315 million 300 million 244 million years ended december 31 2012 2011 2010 respectively note 7property plant equipment following summary property plant equipment major asset class december 31 millions depreciation expense includes amortization leasehold improvements years ended december 31 2012 2011 2010 371 million 348 million 303 million respectively company recorded impairment charge year ended december 31 2012 amount 60 million related property plant equipment within cam division result experiencing increased deterioration financial performance energy supercon technologies segment based abandonment project reduce carrying value assets estimated fair values change recorded within impairment assets accompanying statements income comprehensive income note 8goodwill intangible assets following table sets forth changes carrying amount goodwill years ended december 31 2012 2011 millions december 31 2012 2011 goodwill allocated scientific instruments segment goodwill acquired 2012 primarily relates acquisition skyscan business goodwill acquired 2011 relates acquisition tribology business hplc business december 31 2012 company performed annual impairment evaluation concluded reporting units fair values exceeded carrying values exception cam division part scientific instruments segment result experiencing increased deterioration financial performance company therefore performed step two impairment test measure potential impairment concluded impairment charge 14 million required amount represents goodwill allocated cam division recorded within impairment assets accompanying statements income comprehensive income year ended december 31 2012 indefinitelived intangible assets associated cam division impairment indefinitelived intangible assets year ended december 31 2012 impairment losses recorded goodwill years ended december 31 2011 2010 following summary intangible assets december 31 millions company determined increased deterioration financial performance cam division discussed indicator requiring evaluation definitelived intangible assets within reporting unit recoverability company performed valuation december 31 2012 determined definitelived intangible assets within cam division impaired company recorded impairment charge amount 164 million year ended december 31 2012 reduce carrying value assets estimated fair values impairment charge included within impairment assets accompanying statement income comprehensive income impairment losses recorded related definitelived intangible assets years ended december 31 2011 2010 years ended december 31 2012 2011 2010 company recorded amortization expense approximately 220 million 181 million 58 million respectively consolidated statements income comprehensive income estimated future amortization expense related amortizable intangible assets december 31 2012 follows millions note 9other current liabilities following summary current liabilities december 31 millions following table sets forth changes accrued warranty years ended december 31 2012 2011 millions note 10debt companys debt obligations consist following december 31 millions february 2008 company entered credit agreement credit agreement syndicate lenders provided revolving credit line maximum commitment 2300 million term loan facility 1500 million outstanding principal term loan payable quarterly installments december 2012 december 31 2012 amounts outstanding term loan borrowings credit agreement accrued interest companys option either higher prime rate federal funds rate plus 050 ii adjusted libor plus margins ranging 040 125 facility fee ranging 010 020 may 2011 company entered amendment restatement credit agreement referred amended credit agreement company accounted amendment modification fasb asc 470 debt asc 470 amended credit agreement increases maximum commitment companys revolving credit line 2500 million extends maturity date may 2016 borrowings revolving credit line amended credit agreement accrue interest companys option either greatest prime rate ii federal funds rate plus 050 iii adjusted libor plus 100 iv libor plus margins ranging 080 165 also facility fee ranging 020 035 amended credit agreement impact maturity pricing companys term loan matured december 31 2012 borrowings amended credit agreement secured guarantees certain material subsidiaries defined amended credit agreement bruker energy supercon technologies inc amended credit agreement also requires company maintain certain financial ratios related maximum leverage minimum interest coverage defined amended credit agreement specifically companys leverage ratio cannot exceed 30 companys interest coverage ratio cannot less 30 addition financial ratios amended credit agreement restricts among things companys ability following make certain payments incur additional debt incur certain liens make certain investments including derivative agreements merge consolidate sell transfer substantially assets enter certain transactions affiliates failure comply restrictions covenants may result event default applicable debt instrument could permit acceleration debt instrument require company prepay debt scheduled due date following summary maximum commitments net amounts available company revolving loan arrangements december 31 2012 millions revolving loans various financial institutions located primarily germany switzerland france companys revolving lines credit typically due upon demand interest payable monthly certain lines credit unsecured others secured accounts receivable inventory related subsidiary january 2012 company entered note purchase agreement note purchase agreement group accredited institutional investors pursuant note purchase agreement company issued sold 2400 million senior notes referred senior notes consist following •20 million 316 series 2012a senior notes tranche due january 18 2017 •15 million 374 series 2012a senior notes tranche b due january 18 2019 •105 million 431 series 2012a senior notes tranche c due january 18 2022 •100 million 446 series 2012a senior notes tranche due january 18 2024 terms note purchase agreement company may issue sell additional senior notes aggregate principal amount 600 million subject certain conditions interest senior notes payable semiannually january 18 july 18 year commencing july 18 2012 senior notes unsecured obligations company fully unconditionally guaranteed certain companys direct indirect subsidiaries senior notes rank pari passu right repayment companys senior unsecured indebtedness company may prepay senior notes time amount less 10 original aggregate principal amount senior notes prepaid price equal sum 100 principal amount thereof plus accrued unpaid interest b applicable makewhole amount upon less 30 60 days written notice holders senior notes event change control company defined note purchase agreement company may required prepay notes price equal 100 principal amount thereof plus accrued unpaid interest note purchase agreement contains affirmative covenants including without limitation maintenance corporate existence compliance laws maintenance insurance properties payment taxes addition subsidiary guarantors furnishing notices information note purchase agreement also contains certain restrictive covenants restrict companys ability among things incur liens transfer sell assets engage certain mergers consolidations enter transactions affiliates note purchase agreement also includes customary representations warranties events default case event default arising specified events bankruptcy insolvency outstanding senior notes become due payable immediately without action notice case payment events defaults holder senior notes affected thereby may declare senior notes held due payable immediately case event default majority holders senior notes may declare senior notes due payable immediately pursuant note purchase agreement long senior notes outstanding company permit leverage ratio determined pursuant note purchase agreement end fiscal quarter exceed 350 100 ii interest coverage ratio determined pursuant note purchase agreement end fiscal quarter period four consecutive fiscal quarters less 250 1 iii priority debt time exceed 25 consolidated net worth determined pursuant note purchase agreement december 31 2012 company compliance covenants amended credit agreement note purchase agreement annual maturities longterm debt outstanding december 31 2012 follows millions interest expense years ended december 31 2012 2011 2010 143 million 73 million 56 million respectively note 11derivative instruments hedging activities interest rate risks companys exposure interest rate risk relates primarily outstanding variable rate debt adverse movements related shortterm market rates significant component companys interest rate risk relates amounts outstanding amended credit agreement april 2008 company entered interest rate swap arrangement manage exposure interest rate movements related effect variable rate debt interest rate swap arrangement company paid fixed rate approximately 38 received variable rate based three month libor initial notional amount interest rate swap 900 million amortized proportion term debt component amended credit agreement december 2012 notional amount interest rate swap matured december 31 2012 along final payment related 2008 term loan december 31 2011 notional amount interest rate swap 495 million company concluded swap met criteria qualify effective hedge variability cash flows interest payments accounts interest rate swap cash flow hedge accordingly company reflected changes fair value effective portion interest rate swap accumulated comprehensive income separate component shareholders equity amounts recorded accumulated comprehensive income reclassified interest income expense net consolidated statement income comprehensive income either forecasted transaction occurs becomes probable forecasted transaction occur december 31 2012 company interest rate swaps outstanding foreign exchange rate risk management company generates substantial portion revenues expenses international markets principally germany countries european union switzerland japan subjects operations exposure exchange rate fluctuations impact currency exchange rate movement positive negative period company periodically enters foreign currency contracts order minimize volatility fluctuations exchange rates cash flows arrangements company typically agrees purchase fixed amount foreign currency exchange fixed amount us dollars currencies specified dates maturities less twelve months transactions qualify hedge accounting accordingly instrument recorded fair value corresponding gains losses recorded consolidated statements income comprehensive income company following notional amounts outstanding foreign currency contracts december 31 millions addition company periodically enters purchase sales contracts denominated currencies functional currency parties transaction company accounts transactions separately valuing embedded derivative component contracts denominated currencies functional currency transacting parties amounted 402 million delivery products 103 million purchase products december 31 2012 348 million delivery products 49 million purchase products december 31 2011 changes fair value embedded derivatives recorded interest income expense net consolidated statements income comprehensive income commodity price risk management company arrangement customer firm commitment deliver copper based superconductors fixed price order minimize volatility fluctuations price copper companys sales commodities company enters commodity hedge contracts december 31 2012 2011 company fixed price commodity contracts notional amounts aggregating 34 million 39 million respectively changes fair value commodity contracts recorded interest income expense net consolidated statements income comprehensive income fair value derivative instruments described recorded consolidated balance sheets years ending december 31 2012 2011 follows millions losses recognized comprehensive income related effective portion interest rate swap designated hedging instrument years ending december 31 follows millions losses related effective portion interest rate swap designated hedging instrument reclassified comprehensive income recognized net income years ending december 31 follows millions company recognize amounts related ineffectiveness results operations years ended december 31 2012 2011 2010 respectively impact net income unrealized gains losses resulting changes fair value derivative instruments designated hedging instruments years ending december 31 follows millions amounts recorded interest income expense net consolidated statements income comprehensive income note 12income taxes domestic foreign components income taxes follows years ended december 31 millions components income tax provision follows years ended december 31 millions reconciliation united states federal statutory rate effective income tax rate follows years ended december 31 tax effect temporary items give rise significant portions deferred tax assets liabilities follows december 31 millions valuation allowance determined assessment positive negative evidence whether likely deferred tax assets recoverable companys assessment made jurisdictionbyjurisdiction basis company fully reserved us net deferred tax assets predominantly net operating losses tax credit carryforwards december 31 2012 company approximately 279 million us net operating loss carryforwards available reduce future state taxable income expire various times 2032 approximately 519 million german trade tax net operating losses carried forward indefinitely company also us tax credits approximately 130 million available offset future tax liabilities expire various dates include research development tax credits 116 million expiring various times 2032 foreign tax credits 14 million expiring various times 2022 utilization us net operating loss carryforwards credits may subject annual limitations due ownership percentage change limitations provided internal revenue code section 382 similar state provisions event deemed change control internal revenue code section 382 annual limitation utilization net operating losses credits may result expiration portion net operating loss credit carryforwards company permanently reinvested earnings subsidiaries cumulative amount approximately 9798 million december 31 2012 therefore provided us income taxes could result distribution earnings us parent earnings ultimately distributed us form dividends otherwise shares subsidiaries sold transferred company would likely subject additional us income taxes net impact available foreign tax credits practical estimate amount unrecognized deferred us income taxes undistributed earnings company gross unrecognized tax benefits approximately 421 million december 31 2012 236 million recognized would result reduction companys effective tax rate tabular reconciliation beginning ending amount unrecognized tax benefits follows millions company recognizes penalties interest related unrecognized tax benefits provision income taxes december 31 2012 2011 company approximately 37 million 56 million respectively accrued interest penalties related uncertain tax positions included current liabilities consolidated balance sheets penalties interest related unrecognized tax benefits 20 million 13 million recorded provision income taxes year ended december 31 2012 2011 respectively company files tax returns united states include federal state local jurisdictions many foreign jurisdictions varying statutes limitations company considers germany united states switzerland significant tax jurisdictions tax years 2009 2012 open tax years significant jurisdictions fourth quarter 2012 company settled tax audits switzerland germany company recorded additional 46 million 63 million 28 million tax reserves related audits 2012 2011 2010 respectively addition company contacted united states internal revenue service tax audit commenced 2012 tax year 2010 expected audit completed fourth quarter 2013 note 13employee benefit plans defined benefit plans substantially companys employees switzerland france japan well certain employees germany covered companysponsored defined benefit pension plans retirement benefits generally earned based years service compensation active employment eligibility generally determined accordance local statutory requirements however level benefits terms vesting varies among plans net periodic pension cost company measures benefit obligation fair value plan assets december 31st year changes benefit obligations plan assets defined benefit pension plans projected benefit obligation funded status plans follows december 31 millions accumulated benefit obligation defined benefit pension plans 1765 million 1455 million december 31 2012 2011 respectively defined benefit pension plans accumulated benefit obligation projected benefit obligation excess plan assets december 31 2012 2011 following amounts recognized accompanying consolidated balance sheets companys defined benefit plans december 31 millions following pretax amounts recognized accumulated comprehensive income companys defined benefit plans december 31 millions amount accumulated comprehensive income december 31 2012 expected recognized amortization net loss within net periodic benefit cost 2013 21 million range assumptions used defined benefit pension plans reflects different economic environments within various countries range assumptions used determine projected benefit obligations years ended december 31 follows determine expected longterm rate return pension plan assets company considers current asset allocations well historical expected returns various asset categories plan assets principal pension plans company applies expected rate return marketrelated value assets stabilizes variability assets expected return applied asset allocations asset category fair value companys pension plan assets december 31 2012 2011 asset category level fair value hierarchy follows millions acash cash equivalents consist primarily highly liquid investments including cash hand bour us corporate bond investments average rating aa cour foreign corporate government bond investments average rating aa dus international equites primarily include investments large market capitalization stocks ereal estate includes swiss public real estate funds generate returns line swiss property market investing residential commerical properties throughout switzerland fmortgage assetbacked securities pool together various cashflow producing financial assets typically collateralized residential mortgages commercial mortgages assets managing directors subsidiaries responsible setting policy serves framework allocating plan assets policy defines investment strategy including asset allocation ranges designed ensure benefit obligations plans met due investment strategy also targeted optimizing return investment within risk constraints plans managing directors appoint plan fiduciaries oversee investment allocation process includes selecting investment managers setting longterm strategic targets monitoring asset allocations target allocations 55 bonds including cash 30 equity investments 15 real estate mortgages target allocation ranges guidelines limitations occasionally plan fiduciaries approve allocations target range based number factors including market conditions estimated future benefit payments estimated future benefit payments based assumptions used measure companys benefit obligation december 31 2012 following benefit payments reflect future employee service appropriate millions benefit plans company sponsors various defined contribution plans cover certain domestic international employees company may make contributions plans discretion company contributed 46 million 37 million 25 million plans years ended december 31 2012 2011 2010 respectively note 14commitments contingencies operating leases certain buildings office equipment vehicles leased agreements accounted operating leases total rental expense operating leases 216 million 185 million 158 million years ended december 31 2012 2011 2010 respectively future minimum lease payments noncancelable operating leases december 31 2012 next five years follows millions capital leases company leases certain buildings agreements classified capital leases cost buildings capital leases included consolidated balance sheets property plant equipment 99 million december 31 2012 2011 accumulated amortization leased buildings december 31 2012 2011 30 million 26 million respectively amortization expense related assets capital leases included depreciation expense obligations related capital leases recorded component longterm debt current portion longterm debt consolidated balance sheets depending lease payments due license agreements company entered crosslicensing agreements various technologies allow companies utilize certain patents related technologies various periods perpetuity income agreements years ended december 31 2012 2011 2010 202 million 29 million 32 million respectively classified revenue consolidated statements income comprehensive income increase year ended december 31 2012 driven license revenue sale technology bruker energy supercon technologies unearned portions proceeds crosslicensing agreements classified shortterm longterm deferred revenue depending revenue earned company also entered license agreements allowing utilize certain patents used connection commercial product sale company pays royalties ranging 015 50 related product revenues licensing fees years ended december 31 2012 2011 2010 42 million 28 million 18 million respectively recorded cost product revenue consolidated statements income comprehensive income grants company received certain grants government authorities united states germany grants made connection companys development specific magnetic resonance core technology equipment spectrometers related components standalone monitor chemical agents agreements grants awarded expiration dates ranging 2013 2015 amounts received grants years ended december 31 2012 2011 2010 totaled 47 million 40 million 38 million respectively classified revenue consolidated statements income comprehensive income total expenditures related grants years ended december 31 2012 2011 2010 51 million 55 million 45 million respectively classified research development expenses consolidated statements income comprehensive income legal lawsuits claims proceedings nature considered normal businesses may pending time company believes outcome proceedings individually aggregate material impact companys financial position results operations december 31 2012 2011 accruals recorded potential contingencies september 21 2012 vertical analytics llc filed action us district court district delaware bruker axs inc bruker axs complaint claims unspecified damages injunctive relief alleges bruker axs infringes induces infringement contributes infringement certain us patents related xray diffraction analysis held vertical analytics llc bruker axs filed response complaint november 2012 asserted various defenses discovery commenced january 2013 bruker axs believes claims without merit intends vigorously defend action time company cannot reasonably assess timing outcome matter accordingly provision respect matter recorded accompanying consolidated financial statements november 4 2011 hyphenated systems llc filed action california superior court santa clara county company veeco metrology inc connection certain agreements entered prior subsequent companys acquisition shares veeco metrology inc october 2010 upon closing acquisition veeco metrology inc renamed bruker nano inc bruker nano suit also names one current one former employee bruker nano claims unspecified damages breach contract fraud unfair competition connection performance agreements company believes claims without merit intends vigorously defend action time company cannot reasonably assess timing outcome matter accordingly provision respect matter recorded accompanying consolidated financial statements internal investigation compliance matters previously reported audit committee companys board directors assisted independent outside counsel independent forensic consulting firm conducted internal investigation response anonymous communications received company alleging improper conduct connection china operations companys bruker optics subsidiary audit committees investigation began 2011 completed first quarter 2012 included review compliance bruker optics employees china hong kong requirements foreign corrupt practices act fcpa applicable laws regulations investigation found evidence indicating payments made improperly benefited employees agents governmentowned enterprises china hong kong investigation also found evidence certain employees bruker optics china hong kong failed comply companys policies standards conduct result company took personnel actions including termination certain individuals company also terminated business relationships certain third party agents implemented enhanced fcpa compliance program strengthened financial controls oversight subsidiaries operating china hong kong 2011 company also initiated review china operations subsidiaries assistance independent audit firm basis review conducted date company identified additional employees bruker subsidiaries operating china failed comply companys policies standards conduct taken additional personnel actions certain subsidiaries result review ongoing conclusions drawn time final outcome company voluntarily contacted united states securities exchange commission united states department justice august 2011 advise agencies internal investigation audit committee regarding china operations companys bruker optics subsidiary october 2011 company also reported existence internal investigation hong kong joint financial intelligence unit independent commission corruption icac company cooperated united states federal agencies hong kong government authorities respect inquiries provided documents andor made witnesses available response requests governmental authorities reviewing matter company intends continue cooperate agencies connection inquiries time company cannot reasonably assess timing outcome matters effect companys business fcpa related statutes regulations provide potential monetary penalties well criminal civil sanctions connection fcpa violations possible monetary penalties sanctions could assessed us federal government connection matters additionally extent payments determined illegal local government authorities civil criminal penalties may assessed authorities companys ability conduct business jurisdiction may negatively impacted time company cannot predict extent securities exchange commission sec department justice doj icac governmental authorities pursue administrative civil injunctive criminal proceedings imposition fines penalties remedies sanctions given current status inquiries agencies company cannot reasonably estimate possible loss range possible loss may result proceedings may commenced sec doj icac governmental authorities accordingly provision respect matters recorded accompanying consolidated financial statements adverse findings negative outcomes proceedings could material impact companys consolidated financial statements future periods letters credit guarantees december 31 2012 2011 company bank guarantees 1432 million 1154 million respectively related primarily customer advances arrangements guarantee refund advance payments received customers event merchandise delivered warranty obligations fulfilled compliance terms contract guarantees affect availability companys lines credit indemnifications company enters standard indemnification arrangements companys ordinary course business pursuant arrangements company indemnifies holds harmless agrees reimburse indemnified parties losses suffered incurred indemnified party generally companys business partners customers connection patent copyright intellectual property infringement claim third party respect products term indemnification agreements generally perpetual anytime execution agreement maximum potential amount future payments company could required make agreements unlimited company believes estimated fair value agreements minimal company entered indemnification agreements directors officers may require company indemnify directors officers liabilities may arise reason status service directors officers liabilities arising willful misconduct culpable nature advance expenses incurred result proceeding could indemnified obtain directors officers insurance available reasonable terms company currently place environmental remediation former owner land building santa barbara california serves headquarters companys nano surfaces business disclosed hazardous substances present ground building management believes comprehensive indemnification clause included purchase agreement related acquisition nano surfaces business provides adequate protection environmental issues may arise note 15shareholders equity dividends terms companys indebtedness currently restrict companys ability pay dividends shareholders stock plans bruker corporation stock plan february 2010 bruker biosciences corporation amended restated 2000 stock option plan 2000 plan expired end scheduled tenyear term march 9 2010 companys board directors unanimously approved adopted bruker corporation 2010 incentive compensation plan 2010 plan may 14 2010 plan approved companys stockholders 2010 plan provides issuance 8000000 shares companys common stock plan allows committee board directors committee grant incentive stock options nonqualified stock options restricted stock awards committee authority determine employees receive awards amount awards terms conditions award awards granted committee typically vest period three five years stock option activity year ended december 31 2012 follows addition options vested december 31 2012 company expects portion unvested options vest future options expected vest future determined applying estimated forfeiture rate options unvested december 31 2012 bthe aggregate intrinsic value based positive difference fair value companys common stock price 1524 december 31 2012 date exercises appropriate exercise price underlying stock options unrecognized pretax stockbased compensation expense 110 million related stock options awarded 2000 2010 plans expected recognized weighted average remaining service period 21 years stock options outstanding december 31 2012 restricted shares companys common stock periodically awarded executive officers directors certain key employees company subject service restrictions expire ratably periods three five years restricted shares common stock may sold transferred restriction period stockbased compensation restricted stock recorded based stock price grant date charged expense ratably throughout restriction period following table summarizes information restricted stock activity year ended december 31 2012 unrecognized pretax stockbased compensation expense 42 million related restricted stock awarded 2010 plan expected recognized weighted average remaining service period 37 years awards outstanding december 31 2012 year ended december 31 2012 2011 2010 total fair value shares vested restricted shares companys stock amounted 12 million 31 million 21 million respectively bruker energy supercon technologies stock plan october 2009 board directors best adopted bruker energy supercon technologies inc 2009 stock option plan best plan best plan provides issuance 1600000 shares best common stock connection awards best plan best plan allows committee best board directors grant incentive stock options nonqualified stock options restricted stock awards compensation committee best board directors authority determine employees receive awards amount awards terms conditions awards december 31 2012 2011 800000 incentive stock options nonqualified stock options respectively awarded key employees directors company vesting periods three five years december 31 2012 2011 restricted stock awarded best plan company recorded approximately 05 million 2012 2011 pretax stockbased compensation expense related awards granted best plan unrecognized pretax stock based compensation expense 07 million related stock options awarded best plan expected recognized weighted average remaining service period 16 years awards outstanding december 31 2012 note 16accumulated comprehensive income following summary components accumulated comprehensive income net tax december 31 millions note 17deferred offering costs september 2010 company announced plans sell minority ownership position best subsidiary initial public offering capital stock best result economic market factors timing best initial public offering uncertain company expensed deferred offering costs totaling 34 million 2011 march 2012 company determined proceed initial public offering capital stock best note 18other charges net components charges net years ended december 31 2012 2011 2010 follows millions note 19interest income expense net components interest income expense net years ended december 31 2012 2011 2010 follows millions note 20business segment information company determined four operating segments based information reviewed chief operating decision maker representing four groups divisions bruker biospin group bruker calid group bruker mat group bruker energy supercon technologies division bruker biospin group business designing manufacturing distributing enabling life science tools based magnetic resonance technology bruker calid group combines bruker daltonics bruker chemical applied markets bruker detection bruker optics divisions business designing manufacturing distributing mass spectrometry chromatography instruments solutions life sciences including proteomics metabolomics clinical research applications companys mass spectrometry chromatography instruments also provide solutions applied markets include food safety environmental analysis petrochemical analysis bruker calid also designs manufactures distributes various analytical instruments cbrne detection research well analytical research process analysis instruments solutions based infrared raman molecular spectroscopy technologies bruker mat group comprises bruker axs bruker nano surfaces bruker nano analytics bruker elemental divisions business manufacturing distributing advanced xray sparkoptical emission spectroscopy atomic force microscopy stylus optical metrology instrumentation used nondestructive molecular materials elemental analysis bruker energy supercon technologies division business developing producing low temperature superconductor high temperature superconductor materials use advanced magnet technology energy applications well linear accelerators accelerator cavities insertion devices accelerator components specialty superconducting magnets physics energy research variety scientific applications companys reportable segments organized types products services provided company combined bruker biospin bruker calid bruker mat operating segments scientific instruments reporting segment similar economic characteristics product processes services types classes customers methods distribution regulatory environments selected business segment information presented years ended december 31 millions arepresents product service revenue reportable segments brepresents corporate costs eliminations allocated reportable segments company recorded impairment assets within scientific instruments segment 226 million year ended december 31 2012 comprising goodwill definitelived intangible asset impairment charges 14 million 164 million respectively cam division result experiencing increased deterioration financial performance impairment charge 48 million longlived assets reduce carrying value estimated fair value company recorded impairment assets 12 million within energy supercon technologies segment year ended december 31 2012 reduce carrying value certain tangible longlived assets estimated fair value total assets segment years ended december 31 follows millions aassets allocated reportable segments eliminations intercompany transactions total capital expenditures depreciation amortization segment presented years ended december 31 millions revenue property plant equipment geographical area year ended december 31 follows millions note 21related parties company rents office space certain principal shareholders certain also members companys board directors multiple leases expiration dates ranging 2012 2021 total rent expense leases 24 million years ended december 31 2012 2011 2010 years ended december 31 2012 2011 2010 company incurred expenses 24 million 32 million 29 million respectively law firm one members board directors partner years ended december 31 2012 2011 2010 company incurred expenses 04 million 05 million 03 million respectively financial services firm one members board directors partner note 22recent accounting pronouncements february 2013 fasb issued asu 201302 reporting amounts reclassified accumulated comprehensive income standard entities required disclose additional information respect changes accumulated comprehensive income aoci balances component significant items reclassified aoci expanded disclosures presentation changes aoci involve disaggregating total change component comprehensive income well presenting separately component portion change aoci related 1 amounts reclassified income 2 currentperiod comprehensive income additionally amounts reclassified income disclosure one location would required based upon specific aoci component amounts impacting individual income statement line items disclosure income statement line item impacts required components aoci reclassified income entirety disclosures required respect income statement line item impacts would made either notes consolidated financial statements parenthetically face financial statements asu effective fiscal years beginning december 15 2012 adoption amendment 2013 impact companys consolidated financial position results operations cash flows july 2012 fasb issued asu 201202 intangiblesgoodwill topic 350 testing indefinitelived intangible assets impairment update intended simplify guidance impairment testing indefinitelived intangible assets provides entities option perform qualitative assessment determine whether impairment testing necessary amended provisions effective fiscal years beginning september 15 2012 however early adoption permitted adoption amendment 2013 impact companys consolidated financial position results operations cash flows note 23quarterly financial data unaudited summary operating results quarterly periods years ended december 31 2012 2011 set forth millions except per share data 1the fourth quarter 2012 includes impairment assets 238 million comprising goodwill definitelived intangible assets longlived assets item 9item 8 financial statements supplementary data page report ernst young llp independent registered public accounting firm consolidated balance sheets december 31 2013 2012 consolidated statements income comprehensive income years ended december 31 2013 2012 2011 consolidated statements shareholders equity years ended december 31 2013 2012 consolidated statements cash flows years ended december 31 2013 2012 2011 notes consolidated financial statements report independent registered public accounting firm board directors shareholders bruker corporation audited accompanying consolidated balance sheets bruker corporation december 31 2013 2012 related consolidated statements income comprehensive income statements shareholders equity cash flows three years period ended december 31 2013 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position bruker corporation december 31 2013 2012 consolidated results operations cash flows three years period ended december 31 2013 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states bruker corporations internal control financial reporting december 31 2013 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission 1992 framework report dated february 27 2014 expressed unqualified opinion thereon ernst young llp boston massachusetts february 27 2014 bruker corporation consolidated balance sheets millions except share per share data accompanying notes integral part financial statements bruker corporation consolidated statements income comprehensive income millions except per share data accompanying notes integral part financial statements bruker corporation consolidated statements shareholders equity millions except share data accompanying notes integral part financial statements bruker corporation consolidated statements shareholders equity continued millions except share data accompanying notes integral part financial statements bruker corporation consolidated statements shareholders equity continued millions except share data accompanying notes integral part financial statements bruker corporation consolidated statements cash flows millions accompanying notes integral part financial statements bruker corporation notes consolidated financial statements note 1description business bruker corporation together consolidated subsidiaries bruker company designer manufacturer proprietary life science materials research systems associated products address rapidly evolving needs diverse array customers life science pharmaceutical biotechnology clinical molecular diagnostics research materials chemical analysis various industries government applications company two reporting segments bruker scientific instruments bsi represents approximately 93 companys revenues year ended december 31 2013 energy supercon technologies best represents remainder business within bsi company organized three operating segments bruker biospin group bruker calid group bruker mat group financial reporting purposes bruker biospin bruker calid bruker mat operating segments aggregated bsi reporting segment similar economic characteristics production processes service offerings types classes customers methods distribution regulatory environments bruker biospin bruker biospin designs manufactures distributes enabling life science tools based magnetic resonance preclinical imaging technologies bruker biospins magnetic resonance division sells various systems utilizing magnetic resonance technology including magnetic resonance imaging mri systems nuclear magnetic resonance systems nmr electron paramagnetic resonance systems epr well oem mri magnets medical device manufacturers bruker biospins preclinical imaging division sells single multiple modality systems using mri position emission tomography pet single photon emission tomography spect computed tomography ct magnetic particle imaging mpi optical imaging fluorescence bioluminescence technologies preclinical markets bruker calid chemicals applied markets life science invitro diagnostics detection bruker calid designs manufactures distributes life science mass spectrometry instruments integrated used along sample preparation chromatography instruments well chemical biological radiological nuclear explosive cbrne detection products instruments based raman molecular spectroscopy technologies bruker calids mass spectrometry units typically used applications expression proteomics clinical proteomics metabolic peptide biomarker profiling drug discovery development molecular diagnostics research molecular systems biology basic molecular medicine research clinical microbiology research use outside european union bruker mat materials bruker mat designs manufactures distributes spectroscopy microscopy instruments understanding composition structure material science life science samples instruments based advanced technologies xray fluorescence spectroscopy xrf xray diffraction xrd xray micro computed tomography mct atomic force microscopy afm stylus optical metrology som fluorescence microscopy fm analytical tools electron microscopes handheld portable mobile xray fluorescence spark optical emission spectroscopy systems companys best reporting segment develops manufactures superconducting nonsuperconducting materials devices use renewable energy infrastructure healthcare big science research segment focuses metallic low temperature superconductors use magnetic resonance imaging nuclear magnetic resonance fusion energy research applications ceramic high temperature superconductors primarily energy grid magnet applications note 2summary significant accounting policies accompanying consolidated financial statements reflect application certain significant accounting policies described elsewhere notes consolidated financial statements principles consolidation accompanying consolidated financial statements include accounts company majority whollyowned subsidiaries intercompany accounts transactions eliminated noncontrolling interests noncontrolling interests represents minority shareholders proportionate share companys majorityowned indirect subsidiaries portion net income net loss attributable noncontrolling interests presented net income attributable noncontrolling interests consolidated subsidiaries consolidated statements income comprehensive income portion comprehensive income subsidiaries presented consolidated statements shareholders equity subsequent events company evaluated subsequent events determined material recognized unrecognized subsequent events cash equivalents cash equivalents primarily include cash hand money market funds time deposits original maturities three months less date acquisition time deposits represent amounts deposit banks temporarily invested instruments maturities three months less time purchase certain investments represent deposits insured fdic government agency cash equivalents carried cost approximates market value restricted cash certain customers require company provide bank guarantees customer advances generally lines credit satisfy requirement however extent required guarantee exceeds available local line credit company maintains restricted cash balances restricted cash balances classified noncurrent unless terms applicable agreements funds released restrictions within one year balance sheet date december 31 2013 company 67 million restricted cash 40 million classified noncurrent december 31 2012 company 76 million restricted cash 39 million classified noncurrent derivative financial instruments derivatives whether designated hedging relationship recorded consolidated balance sheets fair value accounting changes fair value derivative instrument depends whether designated qualifies part hedging relationship type hedging relationship derivative instruments designated qualify hedging instruments company must designate hedging instrument based exposure hedged fair value hedge cash flow hedge net investment foreign operation fair value hedge derivative instrument designated purpose hedging exposure changes fair value asset liability resulting particular risk derivative designated fair value hedge changes fair value derivative hedged item attributable hedged risk recognized caption consolidated statements income comprehensive income fair value company applies following hierarchy determine fair value financial instruments prioritizes inputs used measure fair value three levels bases categorization within hierarchy upon lowest level input available significant fair value measurement levels hierarchy defined follows •level 1 inputs valuation methodology quoted prices unadjusted identical assets liabilities active markets •level 2 inputs valuation methodology include quoted prices similar assets liabilities active markets inputs observable asset liability either directly indirectly substantially full term financial instrument •level 3 inputs valuation methodology unobservable significant fair value measurement valuation techniques may used company determine fair value level 2 level 3 financial instruments market approach income approach cost approach market approach uses prices relevant information generated market transactions involving identical comparable assets liabilities income approach uses valuation techniques convert future amounts single present value based current market expectations future amounts including present value techniques optionpricing models excess earnings method cost approach based amount would required replace service capacity asset replacement cost companys financial instruments consist primarily cash equivalents restricted cash derivative instruments consisting forward foreign exchange contracts commodity contracts derivatives embedded certain purchase sale contracts accounts receivable shortterm borrowings accounts payable contingent consideration longterm debt carrying amounts companys cash equivalents restricted cash accounts receivable shortterm borrowings accounts payable approximate fair value due shortterm nature derivative assets liabilities measured fair value recurring basis companys longterm debt consists principally private placement arrangement entered 2012 various fixed interest rates based maturity date company evaluated estimated fair value financial instruments using available market information managements estimates use different market assumptions andor estimation methodologies could significant effect estimated fair value amounts concentration credit risk financial instruments subject company credit risk consist cash equivalents derivative instruments accounts receivables restricted cash risk respect cash equivalents minimized companys policy investing shortterm financial instruments issued highlyrated financial institutions risk respect derivative instruments minimized companys policy entering arrangements highlyrated financial institutions risk respect accounts receivables minimized creditworthiness diversity companys customers company performs periodic credit evaluations customers financial condition generally requires advanced deposit portion purchase price credit losses within managements expectations allowance doubtful accounts totaled 79 million december 31 2013 2012 december 31 2013 2012 single customer represented 10 companys accounts receivable years ended december 31 2013 2012 2011 single customer represented 10 companys total revenue inventories components inventory include raw materials workinprocess demonstration units finished goods demonstration units include systems located companys demonstration laboratories installed sites potential customers considered available sale finished goods include intransit systems shipped companys customers yet installed accepted customer inventories stated lower cost market cost determined principally firstin firstout method majority subsidiaries averagecost certain subsidiaries company reduces carrying value inventories differences cost estimated net realizable value taking consideration usage preceding twelve months expected demand technological obsolescence information including physical condition demonstration intransit inventories company records charge cost revenue amount required reduce carrying value inventory net realizable value costs associated procurement inventories inbound freight charges purchasing receiving costs capitalized part inventory also included cost revenue line item within consolidated statements income comprehensive income property plant equipment property plant equipment stated cost less accumulated depreciation amortization major improvements capitalized expenditures maintenance repairs minor improvements charged expense incurred assets retired otherwise disposed assets related accumulated depreciation amortization eliminated accounts resulting gain loss reflected consolidated statements income comprehensive income depreciation amortization calculated straightline basis estimated useful lives assets follows goodwill intangible assets goodwill indefinitelived intangible assets amortized evaluated impairment annual basis interim basis events changes circumstances indicate carrying value may recoverable assessing recoverability goodwill indefinitelived intangible assets company must make assumptions regarding estimated future cash flows factors determine fair value assets estimates related assumptions change future company may required record impairment charges assets reporting period impairment determined company tests goodwill impairment reporting unit level operating segment one level operating segment company option performing qualitative assessment determine whether impairment testing necessary performing twostep quantitative assessment result qualitative assessment morelikelythannot fair value reporting unit less carrying amount quantitative impairment test required otherwise testing required quantitative impairment test performed first step involves comparing fair values applicable reporting units aggregate carrying values including goodwill company generally determines fair value reporting units using weighting market income methodologies estimating fair value reporting units requires significant judgment management carrying amount reporting unit exceeds fair value reporting unit company performs second step goodwill impairment test measure amount impairment second step goodwill impairment test company compares implied fair value reporting units goodwill carrying value goodwill acquired process research development iprd acquired part business combinations acquisition method represents ongoing development work associated enhancements existing products well development next generation products iprd initially capitalized fair value intangible asset indefinite life assessed impairment annual basis indicators impairment identified iprd project complete reclassified finitelived intangible asset amortized estimated useful life typically seven ten years iprd project abandoned completion otherwise determined impaired value asset amount impairment charged consolidated statements income comprehensive income period project abandoned impaired intangible assets finite useful life amortized straightline basis estimated useful lives follows impairment longlived assets impairment losses recorded longlived assets used operations indicators impairment present quoted market price available estimated fair value assets less assets carrying value impairment losses charged consolidated statements income comprehensive income difference fair value carrying value asset warranty costs deferred revenue company typically provides one year parts labor warranty purchase equipment anticipated cost warranty accrued upon recognition sale included current liability accompanying consolidated balance sheets companys warranty reserve reflects estimated material labor costs potential product issues company expects incur obligation companys estimates anticipated rates warranty claims costs primarily based historical information future forecasts company assesses adequacy warranty reserve quarterly basis adjusts amount necessary historical data used calculate adequacy warranty reserve indicative future requirements additional reduced warranty reserves may required company also offers customers extended warranty service agreements extending beyond initial warranty fee fees recorded deferred revenue recognized ratably income life extended warranty contract service agreement income taxes deferred tax assets liabilities recognized expected future tax consequences temporary differences financial statement carrying amounts income tax basis assets liabilities valuation allowance applied net deferred tax asset based available evidence likely deferred tax assets realized company records liabilities related uncertain tax positions accordance guidance clarifies accounting uncertainty income taxes recognized companys financial statements guidance prescribes minimum recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return customer advances company typically requires advance deposit terms conditions contracts customers deposits recorded liability revenue recognized specific contract accordance companys revenue recognition policy revenue recognition company recognizes revenue systems sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectability resulting receivable reasonably assured title risk loss generally transferred upon customer acceptance evidence installation system delivered customer products sold independent distributor strategic distribution partner assumes responsibility installation company recognizes system sale product shipped title risk loss transferred distributor companys distributors price protection rights return however companys products typically warranted free defect period one year revenue deferred cash received collectability reasonably assured price fixed determinable transactions entered subsequent adoption asu 200913 revenue recognition topic 605multipledeliverable revenue arrangements include multiple elements arrangement consideration allocated element using fair value hierarchy required asu 200913 company limits amount revenue recognized delivered elements amount contingent future delivery products services future performance obligations subject customerspecific return refund privileges company attempts determine fair value products services based vendor specific objective evidence vsoe company determines vsoe based normal selling pricing discounting practices specific product service sold standalone basis determining vsoe companys policy requires substantial majority selling prices product service within reasonably narrow range company also considers class customer method distribution geographies products services sold determining vsoe cannot established may occur instances product service sold separately standalone sales infrequent product pricing within sufficiently narrow range company attempts establish selling price based thirdparty evidence tpe determined based competitor prices similar deliverables sold separately company however typically able determine tpe products services generally companys offerings contain significant level differentiation comparable pricing products similar functionality cannot determined furthermore company unable reliably determine selling prices standalone basis similar products offered competitors company cannot determine vsoe tpe uses estimated selling price esp allocation arrangement consideration objective esp determine price company would typically transact standalone sale product service esp determined considering number factors including companys pricing policies internal costs gross profit objectives method distribution market research information recent technological trends competitive landscape geographies company analyzes selling prices used allocation arrangement consideration minimum annual basis selling prices analyzed frequently significant change companys business factors necessitate frequent analysis company experiences significant variances selling prices revenue accessories parts recognized upon shipment service revenue recognized services performed company also contracts applies percentageofcompletion model completed contract model revenue recognition application percentageofcompletion method requires company make reasonable estimates extent progress toward completion contract total costs company incur contract changes estimates could affect timing revenue recognition revenues primarily comprised licensing arrangements licensing revenue recognized ratably term related contract shipping handling costs company includes costs incurred connection shipping handling products within selling general administrative expenses accompanying statements income comprehensive income shipping handling costs 267 million 305 million 287 million years ended december 31 2013 2012 2011 respectively amounts billed customers connection costs included total revenues research development research development costs expensed incurred include salaries wages personnel related costs material costs depreciation consulting costs facility costs software costs purchased software capitalized cost amortized estimated useful life generally three years software developed use companys products expensed incurred technological feasibility reasonably assured classified research development expense subsequent achievement technological feasibility amounts capitalizable however date amounts material advertising company expenses advertising costs incurred advertising expenses 96 million 75 million 81 million years ended december 31 2013 2012 2011 respectively stockbased compensation company recognizes stockbased compensation expense consolidated statements income comprehensive income based fair value sharebased award grant date companys primary types sharebased compensation stock options restricted stock company recorded stockbased compensation expense years ended december 31 2013 2012 2011 follows millions compensation expense amortized straightline basis underlying vesting terms sharebased award stock options purchase companys common stock periodically awarded executive officers employees company members companys board directors subject vesting period three five years fair value option award estimated date grant using blackscholes optionpricing model assumptions regarding volatility expected term dividend yield riskfree interest rate required blackscholes model presented table riskfree interest rate based yield zerocoupon us treasury securities period commensurate expected life assumption expected life determined simplified method defined securities exchange commission staff accounting bulletin 110 company believes best estimate expected term new option expected volatility based number factors company currently believes exclusive use historical volatility results best estimate grantdate fair value employee stock options reflects markets current expectations future volatility expected dividend yield considered option pricing formula since company pay dividends current plans future terms certain companys indebtedness currently restrict ability pay dividends shareholders weighted average fair values options granted 1037 711 789 per share years ended december 31 2013 2012 2011 respectively addition company utilizes estimated forfeiture rate calculating stockbased compensation expense period company applied estimated forfeiture rates derived analysis historical data 70 57 52 years ended december 31 2013 2012 2011 respectively determining expense recorded accompanying consolidated statements income comprehensive income earnings per share net income per common share attributable bruker corporation shareholders calculated dividing net income attributable bruker corporation weightedaverage shares outstanding period diluted net income per share computation includes effect shares would issuable upon exercise outstanding stock options vesting restricted stock reduced number shares assumed purchased company treasury stock method following table sets forth computation basic diluted weighted average shares outstanding years ended december 31 millions except per share data stock options purchase approximately 04 million shares 06 million shares 01 million shares excluded computation diluted earnings per share years ended december 31 2013 2012 2011 respectively effect would antidilutive employee retirement plans company recognizes overfunded underfunded status defined benefit pension postretirement defined benefit plans asset liability respectively consolidated balance sheets recognizes changes funded status year changes occur comprehensive income comprehensive income comprehensive income refers revenues expenses gains losses excluded net income amounts recorded directly adjustment shareholders equity net tax companys comprehensive income composed primarily foreign currency translation adjustments changes funded status defined benefit pension plans foreign currency translation assets liabilities companys foreign subsidiaries functional currency local currency translated us dollars using yearend exchange rates historical rates appropriate revenues expenses foreign subsidiaries translated average exchange rates effect year adjustments resulting financial statement translations included separate component shareholders equity gains losses resulting translation foreign currency monetary transactions reported interest income expense net consolidated statements income comprehensive income periods presented company certain intercompany foreign currency transactions deemed longterm investment nature exchange adjustments related transactions made directly separate component shareholders equity risk uncertainties company subject risks common industry including limited global economic conditions rapid technological change spending patterns customers protection intellectual property availability key raw materials components compliance existing future regulation government agencies dependence key personnel fluctuations foreign currency exchange rates contingencies company subject proceedings lawsuits claims related patents product matters company assesses likelihood adverse judgments outcomes matters well potential ranges probable losses determination amount reserves required contingencies made analysis individual issue required reserves may change future due new developments situation changes settlement strategy assessing matters use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant estimates judgments made management preparing financial statements include revenue recognition allowances doubtful accounts writedowns excess obsolete inventory estimated fair values used record impairment charges related intangible assets goodwill longlived assets amortization periods expected future cash flows used evaluate recoverability longlived assets stockbased compensation expense warranty allowances restructuring related charges contingent liabilities recoverability companys net deferred tax assets although company regularly reassesses assumptions underlying estimates actual results could differ materially estimates changes estimates recorded period become known company bases estimates historical experience various assumptions believes reasonable circumstances actual results may differ managements estimates results differ historical experience assumptions prove substantially accurate even assumptions reasonable made reclassifications certain line items prior period financial statements including reclassifications within product cost revenue service cost revenue selling general administrative expenses well certain footnote disclosures including note 7property plant equipment reclassified amounts material effect previously reported net income cash flows note 3acquisitions march 2012 company completed acquisition skyscan nv skyscan business privately owned company based belgium provides advanced highresolution microcomputed tomography systems threedimensional xray imaging preclinical imaging applications materials research markets company expects synergies combining skyscan business current product portfolio acquisition skyscan business accounted acquisition method components fair value allocation consideration transferred connection skyscan business follows millions fair value allocation includes contingent consideration amount 40 million represents estimated fair value future payments former shareholders skyscan business based achieving annual revenue targets years 20122014 maximum potential future payments related contingent consideration capped approximately 59 million annual revenue target 2012 achieved applicable contingent consideration paid 2013 companys allocation consideration transferred connection acquisition skyscan business finalized first quarter 2013 measurement date adjustments material weightedaverage amortization period intangible assets acquired connection skyscan business 7 years existing technology 10 years customer relationships results skyscan business including amount allocated goodwill included bsi segment date acquisition pro forma financial information reflecting acquisition skyscan business presented impact revenues net income net income per common share attributable bruker corporation shareholders material note 4fair value financial instruments company measures following financial assets liabilities fair value recurring basis following tables set forth companys financial instruments presents within fair value hierarchy using lowest level input significant fair value measurement december 31 2013 2012 millions derivative financial instruments classified within level 2 active market derivative contract however inputs used calculate value instruments obtained active markets fair value longterm fixed interest rate debt classified level 2 2441 2556 million december 31 2013 2012 respectively based market observable sources similar maturity dates company measures certain assets liabilities fair value changes fair value recognized earnings fair value treatment may elected either upon initial recognition eligible asset liability existing asset liability event triggers new basis accounting company elect remeasure existing financial assets liabilities year ended december 31 2013 part certain acquisitions 2013 2012 company recorded contingent consideration liabilities classified level 3 fair value hierarchy contingent consideration represents estimated fair value future payments former shareholders applicable acquired companies based achieving annual revenue targets certain years specified purchase sale agreements company initially valued contingent consideration using discounted cash flow method changes fair value contingent consideration recognized earnings years ended december 31 2013 15 million recorded charges net consolidated statements income comprehensive income following table sets forth changes contingent consideration liabilities years ended december 31 2013 2012 millions note 5accounts receivable following summary trade accounts receivable december 31 millions allowance doubtful accounts managements estimate credit losses accounts receivable allowance doubtful accounts based number factors including evaluation customer credit worthiness age outstanding receivable economic trends historical experience allowance doubtful accounts reviewed quarterly basis changes estimates reflected period become known company records account balances allowance means collection exhausted potential recovery considered remote provisions doubtful accounts recorded selling general administrative expenses accompanying consolidated statements income comprehensive income following summary activity companys allowance doubtful accounts december 31 millions note 6inventories inventories consisted following december 31 millions finished goods include intransit systems shipped companys customers yet installed accepted customer december 31 2013 2012 inventoryintransit 819 million 939 million respectively company reduces carrying value demonstration inventories differences cost estimated net realizable value charge cost product revenue based number factors including age unit physical condition unit assessment technological obsolescence amounts recorded cost revenue related writedown demonstration units net realizable value 327 million 315 million 300 million years ended december 31 2013 2012 2011 respectively note 7property plant equipment following summary property plant equipment major asset class december 31 millions depreciation expense includes amortization leasehold improvements years ended december 31 2013 2012 2011 405 million 371 million 348 million respectively company recorded impairment charge year ended december 31 2012 amount 60 million related property plant equipment within chemical applied markets cam division within bsi segment result experiencing increased deterioration financial performance best segment based abandonment project reduce carrying value assets estimated fair values charge recorded within impairment assets accompanying statements income comprehensive income note 8goodwill intangible assets following table sets forth changes carrying amount goodwill years ended december 31 2013 2012 millions december 31 2013 2012 goodwill allocated bsi segment goodwill acquired 2013 relates acquisition prairie technologies inc provider life science fluorescence microscopy products goodwill acquired 2012 predominantly relates acquisition skyscan business december 31 2013 company performed annual impairment evaluation using qualitative approach impairment recorded december 31 2012 company performed annual impairment evaluation using quantitative approach concluded reporting units fair values exceeded carrying values exception cam division result increased deterioration financial performance company therefore performed step two impairment test measure potential impairment concluded impairment charge 14 million required amount represents goodwill allocated cam division recorded within impairment assets accompanying statements income comprehensive income year ended december 31 2012 indefinitelived intangible assets associated cam division impairment indefinitelived intangible assets year ended december 31 2012 impairment losses recorded goodwill year ended december 31 2011 following summary intangible assets december 31 millions company determined increased deterioration financial performance 2012 cam division discussed indicator requiring evaluation definitelived intangible assets within reporting unit recoverability company performed valuation december 31 2012 determined definitelived intangible assets within cam division impaired company recorded impairment charge amount 164 million year ended december 31 2012 reduce carrying value assets estimated fair values impairment charge included within impairment assets accompanying statements income comprehensive income impairment losses recorded related definitelived intangible assets years ended december 31 2013 2011 years ended december 31 2013 2012 2011 company recorded amortization expense approximately 208 million 220 million 181 million respectively consolidated statements income comprehensive income estimated future amortization expense related amortizable intangible assets december 31 2013 follows millions note 9other current liabilities following summary current liabilities december 31 millions following table sets forth changes accrued warranty years ended december 31 2013 2012 millions note 10debt companys debt obligations consist following december 31 millions may 2011 company entered amendment restatement credit agreement referred amended credit agreement amended credit agreement provides maximum commitment companys revolving credit line 2500 million maturity date may 2016 borrowings revolving credit line amended credit agreement accrue interest companys option either greatest prime rate ii federal funds rate plus 050 iii adjusted libor plus 100 b libor plus margins ranging 080 165 also facility fee ranging 020 035 borrowings amended credit agreement secured guarantees certain material subsidiaries defined amended credit agreement bruker energy supercon technologies inc amended credit agreement also requires company maintain certain financial ratios related maximum leverage minimum interest coverage specifically companys leverage ratio cannot exceed 30 companys interest coverage ratio cannot less 30 december 31 2013 company compliance covenants amended credit agreement addition financial ratios amended credit agreement restricts among things companys ability following make certain payments incur additional debt incur certain liens make certain investments including derivative agreements merge consolidate sell transfer substantially assets enter certain transactions affiliates failure comply restrictions covenants may result event default amended credit agreement could permit acceleration debt require company prepay debt scheduled due date following summary maximum commitments net amounts available company revolving loan arrangements december 31 2013 millions revolving loans various financial institutions located primarily germany switzerland france companys revolving lines credit typically due upon demand interest payable monthly certain lines credit unsecured others secured accounts receivable inventory related subsidiary january 2012 company entered note purchase agreement referred note purchase agreement group accredited institutional investors pursuant note purchase agreement company issued sold 2400 million senior notes referred senior notes consist following •20 million 316 series 2012a senior notes tranche due january 18 2017 •15 million 374 series 2012a senior notes tranche b due january 18 2019 •105 million 431 series 2012a senior notes tranche c due january 18 2022 •100 million 446 series 2012a senior notes tranche due january 18 2024 terms note purchase agreement company may issue sell additional senior notes aggregate principal amount 600 million subject certain conditions interest senior notes payable semiannually january 18 july 18 year commencing july 18 2012 senior notes unsecured obligations company fully unconditionally guaranteed certain companys direct indirect subsidiaries senior notes rank pari passu right repayment companys senior unsecured indebtedness company may prepay senior notes time amount less 10 original aggregate principal amount senior notes prepaid price equal sum 100 principal amount thereof plus accrued unpaid interest b applicable makewhole amount upon less 30 60 days written notice holders senior notes event change control company defined note purchase agreement company may required prepay notes price equal 100 principal amount thereof plus accrued unpaid interest note purchase agreement contains affirmative covenants including without limitation maintenance corporate existence compliance laws maintenance insurance properties payment taxes addition subsidiary guarantors furnishing notices information note purchase agreement also contains certain restrictive covenants restrict companys ability among things incur liens transfer sell assets engage certain mergers consolidations enter transactions affiliates note purchase agreement also includes customary representations warranties events default case event default arising specified events bankruptcy insolvency outstanding senior notes become due payable immediately without action notice case payment events defaults holder senior notes affected thereby may declare senior notes held due payable immediately case event default majority holders senior notes may declare senior notes due payable immediately pursuant note purchase agreement long senior notes outstanding company permit leverage ratio determined pursuant note purchase agreement end fiscal quarter exceed 350 100 ii interest coverage ratio determined pursuant note purchase agreement end fiscal quarter period four consecutive fiscal quarters less 250 1 iii priority debt time exceed 25 consolidated net worth determined pursuant note purchase agreement december 31 2013 company compliance covenants note purchase agreement annual maturities longterm debt outstanding december 31 2013 follows millions interest expense years ended december 31 2013 2012 2011 134 million 143 million 73 million respectively note 11derivative instruments hedging activities interest rate risks companys exposure interest rate risk relates primarily outstanding variable rate debt adverse movements related shortterm market rates significant component companys interest rate risk relates amounts outstanding amended credit agreement totaled 1125 million december 31 2013 company currently higher level fixed rate debt variable rate debt limits exposure adverse movements interest rates foreign exchange rate risk management company generates substantial portion revenues expenses international markets principally germany countries european union switzerland japan subjects operations exposure exchange rate fluctuations impact currency exchange rate movement positive negative period company periodically enters foreign currency contracts order minimize volatility fluctuations exchange rates monetary transactions arrangements company typically agrees purchase fixed amount foreign currency exchange fixed amount us dollars currencies specified dates maturities less twelve months transactions qualify hedge accounting accordingly instrument recorded fair value corresponding gains losses recorded consolidated statements income comprehensive income company following notional amounts outstanding foreign currency contracts december 31 millions addition company periodically enters purchase sales contracts denominated currencies functional currency parties transaction company accounts transactions separately valuing embedded derivative component contracts denominated currencies functional currency transacting parties amounted 217 million delivery products 95 million purchase products december 31 2013 402 million delivery products 103 million purchase products december 31 2012 changes fair value embedded derivatives recorded interest income expense net consolidated statements income comprehensive income commodity price risk management company arrangement customer firm commitment deliver copper based superconductors fixed price order minimize volatility fluctuations price copper companys sales commodities company entered commodity hedge contracts december 31 2013 2012 company fixed price commodity contracts notional amounts aggregating 34 million changes fair value commodity contracts recorded interest income expense net consolidated statements income comprehensive income years ended december 31 2012 2011 company recognized 02 million 03 million respectively losses comprehensive income reclassified 13 million 22 million respectively losses comprehensive income recognized net income related effective portion interest rate swap designated hedging instrument matured december 31 2012 fair value derivative instruments described recorded consolidated balance sheets years ended december 31 2013 2012 follows millions impact net income unrealized gains losses resulting changes fair value derivative instruments designated hedging instruments years ending december 31 follows millions amounts related derivative instruments designated hedging instruments recorded interest income expense net consolidated statements income comprehensive income note 12income taxes domestic foreign components income taxes follows years ended december 31 millions components income tax provision follows years ended december 31 millions income tax benefit provision differs tax provision computed us federal statutory rate due following significant components years ended december 31 tax effect temporary items give rise significant portions deferred tax assets liabilities follows december 31 millions company uses liability method account income taxes method deferred income taxes recognized future tax consequences differences tax financial accounting bases assets liabilities reporting period deferred income taxes based enacted tax laws statutory tax rates applicable period differences expected affect taxable income valuation allowance established necessary reduce deferred tax assets expected realized amounts company recognize deferred tax asset extent likely assets realized considering available positive negative evidence company established valuation allowance deferred tax assets certain jurisdictions likely assets realized determining realizability assets company considered numerous factors including historical profitability character estimated future taxable income prudent feasible tax planning strategies industry operates company fully reserved us net deferred tax assets predominantly net operating losses tax credit carryforwards companys valuation allowance december 31 2013 increased 25 million balance december 31 2012 due primarily unbenefited losses credits us also 2013 company reduced beginningoftheyear valuation allowance 33 million account deferred tax liabilities recorded conjunction acquisition prairie technologies inc caused change judgment respect realizability companys deferred tax assets future years december 31 2013 company approximately 303 million us net operating loss carryforwards available reduce future state taxable income expire various times 2033 approximately 543 million german trade tax net operating losses carried forward indefinitely additionally company 86 million foreign net operating losses expected expire various times beginning 2022 company also us tax credits approximately 188 million available offset future tax liabilities expire various dates include research development tax credits 116 million expiring various times 2033 foreign tax credits 72 million expiring various times 2023 utilization us net operating loss carryforwards credits may subject annual limitations due ownership percentage change limitations provided internal revenue code section 382 similar state provisions event deemed change control internal revenue code section 382 annual limitation utilization net operating losses credits may result expiration portion net operating loss credit carryforwards company reflects certain foreign statutory reserves tabular reconciliation unrecognized tax benefits effective year ended december 31 2013 tax benefits presented reduction associated net deferred tax assets company indefinitely reinvested earnings subsidiaries cumulative amount approximately 10540 million december 31 2013 therefore provided us income taxes could result distribution earnings us parent earnings ultimately distributed us form dividends otherwise shares subsidiaries sold transferred company would likely subject additional us income taxes net impact available foreign tax credits practicable estimate amount unrecognized deferred us income taxes undistributed earnings company gross unrecognized tax benefits excluding interest approximately 327 million december 31 2013 141 million recognized would reduce companys effective tax rate next twelve months reasonably possible company reduce unrecognized tax benefits 13 million due statutes limitations expiring favorably settling taxing authorities would reduce companys effective tax rate tabular reconciliation beginning ending amount unrecognized tax benefits follows millions companys policy include accrued interest penalties related unrecognized tax benefits income tax liabilities applicable income tax expense december 31 2013 2012 company approximately 38 million 37 million respectively accrued interest penalties related uncertain tax positions included longterm liabilities consolidated balance sheets penalties interest related unrecognized tax benefits 09 million 20 million recorded provision income taxes year ended december 31 2013 2012 respectively company files tax returns us include federal state local jurisdictions many foreign jurisdictions varying statutes limitations company considers germany us switzerland significant tax jurisdictions tax years 2009 2012 open tax years significant foreign jurisdictions fourth quarter 2012 company settled tax audits switzerland germany first quarter 2014 company settled tax audit us tax year 2010 settlement immaterial consolidated financial statements tax years 2011 2012 remain open examination us note 13employee benefit plans defined benefit plans substantially companys employees switzerland france japan well certain employees germany covered companysponsored defined benefit pension plans retirement benefits generally earned based years service compensation active employment eligibility generally determined accordance local statutory requirements however level benefits terms vesting varies among plans net periodic pension cost components net periodic benefit costs years ended december 31 2013 2012 2011 follows company measures benefit obligation fair value plan assets december 31st year changes benefit obligations plan assets defined benefit pension plans projected benefit obligation funded status plans follows december 31 millions accumulated benefit obligation defined benefit pension plans 1748 million 1765 million december 31 2013 2012 respectively defined benefit pension plans accumulated benefit obligation projected benefit obligation excess plan assets december 31 2013 2012 following amounts recognized accompanying consolidated balance sheets companys defined benefit plans december 31 millions following pretax amounts recognized accumulated comprehensive income companys defined benefit plans december 31 millions amount accumulated comprehensive income december 31 2013 expected recognized amortization net loss within net periodic benefit cost 2014 01 million range assumptions used defined benefit pension plans reflects different economic environments within various countries range assumptions used determine projected benefit obligations years ended december 31 follows determine expected longterm rate return pension plan assets company considers current asset allocations well historical expected returns various asset categories plan assets principal pension plans company applies expected rate return marketrelated value assets stabilizes variability assets expected return applied asset allocations asset category fair value companys pension plan assets december 31 2013 2012 asset category level fair value hierarchy follows millions acash cash equivalents consist primarily highly liquid investments including cash hand bour us corporate bond investments average rating aa cour foreign corporate government bond investments average rating aa dus international equites primarily include investments large market capitalization stocks ereal estate includes swiss public real estate funds generate returns line swiss property market investing residential commerical properties throughout switzerland fmortgage assetbacked securities pool together various cashflow producing financial assets typically collateralized residential mortgages commercial mortgages assets board trustees comprised employer employee representatives subsidiaries responsible setting policy serves framework allocating plan assets within guidelines provided respective government policy defines investment strategy including asset allocation ranges designed ensure benefit obligations plans met due investment strategy also targeted optimizing return investment within risk constraints plans board trustees appoint plan administrators investment managers oversee investment allocation process setting longterm strategic targets monitoring asset allocations target allocations 55 bonds including cash 30 equity investments 15 real estate mortgages target allocation ranges guidelines limitations occasionally board trustees approve allocations target range based number factors including market conditions contributions estimated future benefit payments 2014 company expects contributions consistent 2013 estimated future benefit payments based assumptions used measure companys benefit obligation december 31 2013 following benefit payments reflect future employee service appropriate millions benefit plans company sponsors various defined contribution plans cover certain domestic international employees company may make contributions plans discretion company contributed 53 million 46 million 37 million plans years ended december 31 2013 2012 2011 respectively note 14commitments contingencies operating leases certain buildings office equipment vehicles leased agreements accounted operating leases total rental expense operating leases 246 million 216 million 185 million years ended december 31 2013 2012 2011 respectively future minimum lease payments noncancelable operating leases december 31 2013 next five years follows millions capital leases company leases certain buildings agreements classified capital leases cost buildings capital leases included consolidated balance sheets property plant equipment 88 million 99 million december 31 2013 2012 accumulated amortization leased buildings december 31 2013 2012 28 million 30 million respectively amortization expense related assets capital leases included depreciation expense obligations related capital leases recorded component longterm debt current portion longterm debt consolidated balance sheets depending lease payments due license agreements company entered crosslicensing agreements various technologies allow companies utilize certain patents related technologies various periods perpetuity income agreements years ended december 31 2013 2012 2011 95 million 202 million 29 million respectively classified revenue consolidated statements income comprehensive income decrease year ended december 31 2013 driven incremental decline license revenue sale technology best unearned portions proceeds crosslicensing agreements classified shortterm longterm deferred revenue depending revenue earned company also entered license agreements allowing utilize certain patents used connection commercial product sale company pays royalties related product revenues licensing fees years ended december 31 2013 2012 2011 40 million 42 million 28 million respectively recorded cost product revenue consolidated statements income comprehensive income legal april 9 2013 perkinelmer inc caliper life sciences inc xenogen corporation board trustees leland stanford junior university filed action us district court california northern district oakland company subsequently amended companys bruker biospin corporation subsidiary alleging breach certain agreement assumed bruker biospin corporation connection purchase xray optical imaging systems business carestream health inc october 2012 suit also claimed company bruker biospin corporation engaged conduct infringed andor induced infringement certain patents held licensed plaintiffs subsequent fourth quarter 2013 company entered settlement agreement plaintiffs resolve claims settlement amount recorded fourth quarter 2013 immaterial consolidated financial statements company september 21 2012 vertical analytics llc filed action us district court district delaware bruker axs inc bruker axs complaint alleged bruker axs infringed induced infringement contributed infringement certain us patents related xray diffraction analysis held vertical analytics llc fourth quarter 2013 company entered settlement agreement vertical analytics llc resolve claims settlement amount recorded fourth quarter 2013 immaterial consolidated financial statements company november 4 2011 hyphenated systems llc filed action california superior court santa clara county company veeco metrology inc connection certain agreements entered prior subsequent companys acquisition shares veeco metrology inc october 2010 upon closing acquisition veeco metrology inc renamed bruker nano inc fourth quarter 2013 company entered settlement agreement hyphenated systems llc resolve claims settlement amount recorded fourth quarter 2013 immaterial consolidated financial statements company lawsuits claims proceedings nature considered normal businesses may pending time company believes outcome proceedings individually aggregate material impact companys financial position results operations december 31 2013 2012 accruals recorded potential contingencies internal investigation compliance matters previously reported audit committee companys board directors assisted independent outside counsel independent forensic consulting firm conducted internal investigation response anonymous communications received company alleging improper conduct connection china operations companys bruker optics subsidiary audit committees investigation began 2011 completed first quarter 2012 included review compliance bruker optics employees china hong kong requirements foreign corrupt practices act fcpa applicable laws regulations investigation found evidence indicating payments made improperly benefited employees agents governmentowned enterprises china hong kong investigation also found evidence certain employees bruker optics china hong kong failed comply companys policies standards conduct result company took personnel actions including termination certain individuals company also terminated business relationships certain third party agents implemented enhanced fcpa compliance program strengthened financial controls oversight subsidiaries operating china hong kong 2011 company also initiated review china operations subsidiaries assistance independent audit firm basis review conducted date company identified additional employees bruker subsidiaries operating china failed comply companys policies standards conduct taken additional personnel actions certain subsidiaries result review ongoing conclusions drawn time final outcome company voluntarily contacted united states securities exchange commission united states department justice august 2011 advise agencies internal investigation audit committee regarding china operations companys bruker optics subsidiary october 2011 company also reported existence internal investigation hong kong joint financial intelligence unit independent commission corruption icac company cooperated united states federal agencies hong kong government authorities respect inquiries provided documents andor made witnesses available response requests governmental authorities reviewing matter company intends continue cooperate agencies connection inquiries time company cannot reasonably assess timing outcome matters effect companys business fcpa related statutes regulations provide potential monetary penalties well criminal civil sanctions connection fcpa violations possible monetary penalties sanctions could assessed us federal government connection matters additionally extent payments determined illegal local government authorities civil criminal penalties may assessed authorities companys ability conduct business jurisdiction may negatively impacted time company cannot predict extent securities exchange commission sec department justice doj icac governmental authorities pursue administrative civil injunctive criminal proceedings imposition fines penalties remedies sanctions given current status inquiries agencies company cannot reasonably estimate possible loss range possible loss may result proceedings may commenced sec doj icac governmental authorities accordingly provision respect matters recorded accompanying consolidated financial statements adverse findings negative outcomes proceedings could material impact companys consolidated financial statements future periods letters credit guarantees december 31 2013 2012 company bank guarantees 1712 million 1432 million respectively related primarily customer advances arrangements guarantee refund advance payments received customers event merchandise delivered warranty obligations fulfilled compliance terms contract guarantees affect availability companys lines credit indemnifications company enters standard indemnification arrangements companys ordinary course business pursuant arrangements company indemnifies holds harmless agrees reimburse indemnified parties losses suffered incurred indemnified party generally companys business partners customers connection patent copyright intellectual property infringement claim third party respect products term indemnification agreements generally perpetual anytime execution agreement maximum potential amount future payments company could required make agreements unlimited company believes estimated fair value agreements minimal company entered indemnification agreements directors officers may require company indemnify directors officers liabilities may arise reason status service directors officers liabilities arising willful misconduct culpable nature advance expenses incurred result proceeding could indemnified obtain directors officers insurance available reasonable terms company currently place note 15shareholders equity dividends terms companys indebtedness currently restrict companys ability pay dividends shareholders stock plans bruker corporation stock plan february 2010 bruker biosciences corporation amended restated 2000 stock option plan 2000 plan expired end scheduled tenyear term march 9 2010 companys board directors unanimously approved adopted bruker corporation 2010 incentive compensation plan 2010 plan may 14 2010 plan approved companys stockholders 2010 plan provides issuance 8000000 shares companys common stock plan allows committee board directors committee grant incentive stock options nonqualified stock options restricted stock awards committee authority determine employees receive awards amount awards terms conditions award awards granted committee typically vest period three five years stock option activity year ended december 31 2013 follows addition options vested december 31 2013 company expects portion unvested options vest future options expected vest future determined applying estimated forfeiture rate options unvested december 31 2013 bthe aggregate intrinsic value based positive difference fair value companys common stock price 1977 december 31 2013 date exercises appropriate exercise price underlying stock options unrecognized pretax stockbased compensation expense 160 million related stock options awarded 2000 2010 plans expected recognized weighted average remaining service period 27 years stock options outstanding december 31 2013 restricted shares companys common stock periodically awarded executive officers directors certain key employees company subject service restrictions expire ratably periods three five years restricted shares common stock may sold transferred restriction period stockbased compensation restricted stock recorded based stock price grant date charged expense ratably throughout restriction period following table summarizes information restricted stock activity year ended december 31 2013 unrecognized pretax stockbased compensation expense 50 million related restricted stock awarded 2010 plan expected recognized weighted average remaining service period 32 years awards outstanding december 31 2013 year ended december 31 2013 2012 2011 total fair value shares vested restricted shares companys stock amounted 14 million 12 million 31 million respectively bruker energy supercon technologies stock plan october 2009 board directors best adopted bruker energy supercon technologies inc 2009 stock option plan best plan best plan provides issuance 1600000 shares best common stock connection awards best plan best plan allows best board directors grant incentive stock options nonqualified stock options restricted stock awards best board directors authority determine employees receive awards amount awards terms conditions awards granted pursuant best plan vest period three five years best plan 520000 800000 options outstanding december 31 2013 december 31 2012 respectively activity best plan year ended december 31 2013 represented forfeited options totaling 280000 options company recorded approximately 03 million 05 million 2013 2012 respectively pretax stockbased compensation expense related awards granted best plan unrecognized pretax stockbased compensation expense 02 million related stock options awarded best plan expected recognized weighted average remaining service period 08 years awards outstanding december 31 2013 note 16accumulated comprehensive income following summary components accumulated comprehensive income net tax december 31 millions note 17deferred offering costs september 2010 company announced plans sell minority ownership position best subsidiary initial public offering capital stock best result economic market factors timing best initial public offering uncertain company expensed deferred offering costs totaling 34 million 2011 march 2012 company determined proceed initial public offering capital stock best note 18other charges net components charges net years ended december 31 2013 2012 2011 follows millions beginning fourth quarter 2012 continuing 2013 company commenced productivity improvement initiatives bsi best reporting segments effort better optimize operations restructuring initiatives include divestiture certain noncore businesses outsourcing various manufacturing activities transferring ceasing operations certain facilities overall rightsizing within company based current business environments company recorded restructuring charges within years ended december 31 2013 2012 253 million 05 million respectively related initiatives year ended december 31 2013 restructuring charges consisted 179 million severance costs 53 million exit related costs professional services facility exit charges 21 million inventory provisions excess inventory 253 million recorded year ended december 31 2013 230 million related bsi reporting segment 23 million related best reporting segment company recorded 182 million restructuring charges component charges net 71 million component cost revenue condensed consolidated statements income comprehensive income based current status restructuring initiatives company expects record additional charges approximately 45 million 2014 relating initiatives consisting mainly severance costs following table sets forth changes restructuring reserves years ended december 31 2013 2012 millions note 19interest income expense net components interest income expense net years ended december 31 2013 2012 2011 follows millions note 20business segment information company two reporting segments bsi best discussed footnote 1 consolidated financial statements selected business segment information presented years ended december 31 millions arepresents product service revenue reportable segments brepresents corporate costs eliminations allocated reportable segments company recorded impairment assets within bsi segment 226 million year ended december 31 2012 comprising goodwill definitelived intangible asset impairment charges 14 million 164 million respectively cam division result increased deterioration financial performance impairment charge 48 million longlived assets reduce carrying value estimated fair value company recorded impairment assets 12 million within best segment year ended december 31 2012 reduce carrying value certain tangible longlived assets estimated fair value total assets segment years ended december 31 follows millions aassets allocated reportable segments eliminations intercompany transactions total capital expenditures depreciation amortization segment presented years ended december 31 millions revenue property plant equipment geographical area year ended december 31 follows millions note 21related parties company leases certain office space certain principal shareholders including director executive officer another member companys board directors members immediate families expiration dates ranging 2015 2021 total rent expense leases 26 million 24 million 24 million years ended december 31 2013 2012 2011 respectively years ended december 31 2013 2012 2011 company incurred expenses 53 million 24 million 32 million respectively law firm one members board directors partner years ended december 31 2013 2012 2011 company incurred expenses 02 million 04 million 05 million respectively financial services firm one members board directors partner note 22quarterly financial data unaudited summary operating results quarterly periods years ended december 31 2013 2012 set forth millions except per share data 1the fourth quarter 2012 includes impairment assets 238 million comprising goodwill definitelived intangible assets longlived assets item 9item 8 financial statements supplementary data page report ernst young llp independent registered public accounting firm consolidated balance sheets december 31 2014 2013 consolidated statements income comprehensive income years ended december 31 2014 2013 2012 consolidated statements shareholders equity years ended december 31 2014 2013 consolidated statements cash flows years ended december 31 2014 2013 2012 notes consolidated financial statements report independent registered public accounting firm board directors shareholders bruker corporation audited accompanying consolidated balance sheets bruker corporation december 31 2014 2013 related consolidated statements income comprehensive income statements shareholders equity cash flows three years period ended december 31 2014 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position bruker corporation december 31 2014 2013 consolidated results operations cash flows three years period ended december 31 2014 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states bruker corporations internal control financial reporting december 31 2014 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission 1992 framework report dated february 27 2015 expressed unqualified opinion thereon ernst young llp boston massachusetts february 27 2015 bruker corporation consolidated balance sheets millions except share per share data accompanying notes integral part financial statements bruker corporation consolidated statements income comprehensive income millions except per share data accompanying notes integral part financial statements bruker corporation consolidated statements shareholders equity millions except share data accompanying notes integral part financial statements bruker corporation consolidated statements cash flows millions accompanying notes integral part financial statements bruker corporation notes consolidated financial statements note 1description business bruker corporation together consolidated subsidiaries bruker company designer manufacturer proprietary life science materials research systems associated products help drive advances life science research pharmaceutical applied markets nanotechnology cell biology clinical research microbiology invitro diagnostics company two reporting segments bruker scientific instruments bsi represents approximately 93 companys revenues year ended december 31 2014 bruker energy supercon technologies best represents remainder business within bsi company organized three operating segments bruker biospin group bruker calid group bruker nano group formerly bruker mat group financial reporting purposes bruker biospin bruker calid bruker nano operating segments aggregated bsi reporting segment similar economic characteristics production processes service offerings types classes customers methods distribution regulatory environments bruker biospin bruker biospin designs manufactures distributes enabling life science tools based magnetic resonance preclinical imaging technologies bruker biospins magnetic resonance division sells various systems utilizing magnetic resonance technology including magnetic resonance imaging mri systems nuclear magnetic resonance systems nmr electron paramagnetic resonance systems epr well oem mri magnets sold medical device manufacturers bruker biospins preclinical imaging division sells single multiple modality systems using mri position emission tomography pet single photon emission tomography spect computed tomography ct magnetic particle imaging mpi optical imaging fluorescence bioluminescence technologies preclinical markets bruker calid chemicals applied markets life science invitro diagnostics detection bruker calid designs manufactures distributes life science mass spectrometry instruments integrated used along sample preparation chromatography instruments well chemical biological radiological nuclear explosive cbrne detection products bruker calid also designs manufactures distributes instruments based raman molecular spectroscopy technologies bruker calids mass spectrometry units typically used applications expression proteomics clinical proteomics metabolic peptide biomarker profiling drug discovery development molecular diagnostics research molecular systems biology basic molecular medicine research clinical microbiology research use outside european union bruker nano bruker nano designs manufactures distributes spectroscopy microscopy instruments understanding composition structure material science life science samples instruments based advanced technologies xray fluorescence spectroscopy xrf xray diffraction xrd xray micro computed tomography mct atomic force microscopy afm stylus optical metrology som fluorescence microscopy fm also include analytical tools electron microscopes handheld portable mobile xray fluorescence spark optical emission spectroscopy systems companys best reporting segment develops manufactures superconducting nonsuperconducting materials devices use renewable energy infrastructure healthcare big science research segment focuses metallic low temperature superconductors use magnetic resonance imaging nuclear magnetic resonance fusion energy research applications ceramic high temperature superconductors primarily energy grid magnet applications note 2summary significant accounting policies accompanying consolidated financial statements reflect application certain significant accounting policies described elsewhere notes consolidated financial statements principles consolidation accompanying consolidated financial statements include accounts company majority whollyowned subsidiaries intercompany accounts transactions eliminated noncontrolling interests noncontrolling interests represents minority shareholders proportionate share companys majorityowned indirect subsidiaries portion net income net loss attributable noncontrolling interests presented net income attributable noncontrolling interests consolidated subsidiaries consolidated statements income comprehensive income portion comprehensive income subsidiaries presented consolidated statements shareholders equity subsequent events company evaluated subsequent events determined material recognized unrecognized subsequent events subsequent events required mentioned footnotes consolidated financial statements cash equivalents cash equivalents primarily include cash hand money market funds time deposits original maturities three months less date acquisition time deposits represent amounts deposit banks temporarily invested instruments maturities three months less time purchase certain investments represent deposits insured fdic government agency cash equivalents carried cost approximates fair value shortterm investments shortterm investments represent time call deposits original maturities greater three months date acquisition shortterm investments classified availableforsale reported fair value unrealized gains losses excluded earnings reported net tax accumulated comprehensive income within accompanying consolidated balance sheets unrealized gains losses recorded year ended december 31 2014 cost approximates fair value restricted cash certain customers require company provide bank guarantees customer advances generally lines credit satisfy requirement however extent required guarantee exceeds available local line credit company maintains restricted cash balances restricted cash balances classified noncurrent unless terms applicable agreements funds released restrictions within one year balance sheet date current noncurrent portion restricted cash recorded within current assets longterm assets respectively accompanying consolidated balance sheets derivative financial instruments derivatives whether designated hedging relationship recorded consolidated balance sheets fair value accounting changes fair value derivative instrument depends whether designated qualifies part hedging relationship type hedging relationship derivative instruments designated qualify hedging instruments company must designate hedging instrument based exposure hedged fair value hedge cash flow hedge net investment foreign operation fair value hedge derivative instrument designated purpose hedging exposure changes fair value asset liability resulting particular risk derivative designated fair value hedge changes fair value derivative hedged item attributable hedged risk recognized caption consolidated statements income comprehensive income fair value company applies following hierarchy determine fair value financial instruments prioritizes inputs used measure fair value three levels bases categorization within hierarchy upon lowest level input available significant fair value measurement levels hierarchy defined follows • level 1 inputs valuation methodology quoted prices unadjusted identical assets liabilities active markets • level 2 inputs valuation methodology include quoted prices similar assets liabilities active markets inputs observable asset liability either directly indirectly substantially full term financial instrument • level 3 inputs valuation methodology unobservable significant fair value measurement valuation techniques may used company determine fair value level 2 level 3 financial instruments market approach income approach cost approach market approach uses prices relevant information generated market transactions involving identical comparable assets liabilities income approach uses valuation techniques convert future amounts single present value based current market expectations future amounts including present value techniques optionpricing models excess earnings method cost approach based amount would required replace service capacity asset replacement cost companys financial instruments consist primarily cash equivalents restricted cash derivative instruments consisting forward foreign exchange contracts commodity contracts derivatives embedded certain purchase sale contracts accounts receivable shortterm borrowings accounts payable contingent consideration longterm debt carrying amounts companys cash equivalents restricted cash accounts receivable shortterm borrowings accounts payable approximate fair value due shortterm nature derivative assets liabilities measured fair value recurring basis companys longterm debt consists principally private placement arrangement entered 2012 various fixed interest rates based maturity date company evaluated estimated fair value financial instruments using available market information managements estimates use different market assumptions andor estimation methodologies could significant effect estimated fair value amounts concentration credit risk financial instruments subject company credit risk consist cash equivalents derivative instruments accounts receivables restricted cash risk respect cash equivalents minimized companys policy investing shortterm financial instruments issued highlyrated financial institutions risk respect derivative instruments minimized companys policy entering arrangements highlyrated financial institutions risk respect accounts receivables minimized creditworthiness diversity companys customers company performs periodic credit evaluations customers financial condition generally requires advanced deposit portion purchase price credit losses within managements expectations allowance doubtful accounts totaled 101 million 79 million december 31 2014 2013 respectively december 31 2014 2013 single customer represented 10 companys accounts receivable years ended december 31 2014 2013 2012 single customer represented 10 companys total revenue inventories components inventory include raw materials workinprocess demonstration units finished goods demonstration units include systems located companys demonstration laboratories installed sites potential customers considered available sale finished goods include intransit systems shipped companys customers yet installed accepted customer inventories stated lower cost market cost determined principally firstin firstout method majority subsidiaries averagecost certain subsidiaries company reduces carrying value inventories differences cost estimated net realizable value taking consideration usage preceding twelve months expected demand technological obsolescence information including physical condition demonstration intransit inventories company records charge cost revenue amount required reduce carrying value inventory net realizable value costs associated procurement inventories inbound freight charges purchasing receiving costs capitalized part inventory also included cost revenue line item within consolidated statements income comprehensive income property plant equipment property plant equipment stated cost less accumulated depreciation amortization major improvements capitalized expenditures maintenance repairs minor improvements charged expense incurred assets retired otherwise disposed assets related accumulated depreciation amortization eliminated accounts resulting gain loss reflected consolidated statements income comprehensive income depreciation amortization calculated straightline basis estimated useful lives assets follows goodwill intangible assets goodwill indefinitelived intangible assets amortized evaluated impairment annual basis interim basis events changes circumstances indicate carrying value may recoverable assessing recoverability goodwill indefinitelived intangible assets company must make assumptions regarding estimated future cash flows factors determine fair value assets estimates related assumptions change future company may required record impairment charges assets reporting period impairment determined company tests goodwill impairment reporting unit level operating segment one level operating segment company option performing qualitative assessment determine whether impairment testing necessary performing twostep quantitative assessment result qualitative assessment morelikelythannot fair value reporting unit less carrying amount quantitative impairment test required otherwise testing required quantitative impairment test performed first step involves comparing fair values applicable reporting units aggregate carrying values including goodwill company generally determines fair value reporting units using weighting market income methodologies estimating fair value reporting units requires significant judgment management carrying amount reporting unit exceeds fair value reporting unit company performs second step goodwill impairment test measure amount impairment second step goodwill impairment test company compares implied fair value reporting units goodwill carrying value goodwill acquired process research development iprd acquired part business combinations acquisition method represents ongoing development work associated enhancements existing products well development next generation products iprd initially capitalized fair value intangible asset indefinite life assessed impairment annual basis indicators impairment identified iprd project complete reclassified finitelived intangible asset amortized estimated useful life typically seven ten years iprd project abandoned completion otherwise determined impaired value asset amount impairment charged consolidated statements income comprehensive income period project abandoned impaired intangible assets finite useful life amortized straightline basis estimated useful lives follows impairment longlived assets impairment losses recorded longlived assets used operations indicators impairment present quoted market price available estimated fair value assets less assets carrying value impairment losses charged consolidated statements income comprehensive income difference fair value carrying value asset warranty costs deferred revenue company typically provides one year parts labor warranty purchase equipment anticipated cost warranty accrued upon recognition sale included current liability accompanying consolidated balance sheets companys warranty reserve reflects estimated material labor costs potential product issues company expects incur obligation companys estimates anticipated rates warranty claims costs primarily based historical information future forecasts company assesses adequacy warranty reserve quarterly basis adjusts amount necessary historical data used calculate adequacy warranty reserve indicative future requirements additional reduced warranty reserves may required company also offers customers extended warranty service agreements extending beyond initial warranty fee fees recorded deferred revenue recognized ratably income life extended warranty contract service agreement income taxes deferred tax assets liabilities recognized expected future tax consequences temporary differences financial statement carrying amounts income tax basis assets liabilities valuation allowance applied net deferred tax asset based available evidence likely deferred tax assets realized company records liabilities related uncertain tax positions accordance guidance clarifies accounting uncertainty income taxes recognized companys financial statements guidance prescribes minimum recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return customer advances company typically requires advance deposit terms conditions contracts customers deposits recorded liability revenue recognized specific contract accordance companys revenue recognition policy revenue recognition company recognizes revenue systems sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectability resulting receivable reasonably assured title risk loss generally transferred upon customer acceptance evidence installation system delivered customer products sold independent distributor strategic distribution partner assumes responsibility installation company recognizes system sale product shipped title risk loss transferred distributor companys distributors price protection rights return however companys products typically warranted free defect period one year revenue deferred cash received collectability reasonably assured price fixed determinable transactions entered subsequent adoption asu 200913 revenue recognition topic 605multipledeliverable revenue arrangements include multiple elements arrangement consideration allocated element using fair value hierarchy required asu 200913 company limits amount revenue recognized delivered elements amount contingent future delivery products services future performance obligations subject customerspecific return refund privileges company attempts determine fair value products services based vendor specific objective evidence vsoe company determines vsoe based normal selling pricing discounting practices specific product service sold standalone basis determining vsoe companys policy requires substantial majority selling prices product service within reasonably narrow range company also considers class customer method distribution geographies products services sold determining vsoe cannot established may occur instances product service sold separately standalone sales infrequent product pricing within sufficiently narrow range company attempts establish selling price based thirdparty evidence tpe determined based competitor prices similar deliverables sold separately company however typically able determine tpe products services generally companys offerings contain significant level differentiation comparable pricing products similar functionality cannot determined furthermore company unable reliably determine selling prices standalone basis similar products offered competitors company cannot determine vsoe tpe uses estimated selling price esp allocation arrangement consideration objective esp determine price company would typically transact standalone sale product service esp determined considering number factors including companys pricing policies internal costs gross profit objectives method distribution market research information recent technological trends competitive landscape geographies company analyzes selling prices used allocation arrangement consideration minimum annual basis selling prices analyzed frequently significant change companys business factors necessitate frequent analysis company experiences significant variances selling prices revenue accessories parts recognized upon shipment service revenue recognized services performed company also contracts applies percentageofcompletion model completed contract model revenue recognition application percentageofcompletion method requires company make reasonable estimates extent progress toward completion contract total costs company incur contract changes estimates could affect timing revenue recognition revenues primarily comprised licensing arrangements licensing revenue recognized ratably term related contract shipping handling costs company includes costs incurred connection shipping handling products within selling general administrative expenses accompanying statements income comprehensive income shipping handling costs 262 million 267 million 305 million years ended december 31 2014 2013 2012 respectively amounts billed customers connection costs included total revenues research development research development costs expensed incurred include salaries wages personnel related costs material costs depreciation consulting costs facility costs software costs purchased software capitalized cost amortized estimated useful life generally three years software developed use companys products expensed incurred technological feasibility reasonably assured classified research development expense subsequent achievement technological feasibility amounts capitalizable however date amounts material advertising company expenses advertising costs incurred advertising expenses 107 million 96 million 75 million years ended december 31 2014 2013 2012 respectively stockbased compensation company recognizes stockbased compensation expense consolidated statements income comprehensive income based fair value sharebased award grant date companys primary types sharebased compensation stock options restricted stock company recorded stockbased compensation expense years ended december 31 2014 2013 2012 follows millions compensation expense amortized straightline basis underlying vesting terms sharebased award stock options purchase companys common stock periodically awarded executive officers employees company members companys board directors subject vesting period three five years fair value option award estimated date grant using blackscholes optionpricing model assumptions regarding volatility expected term dividend yield riskfree interest rate required blackscholes model presented table riskfree interest rate based yield zerocoupon us treasury securities period commensurate expected life assumption expected life determined simplified method defined securities exchange commission staff accounting bulletin 110 company believes best estimate expected term new option expected volatility based number factors company currently believes exclusive use historical volatility results best estimate grantdate fair value employee stock options reflects markets current expectations future volatility expected dividend yield considered option pricing formula since company pay dividends current plans future addition company utilizes estimated forfeiture rate calculating stockbased compensation expense period company applied estimated forfeiture rates derived analysis historical data 51 70 57 years ended december 31 2014 2013 2012 respectively determining expense recorded accompanying consolidated statements income comprehensive income earnings per share net income per common share attributable bruker corporation shareholders calculated dividing net income attributable bruker corporation weightedaverage shares outstanding period diluted net income per share computation includes effect shares would issuable upon exercise outstanding stock options vesting restricted stock reduced number shares assumed purchased company treasury stock method following table sets forth computation basic diluted weighted average shares outstanding years ended december 31 millions except per share data stock options purchase approximately 01 million shares 04 million shares 06 million shares excluded computation diluted earnings per share years ended december 31 2014 2013 2012 respectively effect would antidilutive employee retirement plans company recognizes overfunded underfunded status defined benefit pension postretirement defined benefit plans asset liability respectively consolidated balance sheets recognizes changes funded status year changes occur comprehensive income comprehensive income comprehensive income refers revenues expenses gains losses excluded net income amounts recorded directly adjustment shareholders equity net tax companys comprehensive income composed primarily foreign currency translation adjustments changes funded status defined benefit pension plans foreign currency translation assets liabilities companys foreign subsidiaries functional currency local currency translated us dollars using yearend exchange rates historical rates appropriate revenues expenses foreign subsidiaries translated average exchange rates effect year adjustments resulting financial statement translations included separate component shareholders equity gains losses resulting translation foreign currency monetary transactions reported interest income expense net consolidated statements income comprehensive income periods presented company certain intercompany foreign currency transactions deemed longterm investment nature exchange adjustments related transactions made directly separate component shareholders equity risk uncertainties company subject risks common industry including limited global economic conditions rapid technological change spending patterns customers protection intellectual property availability key raw materials components compliance existing future regulation government agencies fluctuations foreign currency exchange rates contingencies company subject proceedings lawsuits claims related patents product matters company assesses likelihood adverse judgments outcomes matters well potential ranges probable losses determination amount reserves required contingencies made analysis individual issue required reserves may change future due new developments situation changes settlement strategy assessing matters use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant estimates judgments made management preparing financial statements include revenue recognition allowances doubtful accounts writedowns excess obsolete inventory estimated fair values used record impairment charges related intangible assets goodwill longlived assets amortization periods expected future cash flows used evaluate recoverability longlived assets stockbased compensation expense warranty allowances restructuring related charges contingent liabilities recoverability companys net deferred tax assets although company regularly reassesses assumptions underlying estimates actual results could differ materially estimates changes estimates recorded period become known company bases estimates historical experience various assumptions believes reasonable circumstances actual results may differ managements estimates results differ historical experience assumptions prove substantially accurate even assumptions reasonable made reclassifications certain line items 2013 2012 consolidated statements cash flows reclassified conform current year presentation reclassifications effect previously reported operating investing financing cash flow activities note 3acquisitions march 2012 company completed acquisition skyscan nv skyscan business privately owned company based belgium provides advanced highresolution microcomputed tomography systems threedimensional xray imaging preclinical imaging applications materials research markets acquisition skyscan business accounted acquisition method components fair value allocation consideration transferred connection skyscan business follows millions fair value allocation includes contingent consideration amount 40 million represents estimated fair value future payments former shareholders skyscan business based achieving annual revenue targets years 20122014 maximum potential future payments related contingent consideration capped approximately 59 million payments made date related 2012 2013 weightedaverage amortization period intangible assets acquired connection skyscan business 7 years existing technology 10 years customer relationships results skyscan business including amount allocated goodwill included bsi segment date acquisition pro forma financial information reflecting acquisition skyscan business presented impact revenues net income net income per common share attributable bruker corporation shareholders material note 4fair value financial instruments company measures following financial assets liabilities fair value recurring basis following tables set forth companys financial instruments presents within fair value hierarchy using lowest level input significant fair value measurement december 31 2014 2013 millions derivative financial instruments classified within level 2 active market derivative contract however inputs used calculate value instruments obtained active markets fair value longterm fixed interest rate debt classified level 2 2572 million 2441 million december 31 2014 2013 respectively based market observable sources similar maturity dates company measures certain assets liabilities fair value changes fair value recognized earnings fair value treatment may elected either upon initial recognition eligible asset liability existing asset liability event triggers new basis accounting company elect remeasure existing financial assets liabilities year ended december 31 2014 part certain acquisitions 2014 2013 2012 company recorded contingent consideration liabilities classified level 3 fair value hierarchy contingent consideration represents estimated fair value future payments former shareholders applicable acquired companies based achieving annual revenue targets certain years specified purchase sale agreements company initially valued contingent consideration using discounted cash flow method changes fair value contingent consideration recognized earnings years ended december 31 2014 december 31 2013 08 million 15 million respectively recorded charges net consolidated statements income comprehensive income following table sets forth changes contingent consideration liabilities years ended december 31 2014 2013 millions second quarter 2014 company commenced program enter time deposits varying maturity dates ranging one twelve months well call deposits company ability redeem invested amounts period 31 95 days company classified investments within cash equivalents shortterm investments within consolidated balance sheet based call maturity dates investments recorded cost approximate fair value note 5accounts receivable following summary trade accounts receivable december 31 millions allowance doubtful accounts managements estimate credit losses accounts receivable allowance doubtful accounts based number factors including evaluation customer credit worthiness age outstanding receivable economic trends historical experience allowance doubtful accounts reviewed quarterly basis changes estimates reflected period become known company records account balances allowance means collection exhausted potential recovery considered remote provisions doubtful accounts recorded selling general administrative expenses accompanying consolidated statements income comprehensive income following summary activity companys allowance doubtful accounts december 31 millions note 6inventories inventories consisted following december 31 millions finished goods include intransit systems shipped companys customers yet installed accepted customer december 31 2014 2013 inventoryintransit 586 million 819 million respectively company reduces carrying value demonstration inventories differences cost estimated net realizable value charge cost product revenue based number factors including age unit physical condition unit assessment technological obsolescence amounts recorded cost revenue related writedown demonstration units net realizable value 282 million 327 million 315 million years ended december 31 2014 2013 2012 respectively note 7property plant equipment following summary property plant equipment major asset class december 31 millions depreciation expense includes amortization leasehold improvements years ended december 31 2014 2013 2012 395 million 405 million 371 million respectively july 2014 companys board directors approved plan divest certain assets implement restructuring program former chemical applied markets cam division within bruker calid group plan developed result managements conclusion former cam business would unable achieve acceptable financial performance next two years please see note 17other charges net details plan company determined plan indicator requiring evaluation property plant equipment within reporting unit recoverability company performed valuation 2014 determined property plant equipment within former cam division impaired company recorded impairment charge 55 million year ended december 31 2014 reduce remaining value assets fair value addition company determined based upon projected cash flows generated certain assets best segment impairment charge 51 million necessary year ended december 31 2014 reduce carrying value assets estimated fair values impairment charges recorded within impairment assets accompanying statements income comprehensive income note 8goodwill intangible assets following table sets forth changes carrying amount goodwill years ended december 31 2014 2013 millions december 31 2014 2013 goodwill allocated bsi segment goodwill acquired 2014 relates acquisition vutara inc highspeed threedimensional 3d superresolution fluorescence microscopy life science applications goodwill acquired 2013 relates acquisition prairie technologies inc provider life science fluorescence microscopy products december 31 2014 2013 company performed annual impairment evaluation using qualitative approach impairment recorded company determined plan discussed note 7property plant equipment indicator requiring evaluation goodwill intangible assets within reporting unit recoverability company performed valuation 2014 determined certain definitelived intangible assets within former cam division impaired company recorded impairment charge 09 million within impairment assets accompanying statements income comprehensive income year ended december 31 2014 writedown assets fair value company goodwill indefinitelived intangible assets attributable former cam division following summary intangible assets december 31 millions years ended december 31 2014 2013 2012 company recorded amortization expense approximately 202 million 208 million 220 million respectively consolidated statements income comprehensive income estimated future amortization expense related amortizable intangible assets december 31 2014 follows millions note 9other current liabilities following summary current liabilities december 31 millions following table sets forth changes accrued warranty years ended december 31 2014 2013 millions note 10debt companys debt obligations consist following december 31 millions may 2011 company entered amendment restatement credit agreement referred amended credit agreement amended credit agreement provides maximum commitment companys revolving credit line 2500 million maturity date may 2016 borrowings revolving credit line amended credit agreement accrue interest companys option either greatest prime rate ii federal funds rate plus 050 iii adjusted libor plus 100 b libor plus margins ranging 080 165 also facility fee ranging 020 035 borrowings amended credit agreement secured guarantees certain material subsidiaries defined amended credit agreement bruker energy supercon technologies inc amended credit agreement also requires company maintain certain financial ratios related maximum leverage minimum interest coverage specifically companys leverage ratio cannot exceed 30 companys interest coverage ratio cannot less 30 december 31 2014 company compliance covenants amended credit agreement addition financial ratios amended credit agreement restricts among things companys ability following make certain payments incur additional debt incur certain liens make certain investments including derivative agreements merge consolidate sell transfer substantially assets enter certain transactions affiliates failure comply restrictions covenants may result event default amended credit agreement could permit acceleration debt require company prepay debt scheduled due date following summary maximum commitments net amounts available company revolving loan arrangements december 31 2014 millions revolving loans various financial institutions located primarily germany switzerland france companys revolving lines credit typically due upon demand interest payable monthly certain lines credit unsecured others secured accounts receivable inventory related subsidiary january 2012 company entered note purchase agreement referred note purchase agreement group accredited institutional investors pursuant note purchase agreement company issued sold 2400 million senior notes referred senior notes consist following • 20 million 316 series 2012a senior notes tranche due january 18 2017 • 15 million 374 series 2012a senior notes tranche b due january 18 2019 • 105 million 431 series 2012a senior notes tranche c due january 18 2022 • 100 million 446 series 2012a senior notes tranche due january 18 2024 terms note purchase agreement company may issue sell additional senior notes aggregate principal amount 600 million subject certain conditions interest senior notes payable semiannually january 18 july 18 year senior notes unsecured obligations company fully unconditionally guaranteed certain companys direct indirect subsidiaries senior notes rank pari passu right repayment companys senior unsecured indebtedness company may prepay senior notes time amount less 10 original aggregate principal amount senior notes prepaid price equal sum 100 principal amount thereof plus accrued unpaid interest b applicable makewhole amount upon less 30 60 days written notice holders senior notes event change control company defined note purchase agreement company may required prepay notes price equal 100 principal amount thereof plus accrued unpaid interest note purchase agreement contains affirmative covenants including without limitation maintenance corporate existence compliance laws maintenance insurance properties payment taxes addition subsidiary guarantors furnishing notices information note purchase agreement also contains certain restrictive covenants restrict companys ability among things incur liens transfer sell assets engage certain mergers consolidations enter transactions affiliates note purchase agreement also includes customary representations warranties events default case event default arising specified events bankruptcy insolvency outstanding senior notes become due payable immediately without action notice case payment events defaults holder senior notes affected thereby may declare senior notes held due payable immediately case event default majority holders senior notes may declare senior notes due payable immediately pursuant note purchase agreement long senior notes outstanding company permit leverage ratio determined pursuant note purchase agreement end fiscal quarter exceed 350 100 ii interest coverage ratio determined pursuant note purchase agreement end fiscal quarter period four consecutive fiscal quarters less 250 1 iii priority debt time exceed 25 consolidated net worth determined pursuant note purchase agreement december 31 2014 company compliance covenants note purchase agreement annual maturities longterm debt outstanding december 31 2014 follows millions interest expense years ended december 31 2014 2013 2012 133 million 134 million 143 million respectively note 11derivative instruments hedging activities interest rate risks companys exposure interest rate risk relates primarily outstanding variable rate debt adverse movements related shortterm market rates significant component companys interest rate risk relates amounts outstanding amended credit agreement totaled 1125 million december 31 2014 company currently higher level fixed rate debt variable rate debt limits exposure adverse movements interest rates foreign exchange rate risk management company generates substantial portion revenues expenses international markets principally germany countries european union switzerland japan subjects operations exposure exchange rate fluctuations impact currency exchange rate movement positive negative period company periodically enters foreign currency contracts order minimize volatility fluctuations exchange rates monetary transactions arrangements company typically agrees purchase fixed amount foreign currency exchange fixed amount us dollars currencies specified dates maturities less twelve months transactions qualify hedge accounting accordingly instrument recorded fair value corresponding gains losses recorded consolidated statements income comprehensive income company following notional amounts outstanding foreign currency contracts december 31 millions addition company periodically enters purchase sales contracts denominated currencies functional currency parties transaction company accounts transactions separately valuing embedded derivative component contracts denominated currencies functional currency transacting parties amounted 411 million delivery products 87 million purchase products december 31 2014 217 million delivery products 95 million purchase products december 31 2013 changes fair value embedded derivatives recorded interest income expense net consolidated statements income comprehensive income commodity price risk management company arrangement customer firm commitment deliver copper based superconductors fixed price order minimize volatility fluctuations price copper companys sales commodities company entered commodity hedge contracts december 31 2014 2013 company fixed price commodity contracts notional amounts aggregating 27 million 34 million respectively changes fair value commodity contracts recorded interest income expense net consolidated statements income comprehensive income year ended december 31 2012 company recognized 02 million losses comprehensive income reclassified 13 million losses comprehensive income recognized net income related effective portion interest rate swap designated hedging instrument matured december 31 2012 company enter interest rate swaps 2013 2014 fair value derivative instruments described recorded consolidated balance sheets years ended december 31 2014 2013 follows millions impact net income unrealized gains losses resulting changes fair value derivative instruments designated hedging instruments years ending december 31 follows millions amounts related derivative instruments designated hedging instruments recorded interest income expense net consolidated statements income comprehensive income note 12income taxes domestic foreign components income taxes follows years ended december 31 millions components income tax provision follows years ended december 31 millions income tax benefit provision differs tax provision computed us federal statutory rate due following significant components years ended december 31 tax effect temporary items give rise significant portions deferred tax assets liabilities follows december 31 millions company uses liability method account income taxes method deferred income taxes recognized future tax consequences differences tax financial accounting bases assets liabilities reporting period deferred income taxes based enacted tax laws statutory tax rates applicable period differences expected affect taxable income valuation allowance established necessary reduce deferred tax assets expected realized amounts company recognize deferred tax asset extent likely assets realized considering available positive negative evidence company established valuation allowance deferred tax assets certain jurisdictions likely assets realized determining realizability assets company considered numerous factors including historical profitability character estimated future taxable income prudent feasible tax planning strategies industry operates company fully reserved us net deferred tax assets predominantly net operating losses tax credit carryforwards companys valuation allowance december 31 2014 increased 150 million balance december 31 2013 primarily due unbenefited losses credits us 2014 company reduced beginningoftheyear valuation allowance 56 million account change judgment respect realizability companys deferred tax assets certain foreign jurisdictions also 2014 company reduced beginningoftheyear valuation allowance 13 million account deferred tax liabilities recorded conjunction acquisition vutara llc caused change judgment respect realizability companys deferred tax assets future years december 31 2014 company approximately 455 million us net operating loss carryforwards available reduce future federal taxable income approximately 360 million available reduce state taxable income us net operating losses expire various times 2034 company also approximately 477 million german trade tax net operating losses carried forward indefinitely additionally company 105 million foreign net operating losses expected expire various times beginning 2018 company also us tax credits approximately 218 million available offset future tax liabilities expire various dates include research development tax credits 128 million expiring various times 2034 foreign tax credits 90 million expiring various times 2024 utilization us net operating loss carryforwards credits may subject annual limitations due ownership percentage change limitations provided internal revenue code section 382 similar state provisions event deemed change control internal revenue code section 382 annual limitation utilization net operating losses credits may result expiration portion net operating loss credit carryforwards company reflects certain foreign statutory reserves tabular reconciliation unrecognized tax benefits effective year ended december 31 2013 thereafter unrecognized tax benefits presented reduction associated net deferred tax assets company indefinitely reinvested earnings subsidiaries cumulative amount approximately 11956 million december 31 2014 therefore provided us income taxes could result distribution earnings us parent earnings ultimately distributed us form dividends otherwise shares subsidiaries sold transferred company would likely subject additional us income taxes net impact available foreign tax credits company estimates amount unrecognized deferred us income taxes undistributed earnings approximately 40 million company gross unrecognized tax benefits excluding interest approximately 270 million december 31 2014 128 million recognized would reduce companys effective tax rate next twelve months reasonably possible company reduce unrecognized tax benefits 23 million due statutes limitations expiring favorably settling taxing authorities would reduce companys effective tax rate tabular reconciliation beginning ending amount unrecognized tax benefits follows millions companys policy include accrued interest penalties related unrecognized tax benefits income tax liabilities applicable income tax expense december 31 2014 2013 company approximately 36 million 38 million respectively accrued interest penalties related uncertain tax positions included longterm liabilities consolidated balance sheets penalties interest related unrecognized tax benefits 01 million 09 million recorded provision income taxes year ended december 31 2014 2013 respectively company files tax returns us include federal state local jurisdictions many foreign jurisdictions varying statutes limitations company considers germany us switzerland significant tax jurisdictions tax years 2009 2013 open tax years significant foreign jurisdictions fourth quarter 2012 company settled tax audits switzerland germany first quarter 2014 company settled tax audit us tax year 2010 settlement immaterial consolidated financial statements tax years 2011 2013 remain open examination us note 13employee benefit plans defined benefit plans substantially companys employees switzerland france japan well certain employees germany covered companysponsored defined benefit pension plans retirement benefits generally earned based years service compensation active employment eligibility generally determined accordance local statutory requirements however level benefits terms vesting varies among plans net periodic pension cost components net periodic benefit costs years ended december 31 2014 2013 2012 follows company measures benefit obligation fair value plan assets december 31st year changes benefit obligations plan assets defined benefit pension plans projected benefit obligation funded status plans follows december 31 millions accumulated benefit obligation defined benefit pension plans 1984 million 1748 million december 31 2014 2013 respectively defined benefit pension plans accumulated benefit obligation projected benefit obligation excess plan assets december 31 2014 2013 following amounts recognized accompanying consolidated balance sheets companys defined benefit plans december 31 millions following pretax amounts recognized accumulated comprehensive income companys defined benefit plans december 31 millions amount accumulated comprehensive income december 31 2014 expected recognized amortization net loss within net periodic benefit cost 2015 42 million principal pension plans company uses corridor approach amortize actuarial gains losses approach net actuarial gains losses excess ten percent larger projected benefit obligation fair value plan assets amortized average remaining service active participants expected receive benefits plans range assumptions used defined benefit pension plans reflects different economic environments within various countries range assumptions used determine projected benefit obligations years ended december 31 follows determine expected longterm rate return pension plan assets company considers current asset allocations well historical expected returns various asset categories plan assets principal pension plans company applies expected rate return marketrelated value assets stabilizes variability assets expected return applied asset allocations asset category fair value companys pension plan assets december 31 2014 2013 asset category level fair value hierarchy follows millions acash cash equivalents consist primarily highly liquid investments including cash hand bus corporate bond investments average rating aa cforeign corporate government bond investments average rating aa dus international equities primarily include investments large market capitalization stocks ereal estate includes swiss public real estate funds generate returns line swiss property market investing residential commerical properties throughout switzerland fincludes private equity raw materials alternative investment funds gmortgage assetbacked securities pool together various cashflow producing financial assets typically collateralized residential mortgages commercial mortgages assets board trustees comprised employer employee representatives subsidiaries responsible setting policy serves framework allocating plan assets within guidelines provided respective government policy defines investment strategy including asset allocation ranges designed ensure benefit obligations plans met due investment strategy also targeted optimizing return investment within risk constraints plans board trustees appoints plan administrators investment managers oversee investment allocation process setting longterm strategic targets monitoring asset allocations target allocations 55 bonds including cash 30 equity investments 15 real estate mortgages target allocation ranges guidelines limitations occasionally board trustees approve allocations target range based number factors including market conditions december 31 2014 company converted cash plan assets pension plan switzerland please see note 23subsequent event information contributions estimated future benefit payments 2015 company expects contributions consistent 2014 estimated future benefit payments based assumptions used measure companys benefit obligation december 31 2014 following benefit payments reflect future employee service appropriate millions benefit plans company sponsors various defined contribution plans cover certain domestic international employees company may make contributions plans discretion company contributed 71 million 53 million 46 million plans years ended december 31 2014 2013 2012 respectively note 14commitments contingencies operating leases certain buildings office equipment vehicles leased agreements accounted operating leases total rental expense operating leases 228 million 246 million 216 million years ended december 31 2014 2013 2012 respectively future minimum lease payments noncancelable operating leases december 31 2014 next five years thereafter follows millions capital leases company leases certain buildings agreements classified capital leases cost buildings capital leases included consolidated balance sheets property plant equipment 75 million 88 million december 31 2014 2013 accumulated amortization leased buildings december 31 2014 2013 29 million 28 million respectively amortization expense related assets capital leases included depreciation expense obligations related capital leases recorded component longterm debt current portion longterm debt consolidated balance sheets depending lease payments due license agreements company entered crosslicensing agreements various technologies allow companies utilize certain patents related technologies various periods perpetuity income agreements years ended december 31 2014 2013 2012 26 million 95 million 202 million respectively classified revenue consolidated statements income comprehensive income decrease year ended december 31 2014 driven incremental decline license revenue sale technology best unearned portions proceeds crosslicensing agreements classified shortterm longterm deferred revenue depending revenue earned company also entered license agreements allowing utilize certain patents used connection commercial product sale company pays royalties related product revenues licensing fees years ended december 31 2014 2013 2012 33 million 40 million 42 million respectively recorded cost product revenue consolidated statements income comprehensive income legal lawsuits claims proceedings nature considered normal businesses may pending time company believes outcome pending proceedings individually aggregate material impact companys financial position results operations december 31 2014 2013 accruals recorded potential contingencies internal investigation compliance matters previously reported audit committee companys board directors assisted independent outside counsel independent forensic consulting firm conducted internal investigation response anonymous communications received company alleging improper conduct connection china operations companys bruker optics subsidiary audit committees investigation began 2011 completed first quarter 2012 included review compliance bruker optics employees china hong kong requirements foreign corrupt practices act fcpa applicable laws regulations investigation found evidence indicating payments made improperly benefited employees agents governmentowned enterprises china hong kong investigation also found evidence certain employees bruker optics china hong kong failed comply companys policies standards conduct result company took personnel actions including termination certain individuals company also terminated business relationships certain third party agents implemented enhanced fcpa compliance program strengthened financial controls oversight subsidiaries operating china hong kong 2011 company also initiated review china operations subsidiaries assistance independent audit firm basis review company identified additional employees bruker subsidiaries operating china failed comply companys policies standards conduct took additional personnel actions certain subsidiaries result company voluntarily contacted united states securities exchange commission united states department justice august 2011 advise agencies internal investigation audit committee regarding china operations companys bruker optics subsidiary october 2011 company also reported existence internal investigation hong kong joint financial intelligence unit independent commission corruption icac effective december 15 2014 company consented entry administrative ceaseanddesist order sec concerning violations books records internal controls provisions fcpa pursuant order company paid aggregate amount 24 million consisting 17 million disgorgement 03 million prejudgment interest 04 million penalty recorded within interest income expense net accompanying consolidated statements income comprehensive income company advised investigative matters completed december 31 2014 letters credit guarantees december 31 2014 2013 company bank guarantees 1503 million 1712 million respectively related primarily customer advances arrangements guarantee refund advance payments received customers event merchandise delivered warranty obligations fulfilled compliance terms contract guarantees affect availability companys lines credit indemnifications company enters standard indemnification arrangements companys ordinary course business pursuant arrangements company indemnifies holds harmless agrees reimburse indemnified parties losses suffered incurred indemnified party generally companys business partners customers connection patent copyright intellectual property infringement claim third party respect products term indemnification agreements generally perpetual anytime execution agreement maximum potential amount future payments company could required make agreements unlimited company believes estimated fair value agreements minimal company entered indemnification agreements directors officers may require company indemnify directors officers liabilities may arise reason status service directors officers liabilities arising willful misconduct culpable nature advance expenses incurred result proceeding could indemnified obtain directors officers insurance available reasonable terms company currently place note 15shareholders equity bruker corporation stock plan february 2010 bruker biosciences corporation amended restated 2000 stock option plan 2000 plan expired end scheduled tenyear term march 9 2010 companys board directors unanimously approved adopted bruker corporation 2010 incentive compensation plan 2010 plan may 14 2010 plan approved companys stockholders 2010 plan provides issuance 8000000 shares companys common stock plan allows committee board directors committee grant incentive stock options nonqualified stock options restricted stock awards committee authority determine employees receive awards amount awards terms conditions award awards granted committee typically vest period three five years stock option activity year ended december 31 2014 follows addition options vested december 31 2014 company expects portion unvested options vest future options expected vest future determined applying estimated forfeiture rate options unvested december 31 2014 bthe aggregate intrinsic value based positive difference fair value companys common stock price 1962 december 31 2014 date exercises appropriate exercise price underlying stock options weighted average fair values options granted 1081 1037 711 per share years ended december 31 2014 2013 2012 respectively total intrinsic value options exercised 100 million 81 million 38 million years ended december 31 2014 2013 2012 respectively unrecognized pretax stockbased compensation expense 187 million related stock options awarded 2000 2010 plans expected recognized weighted average remaining service period 23 years stock options outstanding december 31 2014 restricted shares companys common stock periodically awarded executive officers directors certain key employees company subject service restrictions vest ratably periods three five years restricted shares common stock may sold transferred restriction period stockbased compensation restricted stock recorded based stock price grant date charged expense ratably throughout restriction period following table summarizes information restricted stock activity year ended december 31 2014 total fair value restricted stock vested 30 million 14 million 12 million years ended december 31 2014 2013 2012 respectively unrecognized pretax stockbased compensation expense 46 million related restricted stock awarded 2010 plan expected recognized weighted average remaining service period 29 years awards outstanding december 31 2014 note 16accumulated comprehensive income following summary components accumulated comprehensive income net tax december 31 millions note 17other charges net components charges net years ended december 31 2014 2013 2012 follows millions beginning fourth quarter 2012 continuing 2013 2014 company commenced productivity improvement initiatives bsi best effort better optimize operations restructuring initiatives include divestiture certain noncore businesses outsourcing various manufacturing activities transferring ceasing operations certain facilities overall rightsizing within company based current business environments company recorded total restructuring charges year ended december 31 2014 2013 361 million 253 million respectively related initiatives year ended december 31 2014 charges within bsi segment consisted 118 million inventory provisions excess inventory 155 million severance costs 88 million exit related costs professional service facility exit charges year ended december 31 2013 230 million related bsi segment 23 million related best segment consisted 21 million inventory provisions excess inventory 179 million severance costs 53 million exit related costs year ended december 31 2014 2013 company recorded restructuring charges 250 million 71 million respectively component cost revenue 111 million 182 million respectively component charges net accompanying consolidated statements income comprehensive income included total restructuring charges expenses recorded 175 million specifically related plan former cam division consisting 98 million inventory writedowns 77 million severance exit costs 121 recorded component cost revenue 54 million component charges net accompanying consolidated statement income comprehensive income restructuring charges related plan substantially completed 2014 small amount charges related severance anticipated 2015 addition september october 2014 company divested assets former cam divisions inductively coupled plasmamass spectrometry icpms product line gas chromatography gc singlequadrupole gcsq gcms mass spectrometry products respectively gain sale product lines 80 million recorded part interest income expense net within accompanying consolidated statement income comprehensive income following table sets forth changes restructuring reserves years ended december 31 2014 2013 millions note 18interest income expense net components interest income expense net years ended december 31 2014 2013 2012 follows millions note 19business segment information company two reporting segments bsi best discussed note 1 consolidated financial statements selected business segment information presented years ended december 31 millions arepresents product service revenue reportable segments brepresents corporate costs eliminations allocated reportable segments company recorded impairment charge 115 million year ended december 31 2014 64 million within bsi segment 51 million within best segment please see note 7property plant equipment note 8goodwill intangible assets description impairment charges recorded 2014 company recorded impairment charge within bsi segment 226 million year ended december 31 2012 comprising goodwill definitelived intangible assets 14 million 164 million respectively within former cam division result increased deterioration financial performance impairment charge 48 million reduce certain longlived assets former cam division estimated fair value company recorded impairment assets 12 million within best segment year ended december 31 2012 reduce carrying value certain tangible longlived assets estimated fair value impairment charges included within impairment assets accompanying statements income comprehensive income total assets segment years ended december 31 follows millions aassets allocated reportable segments eliminations intercompany transactions total capital expenditures depreciation amortization segment presented years ended december 31 millions revenue property plant equipment geographical area year ended december 31 follows millions note 20related parties company leases certain office space certain principal shareholders including director executive officer another member companys board directors members immediate families expiration dates ranging 2015 2020 total rent expense leases 20 million 26 million 24 million years ended december 31 2014 2013 2012 respectively years ended december 31 2014 2013 2012 company incurred expenses 24 million 53 million 24 million respectively law firm one former members board directors partner years ended december 31 2014 2013 2012 company incurred expenses 01 million 02 million 04 million respectively financial services firm one former members board directors partner years ended december 31 2014 2013 company recorded revenue 09 million 01 million respectively ordinary course commercial transactions life science supply company member companys board directors chairman president chief executive officer another member companys board directors serves director year ended december 31 2014 company recorded revenue 19 million incurred expenses 01 million arising ordinary course commercial transactions life sciences company member companys board directors joined board directors 2014 chairman chief executive officer note 21recent accounting pronouncements may 2014 fasb issued asu 201409 revenue contracts customers supersedes revenue recognition requirements asc topic 605 new guidance result joint project fasb international accounting standards board clarify principles recognizing revenue develop common revenue standards gaap international financial reporting standards core principle new guidance revenue recognized depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services asu 201409 effective prospectively annual periods beginning december 15 2016 interim periods within years early application permitted company currently assessing impact adoption new guidance may consolidated financial statements april 2014 fasb issued asu 201408 reporting discontinued operations disclosures disposals components entity amendment asc topic 205 amendment disposal component entity group components entity required reported discontinued operations disposal represents strategic shift major effect entitys operations financial results amendment also requires additional disclosures discontinued operations well individually significant components entity qualify discontinued operations presentation financial statements asu 201408 effective prospective basis fiscal years beginning december 15 2014 interim periods within annual periods beginning december 15 2015 early adoption permitted company adopted amendment second quarter 2014 incorporated guidance within financial statements related footnote disclosures adoption material impact consolidated financial statements year ended december 31 2014 july 2013 fasb issued asu 201311 income taxes amendment asc topic 740 related financial statement presentation unrecognized tax benefit net operating loss carryforward similar tax loss tax credit carryforward exists amendment unrecognized tax benefit presented decrease deferred tax asset net operating loss similar tax loss tax credit carryforward exists certain criteria met asu 201311 effective fiscal years beginning december 15 2013 company adopted amendment first quarter 2014 adoption material impact consolidated financial statements year ended december 31 2014 note 22quarterly financial data unaudited summary operating results quarterly periods years ended december 31 2014 2013 set forth millions except per share data 1the third fourth quarter 2014 includes impairment assets 69 million 46 million respectively comprising definitelived intangible assets longlived assets note 23subsequent event first quarter 2015 company outsourced pension plan switzerland outside insurance provider made certain plan design changes result company expects pension expense 2015 increase approximately 16 million including onetime noncash charge approximately 10 million associated settlement portion plan item 9item 8 financial statements supplementary data page report ernst young llp independent registered public accounting firm consolidated balance sheets december 31 2015 2014 consolidated statements income comprehensive income loss years ended december 31 2015 2014 2013 consolidated statements shareholders equity years ended december 31 2015 2014 consolidated statements cash flows years ended december 31 2015 2014 2013 notes consolidated financial statements report independent registered public accounting firm board directors shareholders bruker corporation audited accompanying consolidated balance sheets bruker corporation december 31 2015 2014 related consolidated statements income comprehensive income loss shareholders equity cash flows three years period ended december 31 2015 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position bruker corporation december 31 2015 2014 consolidated results operations cash flows three years period ended december 31 2015 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states bruker corporations internal control financial reporting december 31 2015 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission 2013 framework report dated february 26 2016 expressed unqualified opinion thereon ernst young llp boston massachusetts february 26 2016 bruker corporation consolidated balance sheets millions except share per share data accompanying notes integral part consolidated financial statements bruker corporation consolidated statements income comprehensive income loss millions except per share data accompanying notes integral part consolidated financial statements bruker corporation consolidated statements shareholders equity millions except share data accompanying notes integral part consolidated financial statements bruker corporation consolidated statements cash flows millions accompanying notes integral part consolidated financial statements bruker corporation notes consolidated financial statements note 1description business bruker corporation together consolidated subsidiaries bruker company designer manufacturer highperformance scientific instruments analytical diagnostic solutions enable customers explore life materials microscopic molecular cellular levels many products used detect measure visualize structural characteristics chemical biological industrial material samples products address rapidly evolving needs diverse array customers life science research pharmaceuticals biotechnology applied markets cell biology clinical research microbiology invitro diagnostics nanotechnology materials science research company two reportable segments bruker scientific instruments bsi represents approximately 92 companys revenues year ended december 31 2015 bruker energy supercon technologies best represents remainder business within bsi company organized three operating segments bruker biospin group bruker calid group bruker nano group financial reporting purposes bruker biospin bruker calid bruker nano operating segments aggregated bsi reportable segment similar economic characteristics production processes service offerings types classes customers methods distribution regulatory environments bruker biospin bruker biospin designs manufactures distributes enabling life science tools based magnetic resonance preclinical imaging technologies bruker biospin sells various systems utilizing magnetic resonance technology including magnetic resonance imaging mri systems nuclear magnetic resonance systems nmr electron paramagnetic resonance systems epr well oem mri magnets sold medical device manufacturers bruker biospin also sells single multiple modality systems using mri position emission tomography pet single photon emission tomography spect computed tomography ct magnetic particle imaging mpi optical imaging fluorescence bioluminescence technologies preclinical markets bruker calid chemicals applied markets life science invitro diagnostics detection bruker calid designs manufactures distributes life science mass spectrometry instruments integrated used along sample preparation chromatography instruments well chemical biological radiological nuclear explosive cbrne detection products bruker calid also designs manufactures distributes instruments based raman molecular spectroscopy technologies bruker calids mass spectrometry units typically used applications expression proteomics clinical proteomics metabolic peptide biomarker profiling drug discovery development molecular diagnostics research molecular systems biology basic molecular medicine research clinical microbiology bruker nano bruker nano designs manufactures distributes spectroscopy microscopy instruments understanding composition structure material science life science samples instruments based advanced technologies xray fluorescence spectroscopy xrf xray diffraction xrd xray micro computed tomography mct atomic force microscopy afm stylus optical metrology som fluorescence microscopy fm also include analytical tools electron microscopes handheld portable mobile xray fluorescence spark optical emission spectroscopy systems companys best reportable segment develops manufactures superconducting nonsuperconducting materials devices use renewable energy infrastructure healthcare big science research segment focuses metallic low temperature superconductors use magnetic resonance imaging nuclear magnetic resonance fusion energy research applications well ceramic high temperature superconductors primarily energy grid magnet applications note 2summary significant accounting policies accompanying consolidated financial statements reflect application certain significant accounting policies described elsewhere notes consolidated financial statements principles consolidation accompanying consolidated financial statements include accounts company majority whollyowned subsidiaries intercompany accounts transactions eliminated noncontrolling interests noncontrolling interests represents minority shareholders proportionate share companys majorityowned subsidiaries portion net income net loss attributable noncontrolling interests presented net income attributable noncontrolling interests consolidated subsidiaries consolidated statements income comprehensive income loss portion comprehensive income loss subsidiaries presented consolidated statements shareholders equity subsequent events company evaluated subsequent events determined material recognized unrecognized subsequent events subsequent events required mentioned footnotes consolidated financial statements item disclosed note 23subsequent event cash equivalents cash equivalents primarily include cash hand money market funds time deposits original maturities three months less date acquisition time deposits represent amounts deposit banks temporarily invested instruments maturities three months less time purchase certain investments represent deposits insured fdic government agency cash equivalents carried cost approximates fair value shortterm investments shortterm investments represent time call deposits original maturities greater three months date acquisition shortterm investments classified availableforsale reported fair value unrealized gains losses excluded earnings reported net tax accumulated comprehensive income loss within accompanying consolidated balance sheets unrealized gains losses recorded december 31 2015 2014 cost approximates fair value restricted cash company certain subsidiaries required local governance maintain restricted cash balances cover future employee benefit payments restricted cash balances classified noncurrent unless terms applicable agreements funds released restrictions within one year balance sheet date current noncurrent portion restricted cash recorded within current assets longterm assets respectively accompanying consolidated balance sheets derivative financial instruments hedging activities derivatives whether designated hedging relationship recorded consolidated balance sheets fair value accounting changes fair value derivative instrument depends whether designated qualifies part hedging relationship type hedging relationship derivative instruments designated qualify hedging instruments company must designate hedging instrument based exposure hedged fair value hedge cash flow hedge net investment foreign operation fair value hedge derivative instrument designated purpose hedging exposure changes fair value asset liability resulting particular risk derivative designated fair value hedge changes fair value derivative hedged item attributable hedged risk recognized caption consolidated statements income comprehensive income loss fair value financial instruments company applies following hierarchy determine fair value financial instruments prioritizes inputs used measure fair value three levels bases categorization within hierarchy upon lowest level input available significant fair value measurement levels hierarchy defined follows • level 1 inputs valuation methodology quoted prices unadjusted identical assets liabilities active markets • level 2 inputs valuation methodology include quoted prices similar assets liabilities active markets inputs observable asset liability either directly indirectly substantially full term financial instrument • level 3 inputs valuation methodology unobservable significant fair value measurement valuation techniques may used company determine fair value level 2 level 3 financial instruments market approach income approach cost approach market approach uses prices relevant information generated market transactions involving identical comparable assets liabilities income approach uses valuation techniques convert future amounts single present value based current market expectations future amounts including present value techniques optionpricing models excess earnings method cost approach based amount would required replace service capacity asset replacement cost companys financial instruments consist primarily cash equivalents shortterm investments restricted cash derivative instruments consisting forward foreign exchange contracts commodity contracts derivatives embedded certain purchase sale contracts accounts receivable shortterm borrowings accounts payable contingent consideration longterm debt carrying amounts companys cash equivalents shortterm investments restricted cash accounts receivable shortterm borrowings accounts payable approximate fair value caused shortterm nature derivative assets liabilities measured fair value recurring basis companys longterm debt consists principally private placement arrangement entered 2012 various fixed interest rates based maturity date company evaluated estimated fair value financial instruments using available market information managements estimates use different market assumptions andor estimation methodologies could significant effect estimated fair value amounts concentration credit risk financial instruments subject company credit risk consist cash equivalents shortterm investments derivative instruments accounts receivables restricted cash risk respect cash equivalents shortterm investments minimized companys policy investing shortterm financial instruments issued highlyrated financial institutions risk respect derivative instruments minimized companys policy entering arrangements highlyrated financial institutions risk respect accounts receivables minimized creditworthiness diversity companys customers company performs periodic credit evaluations customers financial condition generally requires advanced deposit portion purchase price credit losses within managements expectations allowance doubtful accounts totaled 91 million 101 million december 31 2015 2014 respectively december 31 2015 2014 single customer represented 10 companys accounts receivable years ended december 31 2015 2014 2013 single customer represented 10 companys total revenue inventories components inventory include raw materials workinprocess demonstration units finished goods demonstration units include systems located companys demonstration laboratories installed sites potential customers considered available sale finished goods include intransit systems shipped companys customers yet installed accepted customer inventories stated lower cost market cost determined principally firstin firstout method majority subsidiaries averagecost certain subsidiaries company reduces carrying value inventories differences cost estimated net realizable value taking consideration usage preceding twelve months expected demand technological obsolescence information including physical condition demonstration inventories company records charge cost revenue amount required reduce carrying value inventory net realizable value costs associated procurement inventories inbound freight charges purchasing receiving costs capitalized part inventory also included cost revenue line item within consolidated statements income comprehensive income loss property plant equipment property plant equipment stated cost less accumulated depreciation amortization major improvements capitalized expenditures maintenance repairs minor improvements charged expense incurred assets retired otherwise disposed assets related accumulated depreciation amortization eliminated accounts resulting gain loss reflected consolidated statements income comprehensive income loss depreciation amortization calculated straightline basis estimated useful lives assets follows goodwill intangible assets goodwill indefinitelived intangible assets amortized evaluated impairment annual basis interim basis events changes circumstances indicate carrying value may recoverable assessing recoverability goodwill indefinitelived intangible assets company must make assumptions regarding estimated future cash flows factors determine fair value assets estimates related assumptions change future company may required record impairment charges assets reporting period impairment determined company tests goodwill impairment reporting unit level operating segment one level operating segment company option performing qualitative assessment determine whether impairment testing necessary performing twostep quantitative assessment result qualitative assessment morelikelythannot fair value reporting unit less carrying amount quantitative impairment test required otherwise testing required quantitative impairment test performed first step involves comparing fair values applicable reporting units aggregate carrying values including goodwill company generally determines fair value reporting units using weighting market income methodologies estimating fair value reporting units requires significant judgment management carrying amount reporting unit exceeds fair value reporting unit company performs second step goodwill impairment test measure amount impairment second step goodwill impairment test company compares implied fair value reporting units goodwill carrying value goodwill process research development iprd acquired part business combinations acquisition method represents ongoing development work associated enhancements existing products well development next generation products iprd initially capitalized fair value intangible asset indefinite life assessed impairment annual basis indicators impairment identified iprd project complete reclassified finitelived intangible asset amortized estimated useful life typically seven ten years iprd project abandoned completion otherwise determined impaired value asset amount impairment charged consolidated statements income comprehensive income loss period project abandoned impaired intangible assets finite useful life amortized straightline basis estimated useful lives follows impairment longlived assets impairment losses recorded longlived assets used operations indicators impairment present quoted market price available estimated fair value assets less assets carrying value impairment losses charged consolidated statements income comprehensive income loss difference fair value carrying value asset warranty costs deferred revenue company typically provides one year parts labor warranty purchase equipment anticipated cost warranty accrued upon recognition sale included current liability accompanying consolidated balance sheets companys warranty reserve reflects estimated material labor costs potential product issues company expects incur obligation companys estimates anticipated rates warranty claims costs primarily based historical information company assesses adequacy warranty reserve quarterly basis adjusts amount necessary historical data used calculate adequacy warranty reserve indicative future requirements additional reduced warranty reserves may required company also offers customers extended warranty service agreements extending beyond initial warranty fee fees recorded deferred revenue recognized ratably income life extended warranty contract service agreement income taxes deferred tax assets liabilities recognized expected future tax consequences temporary differences financial statement carrying amounts income tax basis assets liabilities valuation allowance applied net deferred tax asset based available evidence likely deferred tax assets realized company records liabilities related uncertain tax positions accordance guidance clarifies accounting uncertainty income taxes recognized companys financial statements guidance prescribes minimum recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return customer advances company typically requires advance deposit terms conditions contracts customers deposits recorded liability revenue recognized specific contract accordance companys revenue recognition policy revenue recognition company recognizes revenue system sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectability resulting receivable reasonably assured title risk loss transfers based upon customer acceptance system delivered installed customer facility certain systems upon shipping terms systems include customerspecific acceptance criteria company required assess demonstrate acceptance criteria met generally upon customer acceptance evidence installation products sold independent distributor strategic distribution partner assumes responsibility installation company recognizes system sale product shipped title risk loss transferred distributor companys distributors price protection rights return however companys products typically warranted free defect period one year revenue deferred cash received collectability reasonably assured price fixed determinable transactions include multiple elements arrangement consideration allocated element using fair value hierarchy required asu 200913 company limits amount revenue recognized delivered elements amount contingent future delivery products services future performance obligations subject customerspecific return refund privileges company determines fair value products services based upon vendor specific objective evidence vsoe company determines vsoe based normal selling pricing discounting practices specific product service sold standalone basis determining vsoe companys policy requires substantial majority selling prices product service within reasonably narrow range company also considers class customer method distribution geographies products services sold determining vsoe cannot established company attempts establish selling price based thirdparty evidence tpe vsoe cannot established instances product service sold separately standalone sales infrequent product pricing within sufficiently narrow range tpe determined based competitor prices similar deliverables sold separately company cannot determine vsoe tpe uses estimated selling price esp allocation arrangement consideration objective esp determine price company would typically transact standalone sale product service esp determined considering number factors including companys pricing policies internal costs gross profit objectives method distribution market research information recent technological trends competitive landscape geographies company analyzes selling prices used allocation arrangement consideration minimum annual basis selling prices analyzed frequently significant change companys business factors necessitate frequent analysis company experiences significant variances selling prices revenue accessories parts recognized upon shipment service revenue recognized services performed ratably contractual obligation includes maintenance contracts extended warranty training application support ondemand services company also contracts applies percentageofcompletion model completed contract model revenue recognition application percentageofcompletion method requires company make reasonable estimates extent progress toward completion contract total costs company incur contract losses recorded immediately estimate contracts ultimately result loss changes estimates could affect timing revenue recognition revenues primarily comprised licensing arrangements recognized ratably term related contracts shipping handling costs company includes costs incurred connection shipping handling products within selling general administrative expenses accompanying consolidated statements income comprehensive income loss shipping handling costs 206 million 262 million 267 million years ended december 31 2015 2014 2013 respectively amounts billed customers connection costs included total revenues research development research development costs expensed incurred include salaries wages personnel related costs material costs depreciation consulting costs facility costs software costs purchased software capitalized cost amortized estimated useful life generally three years software developed use companys products expensed incurred technological feasibility reasonably assured classified research development expense subsequent achievement technological feasibility amounts capitalizable however date amounts material advertising company expenses advertising costs incurred advertising expenses 129 million 107 million 96 million years ended december 31 2015 2014 2013 respectively stockbased compensation company recognizes stockbased compensation expense consolidated statements income comprehensive income loss based fair value sharebased award grant date companys primary types sharebased compensation stock options restricted stock units company recorded stockbased compensation expense years ended december 31 2015 2014 2013 follows millions compensation expense amortized straightline basis underlying vesting terms sharebased award stock options purchase companys common stock periodically awarded executive officers employees company members companys board directors subject vesting period three five years fair value option award estimated date grant using blackscholes optionpricing model assumptions regarding volatility expected term dividend yield riskfree interest rates required blackscholes model presented table riskfree interest rate based yield zerocoupon us treasury securities period commensurate expected life assumption expected life determined simplified method defined securities exchange commission staff accounting bulletin 110 company believes best estimate expected term new option expected volatility based number factors company currently believes exclusive use historical volatility results best estimate grantdate fair value employee stock options reflects markets current expectations future volatility expected dividend yield considered option pricing formula since company historically paid dividends plan december 31 2015 addition company utilizes estimated forfeiture rate calculating stockbased compensation expense period company applied estimated forfeiture rates derived analysis historical data 58 51 70 years ended december 31 2015 2014 2013 respectively determining expense recorded accompanying consolidated statements income comprehensive income loss earnings per share net income per common share attributable bruker corporation shareholders calculated dividing net income attributable bruker corporation weightedaverage shares outstanding period diluted net income per share computation includes effect shares would issuable upon exercise outstanding stock options vesting restricted stock reduced number shares assumed purchased company treasury stock method following table sets forth computation basic diluted weighted average shares outstanding years ended december 31 millions except per share data stock options purchase approximately 13 million shares 01 million shares 04 million shares excluded computation diluted earnings per share years ended december 31 2015 2014 2013 respectively effect would antidilutive may 2015 companys board directors approved share repurchase program antidilutive repurchase program company may repurchase companys common stock amounts intended approximately offset annual basis dilutive effect shares may issued pursuant option restricted stock awards companys 2010 incentive compensation plan total 1245000 shares repurchased aggregate cost 249 million antidilutive repurchase program november 2015 companys board directors suspended antidilutive repurchase program january 1 2017 approved additional share repurchase program repurchase program repurchases common stock 225 million may occur time amounts prices times company deems appropriate subject market conditions legal requirements considerations total 2837042 shares repurchased aggregate cost 650 million december 31 2015 repurchase program repurchase program continue 2016 company intends fund additional repurchases cash hand future cash flows operations available borrowings revolving credit facility repurchased shares reflected within treasury stock accompanying consolidated balance sheet december 31 2015 employee benefit plans company recognizes overfunded underfunded status defined benefit pension postretirement defined benefit plans asset liability respectively consolidated balance sheets recognizes changes funded status year changes occur comprehensive income loss comprehensive income loss comprehensive income loss refers revenues expenses gains losses excluded net income amounts recorded directly adjustment shareholders equity net tax companys comprehensive income loss composed foreign currency translation adjustments pension liability adjustments foreign currency translation assets liabilities companys foreign subsidiaries functional currency local currency translated us dollars using yearend exchange rates historical rates appropriate revenues expenses foreign subsidiaries translated average exchange rates effect year adjustments resulting financial statement translations included separate component shareholders equity gains losses resulting translation foreign currency monetary transactions reported interest income expense net consolidated statements income comprehensive income loss periods presented company certain intercompany foreign currency transactions deemed longterm investment nature exchange adjustments related transactions made directly separate component shareholders equity risk uncertainties company subject risks common industry including limited global economic conditions rapid technological change government academic funding levels changes commodity prices spending patterns customers protection intellectual property availability key raw materials components compliance existing future regulation government agencies fluctuations foreign currency exchange rates contingencies company subject proceedings lawsuits claims related patents product matters company assesses likelihood adverse judgments outcomes matters well potential ranges probable losses determination amount reserves required contingencies made analysis individual issue required reserves may change future new developments situation changes settlement strategy assessing matters use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant estimates judgments made management preparing financial statements include revenue recognition allowances doubtful accounts writedowns excess obsolete inventory estimated fair values used record impairment charges related intangible assets goodwill longlived assets amortization periods expected future cash flows used evaluate recoverability longlived assets stockbased compensation expense warranty allowances restructuring related charges contingent liabilities recoverability companys net deferred tax assets although company regularly reassesses assumptions underlying estimates actual results could differ materially estimates changes estimates recorded period become known company bases estimates historical experience various assumptions believes reasonable circumstances actual results may differ managements estimates results differ historical experience assumptions prove substantially accurate even assumptions reasonable made note 3acquisitions october 2015 company completed acquisition jordan valley semiconductors ltd jordan valley company headquartered israel provides xray metrology defectdetection equipment semiconductor process control acquisition jordan valley accounted acquisition method components fair value allocation consideration transferred connection acquisition jordan valley follows millions fair value allocation included contingent consideration amount 41 million represented estimated fair value future payments former shareholders jordan valley based achieving annual revenue gross margin targets years 20162017 maximum potential future payments related contingent consideration 15 million company completed fair value allocation fourth quarter 2015 amortization period intangible assets acquired connection jordan valley 7 years customer relationships existing technology trade name results jordan valley including amount allocated goodwill attributable expected synergies expected deductible tax purposes included bsi segment date acquisition pro forma financial information reflecting acquisition jordan valley presented impact revenues net income total assets material note 4fair value financial instruments company measures following financial assets liabilities fair value recurring basis following tables set forth companys financial instruments presents within fair value hierarchy using lowest level input significant fair value measurement december 31 2015 2014 millions derivative financial instruments classified within level 2 active market derivative contract however inputs used calculate value instruments obtained active markets fair value longterm fixed interest rate debt classified level 2 2521 million 2572 million december 31 2015 2014 respectively based market observable sources similar maturity dates company measures certain assets liabilities fair value changes fair value recognized earnings fair value treatment may elected either upon initial recognition eligible asset liability existing asset liability event triggers new basis accounting company elect remeasure existing financial assets liabilities year ended december 31 2015 part certain acquisitions 2015 2014 2013 company recorded contingent consideration liabilities classified level 3 fair value hierarchy contingent consideration represents estimated fair value future payments former shareholders applicable acquired companies based achieving annual revenue gross margin targets certain years specified purchase sale agreements company initially valued contingent consideration using monte carlo simulation models future revenue costs goods sold projections discounts average results present value changes fair value contingent consideration recognized earnings years ended december 31 2015 december 31 2014 77 million 08 million respectively recorded charges net consolidated statements income comprehensive income loss adjustment year ended december 31 2015 included reversal certain contingent consideration determined certain financial targets related applicable products would meet required thresholds payment following table sets forth changes contingent consideration liabilities years ended december 31 2015 2014 millions second quarter 2014 company commenced program enter time deposits varying maturity dates ranging one twelve months well call deposits company ability redeem invested amounts period 31 95 days company classified investments within cash equivalents shortterm investments within consolidated balance sheets based call maturity dates cash equivalents 2012 million shortterm investments outstanding december 31 2015 shortterm investments classified availableforsale reported fair value unrealized gains losses excluded earnings reported net tax accumulated comprehensive income loss within accompanying consolidated balance sheets unrealized gains losses recorded december 31 2015 2014 quarterly basis company reviews shortterm investments determine events could create impairment none noted years ended december 31 2015 2014 note 5accounts receivable following summary trade accounts receivable december 31 millions allowance doubtful accounts managements estimate credit losses accounts receivable allowance doubtful accounts based number factors including evaluation customer credit worthiness age outstanding receivable economic trends historical experience allowance doubtful accounts reviewed quarterly basis changes estimates reflected period become known company records account balances allowance means collection exhausted potential recovery considered remote provisions doubtful accounts recorded selling general administrative expenses accompanying consolidated statements income comprehensive income loss following summary activity companys allowance doubtful accounts december 31 millions note 6inventories inventories consisted following december 31 millions finished goods include intransit systems shipped companys customers yet installed accepted customer december 31 2015 2014 inventoryintransit 447 million 586 million respectively company reduces carrying value demonstration inventories differences cost estimated net realizable value charge cost product revenue based number factors including age unit physical condition unit assessment technological obsolescence amounts recorded cost revenue related writedown demonstration units net realizable value 194 million 282 million 327 million years ended december 31 2015 2014 2013 respectively note 7property plant equipment net following summary property plant equipment net major asset class december 31 millions depreciation expense includes amortization leasehold improvements years ended december 31 2015 2014 2013 326 million 395 million 405 million respectively year ended december 31 2015 company recorded impairment charge 21 million representing write fair value certain property plant equipment net bruker biospin group related restructuring outsourcing activities year impairment charges recorded within impairment assets accompanying consolidated statements income comprehensive income loss please see note 17other charges net additional details bruker biospin group restructuring activities july 2014 companys board directors approved plan divest certain assets implement restructuring program former chemical applied markets cam division within bruker calid group plan developed result managements conclusion former cam business would unable achieve acceptable financial performance next two years please see note 17other charges net additional details plan company determined plan indicator requiring evaluation property plant equipment within reporting unit recoverability company performed valuation 2014 determined property plant equipment within former cam division impaired company recorded impairment charge 55 million year ended december 31 2014 reduce remaining value assets fair value addition company determined based upon projected cash flows generated certain assets best segment impairment charge 51 million necessary year ended december 31 2014 reduce carrying value assets estimated fair values impairment charges recorded within impairment assets accompanying consolidated statements income comprehensive income loss note 8goodwill intangible assets following table sets forth changes carrying amount goodwill years ended december 31 2015 2014 millions december 31 2015 2014 goodwill allocated within bsi segment goodwill acquired 2015 relates acquisition jordan valley goodwill acquired 2014 relates acquisition vutara inc provider highspeed threedimensional 3d superresolution fluorescence microscopy life science applications year ended december 31 2015 company recorded impairment charge 07 million representing impairment goodwill bruker biospin group related certain restructuring outsourcing activities year company performed annual impairment evaluation using quantitative qualitative approach december 31 2015 2014 respectively concluded fair values reporting units significantly greater carrying amounts therefore additional impairment required following summary intangible assets december 31 millions years ended december 31 2015 2014 2013 company recorded amortization expense approximately 207 million 202 million 208 million respectively consolidated statements income comprehensive income loss year ended december 31 2015 company recorded impairment charge 18 million representing impairment intangible assets bruker biospin group related certain restructuring outsourcing activities year ended december 31 2014 company recorded impairment charge 09 million representing impairment intangible assets former cam division related plan described estimated future amortization expense related amortizable intangible assets december 31 2015 follows millions note 9other current liabilities following summary current liabilities december 31 millions following table sets forth changes accrued warranty years ended december 31 2015 2014 millions note 10debt companys debt obligations consist following december 31 millions may 2011 company entered amendment restatement credit agreement referred amended credit agreement amended credit agreement provided maximum commitment companys revolving credit line 2500 million maturity date may 2016 borrowings revolving credit line amended credit agreement accrued interest companys option either greater prime rate ii federal funds rate plus 050 iii adjusted libor plus 100 b libor plus margins ranging 080 165 also facility fee ranging 020 035 amended credit agreement repaid full october 2015 october 27 2015 company entered new revolving credit agreement referred 2015 credit agreement terminated amended credit agreement 2015 credit agreement provides maximum commitment companys revolving credit line 500 million maturity date october 2020 borrowings revolving credit line 2015 credit agreement accrue interest companys option either greater prime rate ii federal funds rate plus 050 iii adjusted libor plus 100 plus margins ranging 000 030 b libor plus margins ranging 090 130 also facility fee ranging 010 020 borrowings 2015 credit agreement secured guarantees certain material subsidiaries defined 2015 credit agreement 2015 credit agreement also requires company maintain certain financial ratios related maximum leverage minimum interest coverage defined 2015 credit agreement specifically companys leverage ratio cannot exceed 35 companys interest coverage ratio cannot less 25 addition financial ratios 2015 credit agreement contains negative covenants including among others restrictions liens indebtedness company subsidiaries asset sales dividends transactions affiliates failure comply restrictions covenants may result event default 2015 credit agreement could permit acceleration debt require company prepay debt scheduled due date december 31 2015 company compliance covenants 2015 credit agreement companys leverage ratio defined 2015 credit agreement 10 interest coverage ratio defined 2015 credit agreement 149 following summary maximum commitments net amounts available company december 31 2015 millions lines credit various financial institutions located primarily germany switzerland companys revolving lines credit unsecured typically due upon demand interest payable monthly january 2012 company entered note purchase agreement referred note purchase agreement group accredited institutional investors pursuant note purchase agreement company issued sold 2400 million senior notes referred senior notes consist following • 20 million 316 series 2012a senior notes tranche due january 18 2017 • 15 million 374 series 2012a senior notes tranche b due january 18 2019 • 105 million 431 series 2012a senior notes tranche c due january 18 2022 • 100 million 446 series 2012a senior notes tranche due january 18 2024 terms note purchase agreement company may issue sell additional senior notes aggregate principal amount 600 million subject certain conditions interest senior notes payable semiannually january 18 july 18 year senior notes unsecured obligations company fully unconditionally guaranteed certain companys direct indirect subsidiaries senior notes rank pari passu right repayment companys senior unsecured indebtedness company may prepay senior notes time amount less 10 original aggregate principal amount senior notes prepaid price equal sum 100 principal amount thereof plus accrued unpaid interest b applicable makewhole amount upon less 30 60 days written notice holders senior notes event change control company defined note purchase agreement company may required prepay notes price equal 100 principal amount thereof plus accrued unpaid interest note purchase agreement contains affirmative covenants including without limitation maintenance corporate existence compliance laws maintenance insurance properties payment taxes addition subsidiary guarantors furnishing notices information note purchase agreement also contains certain restrictive covenants restrict companys ability among things incur liens transfer sell assets engage certain mergers consolidations enter transactions affiliates note purchase agreement also includes customary representations warranties events default case event default arising specified events bankruptcy insolvency outstanding senior notes become due payable immediately without action notice case payment events defaults holder senior notes affected thereby may declare senior notes held due payable immediately case event default majority holders senior notes may declare senior notes due payable immediately pursuant note purchase agreement long senior notes outstanding company permit leverage ratio determined pursuant note purchase agreement end fiscal quarter exceed 350 100 ii interest coverage ratio determined pursuant note purchase agreement end fiscal quarter period four consecutive fiscal quarters less 250 1 iii priority debt time exceed 25 consolidated net worth determined pursuant note purchase agreement december 31 2015 company compliance covenants note purchase agreement companys leverage ratio defined note purchase agreement 10 interest coverage ratio defined note purchase agreement 149 annual maturities debt outstanding december 31 2015 follows millions interest expense years ended december 31 2015 2014 2013 130 million 133 million 134 million respectively note 11derivative instruments hedging activities interest rate risks companys exposure interest rate risk relates primarily outstanding variable rate debt adverse movements related shortterm market rates significant component companys interest rate risk relates amounts outstanding 2015 credit agreement totaled 250 million december 31 2015 company currently higher level fixed rate debt variable rate debt limits exposure adverse movements interest rates foreign exchange rate risk management company generates substantial portion revenues expenses international markets principally germany countries european union switzerland japan subjects operations exposure exchange rate fluctuations impact currency exchange rate movement positive negative period company periodically enters foreign currency contracts order minimize volatility fluctuations currency translation monetary transactions arrangements company typically agrees purchase fixed amount foreign currency exchange fixed amount us dollars currencies specified dates maturities less twelve months transactions qualify hedge accounting accordingly instrument recorded fair value corresponding gains losses recorded consolidated statements income comprehensive income loss company following notional amounts outstanding foreign currency contracts december 31 millions addition company periodically enters purchase sales contracts denominated currencies functional currency parties transaction company accounts transactions separately valuing embedded derivative component contracts denominated currencies functional currency transacting parties amounted 590 million delivery products 41 million purchase products december 31 2015 411 million delivery products 87 million purchase products december 31 2014 changes fair value embedded derivatives recorded interest income expense net consolidated statements income comprehensive income loss commodity price risk management company arrangement customer firm commitment deliver copper based superconductors fixed price order minimize volatility fluctuations price copper companys sales commodities company enters commodity hedge contracts december 31 2015 2014 company fixed price commodity contracts notional amounts aggregating 20 million 27 million respectively changes fair value commodity contracts recorded interest income expense net consolidated statements income comprehensive income loss fair value derivative instruments described recorded consolidated balance sheets years ended december 31 2015 2014 follows millions impact net income unrealized gains losses resulting changes fair value derivative instruments years ending december 31 follows millions recorded within interest income expense net consolidated statements income comprehensive income loss note 12income taxes domestic foreign components income taxes follows years ended december 31 millions components income tax provision follows years ended december 31 millions income tax provision differs tax provision computed us federal statutory rate due following significant components years ended december 31 tax effect temporary items give rise significant portions deferred tax assets liabilities follows december 31 millions company uses liability method account income taxes method deferred income taxes recognized future tax consequences differences tax financial accounting bases assets liabilities reporting period deferred income taxes based enacted tax laws statutory tax rates applicable period differences expected affect taxable income valuation allowance established necessary reduce deferred tax assets expected realized amounts company recognize deferred tax asset extent likely assets realized judgments around realizability depend availability weight positive negative evidence considering available evidence december 31 2015 company established valuation allowances portion deferred tax assets us certain jurisdictions likely assets realized particular company recorded partial valuation allowance us net deferred tax assets comprised deductible temporary differences tax credit carryforwards determining realizability assets company considered numerous factors including historical profitability character amount estimated future taxable income prudent feasible tax planning strategies companys valuation allowance december 31 2015 decreased 201 million compared december 31 2014 including reduction beginning year valuation allowance 208 million account change judgment respect realizability companys us deferred tax assets decrease primarily attributable us net operating loss foreign tax credit usage result repatriation 2353 million foreign earnings united states 2015 prompted adverse interest rate conditions europe unfavorably impacting cash balances among evidence supporting companys conclusion around realizability deferred tax assets elimination recent cumulative us losses well expected future near term us taxable income december 31 2015 company approximately 30 million net operating loss carryforwards available reduce state taxable income approximately 424 million german trade tax net operating losses carried forward indefinitely 429 million foreign net operating losses expected expire various times beginning 2018 company also us federal tax credits approximately 278 million available offset future tax liabilities expire various dates include research development tax credits 140 million expiring various times 2034 foreign tax credits 138 million expiring various times 2024 state research development tax credits 71 million utilization credits state net operating losses may subject annual limitations due ownership percentage change limitations provided internal revenue code section 382 similar state provisions event deemed change control internal revenue code section 382 annual limitation utilization net operating losses credits may result expiration portion net operating loss credit carryforwards company reflects certain foreign statutory reserves tabular reconciliation unrecognized tax benefits unrecognized tax benefits presented reduction associated net deferred tax assets company indefinitely reinvested earnings subsidiaries cumulative amount approximately 14561 million december 31 2015 therefore provided us income taxes could result distribution earnings us parent earnings ultimately distributed us form dividends otherwise shares subsidiaries sold transferred company would likely subject additional us income taxes net impact available foreign tax credits company estimates amount unrecognized deferred us income taxes undistributed earnings approximately 120 million company gross unrecognized tax benefits excluding interest approximately 269 million december 31 2015 13 million recognized would reduce companys effective tax rate next twelve months reasonably possible company reduce unrecognized tax benefits 52 million due statutes limitations expiring favorably settling taxing authorities would reduce companys effective tax rate tabular reconciliation beginning ending amount unrecognized tax benefits follows millions companys policy include accrued interest penalties related unrecognized tax benefits income tax liabilities applicable income tax expense december 31 2015 2014 company approximately 47 million 36 million respectively accrued interest penalties related uncertain tax positions included longterm liabilities consolidated balance sheets penalties interest related unrecognized tax benefits 14 million 01 million recorded provision income taxes year ended december 31 2015 2014 respectively company files tax returns us include federal state local jurisdictions many foreign jurisdictions varying statutes limitations company considers germany us switzerland significant tax jurisdictions tax years 2009 2014 open tax years significant foreign jurisdictions first quarter 2014 company settled tax audit us tax year 2010 third quarter 2015 company settled tax audits germany italy settlement immaterial consolidated financial statements tax years 2011 2014 remain open examination us note 13employee benefit plans defined benefit plans substantially companys employees switzerland france japan well certain employees germany covered companysponsored defined benefit pension plans retirement benefits generally earned based years service compensation active employment eligibility generally determined accordance local statutory requirements however level benefits terms vesting varies among plans net periodic pension cost components net periodic benefit costs years ended december 31 2015 2014 2013 follows net periodic benefit costs year ended december 31 2015 includes onetime noncash settlement loss 102 million company outsourced pension plan switzerland outside insurance provider transferred certain plan assets pension obligations retirees certain members population made certain plan design changes remeasured liability company measures benefit obligation fair value plan assets december 31st year changes benefit obligations plan assets defined benefit pension plans projected benefit obligation funded status plans follows december 31 millions accumulated benefit obligation defined benefit pension plans 1897 million 1984 million december 31 2015 2014 respectively defined benefit pension plans accumulated benefit obligation projected benefit obligation excess plan assets december 31 2015 2014 following amounts recognized accompanying consolidated balance sheets companys defined benefit plans december 31 millions following pretax amounts recognized accumulated comprehensive income loss companys defined benefit plans december 31 millions amount accumulated comprehensive income loss december 31 2015 expected recognized amortization net loss within net periodic benefit cost 2016 41 million defined benefit pension plans company uses corridor approach amortize actuarial gains losses approach net actuarial gains losses excess ten percent larger projected benefit obligation fair value plan assets amortized average remaining service active participants expected receive benefits plans range assumptions used defined benefit pension plans reflects different economic environments within various countries range assumptions used determine projected benefit obligations years ended december 31 follows determine expected longterm rate return pension plan assets company considers current asset allocations well historical expected returns various asset categories plan assets defined benefit pension plans company applies expected rate return marketrelated value assets stabilizes variability assets expected return applied asset allocations asset category fair value companys pension plan assets december 31 2015 2014 asset category level fair value hierarchy follows millions acash cash equivalents consist primarily highly liquid investments including cash hand bforeign corporate government bond investments average rating aa cinternational equities primarily include investments large market capitalization stocks dreal estate includes swiss public real estate funds generate returns line swiss property market investing residential commerical properties throughout switzerland eincludes private equity raw materials alternative investment funds fthe companys pension plan switzerland outsourced swiss life ag outside insurance provider insurance contract plan assets invested swiss life collective bvg foundation umbrella fund retirement savings interest rates guaranteed minimum 175 mandatory withdrawal portion defined swiss law 125 nonmandatory portion foundation utilizes plan administrators investment managers oversee investment allocation process set longterm strategic targets monitor asset allocations target allocations 75 bonds including cash 5 equity investments 20 real estate mortgages foundation yield return greater guaranteed amounts company according swiss law shall receive 90 additional return swiss life ag retaining 10 withdrawal benefits interest allocations secured times swiss life ag contributions estimated future benefit payments 2016 company expects contributions consistent 2015 estimated future benefit payments based assumptions used measure companys benefit obligation december 31 2015 following benefit payments reflect future employee service appropriate millions benefit plans company sponsors various defined contribution plans cover certain domestic international employees company may make contributions plans discretion company contributed 65 million 71 million 53 million plans years ended december 31 2015 2014 2013 respectively note 14commitments contingencies operating leases certain buildings office equipment vehicles leased agreements accounted operating leases total rental expense operating leases 230 million 228 million 246 million years ended december 31 2015 2014 2013 respectively future minimum lease payments noncancelable operating leases december 31 2015 next five years thereafter follows millions capital leases company leases certain buildings agreements classified capital leases cost buildings capital leases included consolidated balance sheets property plant equipment 27 million 75 million december 31 2015 2014 accumulated amortization leased buildings december 31 2015 2014 07 million 29 million respectively amortization expense related assets capital leases included depreciation expense obligations related capital leases recorded component longterm debt current portion longterm debt consolidated balance sheets depending lease payments due unconditional purchase commitments company entered unconditional purchase commitments ordinary course business include agreements purchase goods services fixed assets pay royalties enforceable legally binding specify significant terms including fixed minimum quantities purchased fixed minimum variable price provisions approximate timing transaction purchase commitments exclude agreements cancelable time without penalty aggregate amount companys unconditional purchase commitments totaled 1095 million december 31 2015 majority commitments expected settled 2016 license agreements company entered crosslicensing agreements various technologies allow companies utilize certain patents related technologies various periods perpetuity income agreements years ended december 31 2015 2014 2013 25 million 26 million 95 million respectively classified revenue consolidated statements income comprehensive income loss unearned portions proceeds crosslicensing agreements classified shortterm longterm deferred revenue depending revenue earned company also entered license agreements allowing utilize certain patents used connection commercial product sale company pays royalties related product revenues licensing fees years ended december 31 2015 2014 2013 32 million 33 million 40 million respectively recorded cost product revenue consolidated statements income comprehensive income loss legal lawsuits claims proceedings nature considered normal businesses may pending time company believes outcome pending proceedings individually aggregate material impact companys financial position results operations december 31 2015 2014 accruals recorded potential contingencies internal investigation compliance matters previously reported audit committee companys board directors assisted independent outside counsel independent forensic consulting firm conducted internal investigation response anonymous communications received company alleging improper conduct connection china operations companys bruker optics subsidiary audit committees investigation began 2011 completed first quarter 2012 included review compliance bruker optics employees china hong kong requirements foreign corrupt practices act fcpa applicable laws regulations investigation found evidence indicating payments made improperly benefited employees agents governmentowned enterprises china hong kong investigation also found evidence certain employees bruker optics china hong kong failed comply companys policies standards conduct result company took personnel actions including termination certain individuals company also terminated business relationships certain third party agents implemented enhanced fcpa compliance program strengthened financial controls oversight subsidiaries operating china hong kong 2011 company also initiated review china operations subsidiaries assistance independent audit firm basis review company identified additional employees bruker subsidiaries operating china failed comply companys policies standards conduct took additional personnel actions certain subsidiaries result company voluntarily contacted united states securities exchange commission united states department justice august 2011 advise agencies internal investigation audit committee regarding china operations companys bruker optics subsidiary october 2011 company also reported existence internal investigation hong kong joint financial intelligence unit independent commission corruption effective december 15 2014 company consented entry administrative ceaseanddesist order sec concerning violations books records internal controls provisions fcpa pursuant order company paid aggregate amount 24 million consisting 17 million disgorgement 03 million prejudgment interest 04 million penalty recorded within interest income expense net accompanying consolidated statements income comprehensive income loss company advised investigative matters completed december 31 2014 letters credit guarantees december 31 2015 2014 company bank guarantees 1377 million 1503 million respectively related primarily customer advances arrangements guarantee refund advance payments received customers event merchandise delivered warranty obligations fulfilled compliance terms contract guarantees affect availability companys lines credit indemnifications company enters standard indemnification arrangements companys ordinary course business pursuant arrangements company indemnifies holds harmless agrees reimburse indemnified parties losses suffered incurred indemnified party generally companys business partners customers connection patent copyright intellectual property infringement claim third party respect products term indemnification agreements generally perpetual anytime execution agreement maximum potential amount future payments company could required make agreements unlimited company believes estimated fair value agreements minimal based historical experiences company entered indemnification agreements directors officers may require company indemnify directors officers liabilities may arise reason status service directors officers liabilities arising willful misconduct culpable nature advance expenses incurred result proceeding could indemnified obtain directors officers insurance available reasonable terms company currently place note 15shareholders equity bruker corporation stock plan february 2010 bruker biosciences corporation amended restated 2000 stock option plan 2000 plan expired end scheduled tenyear term march 9 2010 companys board directors unanimously approved adopted bruker corporation 2010 incentive compensation plan 2010 plan may 14 2010 plan approved companys stockholders 2010 plan provides issuance 8000000 shares companys common stock plan allows committee board directors committee grant incentive stock options nonqualified stock options restricted stock awards committee authority determine employees receive awards amount awards terms conditions award awards granted committee typically vest period three five years stock option activity year ended december 31 2015 follows addition options vested december 31 2015 company expects portion unvested options vest future options expected vest future determined applying estimated forfeiture rate options unvested december 31 2015 bthe aggregate intrinsic value based positive difference fair value companys common stock price 2427 december 31 2015 date exercises appropriate exercise price underlying stock options weighted average fair values options granted 782 1081 1037 per share years ended december 31 2015 2014 2013 respectively total intrinsic value options exercised 82 million 100 million 81 million years ended december 31 2015 2014 2013 respectively unrecognized pretax stockbased compensation expense 167 million related stock options awarded 2010 plan expected recognized weighted average remaining service period 22 years stock options outstanding december 31 2015 restricted shares companys common stock periodically awarded executive officers directors certain key employees company subject service restrictions vest ratably periods four five years restricted shares common stock may sold transferred restriction period stockbased compensation restricted stock recorded based stock price grant date charged expense ratably throughout restriction period following table summarizes information restricted stock activity year ended december 31 2015 total fair value restricted stock vested 10 million 30 million 14 million years ended december 31 2015 2014 2013 respectively unrecognized pretax stockbased compensation expense 39 million related restricted stock awarded 2010 plan expected recognized weighted average remaining service period 28 years awards outstanding december 31 2015 note 16accumulated comprehensive income loss following summary components accumulated comprehensive income loss net tax december 31 millions note 17other charges net components charges net years ended december 31 2015 2014 2013 follows millions 2013 2014 2015 company commenced executed productivity improvement initiatives bsi best effort better optimize operations restructuring initiatives include divestiture certain noncore businesses outsourcing various manufacturing activities transferring ceasing operations certain facilities overall rightsizing within company based current business environments company recorded total restructuring charges year ended december 31 2015 2014 2013 293 million 361 million 253 million respectively related initiatives year ended december 31 2015 restructuring charges 284 million related bsi segment 09 million related best segment charges consisted 70 million inventory provisions excess inventory 159 million severance costs 64 million exit related costs professional service facility exit charges year ended december 31 2014 charges within bsi segment consisted 118 million inventory provisions excess inventory 155 million severance costs 88 million exit related costs year ended december 31 2013 230 million related bsi segment 23 million related best segment consisted 21 million inventory provisions excess inventory 179 million severance costs 53 million exit related costs year ended december 31 2015 2014 2013 company recorded restructuring charges 212 million 250 million 71 million respectively component cost revenue 81 million 111 million 182 million respectively component charges net accompanying consolidated statements income comprehensive income loss company commenced restructuring initiative 2015 within bruker biospin group developed result revenue decline occurred second half 2014 continued first half 2015 initiative intended improve bruker biospin groups operating results restructuring actions expected result reduction employee headcount within bruker biospin group approximately 9 included total restructuring charges discussed restructuring expenses related initiative recorded year ended december 31 2015 amount 141 million consisting 21 million inventory writedowns 120 million severance exit costs 123 recorded component cost revenue 18 million component charges net accompanying consolidated statement income comprehensive income loss restructuring also includes closure consolidation certain bruker biospin manufacturing facilities company determined restructuring indicator requiring evaluation property plant equipment recoverability company performed evaluation year ended december 31 2015 determined certain property plant equipment impaired recorded impairment charge 21 million reduce assets fair value impairment charge recorded within impairment assets accompanying consolidated statement income comprehensive income loss year ended december 31 2015 total restructuring onetime charges related initiative continuing 2016 expected 3 5 million relate employee separation facility exit costs included total restructuring charges expenses specifically related plan former cam division inception plan third quarter 2014 cumulative restructuring expenses recorded 188 million consisting 103 million inventory writedowns 85 million severance exit costs expenses expected incurred 2014 plan substantially completed year ended december 31 2015 addition september october 2014 company divested assets former cam divisions inductively coupled plasmamass spectrometry icpms product line gas chromatography gc singlequadrupole gcsq gcms mass spectrometry products respectively gain sale product lines 80 million recorded part interest income expense net within accompanying consolidated statement income comprehensive income loss year ended december 31 2014 following table sets forth changes restructuring reserves years ended december 31 2015 2014 millions note 18interest income expense net components interest income expense net years ended december 31 2015 2014 2013 follows millions note 19business segment information company two reportable segments bsi best discussed note 1 consolidated financial statements selected business segment information presented years ended december 31 millions arepresents product service revenue reportable segments brepresents corporate costs eliminations allocated reportable segments company recorded impairment charge 46 million year ended december 31 2015 within bsi segment company recorded impairment charge 115 million year ended december 31 2014 64 million within bsi segment 51 million within best segment please see note 7property plant equipment net note 8goodwill intangible assets description impairment charges recorded 2015 2014 impairment charges included within impairment assets accompanying consolidated statements income comprehensive income loss total assets segment years ended december 31 follows millions aassets allocated reportable segments eliminations intercompany transactions total capital expenditures depreciation amortization segment presented years ended december 31 millions revenue property plant equipment net geographical area year ended december 31 follows millions note 20related parties company leases certain office space certain principal shareholders including director executive officer another member companys board directors members immediate families expiration dates ranging 2016 2020 total rent expense leases 18 million 20 million 26 million years ended december 31 2015 2014 2013 respectively years ended december 31 2014 2013 company incurred expenses 24 million 53 million respectively law firm one former members board directors partner years ended december 31 2014 2013 company incurred expenses 01 million 02 million respectively financial services firm one former members board directors partner years ended december 31 2014 2013 company recorded revenue 09 million 01 million respectively commercial transactions life science supply company member companys board directors chairman president chief executive officer another member companys board directors formerly director years ended december 31 2015 2014 company recorded revenue 07 million 19 million respectively incurred expenses 01 million year ended december 31 2014 arising commercial transactions life sciences company member companys board directors joined board directors 2014 chairman chief executive officer year ended december 31 2015 company recorded revenue 05 million commercial transactions thermal analysis company member board directors serves consultant note 21recent accounting pronouncements november 2015 financial accounting standards board fasb issued accounting standards update asu 201517 balance sheet classification deferred taxes eliminates current requirement present deferred tax assets liabilities current noncurrent classified balance sheet instead entities required classify deferred tax assets liabilities noncurrent guidance effective annual periods interim periods within annual periods beginning december 15 2016 early adoption permitted company elected early adopt standard prospectively deferred taxes shown noncurrent consolidated balance sheet december 31 2015 september 2015 fasb issued asu 201516 business combinations topic 805 simplifying accounting measurementperiod adjustments asu 201516 eliminates requirement acquirer business combination account measurementperiod adjustments retrospectively instead acquirer recognize measurementperiod adjustment period determines amount adjustment including effect earnings amounts would recorded previous periods accounting completed acquisition date guidance effective public business entities fiscal years including interim periods within fiscal years beginning december 15 2015 early adoption permitted company expect adoption asu 201516 material impact consolidated financial statements july 2015 fasb issued asu 201511 simplifying measurement inventory new guidance eliminates measurement inventory market value inventory measured lower cost net realizable value asu defines net realizable value estimated selling prices ordinary course business less reasonably predictable costs completion disposal transportation changes made current guidance inventory measurement asu 201511 effective interim annual periods beginning december 15 2016 early application permitted applied prospectively company evaluating provisions statement determined impact adoption asu 201511 companys consolidated financial statements april 2015 fasb issued asu 201503 simplifying presentation debt issuance costs new guidance changes presentation debt issuance costs balance sheet reduction related debt liability instead classifying asset income statement presentation debt issuance costs unchanged asu 201503 effective annual periods beginning december 15 2015 interim periods within years early application permitted guidance applied retrospectively prior periods presented august 2015 fasb issued asu 201515 presentation subsequent measurement debt issuance costs associated lineofcredit arrangements excluding debt issuance costs related lineofcredit arrangements scope asu 201503 company expect adoption asu 201503 material impact consolidated balance sheet may 2014 fasb issued asu 201409 revenue contracts customers supersedes revenue recognition requirements accounting standards codification asc topic 605 new guidance result joint project fasb international accounting standards board clarify principles recognizing revenue develop common revenue standards us gaap international financial reporting standards core principle new guidance revenue recognized depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services asu 201409 originally effective prospectively annual periods beginning december 15 2016 interim periods within years early application permitted august 2015 fasb elected defer effective date asu 201409 one year annual periods beginning december 15 2017 early application permitted original effective date company currently assessing impact adoption standard may consolidated financial statements upon adoption note 22quarterly financial data unaudited summary operating results quarterly periods years ended december 31 2015 2014 set forth millions except per share data 1the second third fourth quarter 2015 includes impairment assets 18 million 25 million 03 million respectively comprised goodwill definitelived intangible assets longlived assets third fourth quarter 2014 includes impairment assets 69 million 46 million respectively comprised definitelived intangible assets longlived assets note 23subsequent event february 22 2016 company announced establishment dividend policy declaration board directors initial quarterly cash dividend amount 004 per share companys issued outstanding common stock dividend paid march 24 2016 stockholders record march 4 2016 dividend policy company target cash dividend companys stockholders amount 016 per share per annum payable equal quarterly installments subsequent dividend declarations establishment record payment dates future dividend payments subject board directors continuing determination dividend policy best interests companys stockholders dividend policy may suspended cancelled discretion board directors time item 9item 8 financial statements supplementary data index consolidated financial statements page reports independent registered public accounting firms consolidated balance sheets december 31 2016 2015 consolidated statements income comprehensive income loss years ended december 31 2016 2015 2014 consolidated statements shareholders equity years ended december 31 2016 2015 consolidated statements cash flows years ended december 31 2016 2015 notes consolidated financial statements report independent registered public accounting firm board directors shareholders bruker corporation opinion accompanying consolidated balance sheet december 31 2016 related consolidated statements income comprehensive income loss shareholders equity cash flows year ended present fairly material respects financial position bruker corporation subsidiaries december 31 2016 results operations cash flows year ended conformity accounting principles generally accepted united states america also opinion company maintain material respects effective internal control financial reporting december 31 2016 based criteria established internal controlintegrated framework 2013 issued committee sponsoring organizations treadway commission coso material weakness internal control financial reporting related accounting income taxes including income tax provision related tax assets liabilities existed date material weakness deficiency combination deficiencies internal control financial reporting reasonable possibility material misstatement annual interim financial statements prevented detected timely basis material weakness referred described managements report internal control financial reporting appearing item 9a considered material weakness determining nature timing extent audit tests applied audit 2016 consolidated financial statements opinion regarding effectiveness companys internal control financial reporting affect opinion consolidated financial statements companys management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included managements report referred responsibility express opinions financial statements companys internal control financial reporting based integrated audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audit financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audit also included performing procedures considered necessary circumstances believe audit provides reasonable basis opinions companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp boston massachusetts march 1 2017 report independent registered public accounting firm board directors shareholders bruker corporation audited accompanying consolidated balance sheet bruker corporation december 31 2015 related consolidated statements income comprehensive income loss statements shareholders equity cash flows two years period ended december 31 2015 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position bruker corporation december 31 2015 consolidated results operations cash flows two years period ended december 31 2015 conformity us generally accepted accounting principles ernst young llp boston massachusetts february 26 2016 bruker corporation consolidated balance sheets millions except share per share data accompanying notes integral part consolidated financial statements bruker corporation consolidated statements income comprehensive income loss millions except per share data accompanying notes integral part consolidated financial statements bruker corporation consolidated statements shareholders equity millions except share data accompanying notes integral part consolidated financial statements bruker corporation consolidated statements cash flows millions accompanying notes integral part consolidated financial statements bruker corporation notes consolidated financial statements note 1description business bruker corporation together consolidated subsidiaries bruker company develops manufactures highperformance scientific instruments analytical diagnostic solutions enable customers explore life materials microscopic molecular cellular levels many companys products used detect measure visualize structural characteristics chemical biological industrial material samples companys products address rapidly evolving needs diverse array customers life science research pharmaceuticals biotechnology applied markets cell biology clinical research microbiology invitro diagnostics nanotechnology materials science research company two reportable segments bruker scientific instruments bsi represented approximately 93 92 companys revenues year ended december 31 2016 2015 respectively bruker energy supercon technologies best represented remainder companys revenues within bsi company organized three operating segments bruker biospin group bruker calid group bruker nano group financial reporting purposes bruker biospin bruker calid bruker nano operating segments aggregated bsi reportable segment similar economic characteristics production processes service offerings types classes customers methods distribution regulatory environments bruker biospin bruker biospin group manufactures distributes enabling life science tools based magnetic resonance technology majority bruker biospins revenues generated academic government research customers include pharmaceutical biotechnology companies nonprofit laboratories well chemical food beverage clinical polymer companies bruker calidchemicals applied markets life science invitro diagnostics detection bruker calid group designs manufactures distributes life science mass spectrometry ion mobility spectrometry systems infrared spectroscopy radiologicalnuclear detectors chemical biological radiological nuclear explosive cbrne detection emergency response homeland security defense applications analytical process analysis instruments solutions based infrared raman molecular spectroscopy technologies customers bruker calid group include pharmaceutical biotechnology diagnostics companies contract research organizations academic institutions medical schools nonprofit forprofit forensics agriculture food beverage safety environmental clinical microbiology laboratories hospitals government departments agencies bruker nano bruker nano group designs manufactures distributes advanced xray instruments atomic force microscopy instrumentation advanced fluorescence optical microscopy instruments analytical tools electron microscopes xray metrology defectdetection equipment semiconductor process control handheld portable mobile xray fluorescence spectrometry instruments spark optical emission spectroscopy systems customers bruker nano group include biotechnology pharmaceutical companies academic institutions governmental customers nanotechnology companies semiconductor companies raw material manufacturers industrial companies businesses involved materials analysis companys best reportable segment develops manufactures superconducting nonsuperconducting materials devices use renewable energy infrastructure healthcare big science research segment focuses metallic low temperature superconductors use magnetic resonance imaging nuclear magnetic resonance fusion energy research applications well ceramic high temperature superconductors primarily energy grid magnet applications note 2summary significant accounting policies accompanying consolidated financial statements reflect application certain significant accounting policies described elsewhere notes consolidated financial statements principles consolidation accompanying consolidated financial statements include accounts company majority whollyowned subsidiaries intercompany accounts transactions eliminated noncontrolling interests noncontrolling interests represents minority shareholders proportionate share companys majorityowned subsidiaries portion net income net loss attributable noncontrolling interests presented net income attributable noncontrolling interests consolidated subsidiaries consolidated statements income comprehensive income loss portion comprehensive income loss subsidiaries presented consolidated statements shareholders equity subsequent events company evaluated subsequent events determined material recognized unrecognized subsequent events subsequent events required mentioned footnotes consolidated financial statements disclosed note 23subsequent events cash equivalents cash equivalents primarily include cash hand money market funds time deposits original maturities three months less date acquisition time deposits represent amounts deposit banks temporarily invested instruments maturities three months less time purchase certain investments represent deposits insured fdic government agency cash equivalents carried cost approximates fair value shortterm investments shortterm investments represent time call deposits original maturities greater three months date acquisition shortterm investments classified availableforsale reported fair value unrealized gains losses recorded december 31 2016 2015 cost approximates current fair value restricted cash company certain subsidiaries required local governance maintain restricted cash balances cover future employee benefit payments restricted cash balances classified noncurrent unless terms applicable agreements funds released restrictions within one year balance sheet date current noncurrent portion restricted cash recorded within current assets longterm assets respectively accompanying consolidated balance sheets derivative financial instruments hedging activities derivatives whether designated hedging relationship recorded consolidated balance sheets fair value accounting changes fair value derivative instrument depends whether designated qualifies part hedging relationship type hedging relationship derivative instruments designated qualify hedging instruments company must designate hedging instrument based exposure hedged fair value hedge cash flow hedge foreign currency hedge net investment foreign operation fair value financial instruments company applies following hierarchy determine fair value financial instruments prioritizes inputs used measure fair value three levels bases categorization within hierarchy upon lowest level input available significant fair value measurement levels hierarchy defined follows • level 1 inputs valuation methodology quoted prices unadjusted identical assets liabilities active markets • level 2 inputs valuation methodology include quoted prices similar assets liabilities active markets inputs observable asset liability either directly indirectly substantially full term financial instrument • level 3 inputs valuation methodology unobservable significant fair value measurement valuation techniques may used company determine fair value level 2 level 3 financial instruments market approach income approach cost approach market approach uses prices relevant information generated market transactions involving identical comparable assets liabilities income approach uses valuation techniques convert future amounts single present value based current market expectations future amounts including present value techniques optionpricing models excess earnings method cost approach based amount would required replace service capacity asset replacement cost companys financial instruments consist primarily cash equivalents shortterm investments restricted cash derivative instruments consisting forward foreign exchange contracts commodity contracts derivatives embedded certain purchase sale contracts accounts receivable borrowings revolving credit agreement accounts payable contingent consideration longterm debt carrying amounts companys cash equivalents shortterm investments restricted cash accounts receivable borrowings revolving credit agreement accounts payable approximate fair value caused shortterm nature derivative assets liabilities measured fair value recurring basis companys longterm debt consists principally private placement arrangement entered 2012 various fixed interest rates based maturity date company evaluated estimated fair value financial instruments using available market information managements estimates use different market assumptions andor estimation methodologies could significant effect estimated fair value amounts concentration credit risk financial instruments subject company credit risk consist cash equivalents shortterm investments derivative instruments accounts receivables restricted cash risk respect cash equivalents shortterm investments minimized companys policy investing shortterm financial instruments issued highlyrated financial institutions risk respect derivative instruments minimized companys policy entering arrangements highlyrated financial institutions risk respect accounts receivables minimized creditworthiness diversity companys customers company performs periodic credit evaluations customers financial condition generally requires advanced deposit portion purchase price credit losses within managements expectations allowance doubtful accounts totaled 79 million 91 million december 31 2016 2015 respectively december 31 2016 2015 single customer represented 10 companys accounts receivable years ended december 31 2016 2015 2014 single customer represented 10 companys total revenue inventories components inventory include raw materials workinprocess demonstration units finished goods demonstration units include systems located companys demonstration laboratories installed sites potential customers considered available sale finished goods include intransit systems shipped companys customers yet installed accepted customer inventories stated lower cost market cost determined principally firstin firstout method majority subsidiaries averagecost certain subsidiaries company reduces carrying value inventories differences cost estimated net realizable value taking consideration usage preceding twelve months expected demand technological obsolescence information including physical condition demonstration inventories company records charge cost product revenue amount required reduce carrying value inventory net realizable value costs associated procurement inventories inbound freight charges purchasing receiving costs capitalized part inventory also included cost product revenue line item within consolidated statements income comprehensive income loss property plant equipment property plant equipment stated cost less accumulated depreciation amortization major improvements capitalized expenditures maintenance repairs minor improvements charged expense incurred assets retired otherwise disposed assets related accumulated depreciation amortization eliminated accounts resulting gain loss reflected consolidated statements income comprehensive income loss depreciation amortization calculated straightline basis estimated useful lives assets follows goodwill intangible assets goodwill indefinitelived intangible assets amortized evaluated impairment annual basis interim basis events changes circumstances indicate carrying value may recoverable assessing recoverability goodwill indefinitelived intangible assets company must make assumptions regarding estimated future cash flows factors determine fair value assets estimates related assumptions change future company may required record impairment charges assets reporting period impairment determined company tests goodwill impairment reporting unit level operating segment one level operating segment company option performing qualitative assessment determine whether impairment testing necessary performing twostep quantitative assessment result qualitative assessment morelikelythannot fair value reporting unit less carrying amount quantitative impairment test required otherwise testing required quantitative impairment test performed first step involves comparing fair values applicable reporting units aggregate carrying values including goodwill company generally determines fair value reporting units using weighting market income methodologies estimating fair value reporting units requires significant judgment management carrying amount reporting unit exceeds fair value reporting unit company performs second step goodwill impairment test measure amount impairment second step goodwill impairment test company compares implied fair value reporting units goodwill carrying value goodwill process research development iprd acquired part business combinations acquisition method represents ongoing development work associated enhancements existing products well development next generation products iprd initially capitalized fair value intangible asset indefinite life assessed impairment annual basis indicators impairment identified iprd project complete reclassified finitelived intangible asset amortized estimated useful life iprd project abandoned completion otherwise determined impaired value asset amount impairment charged consolidated statements income comprehensive income loss period project abandoned impaired intangible assets finite useful life amortized straightline basis estimated useful lives follows impairment longlived assets impairment losses recorded longlived assets used operations indicators impairment present quoted market price available estimated fair value assets less assets carrying value recoverable determination recoverability based estimate undiscounted future cash flows resulting use asset eventual disposition event cash flows expected sufficient recover carrying amount assets writtendown fair values impairment losses charged consolidated statements income comprehensive income loss difference fair value carrying value asset warranty costs deferred revenue company typically provides one year parts labor warranty purchase equipment anticipated cost warranty accrued upon recognition sale included current liability accompanying consolidated balance sheets companys warranty reserve reflects estimated material labor costs potential product issues company expects incur obligation companys estimates anticipated rates warranty claims costs primarily based historical information company assesses adequacy warranty reserve quarterly basis adjusts amount necessary historical data used calculate adequacy warranty reserve indicative future requirements additional reduced warranty reserves may required company also offers customers extended warranty service agreements extending beyond initial warranty fee fees recorded deferred revenue recognized ratably income life extended warranty contract service agreement income taxes deferred tax assets liabilities recognized expected future tax consequences temporary differences financial statement carrying amounts income tax basis assets liabilities valuation allowance applied net deferred tax asset based available evidence likely deferred tax assets realized company records liabilities related uncertain tax positions accordance guidance clarifies accounting uncertainty income taxes recognized companys financial statements guidance prescribes minimum recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return company includes accrued interest penalties related unrecognized tax benefits income tax liabilities applicable income tax expense customer advances company typically requires advance deposit terms conditions contracts customers deposits recorded current longterm liability revenue recognized specific contract accordance companys revenue recognition policy revenue recognition company recognizes revenue systems sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectability resulting receivable reasonably assured title risk loss generally transfers upon shipping terms certain systems based upon customer acceptance system delivered installed customer facility systems include customerspecific acceptance criteria company required assess demonstrate acceptance criteria met generally upon successful factory acceptance testing customer acceptance evidence installation products sold independent distributor strategic distribution partner assumes responsibility installation company recognizes system sale product shipped title risk loss transferred distributor companys distributors price protection rights return however companys products typically warranted free defect period one year revenue deferred cash received collectability reasonably assured price fixed determinable transactions include multiple elements arrangement consideration allocated element using fair value hierarchy required asu 200913 company limits amount revenue recognized delivered elements amount contingent future delivery products services future performance obligations subject customerspecific return refund privileges company determines fair value products services based upon vendor specific objective evidence vsoe company determines vsoe based normal selling pricing discounting practices specific product service sold standalone basis determining vsoe companys policy requires substantial majority selling prices product service within reasonably narrow range company also considers class customer method distribution geographies products services sold determining vsoe cannot established company attempts establish selling price based thirdparty evidence tpe vsoe cannot established instances product service sold separately standalone sales infrequent product pricing within sufficiently narrow range tpe determined based competitor prices similar deliverables sold separately company cannot determine vsoe tpe uses estimated selling price esp allocation arrangement consideration objective esp determine price company would typically transact standalone sale product service esp determined considering number factors including companys pricing policies internal costs gross profit objectives method distribution market research information recent technological trends competitive landscape geographies company analyzes selling prices used allocation arrangement consideration minimum annual basis selling prices analyzed frequently significant change companys business factors necessitate frequent analysis company experiences significant variances selling prices revenue accessories parts generally recognized based shipping terms service revenue recognized services performed ratably contractual obligation includes maintenance contracts extended warranty training application support ondemand services company also contracts applies percentageofcompletion model completed contract model revenue recognition application percentageofcompletion method requires company make reasonable estimates extent progress toward completion contract total costs company incur contract losses recorded immediately estimate contracts ultimately result loss changes estimates could affect timing revenue recognition revenues primarily comprised development arrangements recognized costplusfixedfee basis licensing arrangements recognized ratably term related contracts shipping handling costs company includes costs incurred connection shipping handling products within selling general administrative expenses accompanying consolidated statements income comprehensive income loss shipping handling costs 213 million 206 million 262 million years ended december 31 2016 2015 2014 respectively amounts billed customers connection costs included total revenues research development company commits substantial capital resources internal collaborative research development projects order provide innovative products solutions customers company conducts research primarily enhance system performance improve reliability existing products develop revolutionary new products solutions research development costs expensed incurred include salaries wages personnel related costs material costs depreciation consulting costs facility costs capitalized software purchased software capitalized cost amortized estimated useful life generally three years software developed use companys products expensed incurred research development expense technological feasibility achieved subsequent achievement technological feasibility amounts capitalizable however date amounts material advertising company expenses advertising costs incurred advertising expenses 127 million 129 million 107 million years ended december 31 2016 2015 2014 respectively stockbased compensation company recognizes stockbased compensation expense consolidated statements income comprehensive income loss based fair value sharebased award grant date companys primary types sharebased compensation stock options restricted stock awards restricted stock units company recorded stockbased compensation expense years ended december 31 2016 2015 2014 follows millions compensation expense amortized straightline basis underlying vesting terms sharebased award stock options purchase companys common stock periodically awarded executive officers employees company members companys board directors subject vesting period three five years fair value option award estimated date grant using blackscholes optionpricing model assumptions regarding volatility expected term dividend yield riskfree interest rates required blackscholes model presented table riskfree interest rates based yield zerocoupon us treasury securities period commensurate expected life assumption expected life determined calculation based historical data company believes best estimate expected term new option expected volatility based number factors company currently believes exclusive use historical volatility results best estimate expectations future volatility expected term expected dividend yield included option pricing formula beginning february 2016 company adopted dividend policy addition company utilizes estimated forfeiture rate calculating stockbased compensation expense period company applied estimated forfeiture rates derived analysis historical data 62 58 51 years ended december 31 2016 2015 2014 respectively determining expense recorded accompanying consolidated statements income comprehensive income loss earnings per share net income per common share attributable bruker corporation shareholders calculated dividing net income attributable bruker corporation weightedaverage shares outstanding period diluted net income per share computation includes effect shares would issuable upon exercise outstanding stock options vesting restricted stock reduced number shares assumed purchased company treasury stock method following table sets forth computation basic diluted weighted average shares outstanding years ended december 31 millions except per share data stock options restricted stock units purchase approximately 06 million shares 13 million shares 01 million shares excluded computation diluted earnings per share years ended december 31 2016 2015 2014 respectively effect would antidilutive post retirement benefit plans company recognizes overfunded underfunded status defined benefit pension postretirement defined benefit plans asset liability respectively consolidated balance sheets recognizes changes funded status year changes occur comprehensive income loss comprehensive income loss comprehensive income loss refers revenues expenses gains losses excluded net income amounts recorded directly adjustment shareholders equity net tax companys comprehensive income loss composed foreign currency translation adjustments pension liability adjustments foreign currency translation assets liabilities companys foreign subsidiaries functional currency local currency translated us dollars using yearend exchange rates historical rates appropriate revenues expenses foreign subsidiaries translated average exchange rates effect year adjustments resulting financial statement translations included separate component shareholders equity gains losses resulting translation foreign currency monetary transactions reported interest income expense net consolidated statements income comprehensive income loss periods presented company certain intercompany foreign currency transactions deemed longterm investment nature exchange adjustments related transactions made directly separate component shareholders equity risk uncertainties company subject risks common industry including limited global economic conditions rapid technological change government academic funding levels changes commodity prices spending patterns customers protection intellectual property availability key raw materials components compliance existing future regulation government agencies fluctuations foreign currency exchange rates loss contingencies loss contingency provisions recorded potential loss claim asserted unasserted legal proceeding related patents products matters considered probable amount reasonably estimated range loss determined accruals represent managements best estimate probable loss disclosure provided reasonably possible loss incurred reasonably possible amount loss exceed recorded provision use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant estimates judgments made management preparing financial statements include revenue recognition allowances doubtful accounts writedowns excess obsolete inventory estimated fair values used record impairment charges related intangible assets goodwill longlived assets amortization periods expected future cash flows used evaluate recoverability longlived assets stockbased compensation expense warranty allowances restructuring related charges contingent liabilities recoverability companys net deferred tax assets although company regularly reassesses assumptions underlying estimates actual results could differ materially estimates changes estimates recorded period become known company bases estimates historical experience various assumptions believes reasonable circumstances actual results may differ managements estimates results differ historical experience assumptions prove substantially accurate even assumptions reasonable made note 3acquisitions december 14 2016 acquired 100 stock active spectrum inc manufacturer magnetic resonance spectroscopy november 17 2016 acquired 100 membership interests oxford instruments superconducting wire llc ost manufacturer lowtemperature superconductors november 2 2016 acquired assets renishaw diagnostics ltd developer producer molecular assays applications microbiology november 21 2016 acquired preclinical imaging business oncovision leading provider innovative medical imaging devices june 20 2016 acquired assets yingsheng technology pty ltd comprise technology advanced minerals identification characterization products acquired companies intended complement companys existing product portfolio technology base following table reflects consideration transferred respective reporting segment acquisitions components fair value allocation consideration transferred connection acquisitions follows millions company completed fair value allocation acquisitions december 31 2016 fair value allocation included contingent consideration amount 51 million represented estimated fair value future payments former shareholders acquired companies based achieving annual revenue gross margin targets future years future payments contingent consideration may differ fair value recorded based financial results acquired businesses amortization period intangible assets 5 7 years bargain purchase gain 92 million related acquisition ost recorded within interest income net consolidated statements income comprehensive income loss acquisition resulted bargain purchase gain assets acquired exceeded consideration paid pro forma financial information reflecting acquisitions presented impact revenues net income total assets material october 2015 company completed acquisition jordan valley semiconductors ltd jordan valley company headquartered israel provides xray metrology defectdetection equipment semiconductor process control acquisition jordan valley accounted acquisition method components fair value allocation consideration transferred connection acquisition jordan valley follows millions company completed fair value allocation fourth quarter 2015 fair value allocation included contingent consideration amount 41 million represented estimated fair value future payments former shareholders jordan valley based achieving annual revenue gross margin targets years 20162017 year ended december 31 2016 company recorded additional 77 million charges net additional consideration based 2016 revenue gross margin achievements maximum potential future payments related contingent consideration 4 million december 31 2016 amortization period intangible assets acquired connection jordan valley 7 years customer relationships existing technology trade name results jordan valley including amount allocated goodwill attributable expected synergies expected deductible tax purposes included bsi segment date acquisition pro forma financial information reflecting acquisition jordan valley presented impact revenues net income total assets material july 28 2014 company completed acquisition vutara inc manufacturer highspeed threedimensional 3d superresolution fluorescence microscopy life science applications note 4fair value financial instruments company measures following financial assets liabilities fair value recurring basis following tables set forth companys financial instruments presents within fair value hierarchy using lowest level input significant fair value measurement december 31 2016 2015 millions derivative financial instruments classified within level 2 active market derivative contract however inputs used calculate value instruments obtained active markets fair value longterm fixed interest rate debt classified level 2 2533 million 2521 million december 31 2016 2015 respectively based market observable sources similar maturity dates company measures certain assets liabilities fair value changes fair value recognized earnings fair value treatment may elected either upon initial recognition eligible asset liability existing asset liability event triggers new basis accounting company elect remeasure existing financial assets liabilities year ended december 31 2016 excluded table cash equivalents restricted cash shortterm investments cost approximates current fair value company program enter time deposits varying maturity dates ranging one twelve months well call deposits company ability redeem invested amounts period 31 95 days company classified investments within cash equivalents shortterm investments within consolidated balance sheets based call maturity dates cash equivalents 34 million 42 million restricted cash 1579 million 2012 million shortterm investments outstanding december 31 2016 2015 respectively quarterly basis company reviews shortterm investments determine events could create impairment none noted years ended december 31 2016 2015 part certain acquisitions 2016 2015 2014 company recorded contingent consideration liabilities classified level 3 fair value hierarchy contingent consideration represents estimated fair value future payments former shareholders applicable acquired companies based achieving annual revenue gross margin targets certain years specified purchase sale agreements company initially valued contingent consideration using monte carlo simulation models future revenue costs goods sold projections discounts average results present value changes fair value contingent consideration recognized earnings years ended december 31 2016 december 31 2015 69 million 77 million respectively recorded charges net consolidated statements income comprehensive income loss increases reversals contingent consideration representing expected achievement financial targets following table sets forth changes contingent consideration liabilities years ended december 31 2016 2015 millions note 5accounts receivable following summary trade accounts receivable december 31 millions allowance doubtful accounts managements estimate credit losses accounts receivable allowance doubtful accounts based number factors including evaluation customer credit worthiness age outstanding receivable economic trends historical experience allowance doubtful accounts reviewed quarterly basis changes estimates reflected period become known company records account balances allowance means collection exhausted potential recovery considered remote provisions doubtful accounts recorded selling general administrative expenses accompanying consolidated statements income comprehensive income loss following summary activity companys allowance doubtful accounts december 31 millions note 6inventories inventories consisted following december 31 millions finished goods include intransit systems shipped companys customers yet installed accepted customer december 31 2016 2015 inventoryintransit 375 million 447 million respectively company reduces carrying value demonstration inventories differences cost estimated net realizable value charge cost product revenue based number factors including age unit physical condition unit assessment technological obsolescence amounts recorded cost product revenue related writedown demonstration units net realizable value 165 million 194 million 282 million years ended december 31 2016 2015 2014 respectively note 7property plant equipment net following summary property plant equipment net major asset class december 31 millions depreciation expense includes amortization leasehold improvements years ended december 31 2016 2015 2014 326 million 326 million 395 million respectively years ended december 31 2016 2015 company recorded impairment charges 08 million 21 million respectively representing write fair value certain property plant equipment net related restructuring outsourcing activities undertaken respective years impairment charges recorded within charges net accompanying consolidated statements income comprehensive income loss please see note 17other charges net additional details restructuring activities july 2014 companys board directors approved plan divest certain assets implement restructuring program former chemical applied markets cam division within bruker calid group plan developed result managements conclusion former cam business would unable achieve acceptable financial performance next two years please see note 17other charges net additional details plan company determined plan indicator requiring evaluation property plant equipment within reporting unit recoverability company performed valuation 2014 determined property plant equipment within former cam division impaired company recorded impairment charge 55 million year ended december 31 2014 reduce remaining value assets fair value addition company determined based upon projected cash flows generated certain assets best segment impairment charge 51 million necessary year ended december 31 2014 reduce carrying value assets estimated fair values impairment charges recorded within charges net accompanying consolidated statements income comprehensive income loss note 8goodwill intangible assets goodwill following table sets forth changes carrying amount goodwill years ended december 31 2016 2015 2014 millions december 31 2016 2015 goodwill allocated within bsi segment year ended december 31 2015 company recorded impairment charge 07 million representing impairment goodwill bruker biospin group related certain restructuring outsourcing activities year company performed annual impairment evaluation using qualitative approach december 31 2016 2014 quantitative approach december 31 2015 concluded likely goodwill impaired based recent quantitative analysis fair values reporting units significantly greater carrying amounts therefore additional impairment required intangible assets following summary intangible assets december 31 millions years ended december 31 2016 2015 2014 company recorded amortization expense approximately 217 million 207 million 202 million respectively consolidated statements income comprehensive income loss year ended december 31 2015 company recorded impairment charge 18 million representing impairment intangible assets bruker biospin group related certain restructuring outsourcing activities year estimated future amortization expense related amortizable intangible assets december 31 2016 follows millions note 9other current liabilities following summary current liabilities december 31 millions following table sets forth changes accrued warranty years ended december 31 2016 2015 millions note 10debt companys debt obligations consist following december 31 millions credit agreements may 2011 company entered amendment restatement credit agreement referred amended credit agreement amended credit agreement provided maximum commitment companys revolving credit line 2500 million maturity date may 2016 borrowings revolving credit line amended credit agreement accrued interest companys option either greater prime rate ii federal funds rate plus 050 iii adjusted libor plus 100 b libor plus margins ranging 080 165 also facility fee ranging 020 035 amended credit agreement repaid full october 2015 october 27 2015 company entered new revolving credit agreement referred 2015 credit agreement terminated amended credit agreement 2015 credit agreement provides maximum commitment companys revolving credit line 500 million maturity date october 2020 borrowings revolving credit line 2015 credit agreement accrue interest companys option either greater prime rate ii federal funds rate plus 050 iii adjusted libor plus 100 plus margins ranging 000 030 b libor plus margins ranging 090 130 also facility fee ranging 010 020 borrowings 2015 credit agreement secured guarantees certain material subsidiaries defined 2015 credit agreement 2015 credit agreement also requires company maintain certain financial ratios related maximum leverage minimum interest coverage defined 2015 credit agreement specifically companys leverage ratio cannot exceed 35 companys interest coverage ratio cannot less 25 addition financial ratios 2015 credit agreement contains negative covenants including among others restrictions liens indebtedness company subsidiaries asset sales dividends transactions affiliates failure comply restrictions covenants may result event default 2015 credit agreement could permit acceleration debt require company prepay debt scheduled due date december 31 2016 company compliance covenants 2015 credit agreement companys leverage ratio defined 2015 credit agreement 149 interest coverage ratio defined 2015 credit agreement 155 following summary maximum commitments net amounts available company 2015 credit agreement lines credit various financial institutions located primarily germany switzerland unsecured typically due upon demand interest payable monthly december 31 2016 millions note purchase agreement january 2012 company entered note purchase agreement referred note purchase agreement group accredited institutional investors pursuant note purchase agreement company issued sold 2400 million senior notes referred senior notes consist following • 20 million 316 series 2012a senior notes tranche due january 18 2017 • 15 million 374 series 2012a senior notes tranche b due january 18 2019 • 105 million 431 series 2012a senior notes tranche c due january 18 2022 • 100 million 446 series 2012a senior notes tranche due january 18 2024 terms note purchase agreement company may issue sell additional senior notes aggregate principal amount 600 million subject certain conditions interest senior notes payable semiannually january 18 july 18 year senior notes unsecured obligations company fully unconditionally guaranteed certain companys direct indirect subsidiaries senior notes rank pari passu right repayment companys senior unsecured indebtedness company may prepay senior notes time amount less 10 original aggregate principal amount senior notes prepaid price equal sum 100 principal amount thereof plus accrued unpaid interest b applicable makewhole amount upon less 30 60 days written notice holders senior notes event change control company defined note purchase agreement company may required prepay notes price equal 100 principal amount thereof plus accrued unpaid interest note purchase agreement contains affirmative covenants including without limitation maintenance corporate existence compliance laws maintenance insurance properties payment taxes addition subsidiary guarantors furnishing notices information note purchase agreement also contains certain restrictive covenants restrict companys ability among things incur liens transfer sell assets engage certain mergers consolidations enter transactions affiliates note purchase agreement also includes customary representations warranties events default case event default arising specified events bankruptcy insolvency outstanding senior notes become due payable immediately without action notice case payment events defaults holder senior notes affected thereby may declare senior notes held due payable immediately case event default majority holders senior notes may declare senior notes due payable immediately pursuant note purchase agreement long senior notes outstanding company permit leverage ratio determined pursuant note purchase agreement end fiscal quarter exceed 350 100 ii interest coverage ratio determined pursuant note purchase agreement end fiscal quarter period four consecutive fiscal quarters less 250 1 iii priority debt time exceed 25 consolidated net worth determined pursuant note purchase agreement december 31 2016 company compliance covenants note purchase agreement companys leverage ratio defined note purchase agreement 149 interest coverage ratio defined note purchase agreement 155 annual maturities debt outstanding less deferred financing cost amortization december 31 2016 follows millions interest expense years ended december 31 2016 2015 2014 132 million 130 million 133 million respectively april 2015 financial accounting standards board fasb issued accounting standards update asu 201503 simplifying presentation debt issuance costs amends existing guidance require debt issuance costs presented consolidated balance sheet reduction carrying amount related debt liability instead asset company adopted asu 201503 retrospective basis year ended december 31 2016 december 31 2016 2015 08 million 09 million respectively debt issuance costs recorded reduction carrying value related debt liability note purchase agreement 08 million debt issuance costs december 31 2016 amortized remaining term note purchase agreement retrospective adoption resulted 09 million debt issuance costs reclassified current assets noncurrent assets reduction carrying value longterm debt december 31 2015 company also adopted asu 201515 presentation subsequent measurement debt issuance costs associated lineofcredit arrangements elected reclassify debt issuance costs related lineofcredit arrangements 2015 credit agreement note 11derivative instruments hedging activities interest rate risks companys exposure interest rate risk relates primarily outstanding variable rate debt adverse movements related shortterm market rates significant component companys interest rate risk relates amounts outstanding 2015 credit agreement totaled 1710 million december 31 2016 company currently higher level fixed rate debt variable rate debt limits exposure adverse movements interest rates foreign exchange rate risk management company generates substantial portion revenues expenses international markets principally germany countries european union switzerland subjects operations exposure exchange rate fluctuations impact currency exchange rate movement positive negative period company periodically enters foreign currency contracts order minimize volatility fluctuations currency translation monetary transactions arrangements company typically agrees purchase fixed amount foreign currency exchange fixed amount us dollars currencies specified dates maturities less twelve months transactions qualify hedge accounting accordingly instrument recorded fair value corresponding gains losses recorded consolidated statements income comprehensive income loss company following notional amounts outstanding foreign currency contracts december 31 millions addition company periodically enters purchase sales contracts denominated currencies functional currency parties transaction company accounts transactions separately valuing embedded derivative component contracts denominated currencies functional currency transacting parties amounted 1207 million delivery products 23 million purchase products december 31 2016 590 million delivery products 41 million purchase products december 31 2015 changes fair value embedded derivatives recorded interest income expense net consolidated statements income comprehensive income loss commodity price risk management company arrangement customer firm commitment deliver copper based superconductors fixed price order minimize volatility fluctuations price copper companys sales commodities company enters commodity hedge contracts december 31 2016 2015 company fixed price commodity contracts notional amounts aggregating 27 million 20 million respectively changes fair value commodity contracts recorded interest income expense net consolidated statements income comprehensive income loss fair value derivative instruments described recorded consolidated balance sheets years ended december 31 2016 2015 follows millions impact net income unrealized gains losses resulting changes fair value derivative instruments years ending december 31 follows millions recorded within interest income expense net consolidated statements income comprehensive income loss note 12income taxes domestic foreign components income taxes follows years ended december 31 millions components income tax provision follows years ended december 31 millions income tax provision differs tax provision computed us federal statutory rate due following significant components years ended december 31 tax effect temporary items give rise significant portions deferred tax assets liabilities december 31 2016 2015 follows millions company uses liability method account income taxes method deferred income taxes recognized future tax consequences differences tax financial accounting bases assets liabilities reporting period deferred income taxes based enacted tax laws statutory tax rates applicable period differences expected affect taxable income valuation allowance established necessary reduce deferred tax assets expected realizable amounts company recognize deferred tax asset extent likely assets realized judgments around realizability depend availability weight positive negative evidence considering available evidence december 31 2016 company removed valuation allowances portion deferred tax assets us certain jurisdictions likely assets realized particular company removed partial valuation allowance us net deferred tax assets comprised deductible temporary differences tax credit carryforwards also company removed valuation allowance certain foreign net operating losses determining realizability assets company considered numerous factors including historical profitability character amount estimated future taxable income prudent feasible tax planning strategies changes valuation allowance deferred tax assets years ended december 31 2016 2015 2014 follows increases related primarily generation net operating losses deferred tax assets decreases related primarily adjustment certain deferred tax assets related allowance december 31 2016 company approximately 402 million net operating loss carryforwards available reduce state taxable income company also approximately 410 million german trade tax net operating losses carried forward indefinitely additionally company 231 million foreign net operating losses expected expire various times beginning 2018 company also us federal tax credits approximately 151 million available offset future tax liabilities expire various dates include research development tax credits 122 million expiring various times 2035 foreign tax credits 29 million expiring various times 2025 state research development tax credits 78 million utilization credits state net operating losses may subject annual limitations due ownership percentage change limitations provided internal revenue code section 382 similar state provisions event deemed change control internal revenue code section 382 annual limitation utilization net operating losses credits may result expiration portion net operating loss credit carryforwards company reflects certain statutory reserves tabular reconciliation unrecognized tax benefits effective year ended december 31 2013 thereafter unrecognized tax benefits presented reduction associated net deferred tax assets company asserts foreign earnings exception foreign earnings previously taxed us indefinitely reinvested company regularly evaluates assertion foreign earnings indefinitely reinvested cash equivalents shortterm investments held companys foreign subsidiaries needed fund operations united states company otherwise elects repatriate unremitted earnings foreign subsidiaries form dividends otherwise shares subsidiaries sold transferred company would likely subject additional us income taxes net impact available tax credits could result higher effective tax rate future company indefinitely reinvested earnings nonus subsidiaries cumulative amount approximately 1200 million december 31 2016 therefore provided us income taxes could result distribution earnings us parent earnings ultimately distributed united states form dividends otherwise shares subsidiaries sold transferred company would likely subject additional us income taxes net impact available foreign tax credits company estimates amount unrecognized deferred us income taxes undistributed earnings approximately 90 million company gross unrecognized tax benefits excluding interest approximately 62 million december 31 2016 53 million recognized would reduce companys effective tax rate next twelve months reasonably possible company reduce unrecognized tax benefits 21 million due statutes limitations expiring favorably settling taxing authorities would reduce companys effective tax rate tabular reconciliation beginning ending amount unrecognized tax benefits follows millions companys policy include accrued interest penalties related unrecognized tax benefits income tax liabilities applicable income tax expense december 31 2016 2015 company approximately 05 million 47 million respectively accrued interest penalties related uncertain tax positions included longterm liabilities consolidated balance sheets company recorded benefit 18 million penalties interest related unrecognized tax benefits provision income taxes year ended december 31 2016 expense 14 million year ended december 31 2015 company files tax returns united states include federal state local jurisdictions many foreign jurisdictions varying statutes limitations company considers germany united states switzerland significant tax jurisdictions tax years 2013 2015 open tax years significant foreign jurisdictions first quarter 2014 company settled tax audit united states tax year 2010 third quarter 2015 company settled tax audits germany italy 2016 company settled tax audits germany switzerland settlement immaterial consolidated financial statements tax years 2011 2015 remain open examination united states note 13post retirement benefit plans defined contribution plans company sponsors various defined contribution plans cover certain domestic international employees company may make contributions plans discretion company contributed 60 million 65 million 71 million plans years ended december 31 2016 2015 2014 respectively defined benefit plans substantially companys employees switzerland france japan well certain employees germany covered companysponsored defined benefit pension plans retirement benefits generally earned based years service compensation active employment eligibility generally determined accordance local statutory requirements however level benefits terms vesting varies among plans components net periodic benefit costs years ended december 31 2016 2015 2014 follows millions net periodic benefit costs year ended december 31 2015 includes onetime noncash settlement loss 102 million company outsourced pension plan switzerland outside insurance provider transferred certain plan assets pension obligations retirees certain members population made certain plan design changes remeasured liability company measures benefit obligation fair value plan assets december 31st year changes benefit obligations plan assets defined benefit pension plans projected benefit obligation funded status plans follows december 31 millions accumulated benefit obligation defined benefit pension plans 1999 million 1897 million december 31 2016 2015 respectively defined benefit pension plans accumulated benefit obligation projected benefit obligation excess plan assets december 31 2016 2015 following amounts recognized accompanying consolidated balance sheets companys defined benefit plans december 31 millions following pretax amounts recognized accumulated comprehensive income loss companys defined benefit plans december 31 millions amount accumulated comprehensive income loss december 31 2016 expected recognized amortization net loss within net periodic benefit cost 2017 46 million defined benefit pension plans company uses corridor approach amortize actuarial gains losses approach net actuarial gains losses excess ten percent larger projected benefit obligation fair value plan assets amortized average remaining service active participants expected receive benefits plans range assumptions used defined benefit pension plans reflects different economic environments within various countries range assumptions used determine projected benefit obligations years ended december 31 follows determine expected longterm rate return pension plan assets company considers current asset allocations well historical expected returns various asset categories plan assets defined benefit pension plans company applies expected rate return marketrelated value assets stabilizes variability assets expected return applied asset allocations asset category fair value companys pension plan assets december 31 2016 2015 asset category level fair value hierarchy follows millions athe companys pension plan france invested larger fund invests variety instruments assets directly dedicated french pension plan group bpce life fund invests debt securities foreign corporations governments equity securities foreign government funds private real estate funds bthe companys pension plan switzerland outsourced swiss life ag outside insurance provider insurance contract plan assets invested swiss life collective bvg foundation umbrella fund retirement savings interest rates guaranteed minimum 175 mandatory withdrawal portion defined swiss law 125 nonmandatory portion foundation utilizes plan administrators investment managers oversee investment allocation process set longterm strategic targets monitor asset allocations target allocations 75 bonds including cash 5 equity investments 20 real estate mortgages foundation yield return greater guaranteed amounts company according swiss law shall receive 90 additional return swiss life ag retaining 10 withdrawal benefits interest allocations secured times swiss life ag contributions estimated future benefit payments 2017 company expects contributions consistent 2016 estimated future benefit payments based assumptions used measure companys benefit obligation december 31 2016 following benefit payments reflect future employee service appropriate millions note 14commitments contingencies accordance asc topic 450 contingencies company accrues anticipated costs settlement damages costs extent specific losses probable estimable litigation related contingencies lawsuits claims proceedings nature considered normal businesses may pending time company third parties might allege company collaborators infringing patent rights company otherwise violating intellectual property rights loss contingency provisions recorded potential loss claim asserted unasserted legal proceeding considered probable amount reasonably estimated range loss determined accruals represent managements best estimate probable loss disclosure also provided reasonably possible loss incurred reasonably possible amount loss exceed recorded provision company believes outcome pending proceedings individually aggregate material impact companys financial statements december 31 2016 2015 material accruals recorded potential contingencies governmental investigations company subject regulation national state local government agencies united states countries operates time company subject governmental investigations often involving regulatory marketing business practices governmental investigations may result commencement civil criminal proceedings fines penalties administrative remedies may material adverse effect financial position results operations andor liquidity korea fair trade commission kftc conducted investigation improper bidding bruker korea co ltd several companies connection bids sales xray systems 2010 2012 three bids investigation involved bruker korea company cooperated fully kftc regarding matter september 2016 kftc fined bruker korea approximately 15000 referred matter korean public prosecutors office criminal prosecution additional monetary penalties may also result ongoing criminal proceeding since december 2016 various korean governmental entities imposed suspensions bruker korea suspension periods ranging three six months periods suspensions overlapping bruker korea prohibited bidding conducting sales korean governmental agencies sales customers less 1 companys revenue year ended december 31 2016 course normal business company conducts business korea nongovernmental customers affected suspensions accordingly company expect contingencies material adverse effect financial statements operating leases certain buildings office equipment vehicles leased agreements accounted operating leases total rental expense operating leases 220 million 230 million 228 million years ended december 31 2016 2015 2014 respectively future minimum lease payments noncancelable operating leases december 31 2016 next five years thereafter follows millions capital leases company leased building agreement classified capital lease december 31 2016 lease completed building subsequently purchased company cost building capital lease included consolidated balance sheets property plant equipment 27 million december 31 2015 accumulated amortization leased buildings december 31 2015 07 million amortization expense related assets capital leases included depreciation expense obligations related capital leases recorded component longterm debt current portion longterm debt consolidated balance sheets depending lease payments due unconditional purchase commitments company entered unconditional purchase commitments ordinary course business include agreements purchase goods services fixed assets pay royalties enforceable legally binding specify significant terms including fixed minimum quantities purchased fixed minimum variable price provisions approximate timing transaction purchase commitments exclude agreements cancelable time without penalty aggregate amount companys unconditional purchase commitments totaled 1493 million december 31 2016 majority commitments expected settled 2017 license agreements company entered crosslicensing agreements various technologies allow companies utilize certain patents related technologies various periods perpetuity income agreements years ended december 31 2016 2015 2014 19 million 25 million 26 million respectively classified revenue consolidated statements income comprehensive income loss unearned portions proceeds crosslicensing agreements classified shortterm longterm deferred revenue depending revenue earned company also entered license agreements allowing utilize certain patents used connection commercial product sale company pays royalties related product revenues licensing fees years ended december 31 2016 2015 2014 30 million 32 million 33 million respectively recorded cost product revenue consolidated statements income comprehensive income loss letters credit guarantees december 31 2016 2015 company bank guarantees 1315 million 1377 million respectively related primarily customer advances arrangements guarantee refund advance payments received customers event merchandise delivered warranty obligations fulfilled compliance terms contract guarantees affect availability companys lines credit indemnifications company enters standard indemnification arrangements companys ordinary course business pursuant arrangements company indemnifies holds harmless agrees reimburse indemnified parties losses suffered incurred indemnified party generally companys business partners customers connection patent copyright intellectual property infringement claim third party respect products term indemnification agreements generally perpetual time execution agreement maximum potential amount future payments company could required make agreements unlimited company believes estimated fair value agreements minimal based historical experiences company entered indemnification agreements directors officers may require company indemnify directors officers liabilities may arise reason status service directors officers liabilities arising willful misconduct culpable nature advance expenses incurred result proceeding could indemnified obtain directors officers insurance available reasonable terms company currently place note 15shareholders equity share repurchase program may 2015 companys board directors approved share repurchase program antidilutive repurchase program company may repurchase companys common stock amounts intended approximately offset annual basis dilutive effect shares may issued pursuant option restricted stock awards companys incentive compensation plans 2015 total 1245000 shares repurchased aggregate cost 249 million antidilutive repurchase program november 2015 companys board directors suspended antidilutive repurchase program january 1 2017 approved additional share repurchase program repurchase program authorized repurchases common stock 225 million time amounts prices times company deemed appropriate subject market conditions legal requirements considerations total 6475480 shares repurchased aggregate cost 1600 million year ended december 31 2016 total 9312522 shares repurchased aggregate cost 2250 million december 31 2016 completed repurchase program repurchased shares reflected within treasury stock accompanying consolidated balance sheet december 31 2016 cash dividends common stock february 22 2016 company announced establishment dividend policy declaration board directors initial quarterly cash dividend amount 004 per share companys issued outstanding common stock dividend policy company target cash dividend companys shareholders amount 016 per share per annum payable equal quarterly installments dividends paid march 24 2016 shareholders record march 4 2016 aggregate cost 65 million june 24 2016 shareholders record june 6 2016 aggregate cost 65 million september 23 2016 shareholders record september 6 2016 aggregate cost 64 million december 23 2016 shareholders record december 5 2016 aggregate cost 64 million subsequent dividend declarations establishment record payment dates future dividend payments subject board directors continuing determination dividend policy best interests companys shareholders dividend policy may suspended cancelled discretion board directors time accumulated comprehensive income loss following summary components accumulated comprehensive income loss net tax december 31 millions note 16stockbased compensation february 2010 bruker biosciences corporation amended restated 2000 stock option plan 2000 plan expired end scheduled tenyear term march 9 2010 companys board directors unanimously approved adopted bruker corporation 2010 incentive compensation plan 2010 plan may 14 2010 plan approved companys stockholders 2010 plan provided issuance 8000000 shares companys common stock 2010 plan allowed committee board directors compensation committee grant incentive stock options nonqualified stock options restricted stock awards compensation committee authority determine employees would receive awards amount awards terms conditions awards granted 2010 plan typically made subject vesting period three five years may 2016 bruker corporation 2016 incentive compensation plan 2016 plan approved companys stockholders approval 2016 plan grants made 2010 plan 2016 plan provides issuance 9500000 shares companys common stock permits grant awards nonqualified stock options incentive stock options stock appreciation rights restricted stock unrestricted stock restricted stock units performance shares performance units well cashbased awards 2016 plan administered compensation committee compensation committee authority determine employees receive awards amount awards terms conditions awards granted 2016 plan typically vest period three four years stock option activity year ended december 31 2016 follows addition options vested december 31 2016 company expects portion unvested options vest future options expected vest future determined applying estimated forfeiture rate options unvested december 31 2016 bthe aggregate intrinsic value based positive difference fair value companys common stock price 2118 december 31 2016 date exercises appropriate exercise price underlying stock options weighted average fair value options granted 772 782 1081 per share years ended december 31 2016 2015 2014 respectively total intrinsic value options exercised 112 million 82 million 100 million years ended december 31 2016 2015 2014 respectively unrecognized pretax stockbased compensation expense 150 million related stock options awarded 2010 2016 plans expected recognized weighted average remaining service period 262 years stock options outstanding december 31 2016 restricted shares companys common stock periodically awarded executive officers directors certain key employees company subject service restrictions vest ratably periods one five years restricted shares common stock may sold transferred restriction period stockbased compensation restricted stock recorded based stock price grant date charged expense ratably throughout restriction period following table summarizes information restricted stock award activity year ended december 31 2016 total fair value restricted stock vested 15 million 10 million 30 million years ended december 31 2016 2015 2014 respectively unrecognized pretax stockbased compensation expense 25 million related restricted stock awarded 2010 plan expected recognized weighted average remaining service period 215 years awards outstanding december 31 2016 following table summarizes information restricted stock unit activity year ended december 31 2016 restricted stock units vested year ended december 31 2016 unrecognized pretax stockbased compensation expense 51 million related restricted stock units awarded 2016 plan expected recognized weighted average remaining service period 375 years units outstanding december 31 2016 note 17other charges net components charges net years ended december 31 2016 2015 2014 follows millions restructuring initiatives company commenced restructuring initiative 2016 address lower demand bruker calid bruker nano groups result delays european academic funding ongoing weakness several industrial end market segments affect bruker nano group initiative intended improve bruker calid bruker nano group operating results response market conditions restructuring actions result reduction approximately 125 employees within bruker calid bruker nano groups following summary restructuring expenses related initiative recorded accompanying consolidated statements income comprehensive income year ended december 31 2016 total restructuring onetime charges related initiative 2016 2017 expected 110 130 million 84 100 million relate employee separation facility exit costs 26 30 million relate estimated inventory writedowns asset impairments company commenced restructuring initiative second quarter 2015 within bruker biospin group developed result revenue decline occurred second half 2014 continued first half 2015 initiative intended improve bruker biospin groups operating results restructuring actions resulted reduction employee headcount within bruker biospin group approximately 9 closure consolidation bruker biospin group manufacturing facility following summary restructuring expenses related initiative recorded accompanying consolidated statements income comprehensive income years ended december 31 2016 2015 december 31 2016 expenses incurred restructuring initiative substantially complete 2014 company commenced executed various productivity improvement initiatives within bsi segment effort optimize operations restructuring initiatives included divestiture certain noncore businesses outsourcing various manufacturing activities transferring ceasing operations certain facilities overall rightsizing within company based current business environments restructuring charges years ended december 31 2016 2015 2014 included charges various programs recorded accompanying consolidated statements income comprehensive income follows following table sets forth changes restructuring reserves years ended december 31 2016 2015 2014 millions years ended december 31 2016 2014 restructuring charges related bsi segment year ended december 31 2015 restructuring charges 284 million related bsi segment 09 million related best segment note 18interest income expense net components interest income expense net years ended december 31 2016 2015 2014 follows millions note 19business segment information company two reportable segments bsi best discussed note 1 consolidated financial statements selected business segment information presented years ended december 31 millions arepresents product service revenue reportable segments brepresents corporate costs eliminations allocated reportable segments company recorded impairment charge 08 million 46 million years ended december 31 2016 2015 respectively within bsi segment company recorded impairment charge 115 million year ended december 31 2014 64 million within bsi segment 51 million within best segment please see note 7property plant equipment net note 8goodwill intangible assets description impairment charges recorded 2016 2015 2014 impairment charges included within charges net accompanying consolidated statements income comprehensive income loss total assets segment years ended december 31 follows millions aassets allocated reportable segments eliminations intercompany transactions total capital expenditures depreciation amortization segment presented years ended december 31 millions revenue property plant equipment net geographical area year ended december 31 follows millions note 20related parties company leases certain office space certain principal shareholders including director executive officer another member companys board directors members immediate families expiration dates ranging 2017 2020 total rent expense leases 39 million 18 million 20 million years ended december 31 2016 2015 2014 respectively year ended december 31 2014 company incurred expenses 24 million law firm one former members board directors partner year ended december 31 2014 company incurred expenses 01 million financial services firm one former members board directors partner year ended december 31 2014 company recorded revenue 09 million commercial transactions life science supply company member companys board directors chairman president chief executive officer another member companys board directors formerly director years ended december 31 2016 2015 2014 company recorded revenue 11 million 07 million 19 million respectively incurred expenses 01 million year ended december 31 2014 arising commercial transactions life sciences company member companys board directors joined board directors 2014 chairman chief executive officer year ended december 31 2016 2015 company recorded revenue 02 million 05 million respectively commercial transactions thermal analysis company one former members board directors serves consultant note 21recent accounting pronouncements january 2017 financial accounting standards boards fasb issued accounting standards update asu 201704 intangiblesgoodwill topic 350 simplifying test goodwill impairment new standard simplifies subsequent measurement goodwill eliminating second step goodwill impairment test asu applied prospectively effective annual interim goodwill impairment tests fiscal years beginning december 15 2019 adoption standard expected material impact companys consolidated financial statements upon adoption january 2017 fasb issued asu 201701 business combinations topic 805 clarifying definition business new standard clarifies definition business provides screen determine integrated set assets activities business screen requires substantially fair value gross assets acquired disposed concentrated single identifiable asset group similar identifiable assets set business new standard effective january 1 2018 company evaluating provisions standard including period adopt determined impact adoption asu 201701 companys consolidated financial statements october 2016 fasb issued asu 201616 income taxes topic 740intraentity transfer assets inventory new standard requires recognition current deferred income taxes resulting intraentity transfer asset excluding inventory transfer occurs change existing us gaap prohibits recognition current deferred income taxes asset sold third party new standard effective january 1 2018 early adoption permitted company evaluating provisions standard including period adopt determined impact adoption asu 201616 companys consolidated financial statements august 2016 fasb issued asu 201615 statement cash flows topic 230 objective update provide additional guidance reduce diversity practice classifying certain transactions within statement cash flows november 2016 fasb issued asu 201618 statement cash flows topic 230 restricted cash new standard requires statement cash flows explain change period total cash equivalents amounts generally described restricted cash restricted cash equivalents standards effective financial statements issued fiscal years beginning december 15 2017 including interim periods within fiscal years company currently evaluating guidance determine impact may consolidated financial statements march 2016 fasb issued asu 201609 stock compensationimprovements employee sharebased payment accounting new standard simplifies accounting sharebased payment transactions including income tax consequences classification tax impact statement cash flows new standard effective january 1 2017 early adoption permitted new standard effective company january 1 2017 adoption standard expected material impact companys financial position results operations statements cash flows upon adoption february 2016 fasb issued asu 201602 leases new standard provides guidance recognition measurement presentation disclosure leases new standard supersedes present us gaap guidance leases requires substantially leases reported balance sheet rightofuse assets lease liabilities well additional disclosures new standard effective january 1 2019 early adoption permitted company evaluating provisions standard determined impact adoption asu 201602 companys consolidated financial statements july 2015 fasb issued asu 201511 simplifying measurement inventory new guidance eliminates measurement inventory market value inventory measured lower cost net realizable value asu defines net realizable value estimated selling prices ordinary course business less reasonably predictable costs completion disposal transportation changes made current guidance inventory measurement asu 201511 effective interim annual periods beginning december 15 2016 early application permitted applied prospectively company evaluating provisions standard determined impact adoption asu 201511 companys consolidated financial statements may 2014 fasb issued asu 201409 revenue contracts customers supersedes revenue recognition requirements accounting standards codification asc topic 605 new guidance result joint project fasb international accounting standards board clarify principles recognizing revenue develop common revenue standards us gaap international financial reporting standards core principle new guidance revenue recognized depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services asu 201409 originally effective prospectively annual periods beginning december 15 2016 interim periods within years early application permitted august 2015 fasb elected defer effective date asu 201409 one year annual periods beginning december 15 2017 early application permitted original effective date new guidance may applied retrospective basis prior periods presented modified retrospective basis cumulative effect new guidance date initial application new guidance effective company january 1 2018 company currently expects use modified retrospective transition method 2016 company substantially completed impact assessment phase evaluation asu 201409 result impact assessment company implementing additional processes controls including additional disclosures comply new standard largest financial impact timing revenue recognition certain projectbased orders company currently applies percentageofcompletion completed contract model new guidance specific criteria determine performance obligation recognized time point time company expects cases revenue recognition timing new guidance change current practice based applying specific criteria new guidance company yet quantified impact adoption asu 201409 consolidated financial statements note 22quarterly financial data unaudited summary operating results quarterly periods years ended december 31 2016 2015 set forth millions except per share data 1the second fourth quarter 2016 includes impairment assets 07 million 01 million respectively comprised longlived assets 2the second third fourth quarter 2015 includes impairment assets 18 million 25 million 03 million respectively comprised goodwill definitelived intangible assets longlived assets 3the fourth quarter 2016 includes bargain purchase gain 92 million related oxford instruments superconducting wire llc acquisition note 23subsequent event january 24 2017 company acquired shares hysitron incorporated purchase price 285 million potential additional consideration based 2017 2018 revenue levels acquired business acquisition adds hysitrons innovative nanomechanical testing instruments companys existing portfolio atomic force microscopes surface profilometers tribology mechanical testing systems significantly enhancing companys leadership position nanomaterials research markets hysitron located eden prairie minnesota integrated bruker nano group within bsi reportable segment purchase accounting acquisition finalized within measurement period item 9item 8 financial statements supplementary data index consolidated financial statements page reports independent registered public accounting firms consolidated balance sheets december 31 2018 2017 consolidated statements income comprehensive income years ended december 31 2018 2017 2016 consolidated statements shareholders equity years ended december 31 2018 2017 consolidated statements cash flows years ended december 31 2018 2017 2016 notes consolidated financial statements report independent registered public accounting firm board directors shareholders bruker corporation opinions financial statements internal control financial reporting audited accompanying consolidated balance sheets bruker corporation subsidiaries company december 31 2018 2017 related consolidated statements income comprehensive income shareholders equity cash flows three years period ended december 31 2018 including related notes collectively referred consolidated financial statements also audited companys internal control financial reporting december 31 2018 based criteria established internal controlintegrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion consolidated financial statements referred present fairly material respects financial position company december 31 2018 2017 results operations cash flows three years period ended december 31 2018 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2018 based criteria established internal controlintegrated framework 2013 issued coso change accounting principles discussed notes 2 17 consolidated financial statements respectively company changed manner accounts measurement inventory manner accounts income tax effects sharebased payment transactions 2017 basis opinions companys management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included managements report internal control financial reporting appearing item 9a responsibility express opinions companys consolidated financial statements companys internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits consolidated financial statements included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions described managements report internal control financial reporting management excluded anasys instruments corp anasys jpk instruments ag jpk mestrelab research sl mestrelab hain life science gmbh hain agapetus gmbh alicona assessment internal control financial reporting december 31 2018 acquired company purchase business combinations 2018 also excluded anasys jpk mestrelab hain alicona audit internal control financial reporting anasys jpk mestrelab hain alicona wholly majorityowned subsidiaries whose total assets total revenues excluded managements assessment audit internal control financial reporting collectively represent 27 12 respectively related consolidated financial statement amounts year ended december 31 2018 definition limitations internal control financial reporting companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp boston massachusetts march 1 2019 served companys auditor since 2016 bruker corporation consolidated balance sheets millions except share per share data accompanying notes integral part consolidated financial statements bruker corporation consolidated statements income comprehensive income millions except per share data accompanying notes integral part consolidated financial statements bruker corporation consolidated statements shareholders equity millions except share data accompanying notes integral part consolidated financial statements bruker corporation consolidated statements cash flows millions accompanying notes integral part consolidated financial statements bruker corporation notes consolidated financial statements note 1description business bruker corporation together consolidated subsidiaries bruker company develops manufactures distributes highperformance scientific instruments analytical diagnostic solutions enable customers explore life materials microscopic molecular cellular levels many companys products used detect measure visualize structural characteristics chemical biological industrial material samples companys products address rapidly evolving needs diverse array customers life science research pharmaceuticals biotechnology applied markets cell biology clinical research microbiology invitro diagnostics nanotechnology materials science research company two reportable segments bruker scientific instruments bsi represented approximately 90 companys revenues years ended december 31 2018 2017 bruker energy supercon technologies best represented remainder companys revenues within bsi company organized three operating segments bruker biospin group bruker calid group bruker nano group financial reporting purposes bruker biospin bruker calid bruker nano operating segments aggregated bsi reportable segment similar economic characteristics production processes service offerings types classes customers methods distribution regulatory environments bruker biospin bruker biospin group designs manufactures distributes enabling life science tools based magnetic resonance technology majority bruker biospin groups revenues generated academic government research customers include pharmaceutical biotechnology companies nonprofit laboratories well chemical food beverage clinical industrial companies bruker calid chemicals applied markets life science invitro diagnostics detection bruker calid group designs manufactures distributes life science mass spectrometry ion mobility spectrometry solutions analytical process analysis instruments solutions based infrared raman molecular spectroscopy technologies radiologicalnuclear detectors chemical biological radiological nuclear explosive cbrne detection customers bruker calid group include academic institutions medical schools pharmaceutical biotechnology diagnostics companies contract research organizations nonprofit forprofit forensics laboratories agriculture food beverage safety laboratories environmental clinical microbiology laboratories hospitals government departments agencies bruker nano bruker nano group designs manufactures distributes advanced xray instruments atomic force microscopy instrumentation advanced fluorescence optical microscopy instruments analytical tools electron microscopes xray metrology defectdetection equipment semiconductor process control handheld portable mobile xray fluorescence spectrometry instruments spark optical emission spectroscopy systems customers bruker nano group include academic institutions governmental customers nanotechnology companies semiconductor companies raw material manufacturers industrial companies biotechnology pharmaceutical companies businesses involved materials analysis companys best reportable segment develops manufactures superconducting nonsuperconducting materials devices use renewable energy infrastructure healthcare big science research segment focuses metallic low temperature superconductors use magnetic resonance imaging nuclear magnetic resonance fusion energy research applications well ceramic high temperature superconductors primarily energy grid magnet applications note 2summary significant accounting policies principles consolidation accompanying consolidated financial statements include accounts company majority whollyowned subsidiaries intercompany accounts transactions eliminated noncontrolling interests noncontrolling interests represents minority shareholders proportionate share companys majorityowned subsidiaries portion net income net loss attributable noncontrolling interests presented net income attributable noncontrolling interests consolidated subsidiaries consolidated statements income comprehensive income portion comprehensive income subsidiaries presented consolidated statements shareholders equity redeemable noncontrolling interests company agreement noncontrolling interest holders provides company right purchase noncontrolling interest holders right sell remaining minority interest contractually defined redemption value rights accelerated certain events redemption contingently redeemable option noncontrolling interest shareholders company classifies carrying amount redeemable noncontrolling interest mezzanine section consolidated balance sheet presented equity section liabilities subsequent acquisition redeemable noncontrolling interest measured greater amount would paid settlement occurred balance sheet date based contractually defined redemption value carrying amount adjusted net income loss attributable noncontrolling interest adjustments carrying value redeemable noncontrolling interest recorded retained earnings business combinations company accounts business combinations acquisition method accounting accordingly date acquisition company measures fair value identifiable assets acquired including intangible assets liabilities assumed remaining noncontrolling interests allocates amounts paid items measured fair value identifiable intangible assets acquired based valuations use information assumptions determined management consider managements best estimates inputs assumptions market participant would use subsequent events company evaluated subsequent events determined material recognized unrecognized subsequent events subsequent events required mentioned footnotes consolidated financial statements cash equivalents cash equivalents primarily include cash hand money market funds time deposits original maturities three months less date acquisition time deposits represent amounts deposit banks temporarily invested instruments maturities three months less time purchase certain investments represent deposits insured fdic government agency cash equivalents carried cost approximates fair value shortterm investments shortterm investments represent time call deposits original maturities greater three months date acquisition shortterm investments classified availableforsale reported fair value unrealized gains losses recorded december 31 2018 2017 cost approximates current fair value shortterm investments held company december 31 2018 restricted cash restricted cash included component cash equivalents restricted cash companys consolidated statement cash flows company certain subsidiaries required local laws regulations maintain restricted cash balances cover future employee benefit payments restricted cash balances classified noncurrent unless terms applicable agreements funds released restrictions within one year balance sheet date current noncurrent portion restricted cash recorded within current assets longterm assets respectively accompanying consolidated balance sheets inclusion restricted cash increased balances consolidated statement cash flows follows dollars millions derivative financial instruments hedging activities derivatives whether designated hedging relationship recorded consolidated balance sheets fair value accounting changes fair value derivative instrument depends whether designated qualifies part hedging relationship type hedging relationship derivative instruments designated qualify hedging instruments company must designate hedging instrument based exposure hedged fair value hedge cash flow hedge foreign currency hedge net investment foreign operation fair value financial instruments company applies following hierarchy determine fair value financial instruments prioritizes inputs used measure fair value three levels bases categorization within hierarchy upon lowest level input available significant fair value measurement levels hierarchy defined follows • level 1 inputs valuation methodology quoted prices unadjusted identical assets liabilities active markets • level 2 inputs valuation methodology include quoted prices similar assets liabilities active markets inputs observable asset liability either directly indirectly substantially full term financial instrument • level 3 inputs valuation methodology unobservable significant fair value measurement valuation techniques may used company determine fair value level 2 level 3 financial instruments market approach income approach cost approach market approach uses prices relevant information generated market transactions involving identical comparable assets liabilities income approach uses valuation techniques convert future amounts single present value based current market expectations future amounts including present value techniques optionpricing models excess earnings method cost approach based amount would required replace service capacity asset replacement cost companys financial instruments consist primarily cash equivalents shortterm investments restricted cash derivative instruments consisting forward foreign exchange contracts commodity contracts derivatives embedded certain purchase sale contracts derivatives embedded within noncontrolling interests accounts receivable accounts payable contingent consideration longterm debt carrying amounts companys cash equivalents shortterm investments restricted cash accounts receivable borrowings revolving credit agreement accounts payable approximate fair value shortterm nature derivative assets liabilities measured fair value recurring basis companys longterm debt consists principally private placement arrangement entered 2012 various fixed interest rates based maturity date borrowings revolving credit agreement company evaluated estimated fair value financial instruments using available market information managements estimates use different market assumptions andor estimation methodologies could significant effect estimated fair value amounts concentration credit risk financial instruments subject company credit risk consist cash equivalents shortterm investments derivative instruments accounts receivables restricted cash risk respect cash equivalents shortterm investments minimized companys policy investing shortterm financial instruments issued highlyrated financial institutions risk respect derivative instruments minimized companys policy entering arrangements highlyrated financial institutions risk respect accounts receivables minimized creditworthiness diversity companys customers company performs periodic credit evaluations customers financial condition generally requires advanced deposit portion purchase price credit losses within managements expectations allowance doubtful accounts totaled 38 million 47 million december 31 2018 2017 respectively december 31 2018 2017 single customer represented 10 companys accounts receivable years ended december 31 2018 2017 2016 single customer represented 10 companys total revenue inventories components inventory include raw materials workinprocess demonstration units finished goods demonstration units include systems located companys demonstration laboratories installed sites potential customers considered available sale finished goods include intransit systems shipped companys customers yet installed accepted customer inventories stated lower cost net realizable value cost determined principally firstin firstout method majority subsidiaries averagecost certain subsidiaries company reduces carrying value inventories differences cost estimated net realizable value taking consideration usage preceding twelve months expected demand technological obsolescence information including physical condition demonstration inventories company records charge cost product revenue amount required reduce carrying value inventory net realizable value costs associated procurement inventories inbound freight charges purchasing receiving costs capitalized part inventory also included cost product revenue line item within consolidated statements income comprehensive income july 2015 fasb issued asu 201511 simplifying measurement inventory guidance eliminates measurement inventory market value inventory measured lower cost net realizable value asu defines net realizable value estimated selling prices ordinary course business less reasonably predictable costs completion disposal transportation company adopted asu 201511 prospective basis first quarter 2017 property plant equipment property plant equipment stated cost less accumulated depreciation amortization major improvements extend useful lives assets capitalized expenditures maintenance repairs minor improvements charged expense incurred assets retired otherwise disposed assets related accumulated depreciation amortization eliminated accounts resulting gain loss reflected consolidated statements income comprehensive income depreciation amortization calculated straightline basis estimated useful lives assets follows goodwill intangible assets goodwill indefinitelived intangible assets amortized evaluated impairment annual basis interim basis events changes circumstances indicate carrying value may recoverable assessing recoverability goodwill indefinitelived intangible assets company must make assumptions regarding estimated future cash flows factors determine fair value assets estimates related assumptions change future company may required record impairment charges assets reporting period impairment determined company tests goodwill impairment reporting unit level operating segment one level operating segment company option performing qualitative assessment determine whether impairment testing necessary performing twostep quantitative assessment result qualitative assessment morelikelythannot fair value reporting unit less carrying amount quantitative impairment test required otherwise testing required quantitative impairment test performed first step involves comparing fair values applicable reporting units aggregate carrying values including goodwill company generally determines fair value reporting units using weighting market income methodologies estimating fair value reporting units requires significant judgment management carrying amount reporting unit exceeds fair value reporting unit company performs second step goodwill impairment test measure amount impairment second step goodwill impairment test company compares implied fair value reporting units goodwill carrying value goodwill process research development iprd acquired part business combinations acquisition method represents ongoing development work associated enhancements existing products well development next generation products iprd initially capitalized fair value intangible asset indefinite life assessed impairment annual basis indicators impairment identified iprd project complete reclassified finitelived intangible asset amortized estimated useful life iprd project abandoned completion otherwise determined impaired value asset amount impairment charged consolidated statements income comprehensive income period project abandoned impaired intangible assets finite useful life amortized straightline basis estimated useful lives follows impairment longlived assets impairment losses recorded longlived assets used operations indicators impairment present quoted market price available estimated fair value assets less assets carrying value recoverable determination recoverability based estimate undiscounted future cash flows resulting use asset eventual disposition event cash flows expected sufficient recover carrying amount assets writtendown fair values impairment losses charged consolidated statements income comprehensive income difference fair value carrying value asset warranty costs deferred revenue company typically provides one year parts labor warranty purchase equipment anticipated cost warranty accrued upon recognition sale included current liability accompanying consolidated balance sheets companys warranty reserve reflects estimated material labor costs potential product issues company expects incur obligation companys estimates anticipated rates warranty claims costs primarily based historical information company assesses adequacy warranty reserve quarterly basis adjusts amount necessary historical data used calculate adequacy warranty reserve indicative future requirements additional reduced warranty reserves may required company also offers customers extended warranty service agreements extending beyond initial warranty fee fees recorded deferred revenue recognized ratably income life extended warranty contract service agreement income taxes deferred tax assets liabilities recognized expected future tax consequences temporary differences financial statement carrying amounts income tax basis assets liabilities valuation allowance applied net deferred tax asset based available evidence likely deferred tax assets realized company records liabilities related uncertain tax positions accordance guidance clarifies accounting uncertainty income taxes recognized companys financial statements guidance prescribes minimum recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return company includes accrued interest penalties related unrecognized tax benefits income tax liabilities applicable income tax expense customer advances company typically requires advance deposit terms conditions contracts customers deposits recorded current longterm liability revenue recognized specific contract accordance companys revenue recognition policy revenue recognition 2018 policy asc 606 company recognizes revenue accordance asc 606 revenue contracts customers key elements asc 606 1 identifying contract customer 2 identifying performance obligations contract 3 determining transaction price 4 allocating transaction price performance obligations contract 5 recognizing revenue performance obligation satisfied performance obligation promise contract transfer distinct good service customer contracts transaction price allocated distinct performance obligation recognized revenue performance obligation satisfied companys contracts multiple performance obligations commonly due providing additional goods services along system installation accessories parts services contracts multiple performance obligations company allocates contracts transaction price performance obligation using best estimate standalone selling price distinct good service provided customer companys best evidence standalone selling price normal selling pricing discounting practices specific product service sold standalone basis alternatively sold separately company may determine standalone selling price using expected cost plus margin approach company analyzes selling prices used allocation transaction price minimum annual basis selling prices analyzed frequently significant change companys business factors necessitate frequent analysis company experiences significant variances selling prices companys performance obligations typically satisfied point time commonly either shipment customer acceptance certain performance obligations maintenance contracts extended warranty recognized time based contractual obligation period addition certain arrangements provide customized deliverables may satisfied time based extent progress towards completion performance obligations recognized time revenue measured progress toward completion performance obligation reflects transfer control typically progress measured using costtocost method based cost incurred date relative total estimated costs upon completion best depicts transfer control customer application costtocost method requires company make reasonable estimates extent progress toward completion total costs company expects incur losses recorded immediately company estimates contracts ultimately result loss changes estimates could affect timing revenue recognition company includes costs incurred connection shipping handling products within selling general administrative costs amounts billed customers connection costs included total revenues control goods transfers prior completion companys obligation ship products customers company elected practical expedient account shipping services fulfillment cost company expenses incremental costs obtaining contract incurred expected amortization period one year less amount immaterial company excludes transaction price taxes assessed governmental authority revenueproducing transactions collected company customer company recognizes revenue systems sales upon transfer control amount reflects consideration expects receive transfer control generally occurs upon shipment certain systems based upon customer acceptance system delivered installed customer facility systems include customerspecific acceptance criteria company required assess demonstrate acceptance criteria met generally upon successful factory acceptance testing customer acceptance evidence installation systems require installation system revenue recognized upon shipment standalone selling price installation deferred customer acceptance revenue accessories parts generally recognized based shipment service revenue recognized services performed ratably contractual obligation includes maintenance contracts extended warranties training application support ondemand services products sold independent distributor strategic distribution partner company recognizes system sale upon transfer control typically shipment company responsible installation standalone selling price installation deferred customer acceptance companys distributors price protection rights return however companys products typically warranted free defect period one year company requires advance deposit based terms conditions contracts customers many contracts typically revenue recognized within one year receiving advance deposit company material payment terms extend beyond one year contracts advance payment received greater one year expected revenue recognition portion payment due extends beyond one year company determined constitute significant financing component minimal variable consideration included transaction price companys contracts revenues primarily comprised development arrangements recognized costplusfixedfee basis licensing arrangements recognized either licenses provided ratably contract term depending nature arrangement contract assets liabilities contract assets represent unbilled receivables revenue recognized exceeds amount billed customer right payment subject passage time contract assets typically result system revenue recorded portion transaction price billable future event customer acceptance contracts recognized costtocost costplusfixedfee basis revenue exceeds amount billed customer amounts may exceed net realizable value contract assets generally classified current contract liabilities consist customer advances deferred revenue billings excess revenue contracts recognized costtocost costplusfixedfee basis contract liabilities classified current longterm based timing company expects recognize revenue contract assets liabilities reported net position contractbycontract basis end reporting period 2017 2016 policy asc 605 company recognized revenue systems sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectability resulting receivable reasonably assured title risk loss generally transfers upon shipment certain systems based upon customer acceptance system delivered installed customer facility systems include customerspecific acceptance criteria company required assess demonstrate acceptance criteria met generally upon successful factory acceptance testing customer acceptance evidence installation products sold independent distributor strategic distribution partner assumes responsibility installation company recognizes system sale product shipped title risk loss transferred distributor companys distributors price protection rights return however companys products typically warranted free defect period one year revenue deferred cash received collectability reasonably assured price fixed determinable transactions include multiple elements arrangement consideration allocated element using fair value hierarchy required asu 200913 company limits amount revenue recognized delivered elements amount contingent future delivery products services future performance obligations subject customerspecific return refund privileges company determines fair value products services based upon vendor specific objective evidence vsoe company determines vsoe based normal selling pricing discounting practices specific product service sold standalone basis determining vsoe companys policy requires substantial majority selling prices product service within reasonably narrow range company also considers class customer method distribution geographies products services sold determining vsoe cannot established company attempts establish selling price based thirdparty evidence tpe vsoe cannot established instances product service sold separately standalone sales infrequent product pricing within sufficiently narrow range tpe determined based competitor prices similar deliverables sold separately company cannot determine vsoe tpe uses estimated selling price esp allocation arrangement consideration objective esp determine price company would typically transact standalone sale product service esp determined considering number factors including companys pricing policies internal costs gross profit objectives method distribution market research information recent technological trends competitive landscape geographies company analyzes selling prices used allocation arrangement consideration minimum annual basis selling prices analyzed frequently significant change companys business factors necessitate frequent analysis company experiences significant variances selling prices revenue accessories parts generally recognized based shipping terms service revenue recognized services performed ratably contractual obligation includes maintenance contracts extended warranty training application support ondemand services company also contracts applies percentageofcompletion model completed contract model revenue recognition application percentageofcompletion method requires company make reasonable estimates extent progress toward completion contract total costs company incur contract losses recorded immediately estimate contracts ultimately result loss changes estimates could affect timing revenue recognition revenues primarily comprised development arrangements recognized costplusfixedfee basis licensing arrangements recognized ratably term related contracts shipping handling costs company includes costs incurred connection shipping handling products within selling general administrative expenses accompanying consolidated statements income comprehensive income shipping handling costs 252 million 232 million 213 million years ended december 31 2018 2017 2016 respectively amounts billed customers connection costs included total revenues research development company commits substantial capital resources internal collaborative research development projects order provide innovative products solutions customers company conducts research primarily enhance system performance improve reliability existing products develop revolutionary new products solutions research development costs expensed incurred include salaries wages personnel related costs material costs depreciation consulting costs facility costs capitalized software purchased software capitalized cost amortized estimated useful life generally three years software developed use companys products expensed incurred research development expense technological feasibility achieved subsequent achievement technological feasibility amounts capitalizable however date amounts material advertising company expenses advertising costs incurred advertising expenses 144 million 140 million 127 million years ended december 31 2018 2017 2016 respectively stockbased compensation company recognizes stockbased compensation expense consolidated statements income comprehensive income based fair value sharebased award grant date companys primary types sharebased compensation stock options restricted stock awards restricted stock units company recorded stockbased compensation expense years ended december 31 2018 2017 2016 follows millions compensation expense amortized straightline basis underlying vesting terms sharebased award stock options purchase companys common stock periodically awarded executive officers employees company subject vesting period three four years fair value option award estimated date grant using blackscholes optionpricing model assumptions regarding volatility expected term dividend yield riskfree interest rates required blackscholes model presented table riskfree interest rates based yield zerocoupon us treasury securities period commensurate expected life assumption expected life determined calculation based historical experience expected volatility based companys historical volatility results expected dividend yield included option pricing formula beginning february 2016 company adopted dividend policy company utilizes estimated forfeiture rate derived analysis historical data 75 67 62 years ended december 31 2018 2017 2016 respectively earnings per share net income per common share attributable bruker corporation shareholders calculated dividing net income attributable bruker corporation adjusted reflect changes redemption value redeemable noncontrolling interest weightedaverage shares outstanding period diluted net income per share computation includes effect shares would issuable upon exercise outstanding stock options vesting restricted stock reduced number shares assumed purchased company treasury stock method redemption value adjustment redeemable noncontrolling interest year ended december 31 2018 2017 2016 following table sets forth computation basic diluted weighted average shares outstanding years ended december 31 millions except per share data stock options restricted stock units purchase approximately 02 million shares 03 million shares 06 million shares excluded computation diluted earnings per share years ended december 31 2018 2017 2016 respectively effect would antidilutive post retirement benefit plans company recognizes overfunded underfunded status defined benefit pension postretirement defined benefit plans asset liability respectively consolidated balance sheets recognizes changes funded status year changes occur comprehensive income comprehensive income loss comprehensive income loss refers revenues expenses gains losses excluded net income amounts recorded directly adjustment shareholders equity net tax companys comprehensive income loss composed foreign currency translation adjustments pension liability adjustments foreign currency translation assets liabilities companys foreign subsidiaries functional currency local currency translated us dollars using yearend exchange rates historical rates appropriate revenues expenses foreign subsidiaries translated average exchange rates effect year adjustments resulting financial statement translations included separate component shareholders equity gains losses resulting translation foreign currency monetary transactions reported interest income expense net consolidated statements income comprehensive income periods presented company certain intercompany foreign currency transactions deemed longterm investment nature exchange adjustments related transactions made directly separate component shareholders equity risks uncertainties company subject risks common industry including limited global economic conditions rapid technological change government academic funding levels changes commodity prices spending patterns customers protection intellectual property availability key raw materials components compliance existing future regulation government agencies fluctuations foreign currency exchange rates loss contingencies loss contingency provisions recorded potential loss claim asserted unasserted legal proceeding related patents products matters considered probable amount reasonably estimated range loss determined accruals represent managements best estimate probable loss disclosure provided reasonably possible loss incurred reasonably possible amount loss exceed recorded provision use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant estimates judgments made management preparing financial statements include revenue recognition allowances doubtful accounts writedowns excess obsolete inventory estimated fair values used record impairment charges related intangible assets goodwill longlived assets amortization periods expected future cash flows used evaluate recoverability longlived assets record intangible assets business combinations stockbased compensation expense warranty allowances restructuring related charges contingent liabilities recoverability companys net deferred tax assets changes estimates recorded period become known company bases estimates historical experience various assumptions believes reasonable circumstances actual results may differ managements estimates results differ historical experience assumptions prove substantially accurate even assumptions reasonable made note 3revenue may 2014 financial accounting standards board fasb issued accounting standards update asu 201409 revenue contracts customers supersedes revenue recognition requirements accounting standards codification asc topic 605 new guidance result joint project fasb international accounting standards board clarify principles recognizing revenue develop common revenue standards us gaap international financial reporting standards core principle new guidance revenue recognized depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services new guidance effective january 1 2018 applied modified retrospective basis company elected practical expedient evaluated contracts substantially revenue recognized asc 605 cumulative effect new guidance recorded date initial application impact adoption increase beginning retained earnings 61 million net 21 million related taxes adoption impact primarily due change license revenue recognized point time asc 606 rather time recognized asc 605 difference asc 606 asc 605 material year ended december 31 2018 following table presents companys revenues group year ended december 31 2018 dollars millions revenue company recognized point time versus time follows year ended december 31 2018 dollars millions remaining performance obligations remaining performance obligations represent aggregate transaction price allocated promise transfer good service fully partially unsatisfied end period december 31 2018 remaining performance obligations approximately 10544 million company expects recognize revenue approximately 843 remaining performance obligations next twelve months remaining performance obligations primarily within one three years contract balances timing revenue recognition billings cash collections results billed accounts receivable unbilled receivables contract assets deferred revenue customer deposits billings excess revenue recognized contract liabilities companys consolidated balance sheets contract assetsmost companys longterm contracts billed work progresses accordance contract terms conditions either periodic intervals upon achievement certain milestones billing often occurs subsequent revenue recognition resulting contract assets contract assets generally classified current assets consolidated balance sheets balance contract assets december 31 2018 january 1 2018 date adoption asc 606 259 million 128 million respectively increase contract asset balance twelvemonth period ended december 31 2018 primarily result foreign currency translation contracts recognized revenue twelve month period ending december 31 2018 billing cannot contractually occur december 31 2018 contract liabilitiesthe company often receives cash payments customers advance companys performance resulting contract liabilities contract liabilities classified either current longterm consolidated balance sheet based timing revenue recognition expected december 31 2018 january 1 2018 date adoption asc 606 contract liabilities 2885 million 2913 million respectively decrease contract liability balance twelvemonth period ended december 31 2018 primarily result satisfying performance obligations foreign currency translation offset part new cash payments received additions due recent acquisitions approximately 1710 million contract liability balance january 1 2018 date adoption asc 606 recognized revenue twelvemonth period ended december 31 2018 note 4acquisitions year ended december 31 2018 company completed various acquisitions collectively complemented companys existing product offerings added aftermarket software capabilities companys existing businesses following table reflects components preliminary fair value allocations consideration transferred connection 2018 acquisitions respective reporting segment acquisitions dollars millions impact 2018 acquisitions individually collectively revenues net income total assets material pro forma financial information reflecting acquisitions presented impact individually collectively revenues net income total assets material amounts allocated goodwill attributable expected synergies expected deductible tax purposes anasys april 8 2018 company acquired 100 interest anasys instruments corp anasys privately held company purchase price 270 million potential additional consideration 96 million based revenue achievements 2019 2020 anasys develops manufactures nanoscale infrared spectroscopy thermal measurement instruments anasys located santa barbara california integrated bruker nano group within bsi reportable segment preliminary fair value allocation included contingent consideration amount 53 million represented estimated fair value future payments former shareholders anasys based anasys achieving annual revenue targets years 2019 2020 company completed fair value allocation fourth quarter 2018 amortization period intangible assets acquired connection anasys eight years except backlog amortized one year jpk july 11 2018 company acquired 100 interest jpk instruments ag jpk privately held company purchase price euro 142 million approximately 166 million potential additional consideration euro 43 million approximately 50 million based various operational achievements throughout 2019 2020 jpk adds indepth expertise livecell imaging cellular mechanics adhesion molecular force measurements optical trapping biological stimulusresponse characterization brukers capabilities jpk located berlin germany integrated bruker nano group within bsi reportable segment preliminary fair value allocation included contingent consideration amount 43 million represented estimated fair value future payments former shareholders jpk based jpk achieving various operational achievements years 2019 2020 company expects complete fair value allocation second quarter 2019 amortization period intangible assets acquired connection jpk eight years except backlog amortized one year mestrelab october 1 2018 bruker acquired 249 interest mestrelab research sl mestrelab purchase price euro 47 million approximately 54 million acquired additional 261 interest december 4 2018 purchase price euro 52 million approximately 59 million company options exercised 2022 acquire remaining 49 mestrelab adds indepth expertise assist advancing chemistry software handles spectroscopic data extracts manages chemical information variety analytical techniques including example nmr mass spectrometry mestrelab located santiago de compostela spain integrated bruker biospin group within bsi reportable segment company expects complete fair value allocation 2019 amortization period intangible assets acquired connection mestrelab nine years except customer relationships amortized ten years concurrent acquisition company entered agreement noncontrolling interest holders provides company right purchase noncontrolling interest holders right sell remaining 49 mestrelab cash contractually defined redemption value rights embedded derivative exercisable beginning 2022 accelerated discounted redemption value upon certain events related post combination services option tied continued employment company classified hybrid instrument noncontrolling interest embedded derivative longterm liability consolidated balance sheet subsequent acquisition carrying value hybrid instrument remeasured fair value changes recorded stockbased compensation expense proportion requisite service period vested hain october 15 2018 bruker acquired 80 interest hain lifescience gmbh hain purchase price euro 66 million approximately 764 million options acquire remaining 20 exercisable 2022 hain infectious disease specialist broad range molecular diagnostics solutions detection microbial viral pathogens well molecular antibiotic resistance testing hain located nehren germany integrated bruker calid group within bsi reportable segment company expects complete fair value allocation 2019 amortization period intangible assets acquired connection hain 15 years concurrent acquisition company entered agreement noncontrolling interest holders provided company right purchase noncontrolling interest holders right sell remaining 20 hain cash contractually defined redemption value rights accelerated certain events redemption contingently redeemable option noncontrolling interest shareholders company classifies carrying amount redeemable noncontrolling interest mezzanine section consolidated balance sheet presented equity section liabilities agreement establishes redemption price floor euro 167 million approximately 194 million beginning 2022 redemption price capped euro 46 million increases euro 6 million year thereafter unexercised either party subsequent acquisition redeemable noncontrolling interest measured greater amount would paid settlement occurred balance sheet date based contractually defined redemption value carrying amount adjusted net income loss attributable noncontrolling interest adjustments carrying value redeemable noncontrolling interest recorded retained earnings alicona december 17 2018 bruker acquired 100 interest agapetus gmbh alicona purchase price euro 489 million approximately 554 million alicona provider opticalbased metrology products alicona located graz austria integrated bruker nano group within bsi reportable segment company expects complete fair value allocation 2019 amortization period intangible assets acquired connection alicona 8 years customer relationships technology intangible assets 12 years trade name intangible asset 1 year backlog intangible asset acquisitions addition acquisitions noted year ended december 31 2018 company completed various acquisitions collectively complemented companys existing product offerings added aftermarket software capabilities companys existing businesses total consideration transferred additional acquisitions 127 million 2017 2016 years ended december 31 2017 2016 company completed various acquisitions collectively complemented companys existing product offerings added aftermarket software capabilities companys existing microbiology business impact acquisitions individually collectively revenues net income total assets material either year pro forma financial information reflecting acquisitions presented impact individually collectively revenues net income total assets material amounts allocated goodwill attributable expected synergies expected deductible tax purposes following tables reflect consideration transferred respective reporting segment acquisitions luxendo may 5 2017 company acquired 100 shares luxendo gmbh luxendo privately held spinoff european molecular biology laboratory purchase price euro 17 million approximately 188 million potential additional consideration based revenue achievements 2018 2021 luxendo developer manufacturer proprietary lightsheet fluorescence microscopy instruments luxendo located heidelberg germany integrated bruker nano group within bsi reportable segment fair value allocation included contingent consideration amount 31 million represented estimated fair value future payments former shareholders luxendo based achieving annual revenue targets years 2018 2021 company completed fair value allocation third quarter 2017 amortization period intangible assets acquired connection acquisition luxendo 10 years trade names 7 years technology hysitron january 23 2017 company acquired 100 shares hysitron incorporated hysitron acquisition adds hysitrons nanomechanical testing instruments companys existing portfolio atomic force microscopes surface profilometers tribology mechanical testing systems hysitron included bruker nano group within bsi reportable segment fair value allocation included contingent consideration amount 16 million represented estimated fair value future payments former shareholders hysitron based achieving annual revenue targets years 2017 2018 company completed fair value allocation second quarter 2017 maximum potential future payments related contingent consideration 10 million amortization period intangible assets acquired connection hysitron 7 years customer relationships trademarks intangibles 5 years existing technology note 5fair value financial instruments company measures following financial assets liabilities fair value recurring basis following tables set forth companys financial instruments presents within fair value hierarchy using lowest level input significant fair value measurement december 31 2018 2017 millions derivative financial instruments classified within level 2 active market derivative contract however inputs used calculate value instruments obtained active markets fair value longterm fixed interest rate debt classified level 2 2288 million 2313 million december 31 2018 2017 respectively based market observable sources similar maturity dates company measures certain assets liabilities fair value changes fair value recognized earnings fair value treatment may elected either upon initial recognition eligible asset liability existing asset liability event triggers new basis accounting company elect remeasure existing financial assets liabilities years ended december 31 2018 2017 excluded table restricted cash shortterm investments related time call deposits company program enter time deposits varying maturity dates ranging one twelve months well call deposits company ability redeem invested amounts period 95 days company classified investments within cash equivalents shortterm investments within consolidated balance sheets based call maturity dates subject fair value measurement following tables set forth balances restricted cash shortterm investments december 31 2018 2017 millions quarterly basis company reviews shortterm investments determine events could create impairment none noted years ended december 31 2018 2017 part certain acquisitions company recorded contingent consideration liabilities classified level 3 fair value hierarchy contingent consideration represents estimated fair value future payments former shareholders certain acquired companies based applicable acquired company achieving annual revenue gross margin targets certain years specified relevant purchase sale agreement company initially values contingent considerations using monte carlo simulation income approach method monte carlo method models future revenue costs goods sold projections discounts average results present value income approach method involves calculating earnout payment based forecasted cash flows adjusting future earnout payment risk reaching projected financials discounting future payments present value counterparty risk counterparty risk considers risk buyer cash make earnout payments commensurate cost debt appropriate term following table sets forth changes contingent consideration liabilities years ended december 31 2018 2017 millions part mestrelab acquisition company entered agreement noncontrolling interest holders provides company right purchase noncontrolling interest holders right sell remaining 49 mestrelab cash contractually defined redemption value rights embedded derivative exercisable beginning 2022 accelerated discounted redemption value upon certain events related post combination services option tied continued employment company classified hybrid instrument noncontrolling interest embedded derivative longterm liability consolidated balance sheet subsequent acquisition carrying value hybrid instrument remeasured fair value changes recorded stockbased compensation expense proportion requisite service period vested hybrid instrument classified level 3 fair value hierarchy following table sets forth changes hybrid instrument liability year ended december 31 2018 dollars millions note 6accounts receivable following summary accounts receivable net december 31 millions allowance doubtful accounts based number factors including evaluation customer credit worthiness age outstanding receivable economic trends historical experience provisions doubtful accounts recorded selling general administrative expenses accompanying consolidated statements income comprehensive income following summary activity companys allowance doubtful accounts december 31 millions note 7inventories inventories consisted following december 31 millions finished goods include intransit systems shipped companys customers yet installed accepted customer december 31 2018 2017 inventoryintransit 383 million 414 million respectively note 8property plant equipment net following summary property plant equipment net major asset class december 31 millions depreciation expense includes amortization leasehold improvements years ended december 31 2018 2017 2016 360 million 343 million 326 million respectively impairment charges year ended december 31 2018 years ended december 31 2017 2016 company recorded impairment charges 11 million 08 million respectively representing write fair value certain property plant equipment net related restructuring outsourcing activities undertaken respective years impairment charges recorded within charges net accompanying consolidated statements income comprehensive income please see note 18other charges net additional details restructuring activities note 9goodwill intangible assets goodwill following table sets forth changes carrying amount goodwill years ended december 31 2018 2017 2016 millions december 31 2018 2017 2016 goodwill allocated within bsi segment company performed annual impairment evaluation using quantitative approach december 31 2018 qualitative approach december 31 2017 2016 concluded likely goodwill impaired based recent quantitative analysis fair values companys reporting units significantly greater carrying amounts therefore impairment required intangible assets following summary intangible assets december 31 millions years ended december 31 2018 2017 2016 company recorded amortization expense approximately 289 million 296 million 217 million respectively consolidated statements income comprehensive income year ended december 31 2018 company recorded impairment charge 06 million representing impairment inprocess research development within bruker calid group estimated future amortization expense related amortizable intangible assets december 31 2018 follows millions note 10other current liabilities following summary current liabilities december 31 millions following table sets forth changes accrued warranty years ended december 31 2018 2017 2016 millions note 11debt companys debt obligations consist following december 31 millions credit agreements october 27 2015 company entered new revolving credit agreement referred 2015 credit agreement 2015 credit agreement provides maximum commitment companys revolving credit line 500 million maturity date october 2020 borrowings revolving credit line 2015 credit agreement accrue interest companys option either greatest prime rate ii federal funds rate plus 050 iii adjusted libor plus 100 plus margins ranging 000 030 b libor plus margins ranging 090 130 also facility fee ranging 010 020 borrowings 2015 credit agreement secured guarantees certain material subsidiaries defined 2015 credit agreement 2015 credit agreement also requires company maintain certain financial ratios related maximum leverage minimum interest coverage defined 2015 credit agreement specifically companys leverage ratio cannot exceed 35 companys interest coverage ratio cannot less 25 addition financial ratios 2015 credit agreement contains negative covenants including among others restrictions liens indebtedness company subsidiaries asset sales dividends transactions affiliates failure comply restrictions covenants may result event default 2015 credit agreement could permit acceleration debt require company prepay debt scheduled due date december 31 2018 company compliance covenants 2015 credit agreement companys leverage ratio defined 2015 credit agreement 093 interest coverage ratio defined 2015 credit agreement 225 following summary maximum commitments net amounts available company 2015 credit agreement lines credit various financial institutions located primarily germany switzerland unsecured typically due upon demand interest payable monthly december 31 2018 millions note purchase agreement january 2012 company entered note purchase agreement referred note purchase agreement group accredited institutional investors pursuant note purchase agreement company issued sold 2400 million senior notes referred senior notes consist following • 20 million 316 series 2012a senior notes tranche due january 18 2017 • 15 million 374 series 2012a senior notes tranche b due january 18 2019 • 105 million 431 series 2012a senior notes tranche c due january 18 2022 • 100 million 446 series 2012a senior notes tranche due january 18 2024 january 18 2017 outstanding 200 million principal amount tranche senior notes repaid accordance terms note purchase agreement terms note purchase agreement company may issue sell additional senior notes aggregate principal amount 600 million subject certain conditions interest senior notes payable semiannually january 18 july 18 year senior notes unsecured obligations company fully unconditionally guaranteed certain companys direct indirect subsidiaries senior notes rank pari passu right repayment companys senior unsecured indebtedness company may prepay senior notes time amount less 10 original aggregate principal amount senior notes prepaid price equal sum 100 principal amount thereof plus accrued unpaid interest b applicable makewhole amount upon less 30 60 days written notice holders senior notes event change control company defined note purchase agreement company may required prepay notes price equal 100 principal amount thereof plus accrued unpaid interest note purchase agreement contains affirmative covenants including without limitation maintenance corporate existence compliance laws maintenance insurance properties payment taxes addition subsidiary guarantors furnishing notices information note purchase agreement also contains certain restrictive covenants restrict companys ability among things incur liens transfer sell assets engage certain mergers consolidations enter transactions affiliates note purchase agreement also includes customary representations warranties events default case event default arising specified events bankruptcy insolvency outstanding senior notes become due payable immediately without action notice case payment events defaults holder senior notes affected thereby may declare senior notes held due payable immediately case event default majority holders senior notes may declare senior notes due payable immediately pursuant note purchase agreement long senior notes outstanding company permit leverage ratio determined pursuant note purchase agreement end fiscal quarter exceed 350 100 ii interest coverage ratio determined pursuant note purchase agreement end fiscal quarter period four consecutive fiscal quarters less 250 1 iii priority debt time exceed 25 consolidated net worth determined pursuant note purchase agreement december 31 2018 company compliance covenants note purchase agreement companys leverage ratio defined note purchase agreement 093 interest coverage ratio defined note purchase agreement 225 annual maturities debt outstanding less deferred financing cost amortization december 31 2018 follows millions interest expense years ended december 31 2018 2017 2016 126 million 154 million 132 million respectively note 12derivative instruments hedging activities interest rate risks companys exposure interest rate risk relates primarily outstanding variable rate debt adverse movements related shortterm market rates significant component companys interest rate risk relates amounts outstanding 2015 credit agreement totaled 1116 million december 31 2018 company currently higher level fixed rate debt variable rate debt limits exposure adverse movements interest rates foreign exchange rate risk management company generates substantial portion revenues expenses international markets principally germany countries european union switzerland subjects operations exposure exchange rate fluctuations impact currency exchange rate movement positive negative period company periodically enters foreign currency contracts order minimize volatility fluctuations currency translation monetary transactions arrangements company typically agrees purchase fixed amount foreign currency exchange fixed amount us dollars currencies specified dates maturities less twelve months agreements extending longer periods transactions qualify hedge accounting accordingly instrument recorded fair value corresponding gains losses recorded consolidated statements income comprehensive income company following notional amounts outstanding foreign exchange contracts december 31 millions addition company periodically enters purchase sales contracts denominated currencies functional currency parties transaction company accounts transactions separately valuing embedded derivative component contracts denominated currencies functional currency transacting parties amounted 1135 million delivery products 60 million purchase products december 31 2018 983 million delivery products 36 million purchase products december 31 2017 changes fair value embedded derivatives recorded interest income expense net consolidated statements income comprehensive income commodity price risk management company arrangement customer firm commitment deliver copper based superconductors fixed price order minimize volatility fluctuations price copper companys sales commodities company enters commodity hedge contracts december 31 2018 2017 company fixed price commodity contracts notional amounts aggregating 68 million 30 million respectively changes fair value commodity contracts recorded interest income expense net consolidated statements income comprehensive income fair value derivative instruments described recorded consolidated balance sheets years ended december 31 2018 2017 follows millions impact net income unrealized gains losses resulting changes fair value derivative instruments years ending december 31 follows millions recorded within interest income expense net consolidated statements income comprehensive income note 13income taxes domestic foreign components income taxes follows years ended december 31 millions components income tax provision follows years ended december 31 millions income tax provision differs tax provision computed us federal statutory rate due following significant components years ended december 31 tax effect temporary items give rise significant portions deferred tax assets liabilities december 31 2018 2017 follows millions company uses liability method account income taxes method deferred income taxes recognized future tax consequences differences tax financial accounting bases assets liabilities reporting period deferred income taxes based enacted tax laws statutory tax rates applicable period differences expected affect taxable income valuation allowance established necessary reduce deferred tax assets expected realizable amounts company recognize deferred tax asset extent likely assets realized judgments around realizability depend availability weight positive negative evidence changes valuation allowance deferred tax assets years ended december 31 2018 2017 2016 follows december 31 2018 company approximately 432 million net operating loss carryforwards available reduce state taxable income company also approximately 931 million german trade tax corporate income tax net operating losses carried forward indefinitely additionally company 85 million foreign net operating losses expected expire various times beginning 2019 company also state research development tax credits 86 million utilization credits state net operating losses may subject annual limitations due ownership percentage change limitations provided internal revenue code section 382 similar state provisions event deemed change control internal revenue code section 382 annual limitation utilization net operating losses credits may result expiration portion net operating loss credit carryforwards company reflects certain statutory reserves tabular reconciliation unrecognized tax benefits effective year ended december 31 2013 thereafter unrecognized tax benefits presented reduction associated net deferred tax assets december 31 2018 company recorded state income foreign withholding taxes cash liquid assets portion unremitted earnings profits ep foreign subsidiaries expected repatriated foreign subsidiaries united states except amounts certain subsidiaries company asserted indefinitely reinvested specifically company asserts total 1328 billion unremitted foreign earnings indefinitely reinvested figure comprised 8750 million unremitted earnings well 4534 million noncash ep jurisdictions indefinitely reinvested ep ultimately distributed united states form dividends otherwise company would likely subject additional withholding tax company estimates amount unrecognized deferred withholding taxes undistributed ep approximately 485 million december 31 2018 company gross unrecognized tax benefits excluding interest approximately 66 million december 31 2018 recognized would reduce companys effective tax rate next twelve months reasonably possible company reduce unrecognized tax benefits 01 million due expiration statutes limitations favorable settlement taxing authorities would reduce companys effective tax rate tabular reconciliation beginning ending amount unrecognized tax benefits follows millions companys policy include accrued interest penalties related unrecognized tax benefits income tax liabilities applicable income tax expense december 31 2018 2017 company approximately 02 million 02 million respectively accrued interest penalties related uncertain tax positions included longterm liabilities consolidated balance sheets company recorded benefit 03 million penalties interest related unrecognized tax benefits provision income taxes year ended december 31 2017 benefit recognized year ended december 31 2018 company files tax returns united states includes federal state local jurisdictions many foreign jurisdictions varying statutes limitations company considers germany united states switzerland significant tax jurisdictions majority companys earnings derived germany switzerland accounting various federal local taxing authorities statutory rates 2018 approximately 300 200 germany switzerland respectively mix earnings two jurisdictions resulted increase 376 us statutory rate 21 2018 company party tax holiday agreements tax years 2013 2016 open examination germany switzerland 2016 company settled tax audits germany switzerland settlements immaterial consolidated financial statements tax years 2011 2016 remain open examination united states us tax reform december 22 2017 enactment date president united states signed tax reform legislation 2017 tax act enacted wide range changes us corporate income tax system many differ significantly provisions previous us tax law 2017 tax act contains several key provisions including among things • reduction corporate tax rate 350 210 tax years beginning december 31 2017 • introduction territorial tax system beginning 2018 providing 100 dividends received deduction certain qualified dividends foreign subsidiaries • fund territorial tax system onetime tax mandatory deemed repatriation post1986 untaxed foreign earnings profits ep referred toll charge • introduction new us tax certain offshore earnings associated socalled global intangible lowtaxed income gilti tax imposed effective tax rate 105 tax years beginning december 31 2017 increasing 13125 tax years beginning december 31 2025 partial offset foreign tax credits also december 22 2017 securities exchange commission sec issued staff accounting bulletin sab 118 provides companies additional guidance implement provisions 2017 tax act financial statements guidance provides measurement period one year enactment date provisional amounts may adjusted additional information obtained prepared analyzed facts circumstances existed enactment date known would impacted amounts initially recorded company fourth quarter 2017 company recognized within provision income taxes incremental income tax provision 689 million primarily comprised following • estimated income tax provision 550 million federal state impacts onetime deemed repatriation pre2018 ep accordance 2017 tax act federal portion toll charge liability may paid eight years liability reduced certain credits accordingly recorded 306 million 27 million longterm income tax liabilities accrued income taxes current respectively december 31 2017 • estimated net income tax benefit 14 million remeasurement deferred tax assets liabilities newly enacted tax rate 21 • result 2017 tax act expectations distributing certain cash balances foreign subsidiaries united states also recorded estimated income tax provisions estimated state income taxes foreign withholding taxes 125 million fourth quarter 2018 company completed accounting elements us tax reform 2018 company recorded tax adjustments sab 118 equal net benefit 54 million among adjustments 66 million additional tax expense related toll charge liability estimated 550 million 2017 addition 120 million tax benefit recorded 2018 reduced estimated liability 125 company recorded 2017 expected state income foreign withholding taxes associated unremitted foreign earnings change 14 million recorded 2017 net deferred tax liability related reduction us federal statutory tax rate 35 21 company recorded tax expense associated gilti provisions 2017 tax act december 31 2018 companies allowed adopt accounting policy either recognize deferred taxes gilti treat tax cost year incurred company determined treat tax cost year incurred company record deferred income tax expense benefit related gilti provisions 2017 tax act consolidated statement income year ended december 31 2018 note 14post retirement benefit plans defined contribution plans company sponsors various defined contribution plans cover certain domestic international employees company may make contributions plans discretion company contributed 84 million 64 million 60 million plans years ended december 31 2018 2017 2016 respectively defined benefit plans substantially companys employees switzerland france japan well certain employees germany covered companysponsored defined benefit pension plans retirement benefits generally earned based years service compensation active employment eligibility generally determined accordance local statutory requirements however level benefits terms vesting varies among plans components net periodic benefit costs years ended december 31 2018 2017 2016 follows millions company measures benefit obligation fair value plan assets december 31st year changes benefit obligations plan assets defined benefit pension plans projected benefit obligation funded status plans follows december 31 millions march 2017 fasb issued asu 201707 compensation retirement benefits topic 715 improving presentation net periodic pension cost net periodic postretirement benefit cost new standard intends improve presentation net periodic pension cost net periodic postretirement benefit cost new standard requires service cost component net periodic cost reported line items employee compensation costs components net periodic cost reported condensed consolidated statements income comprehensive income operating income company adopted guidance january 1 2018 retrospective basis company reclassified nonservice pension cost previously reported operations 48 million 46 million years ended december 31 2017 2016 respectively amounts previously reported cost sales selling general administrative research development expenses consolidated statements income comprehensive income accumulated benefit obligation defined benefit pension plans 2069 million 2172 million december 31 2018 2017 respectively defined benefit pension plans accumulated benefit obligation projected benefit obligation excess plan assets december 31 2018 2017 following amounts recognized accompanying consolidated balance sheets companys defined benefit plans december 31 millions following pretax amounts recognized accumulated comprehensive income companys defined benefit plans december 31 millions amount accumulated comprehensive income december 31 2018 expected recognized amortization net loss within net periodic benefit cost 2019 19 million defined benefit pension plans company uses corridor approach amortize actuarial gains losses approach net actuarial gains losses excess ten percent larger projected benefit obligation fair value plan assets amortized average remaining service active participants expected receive benefits plans range assumptions used defined benefit pension plans reflects different economic environments within various countries range assumptions used determine projected benefit obligations years ended december 31 follows determine expected longterm rate return pension plan assets company considers current asset allocations well historical expected returns various asset categories plan assets defined benefit pension plans company applies expected rate return marketrelated value assets stabilizes variability assets expected return applied asset allocations asset category fair value companys pension plan assets december 31 2018 2017 asset category level fair value hierarchy follows millions athe companys pension plan france invested larger fund invests variety instruments assets directly dedicated french pension plan group bpce life fund invests debt securities foreign corporations governments equity securities foreign government funds private real estate funds bthe companys pension plan switzerland outsourced swiss life ag outside insurance provider insurance contract plan assets invested swiss life collective bvg foundation umbrella fund retirement savings interest rates guaranteed minimum 10 175 years ended december 31 2018 2017 respectively mandatory withdrawal portion defined swiss law 025 075 years ended december 31 2018 2017 respectively nonmandatory portion foundation utilizes plan administrators investment managers oversee investment allocation process set longterm strategic targets monitor asset allocations target allocations 75 bonds including cash 5 equity investments 20 real estate mortgages foundation yield return greater guaranteed amounts company according swiss law shall receive 90 additional return swiss life ag retaining 10 withdrawal benefits interest allocations secured times swiss life ag contributions estimated future benefit payments 2019 company expects contributions consistent 2018 estimated future benefit payments based assumptions used measure companys benefit obligation december 31 2018 following benefit payments reflect future employee service appropriate millions note 15commitments contingencies accordance asc topic 450 contingencies company accrues anticipated costs settlement damages costs extent specific losses probable estimable litigation related contingencies lawsuits claims proceedings nature considered normal businesses may pending time company third parties might allege company collaborators infringing patent rights company otherwise violating intellectual property rights loss contingency provisions recorded potential loss claim asserted unasserted legal proceeding considered probable amount reasonably estimated range loss determined accruals represent managements best estimate probable loss disclosure also provided reasonably possible loss incurred reasonably possible amount loss exceed recorded provision company believes outcome pending proceedings individually aggregate material impact companys financial statements december 31 2018 2017 material accruals recorded potential contingencies governmental investigations company subject regulation national state local government agencies united states countries operates time company subject governmental investigations often involving regulatory marketing business practices governmental investigations may result commencement civil criminal proceedings fines penalties administrative remedies could material adverse effect companys financial position results operations andor liquidity august 2018 korea fair trade commission kftc informed company conducting investigation public tender bidding activities number life science instrument companies operating korea including bruker korea co ltd company cooperating fully kftc regarding matter unable predict timing outcome investigation time revenues korea represent less 3 companys consolidated revenue twelvemonth period ended december 31 2018 october 19 2017 company received notice investigation subpoena produce documents division enforcement sec subpoena seeks information related employee terminated part restructuring certain matters involving companys policies accounting practices related revenue recognition restructuring activities well related financial reporting disclosure compliance matters since january 1 2013 subpoena also seeks information concerning among things companys previously identified material weakness internal controls accounting income taxes related financial reporting matters certain payments nonemployee travel expenses company producing documents response subpoena intends continue cooperate fully secs investigation additionally audit committee companys board directors assistance outside counsel conducting internal investigation practices certain business partners china conduct former employees bruker optics division china raised questions compliance laws including us foreign corrupt practices act andor compliance companys business policies code conduct company voluntarily disclosed matter sec us department justice time company unable predict duration scope outcome investigations december 31 2018 2017 material accruals recorded potential contingencies related matters operating leases certain buildings office equipment vehicles leased agreements accounted operating leases total rental expense operating leases 251 million 237 million 220 million years ended december 31 2018 2017 2016 respectively future minimum lease payments noncancelable operating leases december 31 2018 next five years thereafter follows millions capital leases company leases certain assets agreements classified capital leases cost assets capital leases included consolidated balance sheets property plant equipment 02 million 09 million december 31 2018 2017 respectively accumulated amortization leased buildings december 31 2018 2017 01 million 05 million respectively amortization expense related assets capital leases included depreciation expense obligations related capital leases recorded component longterm debt current portion longterm debt consolidated balance sheets depending lease payments due unconditional purchase commitments company entered unconditional purchase commitments ordinary course business include agreements purchase goods services fixed assets pay royalties enforceable legally binding specify significant terms including fixed minimum quantities purchased fixed minimum variable price provisions approximate timing transaction purchase commitments exclude agreements cancelable time without penalty aggregate amount companys unconditional purchase commitments totaled 2283 million december 31 2018 majority commitments expected settled 2019 license agreements company entered license agreements allowing utilize certain patents used connection commercial product sale company pays royalties related product revenues licensing fees years ended december 31 2018 2017 2016 37 million 35 million 30 million respectively recorded cost product revenue consolidated statements income comprehensive income letters credit guarantees december 31 2018 2017 company bank guarantees 1383 million 1388 million respectively related primarily customer advances arrangements guarantee refund advance payments received customers event merchandise delivered warranty obligations fulfilled compliance terms contract guarantees affect availability companys lines credit indemnifications company enters standard indemnification arrangements companys ordinary course business pursuant arrangements company indemnifies holds harmless agrees reimburse indemnified parties losses suffered incurred indemnified party parties generally companys business partners customers connection patent copyright intellectual property infringement claim third party respect products term indemnification agreements generally perpetual time execution agreement maximum potential amount future payments company could required make agreements unlimited company believes estimated fair value agreements minimal based historical experiences note 16shareholders equity share repurchase program may 2017 companys board directors approved share repurchase program repurchases common stock 2250 million may occur time amounts prices times company deems appropriate subject market conditions legal requirements considerations repurchases occurred year ended december 31 2018 total 5318063 shares repurchased aggregate cost 1522 million year ended december 31 2017 program future repurchases funded cash hand future cash flows operations available borrowings revolving credit facility repurchased shares reflected within treasury stock accompanying consolidated balance sheet december 31 2018 2017 cash dividends common stock february 22 2016 company announced establishment dividend policy declaration board directors initial quarterly cash dividend amount 004 per share companys issued outstanding common stock dividend policy company target cash dividend companys shareholders amount 016 per share per annum payable equal quarterly installments following summary dividends paid years ended december 31 2018 2017 millions subsequent dividend declarations establishment record payment dates future dividend payments subject board directors continuing determination dividend policy best interests companys shareholders dividend policy may suspended cancelled discretion board directors time accumulated comprehensive income loss following summary components accumulated comprehensive income loss net tax december 31 millions note 17stockbased compensation february 2010 bruker biosciences corporation amended restated 2000 stock option plan 2000 plan expired end scheduled tenyear term march 9 2010 companys board directors unanimously approved adopted bruker corporation 2010 incentive compensation plan 2010 plan may 14 2010 plan approved companys stockholders 2010 plan provided issuance 8000000 shares companys common stock 2010 plan allowed committee board directors compensation committee grant incentive stock options nonqualified stock options restricted stock awards compensation committee authority determine employees would receive awards amount awards terms conditions awards granted 2010 plan typically made subject vesting period three five years may 2016 bruker corporation 2016 incentive compensation plan 2016 plan approved companys stockholders approval 2016 plan grants made 2010 plan 2016 plan provides issuance 9500000 shares companys common stock permits grant awards nonqualified stock options incentive stock options stock appreciation rights restricted stock unrestricted stock restricted stock units performance shares performance units well cashbased awards 2016 plan administered compensation committee compensation committee authority determine employees receive awards amount awards terms conditions awards stock option awards granted 2016 plan typically vest period one four years starting 2017 members companys board directors receive annual award restricted stock units vest oneyear service period stock option activity year ended december 31 2018 follows addition options vested december 31 2018 company expects portion unvested options vest future options expected vest future determined applying estimated forfeiture rate options unvested december 31 2018 bthe aggregate intrinsic value based positive difference fair value companys common stock price 2977 december 31 2018 date exercises appropriate exercise price underlying stock options weighted average fair value options granted 950 761 772 per share years ended december 31 2018 2017 2016 respectively total intrinsic value options exercised 80 million 162 million 112 million years ended december 31 2018 2017 2016 respectively unrecognized pretax stockbased compensation expense 44 million related stock options awarded 2010 2016 plans expected recognized weighted average remaining service period 208 years stock options outstanding december 31 2018 restricted shares companys common stock periodically awarded executive officers directors certain key employees company subject service restrictions vest ratably periods one four years restricted shares common stock may sold transferred restriction period stockbased compensation restricted stock recorded based stock price grant date charged expense ratably throughout restriction period following table summarizes information restricted stock award activity year ended december 31 2018 total fair value restricted stock vested 18 million 23 million 15 million years ended december 31 2018 2017 2016 respectively unrecognized pretax stockbased compensation expense 03 million related restricted stock awarded 2010 plan expected recognized weighted average remaining service period 06 years awards outstanding december 31 2018 restricted stock units companys common stock periodically awarded executive officers directors certain employees company vest ratably service periods one four years stockbased compensation restricted stock units recorded based stock price grant date charged expense ratably throughout vesting period following table summarizes information restricted stock unit activity year ended december 31 2018 total fair value restricted stock vested 69 million 20 million years ended december 31 2018 2017 respectively restricted stock units vested years ended december 31 2016 unrecognized pretax stockbased compensation expense 188 million related restricted stock units awarded 2016 plan expected recognized weighted average remaining service period 307 years units outstanding december 31 2018 march 2016 fasb issued asu 201609 stock compensationimprovements employee sharebased payment accounting new standard simplifies accounting sharebased payment transactions including income tax consequences classification tax impact statement cash flows company adopted standard effective january 1 2017 asu requires difference actual tax benefit realized upon exercise vesting applicable tax benefit recorded based fair value stock award time grant excess tax benefits reflected reduction current period provision income taxes shortfall recorded increase tax provision rather component changes additional paidin capital asu also required excess tax benefit realized reflected operating cash flow rather financing cash flow standard adopted company modified retrospective basis respect previously unrecognized windfalls resulted cumulative adjustment retained earnings 36 million january 1 2017 related timing excess tax benefits recognized company adopted standard prospective basis respect statements income cash flows recognized excess tax benefit related stock compensation decreased income tax expense amount 13 million 19 million years ended december 31 2018 2017 respectively excess tax benefits previously recorded equity company continues utilize historical forfeiture rate estimate future forfeitures note 18other charges net components charges net years ended december 31 2018 2017 2016 follows millions restructuring initiatives restructuring charges years ended december 31 2018 2017 2016 included charges various programs recorded accompanying consolidated statements income comprehensive income follows millions following table sets forth changes restructuring reserves years ended december 31 2018 2017 2016 millions restructuring charges segment years ended december 31 follows millions note 19interest income expense net components interest income expense net years ended december 31 2018 2017 2016 follows millions note 20business segment information company two reportable segments bsi best discussed note 1 consolidated financial statements selected business segment information presented years ended december 31 millions arepresents product service revenue reportable segments brepresents corporate costs eliminations allocated reportable segments company recorded impairment charge 06 million 11 million 08 million years ended december 31 2018 2017 2016 respectively within bsi best segments please see note 8property plant equipment net note 9goodwill intangible assets description impairment charges recorded 2018 2017 2016 impairment charges included within cost revenue year ended december 31 2018 charges net years ended december 31 2017 2016 accompanying consolidated statements income comprehensive income total assets segment years ended december 31 follows millions aassets allocated reportable segments eliminations intercompany transactions total capital expenditures depreciation amortization segment presented years ended december 31 millions revenue property plant equipment net geographical area year ended december 31 follows millions note 21related parties company leases certain office space certain principal shareholders including director executive officer former member companys board directors members immediate families expiration dates ranging 2019 2020 total rent expense leases 12 million 35 million 39 million years ended december 31 2018 2017 2016 respectively years ended december 31 2018 2017 2016 company recorded revenue 29 million 26 million 11 million respectively arising commercial transactions life sciences company member companys board directors chairman chief executive officer year ended december 31 2018 company recorded revenue 06 million commercial transactions hospital member companys board directors serves board trustees note 22recent accounting pronouncements january 2017 fasb issued asu 201704 intangiblesgoodwill topic 350 simplifying test goodwill impairment new standard simplifies subsequent measurement goodwill eliminating second step goodwill impairment test asu applied prospectively effective annual interim goodwill impairment tests fiscal years beginning december 15 2019 standard expected material impact companys financial position results operations statements cash flows upon adoption january 2017 fasb issued asu 201701 business combinations topic 805 clarifying definition business new standard clarifies definition business provides screen determine integrated set assets activities business screen requires substantially fair value gross assets acquired disposed concentrated single identifiable asset group similar identifiable assets set business new standard adopted effective date january 1 2018 company evaluated provisions standard determined impact adoption asu 201701 material companys consolidated financial statements october 2016 fasb issued asu 201616 income taxes topic 740intraentity transfer assets inventory new standard requires recognition current deferred income taxes resulting intraentity transfer asset excluding inventory transfer occurs change existing us gaap prohibits recognition current deferred income taxes asset sold third party new standard adopted effective date january 1 2018 company evaluated provisions standard determined impact adoption asu 201616 material companys consolidated financial statements february 2016 fasb issued asu 201602 leases provides guidance recognition measurement presentation disclosure leases new standard supersedes present us gaap guidance leases requires leases terms longer 12 months reported balance sheet rightofuse rou assets lease liabilities well provide additional disclosures lease liability represents lessees obligation make lease payments arising lease measured present value lease payments rightofuse asset represents lessees right use specified asset lease term measured lease liability amount adjusted lease prepayment lease incentives received lessees initial direct costs new standard effective january 1 2019 asu 201602 companies required transition new standard period adoption beginning earliest period presented financial statements january 1 2017 company july 2018 fasb issued asu 201811 update asu 201602 part provided companies option transitioning new standard adoption date recognize cumulativeeffect adjustment opening balance retained earnings period adoption company adopted new standard january 1 2019 using alternative transition method asu 201811 recognize cumulativeeffect adjustment opening balance sheet company elected available package practical expedients leases commenced prior effective date allows reassess 1 whether expired existing contracts contain leases 2 lease classification expired existing leases 3 accounting treatment initial direct costs expired existing leases company also elected practical expedient allows lessees treat lease nonlease components leases single lease component company process finalizing implementation leasing software provide required accounting disclosures continuing finalize calculations based new standard accordingly company completed evaluation aspects new standard company expects new standard material impact consolidated balance sheet due recognition rightofuse assets lease liabilities substantially leases currently accounted operating leases company completes evaluation new standard new information may arise could change current understanding impact consolidated financial statements company also working establish new processes internal controls may required comply new standard expect material impact companys operations note 23quarterly financial data unaudited summary operating results quarterly periods years ended december 31 2018 2017 set forth millions except per share data item 9item 8 financial statements supplementary data index consolidated financial statements report independent registered public accounting firm board directors shareholders bruker corporation opinions financial statements internal control financial reporting audited accompanying consolidated balance sheets bruker corporation subsidiaries “company” december 31 2019 2018 related consolidated statements income comprehensive income redeemable noncontrolling interest shareholders’ equity cash flows three years period ended december 31 2019 including related notes collectively referred “consolidated financial statements” also audited company’s internal control financial reporting december 31 2019 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion consolidated financial statements referred present fairly material respects financial position company december 31 2019 2018 results operations cash flows three years period ended december 31 2019 conformity accounting principles generally accepted united states america also opinion company maintain material respects effective internal control financial reporting december 31 2019 based criteria established internal control integrated framework 2013 issued coso following material weaknesses internal control financial reporting existed date company design maintain effective control environment commensurate financial reporting requirements due insufficient complement personnel company’s corporate tax department us subsidiary material weakness contributed additional material weaknesses company maintain effective internal control ii accounting income taxes iii accounting revenue us subsidiary company material weakness deficiency combination deficiencies internal control financial reporting reasonable possibility material misstatement annual interim financial statements prevented detected timely basis material weaknesses referred described management’s report internal control financial reporting appearing item 9a considered material weaknesses determining nature timing extent audit tests applied audit 2019 consolidated financial statements opinion regarding effectiveness company’s internal control financial reporting affect opinion consolidated financial statements change accounting principle discussed note 15 consolidated financial statements company changed manner accounts leases 2019 basis opinions company’s management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report referred responsibility express opinions company’s consolidated financial statements company’s internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits consolidated financial statements included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions described management’s report internal control financial reporting management excluded arxspan llc rave llc pmod technologies gmbh magnettech gmbh assessment internal control financial reporting december 31 2019 acquired company purchase business combinations 2019 also excluded arxspan llc rave llc pmod technologies gmbh magnettech gmbh audit internal control financial reporting arxspan llc rave llc pmod technologies gmbh magnettech gmbh whollyowned subsidiaries whose total assets total revenues excluded management’s assessment audit internal control financial reporting collectively represent 11 19 respectively related consolidated financial statement amounts year ended december 31 2019 definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate critical audit matters critical audit matter communicated matter arising current period audit consolidated financial statements communicated required communicated audit committee relates accounts disclosures material consolidated financial statements ii involved especially challenging subjective complex judgments communication critical audit matters alter way opinion consolidated financial statements taken whole communicating critical audit matter providing separate opinion critical audit matter accounts disclosures relates goodwill impairment assessment reporting unit bsi nano segment described notes 2 9 consolidated financial statements company’s consolidated goodwill balance 2930 million december 31 2019 2085 million relates bsi nano segment management evaluates goodwill impairment annual basis interim basis events changes circumstances indicate carrying value may recoverable management tests goodwill impairment reporting unit level operating segment one level operating segment management determines fair value reporting units using weighting market income methodologies assessing recoverability goodwill management must make assumptions regarding estimated future cash flows including forecasted revenue growth projected gross margin discount rate determine fair value carrying amount reporting unit exceeds fair value reporting unit management performs second step goodwill impairment test measure amount impairment second step goodwill impairment test management compares implied fair value reporting unit’s goodwill carrying value goodwill principal considerations determination performing procedures relating goodwill impairment assessment reporting unit bsi nano segment critical audit matter significant judgment management developing fair value measurement reporting unit turn led high degree auditor judgment subjectivity effort performing procedures evaluate audit evidence related management’s estimated future cash flows including forecasted revenue growth projected gross margin discount rate audit effort also involved use professionals specialized skill knowledge assist performing procedures evaluating audit evidence obtained addressing matter involved performing procedures evaluating audit evidence connection forming overall opinion consolidated financial statements procedures included testing effectiveness controls relating management’s annual goodwill impairment assessment including controls valuation company’s reporting units procedures also included among others testing management’s process developing fair value estimate evaluating appropriateness using weighting market income methodologies testing completeness accuracy relevance underlying data used methodologies evaluating significant assumptions used management including forecasted revenue growth projected gross margin discount rate evaluating management’s assumptions related forecasted revenue growth projected gross margin discount rate involved evaluating whether assumptions used management reasonable considering current past performance reporting unit ii consistency external market industry data iii whether assumptions consistent evidence obtained areas audit professionals specialized skill knowledge used assist evaluation company’s methodology certain significant assumptions including discount rate pricewaterhousecoopers llp boston massachusetts march 27 2020 served company’s auditor since 2016 bruker corporation consolidated balance sheets dollars millions except share per share data accompanying notes integral part consolidated financial statements bruker corporation consolidated statements income comprehensive income dollars millions except per share data accompanying notes integral part consolidated financial statements bruker corporation consolidated statements redeemable noncontrolling interest shareholders’ equity dollars millions except share data accompanying notes integral part consolidated financial statements bruker corporation consolidated statements cash flows dollars millions accompanying notes integral part consolidated financial statements bruker corporation notes consolidated financial statements note 1description business bruker corporation together consolidated subsidiaries bruker company develops manufactures distributes highperformance scientific instruments analytical diagnostic solutions enable customers explore life materials microscopic molecular cellular levels many company’s products used detect measure visualize structural characteristics chemical biological industrial material samples company’s products address rapidly evolving needs diverse array customers life science research pharmaceuticals biotechnology applied markets cell biology clinical research microbiology invitro diagnostics nanotechnology materials science research company four operating segments bruker biospin group bruker calid group bruker scientific instruments bsi nano segment bruker energy supercon technologies best company three reportable segments bsi life science segment bsi nano segment best financial reporting purposes bruker biospin group bruker calid group operating segments aggregated reportable bsi life science segment similar economic characteristics production processes service offerings types classes customers methods distribution regulatory environments bruker biospin bruker biospin group designs manufactures distributes enabling life science tools based magnetic resonance technology bruker biospin group’s revenues generated academic government research customers pharmaceutical biotechnology companies nonprofit laboratories well chemical food beverage clinical industrial companies bruker calid chemicals applied markets life science invitro diagnostics detection bruker calid group designs manufactures distributes life science mass spectrometry ion mobility spectrometry solutions analytical process analysis instruments solutions based infrared raman molecular spectroscopy technologies radiologicalnuclear detectors chemical biological radiological nuclear explosive cbrne detection customers bruker calid group include academic institutions medical schools pharmaceutical biotechnology diagnostics companies contract research organizations nonprofit forprofit forensics laboratories agriculture food beverage safety laboratories environmental clinical microbiology laboratories hospitals government departments agencies bsi nano segment designs manufactures distributes advanced xray instruments atomic force microscopy instrumentation advanced fluorescence optical microscopy instruments analytical tools electron microscopes xray metrology defectdetection equipment semiconductor process control handheld portable mobile xray fluorescence spectrometry instruments spark optical emission spectroscopy systems customers bsi nano segment include academic institutions governmental customers nanotechnology companies semiconductor companies raw material manufacturers industrial companies biotechnology pharmaceutical companies businesses involved materials analysis company’s best reportable segment develops manufactures superconducting nonsuperconducting materials devices use renewable energy infrastructure healthcare “big science” research segment focuses metallic low temperature superconductors use magnetic resonance imaging nuclear magnetic resonance fusion energy research applications note 2summary significant accounting policies principles consolidation accompanying consolidated financial statements include accounts company majority whollyowned subsidiaries intercompany accounts transactions eliminated noncontrolling interests noncontrolling interests represents minority shareholders’ proportionate share company’s majorityowned subsidiaries portion net income net loss attributable noncontrolling interests presented net income attributable noncontrolling interests consolidated subsidiaries consolidated statements income comprehensive income portion comprehensive income subsidiaries presented consolidated statements shareholders’ equity redeemable noncontrolling interests company agreement noncontrolling interest holders provides company right purchase noncontrolling interest holders right sell remaining minority interest contractually defined redemption value rights accelerated certain events redemption contingently redeemable option noncontrolling interest shareholders company classifies carrying amount redeemable noncontrolling interest mezzanine section consolidated balance sheet presented equity section liabilities subsequent acquisition redeemable noncontrolling interest measured greater amount would paid settlement occurred balance sheet date based contractually defined redemption value carrying amount adjusted net income loss attributable noncontrolling interest adjustments carrying value redeemable noncontrolling interest recorded retained earnings business combinations company accounts business combinations acquisition method accounting accordingly date acquisition company measures fair value identifiable assets acquired including intangible assets liabilities assumed remaining noncontrolling interests allocates amounts paid items measured fair value identifiable intangible assets acquired based valuations use information assumptions determined management consider management’s best estimates inputs assumptions market participant would use subsequent events company evaluated subsequent events determined material recognized unrecognized subsequent events described note 24 subsequent events required mentioned footnotes consolidated financial statements cash equivalents cash equivalents primarily include cash hand money market funds time deposits original maturities three months less date acquisition time deposits represent amounts deposit banks temporarily invested instruments maturities three months less time purchase certain investments represent deposits insured fdic government agency cash equivalents carried cost approximates fair value shortterm investments shortterm investments represent time call deposits original maturities greater three months date acquisition shortterm investments classified availableforsale reported fair value unrealized gains losses recorded december 31 2019 2018 cost approximates current fair value shortterm investments held company december 31 2018 restricted cash restricted cash included component cash equivalents restricted cash company’s consolidated statement cash flows company certain subsidiaries required local laws regulations maintain restricted cash balances cover future employee benefit payments restricted cash balances classified noncurrent unless terms applicable agreements funds released restrictions within one year balance sheet date current noncurrent portion restricted cash recorded within current assets longterm assets respectively accompanying consolidated balance sheets inclusion restricted cash increased balances consolidated statement cash flows follows dollars millions derivative financial instruments hedging activities derivatives whether designated hedging relationship recorded consolidated balance sheets fair value accounting changes fair value derivative instrument depends whether designated qualifies part hedging relationship type hedging relationship derivative instruments designated qualify hedging instruments company must designate hedging instrument based exposure hedged fair value hedge cash flow hedge foreign currency hedge net investment foreign operation derivative designated hedge depending nature hedge changes fair value derivative either offset change fair value hedged item earnings recognized comprehensive income hedged item recognized earnings derivatives designated hedges recorded fair value earnings fair value financial instruments company applies following hierarchy determine fair value financial instruments prioritizes inputs used measure fair value three levels bases categorization within hierarchy upon lowest level input available significant fair value measurement levels hierarchy defined follows ●level 1 inputs valuation methodology quoted prices unadjusted identical assets liabilities active markets ●level 2 inputs valuation methodology include quoted prices similar assets liabilities active markets inputs observable asset liability either directly indirectly substantially full term financial instrument ●level 3 inputs valuation methodology unobservable significant fair value measurement valuation techniques may used company determine fair value level 2 level 3 financial instruments market approach income approach cost approach market approach uses prices relevant information generated market transactions involving identical comparable assets liabilities income approach uses valuation techniques convert future amounts single present value based current market expectations future amounts including present value techniques optionpricing models excess earnings method cost approach based amount would required replace service capacity asset replacement cost company’s financial instruments consist primarily cash equivalents shortterm investments restricted cash derivative instruments consisting forward foreign exchange contracts crosscurrency interest rate swap agreements commodity contracts derivatives embedded certain purchase sale contracts derivatives embedded within noncontrolling interests accounts receivable accounts payable contingent consideration longterm debt carrying amounts company’s cash equivalents shortterm investments restricted cash accounts receivable borrowings revolving credit agreement accounts payable approximate fair value shortterm nature derivative assets liabilities measured fair value recurring basis company’s longterm debt consists principally note purchase agreement entered 2012 revolving credit agreement long term loan agreement note purchase agreement entered 2019 company evaluated estimated fair value financial instruments using available market information management’s estimates use different market assumptions andor estimation methodologies could significant effect estimated fair value amounts concentration credit risk financial instruments subject company credit risk consist cash equivalents shortterm investments derivative instruments accounts receivables restricted cash risk respect cash equivalents shortterm investments minimized company’s policy investing shortterm financial instruments issued highlyrated financial institutions risk respect derivative instruments minimized company’s policy entering arrangements highlyrated financial institutions risk respect accounts receivables minimized creditworthiness diversity company’s customers company performs periodic credit evaluations customers’ financial condition generally requires advanced deposit portion purchase price credit losses within management’s expectations allowance doubtful accounts totaled 34 million 38 million december 31 2019 2018 respectively december 31 2019 2018 single customer represented 10 company’s accounts receivable years ended december 31 2019 2018 2017 single customer represented 10 company’s total revenue inventories components inventory include raw materials workinprocess demonstration units finished goods demonstration units include systems located company’s demonstration laboratories installed sites potential customers considered available sale finished goods include intransit systems shipped company’s customers yet installed accepted customer inventories stated lower cost net realizable value cost determined principally firstin firstout method majority subsidiaries averagecost certain subsidiaries company reduces carrying value inventories differences cost estimated net realizable value taking consideration usage preceding twelve months expected demand technological obsolescence information including physical condition demonstration inventories company records charge cost product revenue amount required reduce carrying value inventory net realizable value costs associated procurement inventories inbound freight charges purchasing receiving costs capitalized part inventory also included cost product revenue line item within consolidated statements income comprehensive income property plant equipment property plant equipment stated cost less accumulated depreciation amortization major improvements extend useful lives capitalized expenditures maintenance repairs minor improvements charged expense incurred assets retired otherwise disposed assets related accumulated depreciation amortization eliminated accounts resulting gain loss reflected consolidated statements income comprehensive income depreciation amortization calculated straightline basis estimated useful lives assets follows goodwill intangible assets goodwill indefinitelived intangible assets amortized evaluated impairment annual basis interim basis events changes circumstances indicate carrying value may recoverable assessing recoverability goodwill indefinitelived intangible assets company must make assumptions regarding estimated future cash flows including forecasted revenue growth projected gross margin discount rate determine fair value assets estimates related assumptions change future company may required record impairment charges assets reporting period impairment determined company tests goodwill impairment reporting unit level operating segment one level operating segment company option performing qualitative assessment determine whether impairment testing necessary performing twostep quantitative assessment result qualitative assessment morelikelythannot fair value reporting unit less carrying amount quantitative impairment test required otherwise testing required quantitative impairment test performed first step involves comparing fair values applicable reporting units aggregate carrying values including goodwill company determines fair value reporting units using weighting market income methodologies estimating fair value reporting units requires significant judgment management carrying amount reporting unit exceeds fair value reporting unit company performs second step goodwill impairment test measure amount impairment second step goodwill impairment test company compares implied fair value reporting unit’s goodwill carrying value goodwill process research development iprd acquired part business combinations acquisition method represents ongoing development work associated enhancements existing products well development next generation products iprd initially capitalized fair value intangible asset indefinite life assessed impairment annual basis indicators impairment identified iprd project complete reclassified finitelived intangible asset amortized estimated useful life iprd project abandoned completion otherwise determined impaired value asset amount impairment charged consolidated statements income comprehensive income period project abandoned impaired intangible assets finite useful life amortized straightline basis estimated useful lives follows impairment longlived assets impairment losses recorded longlived assets used operations indicators impairment present quoted market price available estimated fair value assets less assets’ carrying value recoverable determination recoverability based estimate undiscounted future cash flows resulting use asset eventual disposition event cash flows expected sufficient recover carrying amount assets writtendown fair values impairment losses charged consolidated statements income comprehensive income difference fair value carrying value asset warranty costs deferred revenue company typically provides one year parts labor warranty purchase equipment anticipated cost warranty accrued upon recognition sale included current liability accompanying consolidated balance sheets company’s warranty reserve reflects estimated material labor costs potential product issues company expects incur obligation company’s estimates anticipated rates warranty claims costs primarily based historical information company assesses adequacy warranty reserve quarterly basis adjusts amount necessary historical data used calculate adequacy warranty reserve indicative future requirements additional reduced warranty reserves may required company also offers customers extended warranty service agreements extending beyond initial warranty fee fees recorded deferred revenue recognized ratably income life extended warranty contract service agreement income taxes deferred tax assets liabilities recognized expected future tax consequences temporary differences financial statement carrying amounts income tax basis assets liabilities valuation allowance applied net deferred tax asset based available evidence likely deferred tax assets realized company records liabilities related uncertain tax positions accordance guidance clarifies accounting uncertainty income taxes recognized company’s financial statements guidance prescribes minimum recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return company includes accrued interest penalties related unrecognized tax benefits income tax liabilities applicable income tax expense customer advances company typically requires advance deposit terms conditions contracts customers deposits recorded current longterm liability revenue recognized specific contract accordance company’s revenue recognition policy revenue recognition 2019 2018 policy asc 606 company recognizes revenue accordance asc 606 revenue contracts customers key elements asc 606 1 identifying contract customer 2 identifying performance obligations contract 3 determining transaction price 4 allocating transaction price performance obligations contract 5 recognizing revenue performance obligation satisfied performance obligation promise contract transfer distinct good service customer contract’s transaction price allocated distinct performance obligation recognized revenue performance obligation satisfied company’s contracts multiple performance obligations commonly due providing additional goods services along system installation accessories parts services contracts multiple performance obligations company allocates contract’s transaction price performance obligation using best estimate standalone selling price distinct good service provided customer company’s best evidence standalone selling price normal selling pricing discounting practices specific product service sold standalone basis alternatively sold separately company may determine standalone selling price using expected cost plus margin approach company’s performance obligations typically satisfied point time commonly either shipment customer acceptance certain performance obligations maintenance contracts extended warranty recognized time based contractual obligation period addition certain arrangements provide customized deliverables may satisfied time based extent progress towards completion performance obligations recognized time revenue measured progress toward completion performance obligation reflects transfer control typically progress measured using costtocost method based cost incurred date relative total estimated costs upon completion best depicts transfer control customer application costtocost method requires company make reasonable estimates extent progress toward completion total costs company expects incur losses recorded immediately company estimates contracts ultimately result loss changes estimates could affect timing revenue recognition company includes costs incurred connection shipping handling products within selling general administrative costs amounts billed customers connection costs included total revenues control goods transfers prior completion company’s obligation ship products customers company elected practical expedient account shipping services fulfillment cost company expenses incremental costs obtaining contract incurred expected amortization period one year less amount immaterial company excludes transaction price taxes assessed governmental authority revenueproducing transactions collected company customer company recognizes revenue systems sales upon transfer control amount reflects consideration expects receive transfer control generally occurs upon shipment certain systems based upon customer acceptance system delivered installed customer facility systems include customerspecific acceptance criteria company required assess demonstrate acceptance criteria met generally upon successful factory acceptance testing customer acceptance evidence installation systems require installation system revenue recognized upon shipment standalone selling price installation deferred customer acceptance revenue accessories parts generally recognized based shipment service revenue recognized services performed ratably contractual obligation includes maintenance contracts extended warranties training application support ondemand services products sold independent distributor strategic distribution partner company recognizes system sale upon transfer control typically shipment company responsible installation standalone selling price installation deferred customer acceptance company’s distributors price protection rights return however company’s products typically warranted free defect period one year company requires advance deposit based terms conditions contracts customers many contracts typically revenue recognized within one year receiving advance deposit company material payment terms extend beyond one year minimal variable consideration included transaction price company’s contracts revenues primarily comprised development arrangements recognized costplusfixedfee basis licensing arrangements recognized either licenses provided ratably contract term depending nature arrangement contract assets liabilities contract assets represent unbilled receivables revenue recognized exceeds amount billed customer right payment subject passage time contract assets typically result system revenue recorded portion transaction price billable future event customer acceptance contracts recognized costtocost costplusfixedfee basis revenue exceeds amount billed customer amounts may exceed net realizable value contract assets generally classified current contract liabilities consist customer advances deferred revenue billings excess revenue contracts recognized costtocost costplusfixedfee basis contract liabilities classified current longterm based timing company expects recognize revenue contract assets liabilities reported net position contractbycontract basis end reporting period 2017 policy asc 605 company recognized revenue systems sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectability resulting receivable reasonably assured title risk loss generally transfers upon shipment certain systems based upon customer acceptance system delivered installed customer facility systems include customerspecific acceptance criteria company required assess demonstrate acceptance criteria met generally upon successful factory acceptance testing customer acceptance evidence installation products sold independent distributor strategic distribution partner assumes responsibility installation company recognizes system sale product shipped title risk loss transferred distributor company’s distributors price protection rights return however company’s products typically warranted free defect period one year revenue deferred cash received collectability reasonably assured price fixed determinable transactions include multiple elements arrangement consideration allocated element using fair value hierarchy required asu 200913 company limits amount revenue recognized delivered elements amount contingent future delivery products services future performance obligations subject customerspecific return refund privileges company determines fair value products services based upon vendor specific objective evidence vsoe company determines vsoe based normal selling pricing discounting practices specific product service sold standalone basis determining vsoe company’s policy requires substantial majority selling prices product service within reasonably narrow range company also considers class customer method distribution geographies products services sold determining vsoe cannot established company attempts establish selling price based thirdparty evidence tpe vsoe cannot established instances product service sold separately standalone sales infrequent product pricing within sufficiently narrow range tpe determined based competitor prices similar deliverables sold separately company cannot determine vsoe tpe uses estimated selling price esp allocation arrangement consideration objective esp determine price company would typically transact standalone sale product service esp determined considering number factors including company’s pricing policies internal costs gross profit objectives method distribution market research information recent technological trends competitive landscape geographies company analyzes selling prices used allocation arrangement consideration minimum annual basis selling prices analyzed frequently significant change company’s business factors necessitate frequent analysis company experiences significant variances selling prices revenue accessories parts generally recognized based shipping terms service revenue recognized services performed ratably contractual obligation includes maintenance contracts extended warranty training application support ondemand services company also contracts applies percentageofcompletion model completed contract model revenue recognition application percentageofcompletion method requires company make reasonable estimates extent progress toward completion contract total costs company incur contract losses recorded immediately estimate contracts ultimately result loss changes estimates could affect timing revenue recognition revenues primarily comprised development arrangements recognized costplusfixedfee basis licensing arrangements recognized ratably term related contracts shipping handling costs company includes costs incurred connection shipping handling products within selling general administrative expenses accompanying consolidated statements income comprehensive income shipping handling costs 270 million 252 million 232 million years ended december 31 2019 2018 2017 respectively amounts billed customers connection costs included total revenues research development company commits substantial capital resources internal collaborative research development projects order provide innovative products solutions customers company conducts research primarily enhance system performance improve reliability existing products develop revolutionary new products solutions research development costs expensed incurred include salaries wages personnel related costs material costs depreciation consulting costs facility costs capitalized software purchased software capitalized cost amortized estimated useful life generally three years software developed use company’s products expensed incurred research development expense technological feasibility achieved subsequent achievement technological feasibility amounts capitalizable however date amounts material advertising company expenses advertising costs incurred advertising expenses 154 million 144 million 140 million years ended december 31 2019 2018 2017 respectively stockbased compensation company recognizes stockbased compensation expense consolidated statements income comprehensive income based fair value sharebased award grant date company’s primary types sharebased compensation stock options restricted stock awards restricted stock units company recorded stockbased compensation expense years ended december 31 2019 2018 2017 follows dollars millions addition awards company recorded stockbased compensation related benefit 23 million year ended december 31 2019 additional expense 05 million year ended december 31 2018 related 2018 acquisition mestrelab research sl compensation expense amortized straightline basis underlying vesting terms sharebased award stock options purchase company’s common stock periodically awarded executive officers employees company subject vesting period three four years fair value option award estimated date grant using blackscholes optionpricing model assumptions regarding volatility expected term dividend yield riskfree interest rates required blackscholes model presented table riskfree interest rates based yield zerocoupon us treasury securities period commensurate expected life assumption expected life determined calculation based historical experience expected volatility based company’s historical volatility results expected dividend yield included option pricing formula beginning february 2016 company adopted dividend policy company utilizes estimated forfeiture rate derived analysis historical data 83 75 67 years ended december 31 2019 2018 2017 respectively earnings per share net income per common share attributable bruker corporation shareholders calculated dividing net income attributable bruker corporation adjusted reflect changes redemption value redeemable noncontrolling interest weightedaverage shares outstanding period diluted net income per share computation includes effect shares would issuable upon exercise outstanding stock options vesting restricted stock reduced number shares assumed purchased company treasury stock method redemption value adjustment redeemable noncontrolling interest year ended december 31 2019 2018 following table sets forth computation basic diluted weighted average shares outstanding years ended december 31 dollars millions except per share data stock options restricted stock units purchase approximately 02 million shares 02 million shares 03 million shares excluded computation diluted earnings per share years ended december 31 2019 2018 2017 respectively effect would antidilutive post retirement benefit plans company recognizes overfunded underfunded status defined benefit pension postretirement defined benefit plans asset liability respectively consolidated balance sheets recognizes changes funded status year changes occur comprehensive income comprehensive income loss comprehensive income loss refers revenues expenses gains losses excluded net income amounts recorded directly adjustment shareholders’ equity net tax company’s comprehensive income loss composed foreign currency translation adjustments pension liability adjustments foreign currency translation assets liabilities company’s foreign subsidiaries functional currency local currency translated us dollars using current exchange rate consolidated balance sheet date shareholders’ equity translated using historical rates revenues expenses foreign subsidiaries translated average exchange rates effect year adjustments resulting financial statement translations included separate component shareholders’ equity gains losses resulting translation foreign currency monetary transactions reported interest income expense net consolidated statements income comprehensive income periods presented company certain intercompany foreign currency transactions deemed longterm investment nature exchange adjustments related transactions made directly separate component shareholders’ equity risks uncertainties company subject risks common industry including limited global economic conditions rapid technological change government academic funding levels impact covid19 coronavirus changes commodity prices spending patterns customers protection intellectual property availability key raw materials components compliance existing future regulation government agencies fluctuations foreign currency exchange rates december 2019 novel strain coronavirus referred covid19 surfaced wuhan china virus continues spread globally declared pandemic world health organization spread 100 countries including united states impact pandemic likely continue extensive many aspects society resulted likely continue result significant disruptions global economy well businesses capital markets around world impacts company’s business include temporary closures many government university customers suppliers disruptions restrictions employees’ customers’ ability travel delays product installations shipments affected countries effort halt outbreak covid19 number countries including united states placed significant restrictions travel many businesses announced extended closures example number states including california massachusetts new jersey company significant operations issued shelter place stayathome orders required company’s employees area work home avoid unnecessary travel addition number company’s production facilities either temporarily closed plan temporarily close operating reduced capacity commercial activity sales marketing customer demonstrations applications training either conducted remotely postponed customer purchasing departments operating reduced capacity many customers could delay cut capital expenditures operating budgets travel restrictions business closures operating reductions company customers distributors suppliers adversely impact company’s operations locally worldwide including ability manufacture sell distribute products well cause temporary closures foreign distributors facilities suppliers customers prolonged material disruption company’s employees distributors suppliers customers impact global sales operating results could lead impairments loss contingencies loss contingency provisions recorded potential loss claim asserted unasserted legal proceeding related patents products matters considered probable amount reasonably estimated range loss determined accruals represent management’s best estimate probable loss disclosure provided reasonably possible loss incurred reasonably possible amount loss exceed recorded provision use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant estimates judgments made management preparing financial statements include revenue recognition allowances doubtful accounts writedowns excess obsolete inventory estimated fair values used record impairment charges related intangible assets goodwill longlived assets amortization periods expected future cash flows used evaluate recoverability longlived assets record intangible assets business combinations stockbased compensation expense warranty allowances restructuring related charges contingent liabilities recoverability company’s net deferred tax assets changes estimates recorded period become known company bases estimates historical experience various assumptions believes reasonable circumstances actual results may differ management’s estimates results differ historical experience assumptions prove substantially accurate even assumptions reasonable made note 3revenue may 2014 financial accounting standards board fasb issued accounting standards update asu 201409 revenue contracts customers supersedes revenue recognition requirements accounting standards codification asc topic 605 new guidance result joint project fasb international accounting standards board clarify principles recognizing revenue develop common revenue standards us gaap international financial reporting standards core principle new guidance revenue recognized depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services new guidance effective january 1 2018 applied modified retrospective basis company elected practical expedient evaluated contracts substantially revenue recognized asc 605 cumulative effect new guidance recorded date initial application impact adoption increase beginning retained earnings 61 million net 21 million related taxes adoption impact primarily due change license revenue recognized point time asc 606 rather time recognized asc 605 difference asc 606 asc 605 material year ended december 31 2018 following table presents company’s revenues group years ended december 31 2019 2018 dollars millions revenue company recognized point time versus time follows years ended december 31 2019 2018 dollars millions remaining performance obligations remaining performance obligations represent aggregate transaction price allocated promise transfer good service fully partially unsatisfied end period december 31 2019 remaining performance obligations approximately 18553 million company expects recognize revenue approximately 542 remaining performance obligations next twelve months remaining performance obligations primarily within one three years contract balances timing revenue recognition billings cash collections results billed accounts receivable unbilled receivables contract assets deferred revenue customer deposits billings excess revenue recognized contract liabilities company’s consolidated balance sheets contract assetsmost company’s longterm contracts billed work progresses accordance contract terms conditions either periodic intervals upon achievement certain milestones billing often occurs subsequent revenue recognition resulting contract assets contract assets generally classified current assets consolidated balance sheets balance contract assets december 31 2019 december 31 2018 439 million 259 million respectively increase contract asset balance year ended december 31 2019 primarily result foreign currency translation increase contracts recognized revenue year billing cannot contractually occur december 31 2019 contract liabilitiesthe company often receives cash payments customers advance company’s performance resulting contract liabilities contract liabilities classified either current longterm consolidated balance sheet based timing revenue recognition expected december 31 2019 december 31 2018 contract liabilities 3125 million 2885 million respectively increase contract liability balance year ended december 31 2019 primarily result new performance obligations entered year approximately 1861 million contract liability balance december 31 2018 recognized revenue year ended december 31 2019 approximately 1710 million contract liability balance january 1 2018 date adoption asc 606 recognized revenue twelvemonth period ended december 31 2018 note 4acquisitions impact acquisitions individually collectively revenues net income total assets material pro forma financial information reflecting acquisitions presented impact individually collectively revenues net income total assets material amounts allocated goodwill attributable expected synergies expected deductible tax purposes april 2 2019 company acquired rave llc rave privately held company purchase price 522 million potential additional consideration 50 million based revenue gross margin achievements 2019 2020 rave develops manufactures nanomachining laser photomask repair equipment rave integrated bsi nano segment acquisition rave accounted acquisition method components fair value allocation consideration transferred connection acquisition follows dollars millions preliminary fair value allocation included contingent consideration amount 44 million represented estimated fair value future payments former shareholders rave based achieving revenue gross margin percentage targets period ended april 30 2020 company expects complete fair value allocation 2020 amortization period intangible assets acquired connection rave ten years addition rave llc acquisition noted year ended december 31 2019 company completed various acquisitions collectively complemented company’s existing product offerings added aftermarket software capabilities company’s existing businesses following table reflects consideration transferred respective reportable segment acquisitions years ended december 31 2018 2017 company completed various acquisitions collectively complemented company’s existing product offerings added aftermarket software capabilities company’s existing businesses following tables reflect consideration transferred respective reportable segment 2018 acquisitions anasys april 8 2018 company acquired 100 interest anasys instruments corp anasys privately held company purchase price 270 million potential additional consideration based revenue achievements 2019 2020 anasys develops manufactures nanoscale infrared spectroscopy thermal measurement instruments anasys integrated bsi nano segment fair value allocation included contingent consideration amount 53 million represented estimated fair value future payments former shareholders anasys based anasys achieving annual revenue targets years 2019 2020 company completed fair value allocation fourth quarter 2018 amortization period intangible assets acquired connection anasys eight years except backlog amortized one year jpk july 11 2018 company acquired 100 interest jpk instruments ag jpk privately held company purchase price euro 142 million approximately 166 million potential additional consideration based various operational achievements throughout 2019 2020 jpk adds indepth expertise livecell imaging cellular mechanics adhesion molecular force measurements optical trapping biological stimulusresponse characterization bruker’s capabilities jpk located berlin germany integrated bsi nano segment fair value allocation included contingent consideration amount 43 million represented estimated fair value future payments former shareholders jpk based jpk achieving various operational achievements years 2019 2020 company completed fair value allocation second quarter 2019 amortization period intangible assets acquired connection jpk eight years except backlog amortized one year mestrelab october 1 2018 bruker acquired 249 interest mestrelab research sl mestrelab purchase price euro 47 million approximately 54 million acquired additional 261 interest december 4 2018 purchase price euro 52 million approximately 59 million company options exercised 2022 acquire remaining 49 mestrelab adds indepth expertise assist advancing chemistry software handles spectroscopic data extracts manages chemical information variety analytical techniques including example nmr mass spectrometry mestrelab located santiago de compostela spain integrated bsi life science segment company completed fair value allocation fourth quarter 2019 amortization period intangible assets acquired connection mestrelab nine years except customer relationships amortized ten years concurrent acquisition company entered agreement noncontrolling interest holders provides company right purchase noncontrolling interest holders right sell remaining 49 mestrelab cash contractually defined redemption value rights embedded derivative exercisable beginning 2022 accelerated discounted redemption value upon certain events related post combination services option tied continued employment company classified hybrid instrument noncontrolling interest embedded derivative longterm liability consolidated balance sheet subsequent acquisition carrying value hybrid instrument remeasured fair value changes recorded stockbased compensation expense proportion requisite service period vested year ended december 31 2019 fair value remeasurement resulted 23 million stock compensation benefit hain october 15 2018 bruker acquired 80 interest hain lifescience gmbh hain purchase price euro 66 million approximately 764 million options acquire remaining 20 exercisable 2022 hain infectious disease specialist broad range molecular diagnostics solutions detection microbial viral pathogens well molecular antibiotic resistance testing hain located nehren germany integrated bsi life science segment company completed fair value allocation fourth quarter 2019 amortization period intangible assets acquired connection hain 15 years concurrent acquisition company entered agreement noncontrolling interest holders provided company right purchase noncontrolling interest holders right sell remaining 20 hain cash contractually defined redemption value rights accelerated certain events redemption contingently redeemable option noncontrolling interest shareholders company classifies carrying amount redeemable noncontrolling interest mezzanine section consolidated balance sheet presented equity section liabilities agreement establishes redemption price floor euro 167 million beginning 2022 redemption price capped euro 46 million increases euro 6 million year thereafter unexercised either party subsequent acquisition redeemable noncontrolling interest measured greater amount would paid settlement occurred balance sheet date based contractually defined redemption value carrying amount adjusted net income loss attributable noncontrolling interest adjustments carrying value redeemable noncontrolling interest recorded retained earnings year ended december 31 2019 adjustments carrying value redeemable noncontrolling interest alicona december 17 2018 bruker acquired 100 interest agapetus gmbh alicona purchase price euro 489 million approximately 554 million alicona provider opticalbased metrology products alicona located graz austria integrated bsi nano segment company completed fair value allocation fourth quarter 2019 amortization period intangible assets acquired connection alicona 8 years customer relationships technology intangible assets 12 years trade name intangible asset 1 year backlog intangible asset acquisitions addition acquisitions noted year ended december 31 2018 company completed various acquisitions collectively complemented company’s existing product offerings added aftermarket software capabilities company’s existing businesses total consideration transferred additional acquisitions 127 million following tables reflect consideration transferred respective reportable segment 2017 acquisitions luxendo may 5 2017 company acquired 100 shares luxendo gmbh luxendo privately held spinoff european molecular biology laboratory purchase price euro 17 million approximately 188 million potential additional consideration based revenue achievements 2018 2021 luxendo developer manufacturer proprietary lightsheet fluorescence microscopy instruments luxendo located heidelberg germany integrated bsi nano segment fair value allocation included contingent consideration amount 31 million represented estimated fair value future payments former shareholders luxendo based achieving annual revenue targets years 2018 2021 company completed fair value allocation third quarter 2017 amortization period intangible assets acquired connection acquisition luxendo 10 years trade names 7 years technology hysitron january 23 2017 company acquired 100 shares hysitron incorporated hysitron acquisition adds hysitron’s nanomechanical testing instruments company’s existing portfolio atomic force microscopes surface profilometers tribology mechanical testing systems hysitron included bsi nano segment fair value allocation included contingent consideration amount 16 million represented estimated fair value future payments former shareholders hysitron based achieving annual revenue targets years 2017 2018 company paid 11 million contingent payments related acquisition company completed fair value allocation second quarter 2017 maximum potential future payments related contingent consideration 10 million amortization period intangible assets acquired connection hysitron 7 years customer relationships trademarks intangibles 5 years existing technology note 5fair value financial instruments company measures following financial assets liabilities fair value recurring basis following tables set forth company’s financial instruments presents within fair value hierarchy using lowest level input significant fair value measurement december 31 2019 2018 dollars millions derivative financial instruments classified within level 2 active market derivative contract however inputs used calculate value instruments obtained active markets fair value longterm fixed interest rate debt classified level 2 5174 million 2288 million december 31 2019 2018 respectively based market observable sources similar maturity dates company measures certain assets liabilities fair value changes fair value recognized earnings excluded table restricted cash shortterm investments related time call deposits company program enter time deposits varying maturity dates ranging one twelve months well call deposits company ability redeem invested amounts period 95 days company classified investments within cash equivalents shortterm investments within consolidated balance sheets based call maturity dates subject fair value measurement following tables set forth balances restricted cash shortterm investments december 31 2019 2018 dollars millions quarterly basis company reviews shortterm investments determine events could create impairment none noted years ended december 31 2019 2018 part certain acquisitions company recorded contingent consideration liabilities classified level 3 fair value hierarchy contingent consideration represents estimated fair value future payments former shareholders certain acquired companies based applicable acquired company achieving annual revenue gross margin targets certain years specified relevant purchase sale agreement company initially values contingent considerations using monte carlo simulation income approach method monte carlo method models future revenue costs goods sold projections discounts average results present value income approach method involves calculating earnout payment based forecasted cash flows adjusting future earnout payment risk reaching projected financials discounting future payments present value counterparty risk counterparty risk considers risk buyer cash make earnout payments commensurate cost debt appropriate term following table sets forth changes contingent consideration liabilities years ended december 31 2019 2018 dollars millions part mestrelab acquisition company entered agreement noncontrolling interest holders provides company right purchase noncontrolling interest holders right sell remaining 49 mestrelab cash contractually defined redemption value rights embedded derivative exercisable beginning 2022 accelerated discounted redemption value upon certain events related post combination services option tied continued employment company classified hybrid instrument noncontrolling interest embedded derivative longterm liability consolidated balance sheet subsequent acquisition carrying value hybrid instrument remeasured fair value changes recorded stockbased compensation expense proportion requisite service period vested hybrid instrument classified level 3 fair value hierarchy following table sets forth changes hybrid instrument liability year ended december 31 2019 2018 dollars millions note 6accounts receivable following summary accounts receivable net december 31 dollars millions allowance doubtful accounts based number factors including evaluation customer credit worthiness age outstanding receivable economic trends historical experience provisions doubtful accounts recorded selling general administrative expenses accompanying consolidated statements income comprehensive income following summary activity company’s allowance doubtful accounts december 31 dollars millions note 7inventories inventories consisted following december 31 dollars millions finished goods include intransit systems shipped company’s customers yet installed accepted customer december 31 2019 2018 inventoryintransit 360 million 383 million respectively note 8property plant equipment net following summary property plant equipment net major asset class december 31 dollars millions depreciation expense includes amortization leasehold improvements years ended december 31 2019 2018 2017 373 million 360 million 343 million respectively years ended december 31 2019 2017 company recorded impairment charges 05 million 11 million respectively representing write fair value certain property plant equipment net related restructuring outsourcing activities undertaken respective years impairment charges recorded within charges net accompanying consolidated statements income comprehensive income please see note 19 charges net additional details restructuring activities impairment charges year ended december 31 2018 note 9goodwill intangible assets goodwill following table sets forth changes carrying amount goodwill segment years ended december 31 2019 2018 2017 dollars millions company performed annual impairment evaluation using quantitative qualitative approach december 31 2019 quantitative approach december 31 2018 qualitative approach december 31 2017 concluded likely goodwill impaired based recent quantitative analysis fair values company’s reporting units greater carrying amounts therefore impairment required company recorded 31 million cumulative impairment goodwill intangible assets following summary intangible assets december 31 2019 2018 dollars millions years ended december 31 2019 2018 2017 company recorded amortization expense approximately 383 million 289 million 296 million respectively consolidated statements income comprehensive income year ended december 31 2019 company recorded impairment charge 12 million representing impairment technology within bsi life science segment year ended december 31 2018 company recorded impairment charge 06 million representing impairment inprocess research development within bsi life science segment estimated future amortization expense related amortizable intangible assets december 31 2019 follows dollars millions note 10other current liabilities following summary current liabilities december 31 2019 2018 dollars millions following table sets forth changes accrued warranty years ended december 31 2019 2018 2017 dollars millions note 11debt company’s debt obligations consist following december 31 2019 2018 dollars millions amount outstanding 2019 revolving credit agreement december 31 2019 december 11 2019 company entered 1 new revolving credit agreement establish new revolving credit facility aggregate principal amount 600 million 2 term loan agreement establish new term loan facility aggregate principal amount 300 million 3 note purchase agreement issue sell chf 297 million aggregate principal amount 101 senior notes due december 11 2029 new revolving credit agreement replaces company’s 500 million fiveyear revolving credit agreement established october 27 2015 terminated december 11 2019 existing 105 million 431 series 2012a senior notes tranche c due january 18 2022 existing 100 million 446 series 2012a senior notes tranche due january 18 2024 company issued pursuant note purchase agreement dated january 18 2012 remain full force effect revolving credit agreements term loan agreement note purchase agreements described 2019 revolving credit agreement december 11 2019 company entered new credit agreement referred 2019 revolving credit agreement 2019 revolving credit agreement provides fiveyear revolving credit facility us dollar equivalent amount 600 million comprised subfacilities revolving loans swingline loans letters credit foreign borrowings 2019 revolving credit agreement also provides uncommitted incremental facility whereby certain circumstances company may option increase amount revolving facility incur term loans aggregate amount exceed 250 million loans 2019 revolving credit agreement repayable full maturity may also prepaid company’s option whole part without premium penalty amounts borrowed 2019 revolving credit agreement may repaid reborrowed time prior maturity date obligations 2019 revolving credit agreement unsecured fully unconditionally guaranteed company certain subsidiaries borrowings 2019 revolving credit agreement bear interest rate equal company’s option london interbank offered rate libor applicable relevant currency plus margin ranging 1000 1500 based company’s leverage ratio b highest federal funds effective rate plus ½ 1 ii prime rate announced bank america na iii libor adjusted plus 1 plus case margin rate ranging 0100 0500 based company’s leverage ratio company also agreed pay quarterly facility fee based aggregate unused amount available 2019 revolving credit agreement ranging 0100 0200 based company’s leverage ratio 2019 revolving credit agreement includes affirmative negative financial covenants events default customary financings type negative covenants include among others restrictions liens indebtedness company subsidiaries asset equity sales dividends transactions affiliates financial covenants include maximum leverage ratio minimum interest coverage ratios company specifically company’s leverage ratio cannot exceed 35 interest coverage ratio cannot less 25 events default include among others payment defaults performance affirmative negative covenants inaccuracy representations warranties bankruptcy insolvency related events certain erisa events material judgments occurrence change control following summary maximum commitments net amounts available company 2019 revolving credit agreement lines credit various financial institutions located primarily germany switzerland unsecured typically due upon demand interest payable monthly december 31 2019 millions 2015 revolving credit agreement october 27 2015 company entered revolving credit agreement referred 2015 credit agreement 2015 credit agreement provided maximum commitment company’s revolving credit line 500 million maturity date october 2020 2015 revolving credit agreement terminated december 2019 borrowings revolving credit line 2015 credit agreement accrued interest company’s option either greatest prime rate ii federal funds rate plus 050 iii adjusted libor plus 100 plus margins ranging 000 030 b libor plus margins ranging 090 130 also facility fee ranging 010 020 borrowings 2015 credit agreement guaranteed certain company’s material subsidiaries 2015 credit agreement also required company maintain certain financial ratios related maximum leverage minimum interest coverage addition financial ratios 2015 credit agreement contained negative covenants including among others restrictions liens indebtedness company subsidiaries asset sales dividends transactions affiliates 2019 term loan agreement december 11 2019 company together certain subsidiaries borrowers entered term loan agreement referred term loan agreement bank consortium term loan agreement provides 300 million sevenyear term loan facility subject terms conditions substantially consistent provisions contained 2019 revolving credit agreement loans term loan agreement repayable full maturity subject scheduled amortization beginning 2022 may also prepaid company’s option whole part without premium penalty obligations term loan agreement unsecured fully unconditionally guaranteed certain company’s subsidiaries amounts outstanding term loan agreement bear interest rate equal company’s option us dollar london interbank offered rate usd libor plus margin ranging 1000 1500 based company’s leverage ratio b highest federal funds effective rate plus ½ 1 ii prime rate announced bank america na iii usd libor adjusted plus 1 plus margin ranging 0100 0500 based company’s leverage ratio terms term loan agreement substantially similar terms 2019 revolving credit agreement including representations warranties affirmative negative financial covenants events default 2019 note purchase agreement december 11 2019 company entered note purchase agreement referred 2019 note purchase agreement group institutional accredited investors pursuant 2019 note purchase agreement company issued sold chf 297 million aggregate principal amount 101 senior notes due december 11 2029 referred 2019 senior notes obligations note purchase agreement unsecured fully unconditionally guaranteed certain company’s subsidiaries interest 2019 senior notes payable semiannually june 11 december 11 year commencing june 11 2020 senior notes unsecured obligations company fully unconditionally guaranteed certain company’s subsidiaries company may prepay senior notes time amount less 10 aggregate principal amount senior notes outstanding price equal sum principal amount prepaid plus accrued unpaid interest b applicable “makewhole” amount c certain fees expenses event change control defined 2019 note purchase agreement company may required prepay senior notes price equal 100 principal amount thereof plus accrued unpaid interest certain fees expenses 2019 note purchase agreement contains customary affirmative negative covenants including among others restrictions company’s ability incur liens transfer sell equity assets engage certain mergers consolidations enter transactions affiliates engage permit subsidiary engage certain lines business 2019 note purchase agreement also includes customary representations warranties events default additionally long 2019 senior notes outstanding company may permit leverage ratio determined pursuant 2019 note purchase agreement end fiscal quarter exceed 350 100 unless material acquisition causes adjusted leverage ratio apply pursuant 2019 note purchase agreement ii interest coverage ratio determined pursuant 2019 note purchase agreement end fiscal quarter period four consecutive fiscal quarters less 250 100 iii priority debt time exceed 15 consolidated total assets determined pursuant 2019 note purchase agreement 2012 note purchase agreement january 2012 company entered note purchase agreement referred 2012 note purchase agreement group accredited institutional investors pursuant 2012 note purchase agreement company issued sold 2400 million senior notes referred 2012 senior notes consist following ●20 million 316 series 2012a senior notes tranche due january 18 2017 ●15 million 374 series 2012a senior notes tranche b due january 18 2019 ●105 million 431 series 2012a senior notes tranche c due january 18 2022 ●100 million 446 series 2012a senior notes tranche due january 18 2024 january 18 2017 outstanding 200 million principal amount tranche 2012 senior notes repaid accordance terms 2012 note purchase agreement january 18 2019 outstanding 150 million principal amount tranche b 2012 senior notes repaid accordance terms 2012 note purchase agreement terms 2012 note purchase agreement interest payable semiannually january 18 july 18 year 2012 senior notes unsecured obligations company fully unconditionally guaranteed certain company’s direct indirect subsidiaries 2012 senior notes rank pari passu right repayment company’s senior unsecured indebtedness company may prepay 2012 senior notes time amount less 10 original aggregate principal amount 2012 senior notes prepaid price equal sum 100 principal amount thereof plus accrued unpaid interest b applicable makewhole amount upon less 30 60 days’ written notice holders 2012 senior notes event change control company defined note purchase agreement company may required prepay notes price equal 100 principal amount thereof plus accrued unpaid interest 2012 note purchase agreement contains affirmative covenants including without limitation maintenance corporate existence compliance laws maintenance insurance properties payment taxes addition subsidiary guarantors furnishing notices information 2012 note purchase agreement also contains certain restrictive covenants restrict company’s ability among things incur liens transfer sell assets engage certain mergers consolidations enter transactions affiliates 2012 note purchase agreement also includes customary representations warranties events default case event default arising specified events bankruptcy insolvency outstanding 2012 senior notes become due payable immediately without action notice case payment events defaults holder 2012 senior notes affected thereby may declare 2012 senior notes held due payable immediately case event default majority holders 2012 senior notes may declare 2012 senior notes due payable immediately pursuant 2012 note purchase agreement long 2012 senior notes outstanding company permit leverage ratio determined pursuant 2012 note purchase agreement end fiscal quarter exceed 350 100 ii interest coverage ratio determined pursuant 2012 note purchase agreement end fiscal quarter period four consecutive fiscal quarters less 250 1 iii priority debt time exceed 25 consolidated net worth determined pursuant 2012 note purchase agreement december 31 2019 company compliance financial covenants debt agreements annual maturities debt outstanding less deferred financing cost amortization december 31 2019 follows dollars millions december 31 2019 company entered several crosscurrency interest rate swap agreements notional value 1500 million us swiss franc notional value 3550 million us euro hedge variability movement foreign currency exchange rates portions euro swiss franc denominated net asset investments agreements qualify hedge accounting accordingly change fair value derivative recorded comprehensive income part foreign currency translation adjustments remain accumulated comprehensive income loss attributable bruker corporation shareholders’ equity sale substantial liquidation foreign operation difference interest rate received paid interest rate crosscurrency swap agreements recorded interest income expenses consolidated statements income comprehensive income result entering agreements company lowered net interest expense 06 million 2019 gains losses related hedges net asset investments international operations recorded within cumulative translational adjustment section comprehensive income 68 million year ended december 31 2019 interest expense years ended december 31 2019 2018 2017 160 million 126 million 154 million respectively note 12derivative instruments hedging activities interest rate risks company’s exposure interest rate risk relates primarily outstanding variable rate debt adverse movements related market rates typically significant component company’s interest rate risk relates amounts outstanding 2019 credit agreement 2019 term loan foreign exchange rate risk management company generates substantial portion revenues expenses international markets principally germany countries european union switzerland subjects operations exposure exchange rate fluctuations impact currency exchange rate movement positive negative period company periodically enters foreign currency contracts order minimize volatility fluctuations currency translation monetary transactions arrangements company typically agrees purchase fixed amount foreign currency exchange fixed amount us dollars currencies specified dates maturities less twelve months agreements extending longer periods transactions qualify hedge accounting accordingly instrument recorded fair value corresponding gains losses recorded consolidated statements income comprehensive income company following notional amounts outstanding foreign exchange contracts crosscurrency interest rate swap agreements december 31 millions 1 derivatives designated accounting hedges 2 derivatives designated accounting hedges addition company periodically enters purchase sales contracts denominated currencies functional currency parties transaction company accounts transactions separately valuing “embedded derivative” component contracts denominated currencies functional currency transacting parties amounted 123 million delivery products 61 million purchase products december 31 2019 1135 million delivery products 60 million purchase products december 31 2018 purchase sale contracts designated accounting hedges changes fair value embedded derivatives recorded interest income expense net consolidated statements income comprehensive income commodity price risk management company arrangement customer firm commitment deliver copper based superconductors fixed price order minimize volatility fluctuations price copper company’s sales commodities company enters commodity hedge contracts commodity contracts designated accounting hedges december 31 2019 2018 company fixed price commodity contracts notional amounts aggregating 56 million 68 million respectively changes fair value commodity contracts recorded interest income expense net consolidated statements income comprehensive income fair value derivative instruments described recorded consolidated balance sheets years ended december 31 2019 2018 follows dollars millions impact net income unrealized gains losses resulting changes fair value derivative instruments years ending december 31 follows dollars millions recorded within interest income expense net consolidated statements income comprehensive income note 13income taxes domestic foreign components income taxes follows years ended december 31 dollars millions components income tax provision follows years ended december 31 dollars millions income tax provision differs tax provision computed us federal statutory rate due following significant components years ended december 31 tax effect temporary items give rise significant portions deferred tax assets liabilities december 31 2019 2018 follows dollars millions company uses liability method account income taxes method deferred income taxes recognized future tax consequences differences tax financial accounting bases assets liabilities reporting period deferred income taxes based enacted tax laws statutory tax rates applicable period differences expected affect taxable income valuation allowance established necessary reduce deferred tax assets expected realizable amounts company recognize deferred tax asset extent “more likely not” assets realized judgments around realizability depend availability weight positive negative evidence changes valuation allowance deferred tax assets years ended december 31 2019 2018 2017 follows december 31 2019 company approximately 388 million net operating loss carryforwards available reduce state taxable income expected expire various times beginning 2020 company also approximately 827 million german trade tax corporate income tax net operating losses carried forward indefinitely additionally company 132 million foreign net operating losses expected expire various times beginning 2020 company also state research development tax credits 77 million utilization credits state net operating losses may subject annual limitations due ownership percentage change limitations provided internal revenue code section 382 similar state provisions event deemed change control internal revenue code section 382 annual limitation utilization net operating losses credits may result expiration portion net operating loss credit carryforwards december 31 2019 company recorded state income foreign withholding taxes cash liquid assets portion unremitted earnings profits ep foreign subsidiaries expected repatriated foreign subsidiaries united states except amounts certain subsidiaries company asserted indefinitely reinvested specifically company asserts total 16 billion unremitted foreign earnings indefinitely reinvested figure comprised 11 billion unremitted earnings well 447 million noncash ep jurisdictions indefinitely reinvested ep ultimately distributed united states form dividends otherwise company would likely subject additional withholding tax company estimates amount unrecognized deferred withholding taxes undistributed ep approximately 58 million december 31 2019 company gross unrecognized tax benefits excluding interest approximately 159 million december 31 2019 recognized would reduce company’s effective tax rate next twelve months reasonably possible company reduce unrecognized tax benefits immaterial amount due expiration statutes limitations tabular reconciliation beginning ending amount unrecognized tax benefits follows dollars millions company’s policy include accrued interest penalties related unrecognized tax benefits income tax liabilities applicable income tax expense december 31 2019 2018 company approximately 04 million 02 million respectively accrued interest penalties related uncertain tax positions included longterm liabilities consolidated balance sheets company recorded benefit 02 million penalties interest related unrecognized tax benefits provision income taxes year ended december 31 2018 benefit recognized year ended december 31 2019 company files tax returns united states includes federal state local jurisdictions many foreign jurisdictions varying statutes limitations company considers germany united states switzerland significant tax jurisdictions majority company’s earnings derived germany switzerland accounting various federal local taxing authorities statutory rates 2019 approximately 300 200 germany switzerland respectively mix earnings two jurisdictions resulted increase 551 us statutory rate 21 2019 company party tax holiday agreements tax years 2013 2016 open examination germany switzerland 2016 company settled tax audits germany switzerland settlements immaterial consolidated financial statements tax years 2013 2018 remain open examination united states us tax reform december 22 2017 enactment date president united states signed tax reform legislation 2017 tax act enacted wide range changes us corporate income tax system many differ significantly provisions previous us tax law 2017 tax act contains several key provisions including among things ●a reduction corporate tax rate 350 210 tax years beginning december 31 2017 ●the introduction territorial tax system beginning 2018 providing 100 dividends received deduction certain qualified dividends foreign subsidiaries ●to fund territorial tax system onetime tax mandatory deemed repatriation post1986 untaxed foreign earnings profits ep referred “toll charge” ●the introduction new us tax certain offshore earnings associated socalled “global intangible lowtaxed income” gilti tax imposed effective tax rate 105 tax years beginning december 31 2017 increasing 13125 tax years beginning december 31 2025 partial offset foreign tax credits also december 22 2017 securities exchange commission sec issued staff accounting bulletin sab 118 provides companies additional guidance implement provisions 2017 tax act financial statements guidance provides measurement period one year enactment date provisional amounts may adjusted additional information obtained prepared analyzed facts circumstances existed enactment date known would impacted amounts initially recorded company fourth quarter 2017 company recognized within provision income taxes incremental income tax provision 689 million primarily comprised following ●an estimated income tax provision 550 million federal state impacts onetime deemed repatriation pre2018 ep accordance 2017 tax act federal portion toll charge liability may paid eight years liability reduced certain credits accordingly recorded 306 million 27 million longterm income tax liabilities accrued income taxes current respectively december 31 2017 ●an estimated net income tax benefit 14 million remeasurement deferred tax assets liabilities newly enacted tax rate 21 ●as result 2017 tax act expectations distributing certain cash balances foreign subsidiaries united states also recorded estimated income tax provisions estimated state income taxes foreign withholding taxes 125 million fourth quarter 2018 company completed accounting elements us tax reform 2018 company recorded tax adjustments sab 118 equal net benefit 54 million among adjustments 66 million additional tax expense related toll charge liability estimated 550 million 2017 addition 120 million tax benefit recorded 2018 reduced estimated liability 125 company recorded 2017 expected state income foreign withholding taxes associated unremitted foreign earnings change 14 million recorded 2017 net deferred tax liability related reduction us federal statutory tax rate 35 21 2019 company recorded tax adjustment equal net benefit 16 million related recalculation toll charge liability company expects reflect change 2017 amended tax return total toll charge liability december 31 2019 344 million amount approximately 58 million already paid company recorded tax expense associated gilti provisions 2017 tax act december 31 2019 companies allowed adopt accounting policy either recognize deferred taxes gilti treat tax cost year incurred company determined treat tax cost year incurred company record deferred income tax expense benefit related gilti provisions 2017 tax act consolidated statement income year ended december 31 2019 note 14post retirement benefit plans defined contribution plans company sponsors various defined contribution plans cover certain domestic international employees company may make contributions plans discretion company contributed 87 million 84 million 64 million plans years ended december 31 2019 2018 2017 respectively defined benefit plans substantially company’s employees switzerland france japan well certain employees germany covered companysponsored defined benefit pension plans retirement benefits generally earned based years service compensation active employment eligibility generally determined accordance local statutory requirements however level benefits terms vesting varies among plans company records pension service cost within cost sales selling general administrative research development expenses nonservice related pension costs recorded within interest income expense net consolidated statements income comprehensive income components net periodic benefit costs years ended december 31 2019 2018 2017 follows dollars millions company measures benefit obligation fair value plan assets december 31st year changes benefit obligations plan assets defined benefit pension plans projected benefit obligation funded status plans follows december 31 dollars millions accumulated benefit obligation defined benefit pension plans 2436 million 2069 million december 31 2019 2018 respectively defined benefit pension plans accumulated benefit obligation projected benefit obligation excess plan assets december 31 2019 2018 following amounts recognized accompanying consolidated balance sheets company’s defined benefit plans december 31 dollars millions following pretax amounts recognized accumulated comprehensive income company’s defined benefit plans december 31 dollars millions amount accumulated comprehensive income december 31 2019 expected recognized amortization net loss within net periodic benefit cost 2020 47 million defined benefit pension plans company uses corridor approach amortize actuarial gains losses approach net actuarial gains losses excess ten percent larger projected benefit obligation fair value plan assets amortized average remaining service active participants expected receive benefits plans range assumptions used defined benefit pension plans reflects different economic environments within various countries range assumptions used determine net periodic benefit costs projected benefit obligations years ended december 31 follows determine expected longterm rate return pension plan assets company considers current asset allocations well historical expected returns various asset categories plan assets defined benefit pension plans company applies expected rate return marketrelated value assets stabilizes variability assets expected return applied asset allocations asset category fair value company’s pension plan assets december 31 2019 2018 asset category level fair value hierarchy follows dollars millions athe company’s pension plan france invested larger fund invests variety instruments assets directly dedicated french pension plan group bpce life fund invests debt securities foreign corporations governments equity securities foreign government funds private real estate funds bthe company’s pension plan switzerland outsourced swiss life ag outside insurance provider insurance contract plan assets invested swiss life collective bvg foundation umbrella fund retirement savings interest rates guaranteed minimum 10 years ended december 31 2019 2018 mandatory withdrawal portion defined swiss law 025 years ended december 31 2019 2018 nonmandatory portion foundation utilizes plan administrators investment managers oversee investment allocation process set longterm strategic targets monitor asset allocations target allocations 75 bonds including cash 5 equity investments 20 real estate mortgages foundation yield return greater guaranteed amounts company according swiss law shall receive 90 additional return swiss life ag retaining 10 withdrawal benefits interest allocations secured times swiss life ag contributions estimated future benefit payments 2020 company expects contributions consistent 2019the estimated future benefit payments based assumptions used measure company’s benefit obligation december 31 2019 following benefit payments reflect future employee service appropriate dollars millions note 15leases february 2016 fasb issued asu 201602 leases provides guidance recognition measurement presentation disclosure leases new standard effective january 1 2019 superseded previous us gaap guidance leases requires leases terms longer 12 months reported balance sheet rightofuse rou assets lease liabilities well provide additional disclosures lease liability represents lessee’s obligation make lease payments arising lease measured present value lease payments rightofuse asset represents lessee’s right use specified asset lease term measured lease liability amount adjusted lease prepayment lease incentives received lessee’s initial direct costs asu 201602 companies required transition new standard period adoption beginning earliest period presented financial statements january 1 2017 company july 2018 fasb issued asu 201811 update asu 201602 part provided companies option transitioning new standard adoption date recognizing cumulativeeffect adjustment opening balance retained earnings period adoption company adopted new standard january 1 2019 using alternative transition method asu 201811 recognized cumulativeeffect adjustment opening balance sheet company’s prior period financial statements adjusted due adopting new standard based alternative transition method company elected available package practical expedients leases commenced prior effective date allows reassess 1 whether expired existing contracts contain leases 2 lease classification expired existing leases 3 accounting treatment initial direct costs expired existing leases company also elected practical expedient allows lessees treat lease nonlease components leases single lease component asset classes adoption new standard resulted recording 755 million 779 million rou assets lease liabilities respectively january 1 2019 company’s balance sheet adoption new standard significantly affect company’s results operations starting first quarter 2019 company accounts leases accordance asc 842 leases inception arrangement company determines whether arrangement contains lease based unique facts circumstances present leases term greater 12 months recognized balance sheet rou assets corresponding lease liability company elected recognize balance sheet leases initial term 12 months less leases initial term 12 months less directly expensed incurred leases classified either operating finance depending specific terms arrangement company’s leases mainly consist facilities office equipment vehicles majority leases classified operating remaining lease term ranges 2020 2029 leases including option extend lease varying periods time terminate prior end lease term certain lease agreements contain provisions future rent increases lease payments included measurement lease liability comprise fixed payments future rent increases tied index rate exercise price company option purchase underlying asset company reasonably certain exercise option future rent increases dependent index rate initially measured index rate commencement date company’s leases typically contain residual value guarantees commencement date operating finance lease liabilities corresponding rou assets recorded based present value lease payments expected lease term lease term includes noncancellable period lease plus additional periods covered either company option extend terminate lease company reasonably certain exercise option extend terminate lease controlled lessor interest rate implicit lease contracts typically readily determinable therefore incremental borrowing rate used calculate lease liability incremental borrowing rate incurred borrow collateralized basis similar term amount equal lease payments similar economic environment certain adjustments rou asset may required items prepayments lease incentives received initial direct costs paid operating lease cost recognized lease term straightline basis finance lease cost amortized expected term straightline basis variable lease cost dependent index rate recognized incurred typically consists amounts owed company lessor fixed reimbursement common area maintenance utilities cost components lease cost year ended december 31 2019 follows dollars millions supplemental balance sheet information december 31 2019 related leases follows dollars millions supplemental cash flow information related leases year ended december 31 2019 follows dollars millions maturity analysis finance lease operating lease liabilities december 31 2019 follows dollars millions december 31 2018 minimum commitments company’s leases required prior lease guidance asc 840 follows dollars millions total rental expense operating leases 251 million 237 million years ended december 31 2018 2017 respectively note 16commitments contingencies accordance asc topic 450 contingencies company accrues anticipated costs settlement damages costs extent specific losses probable estimable litigation related contingencies lawsuits claims proceedings nature considered normal businesses may pending time company third parties might allege company collaborators infringing patent rights company otherwise violating intellectual property rights loss contingency provisions recorded potential loss claim asserted unasserted legal proceeding considered probable amount reasonably estimated range loss determined accruals represent management’s best estimate probable loss disclosure also provided reasonably possible loss incurred reasonably possible amount loss exceed recorded provision company believes outcome pending proceedings individually aggregate material impact company’s financial statements september 25 2019 complaint filed düsseldorf germany district court carl zeiss microscopy gmbh subsidiary carl zeiss ag zeiss sued luxendo gmbh luxendo subsidiary bruker corporation infringement recently registered german utility model patent licensed zeiss pertaining one specific luxendo product category company intends vigorously defend claim september 23 2019 complaint filed düsseldorf germany district court micromass uk limited subsidiary waters corporation sued bruker corporation well affiliate bruker daltonik gmbh infringement european patent pertaining timstof product line bruker notified micromass expanded complaint düsseldorf asserts another recently granted european patent germany company intends vigorously defend claims december 31 2019 2018 material accruals recorded potential contingencies governmental investigations company subject regulation national state local government agencies united states countries operates time company subject governmental investigations often involving regulatory marketing business practices governmental investigations may result commencement civil criminal proceedings fines penalties administrative remedies could material adverse effect company’s financial position results operations andor liquidity august 2018 korea fair trade commission kftc informed company conducting investigation public tender bidding activities number life science instrument companies operating korea including bruker korea co ltd bruker korea company cooperated fully kftc june 16 2019 kftc announced decision impose fine approximately 20000 bruker korea declined impose criminal liability bruker korea connection matter result kftc’s decision korea public procurement service pps imposed three month suspension bruker korea’s ability bid conduct sales korean government entities end march 27 2020 sales korean government entities less 3 company’s revenue year ended december 31 2019 late august 2019 kftc informed company conducting separate investigation public tender bidding activities number life science instrument companies operating korea including five public tenders involving bruker korea 2015 company cooperating fully kftc hearing matter scheduled april 17 2020 october 19 2017 company received notice investigation subpoena produce documents division enforcement sec subpoena sought information related employee terminated part restructuring certain matters involving company’s policies accounting practices related revenue recognition restructuring activities well related financial reporting disclosure compliance matters since january 1 2013 subpoena also sought information concerning among things company’s previously identified material weakness internal controls accounting income taxes related financial reporting matters certain payments nonemployee travel expenses april 25 2019 staff notified company concluded investigation based information received date intend recommend enforcement action sec company december 31 2019 2018 material accruals recorded potential contingencies related matters internal investigations previously audit committee company’s board directors audit committee assistance outside counsel conducted internal investigation practices certain business partners china conduct former employees bruker optics division china raised questions compliance laws including us foreign corrupt practices act andor compliance company’s business policies code conduct april 2019 audit committee concluded internal investigation previously disclosed company’s current report form 8k filed february 18 2020 company’s audit committee initiated internal investigation allegation recently received connection company’s yearend close primarily relating income tax matters including effective income tax rate 2019 related income tax balance sheet accounts audit committee assistance independent external legal counsel independent forensic accountants concluded investigation march 2020 investigation identify material misstatements omissions regarding company’s financial statements misconduct violations company’s code conduct tone top failures unconditional purchase commitments company entered unconditional purchase commitments ordinary course business include agreements purchase goods services fixed assets pay royalties enforceable legally binding specify significant terms including fixed minimum quantities purchased fixed minimum variable price provisions approximate timing transaction purchase commitments exclude agreements cancelable time without penalty aggregate amount company’s unconditional purchase commitments totaled 2502 million december 31 2019 majority commitments expected settled 2020 unconditional purchase commitments fixed determinable december 31 2019 follows dollars millions license agreements company entered license agreements allowing utilize certain patents used connection commercial product sale company pays royalties related product revenues licensing fees years ended december 31 2019 2018 2017 26 million 37 million 35 million respectively recorded cost product revenue consolidated statements income comprehensive income letters credit guarantees december 31 2019 2018 company bank guarantees 1432 million 1383 million respectively related primarily customer advances arrangements guarantee refund advance payments received customers event merchandise delivered warranty obligations fulfilled compliance terms contract guarantees affect availability company’s lines credit indemnifications company enters standard indemnification arrangements company’s ordinary course business pursuant arrangements company indemnifies holds harmless agrees reimburse indemnified parties losses suffered incurred indemnified party parties generally company’s directors officers business partners customers connection patent copyright intellectual property infringement claim third party respect products term indemnification agreements generally perpetual time execution agreement maximum potential amount future payments company could required make agreements unlimited company believes estimated fair value agreements minimal based historical experiences note 17shareholders’ equity share repurchase program may 2019 company’s board directors approved share repurchase program repurchases common stock 3000 million may occur time amounts prices times company deems appropriate subject market conditions legal requirements considerations total 3323104 shares repurchased program aggregate cost 1423 million year ended december 31 2019 future repurchases funded cash hand future cash flows operations available borrowings revolving credit facility repurchased shares reflected within treasury stock accompanying consolidated balance sheet december 31 2019 2018 cash dividends common stock february 22 2016 company announced establishment dividend policy declaration board directors initial quarterly cash dividend amount 004 per share company’s issued outstanding common stock dividend policy company target cash dividend company’s shareholders amount 016 per share per annum payable equal quarterly installments subsequent dividend declarations establishment record payment dates future dividend payments subject board directors’ continuing determination dividend policy best interests company’s shareholders dividend policy may suspended cancelled discretion board directors time accumulated comprehensive income loss following summary components accumulated comprehensive income loss net tax december 31 dollars millions note 18stockbased compensation march 9 2010 company’s board directors unanimously approved adopted bruker corporation 2010 incentive compensation plan “2010 plan” may 14 2010 plan approved company’s stockholders 2010 plan provided issuance 8000000 shares company’s common stock 2010 plan allowed committee board directors “compensation committee” grant incentive stock options nonqualified stock options restricted stock awards compensation committee authority determine employees would receive awards amount awards terms conditions awards granted 2010 plan typically made subject vesting period three five years may 2016 bruker corporation 2016 incentive compensation plan “2016 plan” approved company’s stockholders approval 2016 plan grants made 2010 plan 2016 plan provides issuance 9500000 shares company’s common stock permits grant awards nonqualified stock options incentive stock options stock appreciation rights restricted stock unrestricted stock restricted stock units performance shares performance units well cashbased awards 2016 plan administered compensation committee compensation committee authority determine employees receive awards amount awards terms conditions awards stock option awards granted 2016 plan typically vest period one four years starting 2017 members company’s board directors receive annual award restricted stock units vest oneyear service period stock option activity year ended december 31 2019 follows addition options vested december 31 2019 company expects portion unvested options vest future options expected vest future determined applying estimated forfeiture rate options unvested december 31 2019 bthe aggregate intrinsic value based positive difference fair value company’s common stock price 5097 december 31 2019 date exercises appropriate exercise price underlying stock options weighted average fair value options granted 1116 950 761 per share years ended december 31 2019 2018 2017 respectively total intrinsic value options exercised 152 million 80 million 162 million years ended december 31 2019 2018 2017 respectively unrecognized pretax stockbased compensation expense 29 million related stock options awarded 2010 2016 plans expected recognized weighted average remaining service period 23 years stock options outstanding december 31 2019 restricted shares company’s common stock periodically awarded executive officers directors certain key employees company subject service restrictions vest ratably periods one four years restricted shares common stock may sold transferred restriction period stockbased compensation restricted stock recorded based stock price grant date charged expense ratably throughout restriction period following table summarizes information restricted stock award activity year ended december 31 2019 total fair value restricted stock vested 05 million 18 million 23 million years ended december 31 2019 2018 2017 respectively restricted stock awards outstanding december 31 2019 restricted stock units company’s common stock periodically awarded executive officers directors certain employees company vest ratably service periods one four years stockbased compensation restricted stock units recorded based stock price grant date charged expense ratably throughout vesting period following table summarizes information restricted stock unit activity year ended december 31 2019 total fair value restricted stock vested 79 million 69 million 20 million years ended december 31 2019 2018 2017 respectively unrecognized pretax stockbased compensation expense 230 million related restricted stock units awarded 2016 plan expected recognized weighted average remaining service period 29 years units outstanding december 31 2019 note 19other charges net components charges net years ended december 31 2019 2018 2017 follows dollars millions restructuring initiatives restructuring charges years ended december 31 2019 2018 2017 included charges various programs recorded accompanying consolidated statements income comprehensive income follows dollars millions restructuring charges included gain sale building 77 million year ended december 31 2019 following table sets forth changes restructuring reserves years ended december 31 2019 2018 2017 dollars millions note 20interest income expense net components interest income expense net years ended december 31 2019 2018 2017 follows dollars millions note 21business segment information company three reportable segments bsi life science bsi nano best discussed note 1 consolidated financial statements selected reportable segment information presented years ended december 31 dollars millions represents product service revenue reportable segments b represents corporate costs eliminations allocated reportable segments total assets segment years ended december 31 follows dollars millions assets allocated reportable segments eliminations intercompany transactions company unable without unreasonable effort expense disclose amount total assets bsi life science bsi nano segments well corporate function company’s chief operating decision maker receive asset information operating segment total capital expenditures depreciation amortization segment presented years ended december 31 dollars millions revenue longlived assets including property plant equipment net operating lease right use assets geographical area year ended december 31 follows dollars millions note 22related parties company leases certain office space certain principal shareholders including director executive officer former member company’s board directors members immediate families expiration dates ranging 2019 2020 total rent expense leases 12 million 12 million 35 million years ended december 31 2019 2018 2017 respectively february 26 2020 company acquired land buildings 15 fortune drive 44 manning road billerica total purchase price 123 million property owned trust controlled equally bruker’s president ceo frank laukien halfbrother dirk laukien properties acquired adjacent bruker’s headquarters building 40 manning road property already owned company bruker biospin formerly leased property 15 fortune continue occupy property foreseeable future property 44 manning road currently fully leased unrelated third parties provides potential expansion bruker operations future purchase price allocated two properties follows 56 million 15 fortune drive 67 million 44 manning road price property established based independent thirdparty appraisal audit committee board reviewed voted approved related party transaction accordance bruker’s related persons transactions policy audit committee charter years ended december 31 2019 2018 2017 company recorded revenue 28 million 29 million 26 million respectively arising commercial transactions life sciences company member company’s board directors chairman chief executive officer note 23recent accounting pronouncements january 2020 fasb issued asu 202001 investmentsequity securities topic 321 investmentsequity method joint ventures topic 323 derivatives hedging topic 815clarifying interactions topic 321 topic 323 topic 815 consensus emerging issues task force clarifies interaction accounting certain equity securities equity method investments certain forward contracts purchased options guidance clarifies entity consider observable transactions require either apply discontinue equity method accounting purposes applying measurement principles certain equity securities immediately applying discontinuing equity method company expects adopt guidance 2020 using prospective method assessment adoption asu process expected material impact company’s consolidated financial statements december 2019 fasb issued asu 201912 income taxes topic 740 simplifying accounting income taxes guidance simplifies accounting income taxes removing certain exceptions within current guidance including approach intraperiod tax allocation methodology calculating income taxes interim period recognition deferred tax liabilities outside basis differences amendment also improves consistent application clarifying amending existing guidance related aspects accounting franchise taxes enacted changes tax laws rates clarifies accounting transactions result step tax basis goodwill guidance effective annual interim periods beginning december 15 2020 early adoption permitted assessment adoption asu process expected material impact company’s consolidated financial statements august 2018 fasb issued asu 201813 fair value measurement topic 820 disclosure framework changes disclosure requirements fair value measurement modifies disclosure requirements fair value measurements including consideration costs benefits asu effective company fiscal years beginning december 15 2019 assessment adoption asu process expected material impact company’s consolidated financial statements august 2017 fasb issued asu 201712 derivatives hedging topic 815 provides new guidance intended improve financial reporting hedging relationships better portray economic results entity’s risk management activities financial statements asu effective company fiscal years beginning december 15 2018 assessment adoption asu process expected material impact company’s consolidated financial statements january 2017 fasb issued asu 201704 intangiblesgoodwill topic 350 simplifying test goodwill impairment new standard simplifies subsequent measurement goodwill eliminating second step goodwill impairment test asu applied prospectively effective annual interim goodwill impairment tests fiscal years beginning december 15 2019 assessment adoption asu process expected material impact company’s consolidated financial statements june 2016 fasb issued asu 201613 financial instrumentscredit losses topic 326 measurement credit losses financial instruments guidance modifies recognition credit losses related financial assets debt securities trade receivables net investments leases offbalance sheet credit exposures financial assets contractual right receive cash current guidance requires recognition credit loss considered probable loss event occurred new guidance requires measurement expected credit losses based upon relevant information including historical experience current conditions reasonable supportable forecasts affect collectability asset expected credit losses may recognized sooner new guidance due broader range information required determine credit loss estimates new guidance also amends current otherthantemporary impairment model used debt securities classified availableforsale fair value availableforsale debt security amortized cost new guidance requires total unrealized loss bifurcated credit noncredit components expected credit losses subsequent recoveries recognized earnings changes considered credit related continue recognized within comprehensive income loss guidance effective annual interim periods beginning december 15 2019 assessment adoption asu process expected material impact company’s consolidated financial statements note 24subsequent events january 31 2020 company acquired remaining 20 interest hain lifescience gmbh hain purchase price eur 20 million approximately 222 million company previously purchased first 80 hain october 2018 hain located nehren germany integrated bruker calid group note 25quarterly financial data unaudited summary operating results quarterly periods years ended december 31 2019 2018 set forth dollars millions except per share data item 9item 8 financial statements supplementary data consolidated financial statements required response item submitted part item 14a report item 9item 8 financial statements supplementary data page report ernst young llp independent registered public accounting firm consolidated balance sheets december 31 2007 2006 consolidated statements operations years ended december 31 2007 2006 2005 consolidated statements shareholders equity comprehensive income loss years ended december 31 2007 2006 2005 consolidated statements cash flows years ended december 31 2007 2006 2005 notes consolidated financial statements report independent registered public accounting firm board directors shareholders bruker corporation audited accompanying consolidated balance sheets bruker corporation december 31 2007 2006 related consolidated statements operations shareholders equity comprehensive income loss cash flows three years period ended december 31 2007 audits also included financial statement schedule listed index item 15a financial statements schedule responsibility companys management responsibility express opinion financial statements schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position bruker corporation december 31 2007 2006 consolidated results operations cash flows three years period ended december 31 2007 conformity us generally accepted accounting principles also opinion related financial statement schedule considered relation basic financial statements taken whole presents fairly material respects information set forth therein discussed note 2 consolidated financial statements effective january 1 2006 bruker corporation adopted statement financial accounting standards 123r sharebased payment effective january 1 2007 adopted financial accounting standards board interpretation 48 accounting uncertainty income taxes also audited accordance standards public company accounting oversight board united states bruker corporations internal control financial reporting december 31 2007 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated march 14 2008 expressed unqualified opinion thereon ernst young llp boston massachusetts march 14 2008 bruker corporation consolidated balance sheets thousands except share data accompanying notes integral part financial statements bruker corporation consolidated statements operations thousands except per share data accompanying notes integral part financial statements bruker corporation consolidated statements shareholders equity comprehensive income loss thousands except share data accompanying notes integral part financial statements bruker corporation consolidated statements cash flows thousands accompanying notes integral part statements bruker corporation notes consolidated financial statements note 1description business bruker corporation whollyowned subsidiaries company design manufacture service market proprietary life science materials research systems based mass spectrometry core technology platforms xray technologies optical emission spectroscopy oes infrared raman molecular spectroscopy technology company also sells broad range field analytical systems chemical biological radiological nuclear cbrn detection company maintains major technical manufacturing centers europe north america japan sales offices throughout world companys diverse customer base includes pharmaceutical biotechnology proteomics companies academic institutions advanced materials semiconductor industries government agencies july 1 2006 company completed acquisition bruker optics inc bruker optics company bruker optics majority owned five affiliated stockholders prior acquisition result acquisition bruker optics company considered business combination companies common control accordingly acquisition bruker optics relates portion common ownership approximately 96 accounted historical carrying values date acquisition portion common ownership five affiliated stockholders approximately 4 accounted minority interest portion common control primarily represented stock options purchase shares common stock outstanding date acquisition excess purchase price interest common control fair value related net assets acquired accounted goodwill intangible assets consolidated balance sheets statements operations statements cash flows notes consolidated financial statements periods presented herein restated combining historical consolidated financial statements company bruker optics since integration bruker optics acquisition began management company changing way business managed considers company provider instrumentation solutions life sciences industrial businesses throughout world management continue focus addressing markets serve needs various customers including pharmaceutical biotechnology advanced raw materials companies academic governmental institutions less selling individual products technologies result changes companys business company may change segment reporting future company currently reports financial results basis following three business segments 1bruker daltonics leading developer provider life science tools based mass spectrometry also develops provides broad range field analytical systems cbrn detection 2bruker axs leading developer provider life science advanced materials research tools based xray technology tools advanced xray oesspark instrumentation used nondestructive molecular materials elemental analysis academic research industrial applications 3bruker optics leading developer provider research analytical process analysis instruments solutions based infrared raman molecular spectroscopy technologies note 2summary significant accounting policies principles consolidation financial statements include accounts company majority whollyowned subsidiaries intercompany accounts transactions eliminated cash equivalents cash equivalents consist primarily highly liquid investments original maturities three months less date acquisition cash equivalents primarily include cash hand money market funds time deposits time deposits represent amounts deposit banks temporarily invested instruments maturities three months less time purchase certain investments represent deposits insured fdic united states government agency cash equivalents carried cost approximates market value restricted cash certain customers require company provide bank guarantees customer advances amounts considered restricted cash classified noncurrent generally lines credit facilitate requirement however extent required guarantee exceeds available local line credit company maintains current restricted cash balances addition company required maintain restricted cash balance guarantee lessor building located delft netherlands throughout lease term also classified noncurrent december 31 2007 2006 restricted cash balances approximately 17 million 11 million respectively concentration credit risk financial instruments subject company credit risk consist cash equivalents accounts receivables risk respect cash equivalents minimized companys policy investing shortterm financial instruments issued highlyrated financial institutions risk respect accounts receivables minimized creditworthiness companys customers company performs periodic credit evaluations customers financial condition generally require collateral credit losses within managements expectations allowance doubtful accounts totaled 19 million 24 million december 31 2007 2006 respectively years ended december 31 2007 2006 2005 single customer exceed 10 companys revenue accounts receivable inventories components inventory include raw materials workin process demonstration units finished goods demonstration units include units located companys demonstration laboratories potential customer sites considered available sale finished goods include intransit systems shipped companys customers yet installed accepted customer inventories stated lower cost market cost determined principally firstin firstout fifo method majority subsidiaries averagecost one international location company reduces carrying value inventories differences cost estimated net realizable value taking consideration usage preceding twelve months expected demand technological obsolescence information including physical condition demonstration intransit inventories company records charge cost revenue amount required reduce carrying value inventory net realizable value costs associated procurement warehousing inventories inbound freight charges purchasing receiving costs also included cost revenue line item within statement operations property plant equipment property plant equipment stated cost less accumulated depreciation amortization major improvements capitalized expenditures maintenance repairs minor improvements charged expense assets retired otherwise disposed assets related accumulated depreciation eliminated accounts resulting gain loss reflected statement operations depreciation amortization calculated straightline basis estimated useful lives assets follows depreciation amortization expense associated property plant equipment years ended december 31 2007 2006 2005 approximately 113 million 121 million 100 million respectively goodwill intangible assets company accounts goodwill intangible assets accordance financial accounting standards board fasb statement financial accounting standard sfas 142 goodwill intangible assets sfas 142 sfas 142 requires goodwill intangible assets indefinite useful lives amortized instead assets tested impairment reportable operating segment basis annually interim basis events changes circumstances warrant impairment test consists comparison fair value goodwill intangible asset carrying amount related impairment losses recognized earnings incurred company performs annual test indications impairment december 31st year accordance sfas 142 company tested impairment december 31 2007 2006 determined goodwill indefinitelived intangible assets impaired intangible assets finite useful life amortized straightline basis estimated useful lives periods ranging 4 10 years impairment longlived assets impairment losses recorded longlived assets used operations indicators impairment present quoted market price available estimated undiscounted operating cash flows generated assets less assets carrying value impairment losses charged statement operations difference fair value carrying value asset impairment losses recorded longlived assets years ended december 31 2007 2006 2005 warranty costs deferred revenue company typically provides one year parts labor warranty purchase equipment anticipated cost oneyear warranty accrued upon recognition sale included current liability accompanying balance sheets company also offers customers extended warranty service agreements extending beyond initial year warranty fee fees recorded deferred revenue amortized ratably income life extended warranty contract minority interest consolidated subsidiaries minority interest statement operations 299000 8000 40000 years ended december 31 2007 2006 2005 respectively represents minority common shareholders proportionate share net loss incoatec gmbh bruker baltic ltd income taxes company accounts income taxes accordance sfas 109 accounting income taxes sfas 109 sfas 109 requires asset liability approach account income taxes recognizing deferred tax assets liabilities expected future tax consequences differences financial statement basis tax basis assets liabilities calculated using enacted tax rates effect year differences expected reflected tax return company records valuation allowance reduce deferred tax assets amount likely realized january 1 2007 company adopted provisions financial accounting standards board interpretation 48 accounting uncertainty income taxesan interpretation fasb statement 109 fin 48 among things fin 48 provides guidance address uncertainty tax positions clarifies accounting income taxes prescribing minimum recognition threshold income tax position must achieve recognized financial statements addition fin 48 requires expanded annual disclosures including rollforward beginning ending aggregate unrecognized tax benefits well specific detail related tax uncertainties reasonably possible amount unrecognized tax benefit significantly increase decrease within twelve months connection adoption fin 48 company recorded reduction retained earnings 08 million january 1 2007 company unrecognized tax benefits approximately 57 million january 1 2007 20 million recognized would result reduction companys effective tax rate customer advances company typically requires advance deposit terms conditions contracts customers deposits recorded liability revenue recognized specific contract comprehensive income loss comprehensive income loss refers revenues expenses gains losses accounting principles generally accepted united states america included comprehensive income loss excluded net income loss amounts recorded directly adjustment stockholders equity net tax companys comprehensive income loss composed primarily foreign currency translation adjustments fair value financial instruments companys financial instruments consist primarily cash equivalents accounts receivable accounts payable amounts due fromto affiliated companies longterm debt carrying amounts companys cash equivalents accounts receivable accounts payable amounts due fromto affiliated companies approximate fair value due shortterm nature fair value longterm debt estimated based current interest rates offered company financing arrangements similar maturities recorded value financial instruments approximates fair value december 31 2007 2006 derivative financial instruments company accounts derivative financial instruments accordance sfas 133 accounting derivative instruments hedging activities sfas 133 amended derivatives whether designated hedging relations recorded balance sheet fair value derivative designated fair value hedge changes fair value derivative hedged item attributable hedged risk recognized results operations derivative designated cash flow hedge effective portions changes fair value derivative recorded accumulated comprehensive income recognized results operations hedged item affects earnings ineffective portions changes fair value cash flow hedges recognized results operations derivative instruments designated hedging instruments changes fair value recognized results operations current period foreign currency translation assets liabilities companys foreign subsidiaries functional currency local currency translated us dollars using yearend exchange rates revenues expenses foreign subsidiaries translated average exchange rates effect year adjustments resulting financial statement translations included separate component stockholders equity gains losses resulting foreign currency transactions reported statement operations caption interest income expense net periods presented revenue recognition company recognizes revenue system sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectibility resulting receivable reasonably assured title risk loss generally transferred customer upon receipt signed customer acceptance system shipped installed customer trained result timing customer acceptance readiness could cause companys reported revenues differ materially expectations products sold independent distributor strategic distribution partner unconsolidated affiliated distributor assumes responsibility installation company recognizes system revenue product shipped title risk loss transferred companys distributors price protection rights return however products warranted free defect period one year revenue deferred cash received significant portion fee due one year delivery installation acceptance system arrangements multiple elements company recognizes revenue element based fair value element provided criteria revenue recognition met fair value element provided multiple element arrangements typically determined referencing historical pricing policies element sold separately changes companys ability establish fair value element multiple element arrangements could affect timing revenue recognition revenue sale accessories parts recognized upon shipment service revenue recognized services performed grant revenue earned governments germany united states various earlystage research development projects grant revenue recognized company completes services required grant shipping handling costs company records costs incurred connection shipping handling products cost revenue amounts billed customers connection costs included revenues material periods presented accompanying financial statements research development research development costs expensed incurred software costs purchased software capitalized cost amortized estimated useful life generally three years software developed use companys products expensed incurred technological feasibility reasonably assured classified research development expense subsequent achievement technological feasibility amounts capitalizable however date amounts material advertising company expenses advertising costs incurred advertising expenses 35 million 27 million 23 million years ended december 31 2007 2006 2005 respectively contingencies company subject proceedings lawsuits claims related patents product matters company assesses likelihood adverse judgments outcomes matters well potential ranges probable losses determination amount reserves required contingencies made careful analysis individual issue required reserves may change future due new developments situation changes settlement strategy dealing matters stockbased compensation effective january 1 2006 company adopted sfas 123 revised 2004 sharebased payment sfas 123r using modified prospective method whereby prior periods restated comparability sfas 123r requires recognition stockbased compensation expense statement operations vesting period based fair value award grant date previously company used intrinsic value method accounting principles board opinion 25 accounting stock issued employees apb 25 amended related interpretations financial accounting standards board apb 25 compensation cost recognized stock options quoted market price stock grant date equal amount per share employee pay acquire stock fulfilling vesting period sfas 123r supersedes apb 25 well sfas 123 accounting stockbased compensation permitted pro forma footnote disclosures report difference fair value method intrinsic value method companys primary types sharebased compensation stock options restricted stock company recorded stockbased compensation expense years ended december 31 2007 2006 follows thousands fair value option award estimated date grant using blackscholes optionpricing model assumptions regarding volatility expected term dividend yield riskfree interest rate required blackscholes model volatility expected term assumptions based companys historical experience riskfree interest rate based us treasury note maturity similar option awards expected life assumptions volatility expected life dividend yield riskfree interest rate presented table compensation expense companys stock option plans year ended december 31 2005 determined based fair value grant date consistent methodology prescribed sfas 148 accounting stockbased compensationtransition disclosure companys net income net income per common share year ended december 31 2005 would approximated following pro forma amounts thousands except per share data fair value stock option included preceding pro forma amounts estimated using blackscholes optionpricing model following weighted average assumptions earnings per share net income per share calculated dividing net income weightedaverage shares outstanding period diluted net income per share computation includes effect shares would issuable upon exercise outstanding stock options reduced number shares assumed purchased company resulting proceeds average market price period following table sets forth computation basic diluted average shares outstanding years ended december 31 2007 2006 2005 thousands stock options purchase 583000 shares 1056000 shares 2624000 shares excluded computation diluted earnings per share years ended december 31 2007 2006 2005 respectively exercise price stock options exceeded average market price companys common stock result would antidilutive effect use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates note 3acquisition bruker optics july 1 2006 company completed acquisition outstanding stock bruker optics accordance terms stock purchase agreement dated april 17 2006 acquisition bruker optics represented combination companies common control due majority ownership companies five related individuals affiliated shareholder group result acquisition related shares owned affiliated shareholders approximately 96 accounted historical carrying value acquisition shares nonaffiliated shareholders approximately 4 accounted fair value manner similar acquisition minority interest excess purchase price interest common control fair value related net assets recorded intangible assets goodwill upon completion acquisition company paid aggregate 135 million consideration bruker optics stockholders holders bruker optics stock options approximately 79 million paid cash approximately 56 million paid restricted unregistered shares company common stock fair value consideration paid acquisition minority interest approximately 52 million including cash 48 million common stock valued 04 million value shares common stock issued nonaffiliated shareholder connection merger determined using trailing average closing market prices companys stock period ten consecutive trading days ending three days prior closing acquisition occurred july 1 2006 company engaged rsm mcgladrey inc third party valuation firm assist management appraising fair value certain assets acquired appraisal completed second quarter 2007 following table summarizes estimated fair values assets acquired liabilities assumed date acquisition minority interest thousands purchase price 41 minority interest acquired allocated net assets acquired pro rata basis accordance sfas 141 business combinations accordingly estimated acquisition related intangibles total 22 million amortized four years addition approximately 27 million acquired intangible assets assigned inprocess research development projects 41 minority interest approximately 01 million written date acquisition accordance fasb interpretation 4 applicability fasb statement 2 business combinations accounted purchase method projects estimated qualify acquired inprocess research development projects yet reached technology feasibility future alternative uses existed 23 million goodwill acquired bruker optics connection merger assigned companys direct whollyowned subsidiary bruker optics inc deductible tax purposes since merger taxfree merger note 4other acquisitions june 30 2007 company acquired analyskonsult ab akab distributor service provider scientific instrumentation based sweden results akab included bruker axs segment date acquisition aggregate purchase price akab approximately 08 million approximately 05 million paid cash approximately 03 million funded issuance aggregate 29740 restricted unregistered shares companys common stock par value 001 per share akabs shareholders january 1 2007 company acquired assets keca metal products ltd keca texas partnership located spring texas results keca included bruker optics segment date acquisition keca provides specialized machining services primarily bruker optics addition november 26 2007 company acquired assets micron optical systems inc micron results micron included bruker optics segment date acquisition aggregate purchase price keca micron 06 million 08 million respectively funded primarily cash hand company recorded 16 million goodwill connection acquisition akab keca micron 2007 goodwill related akab assigned bruker axs segment goodwill related asset acquisitions keca micron assigned bruker optics segment pro forma financial information reflecting akab acquisition presented impact revenues net income net income per common share would material september 6 2006 company acquired capital stock quantron gmbh oesspark company based germany quantron results quantron included bruker axs segment date acquisition accordance stock purchase agreement closing company paid aggregate approximately 65 million consideration sellers approximately 52 million paid cash approximately 13 million paid issuance aggregate 202223 restricted unregistered shares companys common stock par value 001 per share quantrons two largest shareholders pursuant earnout provisions stock purchase agreement aggregate 49 million additional cash consideration may paid 2009 based future performance quantron treated additional purchase price additional consideration earned december 31 2007 july 18 2006 company acquired capital stock keymaster technologies inc keymaster delaware corporation located kennewick washington results keymaster included bruker axs segment date acquisition aggregate purchase price keymaster 100 million funded incurring additional debt january 17 2006 company acquired socabim sas socabim privatelyheld company focused advanced xray analysis software materials research based france results socabim included bruker axs segment date acquisition initial aggregate purchase price approximately 86 million paid issuance 267302 restricted shares common stock company socabims two largest shareholders aggregate value approximately 13 million date issuance aggregate 73 million paid socabim selling shareholders cash hand additional cash consideration amount approximately 15 million total may paid 2009 based future performance socabim accounted additional purchase price december 31 2007 04 million additional consideration earned prior acquisition company licensed socabim software used various bruker axs systems bruker axs socabims principal customer acquisition required company evaluate preexisting relationship socabim accordance emerging issues task force 041 accounting preexisting relationships parties business combination eitf 041 requires analysis performed determine whether effective settlement preexisting executory contract either favorable unfavorable acquirer extent executory contract either favorable unfavorable acquirer gain loss recognized management determined settlement preexisting executory contract acquisition socabim accordingly gain loss recognized company recorded 195 million goodwill connection acquisition quantron keymaster socabim 2006 assigned goodwill individual subsidiary valuation net assets acquired connection certain acquisitions finalized 2007 result material adjustments goodwill pro forma information reflect quantron keymaster socabim acquisitions presented impact revenues net income net income per common share would material note 5accounts receivable following summary trade accounts receivable december 31 thousands note 6inventories inventories consisted following december 31 thousands demonstration units include systems located companys demonstration laboratories potential customer sites considered available sale finished goods include intransit systems shipped companys customers yet installed accepted customer december 31 2007 2006 inventoryintransit 344 million 241 million respectively note 7property plant equipment following summary property plant equipment major class asset december 31 thousands note 8goodwill intangible assets following summary intangible assets subject amortization december 31 thousands years ended december 31 2007 2006 2005 company recorded amortization expense approximately 13 million 12 million 05 million respectively related amortizable intangible assets estimated future amortization expense related amortizable intangible assets next five years follows thousands carrying amount goodwill december 31 2007 2006 408 million 398 million respectively company performs annual test indications impairment december 31st year company completed annual test impairment december 31 2007 2006 determined goodwill impaired time note 9other current liabilities following summary accrued current liabilities december 31 thousands company typically provides oneyear parts labor warranty purchase equipment anticipated cost oneyear warranty accrued upon recognition sale included current liability balance sheet company also offers customers warranty service agreements extending beyond initial year warranty fee fees recorded deferred revenue amortized income life extended warranty contract note 10debt companys debt obligations consist following december 31 thousands annual maturities longterm debt follows thousands state wisconsin industrial revenue bonds irb entered 1999 connection construction bruker axs building madison wisconsin bruker axs interest rate swap associated irb designated hedge bruker axs pays 460 fixed rate interest receives variable rate interest based securities industry financial markets municipal swap index contract 17 million notional value decreases conjunction irb payment schedule swap irb agreements terminate december 2013 fair value swap obtained dealer quotes resulted loss 01 million years ended december 31 2007 2006 interest payments receivable payable terms swap accrued period treated adjustment interest expense letter credit renewable upon mutual agreement bruker axs financial institution letter credit renewed bruker axs unable obtain similar letter credit another financial institution irb may callable option bond trustee companys outstanding letter credit expires december 2008 collateralized substantially assets bruker axs letter credit contains various financial covenants december 31 2007 latest measurement date company compliance required debt service coverage ratio associated irb company maintains lines credit financial institutions united states germany japan france aggregate maximum credit amount approximately 1210 million 753 million december 31 2007 2006 respectively december 31 2007 2006 company outstanding borrowings approximately 131 million 194 million respectively taking outstanding letters credit consideration company availability approximately 947 million 468 million december 31 2007 2006 respectively line credit united states company issued demand promissory note citizens bank 40 million july 2006 increased 75 million september 2007 note bears interest banks prime rate libor plus 1 libor advantage rate plus 1 request company companys obligations line credit secured pledge bank 100 capital stock companys whollyowned domestic subsidiaries also pledged portion stock certain foreign subsidiaries december 31 2007 75 million united states line credit available lines credit germany unsecured interest paid monthly outstanding borrowings based banks variable interest rates 494975 december 31 2007 lines credit japan interest rates 150 179 december 31 2007 lines credit maturity date uncollateralized line credit france unsecured interest paid monthly outstanding borrowings based floating rate used french institutions tmm plus 075 469 december 31 2007 interest expense years ended december 31 2007 2006 2005 18 million 22 million 21 million respectively note 11derivative instruments hedging activities interest rate risk management company party interest rate swaps cross currency rate swaps order minimize volatility changes interest rates might earnings cash flows 1999 company entered interest rate swap arrangement pay 460 fixed rate interest receive variable rate interest based securities industry financial markets municipal swap index december 2013 notional amount interest rate swap arrangement 17 million december 31 2007 2006 respectively effective january 1 2003 company determined interest rate swap longer effective hedge defined sfas 133 offsetting change interest cash flows hedged accordingly changes swaps fair value recorded current earnings interest income expense net consolidated statements operations company obtains thirdparty verification fair value end reporting period december 31 2007 2006 interest rate swap fair value 01 million recorded current liabilities 2002 company entered cross currency interest rate swap arrangement company receives semiannual interest payments euros based variable interest rate equal sixmonth euribor rate exchange semiannual payments swiss francs fixed rate 497 december 2011 notional amount interest rate swap arrangement €50 million instrument considered speculative derivative financial instrument qualify hedge accounting sfas 133 accordingly changes fair value swap recorded current earnings interest income expense net consolidated statements operations company obtains thirdparty verification fair value end reporting period december 31 2007 2006 interest rate swap fair value 06 million 02 million respectively recorded current assets addition company entered second interest rate swap arrangement 2002 reduced 6month euribor rate 180 january 2007 notional amount interest rate swap arrangement €30 million instrument also considered speculative derivative financial instrument qualify hedge accounting sfas 133 december 31 2006 interest rate swap fair value less 01 million foreign exchange rate risk management company generates substantial portion revenues expenses international markets principally europe japan subjects operations exposure exchange rate fluctuations impact currency exchange rate movement positive negative period company time entered foreign exchange rate contracts order minimize volatility fluctuations currency exchange rates companys cash flows related purchases sales denominated foreign currencies december 31 2007 2006 company option forward currency exchange contracts notional amounts aggregating 150 million 144 million respectively contracts involved purchase euro currency fixed us dollar amounts specified dates maturities less twelve months notional amounts contracts intended hedge receivables us dollars however transactions qualify hedge accounting sfas 133 accordingly instruments markedtomarket corresponding gains losses recorded income expense net consolidated statements operations company obtains thirdparty verification fair value end reporting period december 31 2007 2006 currency exchange contracts fair value less 01 million 10 million respectively recorded current assets note 12income taxes domestic foreign components income loss income taxes follows years ended december 31 thousands components income tax provision follows years ended december 31 thousands reconciliation united states federal statutory tax rate effective income tax rate follows years ended december 31 tax effects temporary items give rise significant portions deferred tax assets liabilities follows december 31 thousands valuation allowance determined accordance provision sfas 109 requires assessment positive negative evidence determining whether likely deferred tax assets recoverable assessment required jurisdictionbyjurisdiction basis company fully reserved us net deferred tax assets predominantly net operating losses tax credit carryforwards cumulative losses incurred us jurisdiction december 31 2005 2006 2007 represented sufficient negative evidence record valuation allowance sfas 109 company intends maintain full valuation allowance sufficient positive evidence exists support reversal valuation allowance december 31 2007 company approximately 189 million us net operating loss carryforward available reduce future taxable income expire various times year 2027 company claimed capital loss 2006 us tax return approximately 91 million carried forward 5 years company also tax credits approximately 111 million available offset future tax liabilities expire various dates credits include foreign tax credits 80 million expiring year 2017 research development tax credits 31 million expiring year 2025 operating losses tax credit carryforward may subject limitations provisions internal revenue code august 14 2007 german business tax reform 2008 signed federal president legislative process finalized august 17 2007 official publication law new legislation changes german federal corporate tax rate 25 15 addition german trade tax longer deductible corporate income tax law change due benefit revaluing deferred tax assets liabilities reduced companys effective tax rate 76 company permanently reinvested earnings subsidiaries cumulative amount approximately 1048 million december 31 2007 provided us income taxes could result distribution earnings us parent earnings ultimately distributed us form dividends otherwise shares subsidiaries sold transferred company would likely subject additional us income taxes net impact available foreign tax credits practical estimate amount unrecognized deferred us income taxes undistributed earnings company unrecognized tax benefits approximately 73 million december 31 2007 31 million recognized would result reduction companys effective tax rate december 31 2007 company expect material changes unrecognized tax positions within next twelve months tabular reconciliation beginning ending amount unrecognized tax benefits follows thousands company recognizes penalties interest related unrecognized tax benefits provision income taxes december 31 2007 approximately 06 million accrued interest related uncertain tax positions included liability consolidated balance sheet 02 million recorded twelve months ended december 31 2007 company considers significant tax jurisdictions include germany united states tax years 2003 2007 open tax years major taxing jurisdictions company files returns many foreign state jurisdictions varying statutes limitations october 22 2004 american jobs creation act ajca signed law includes deduction 85 certain foreign earnings repatriated defined ajca bruker optics repatriated approximately 12 million 2005 recognized related tax expense 01 million 2005 company acquired 14 million net operating losses acquisition roentec 2005 full valuation allowance provided purchase price allocation utilization net operating loss could assured tax benefit subsequently realized recorded adjustment goodwill note 13employee benefit plans company maintains sponsors various defined contribution plans defined benefit retirement plan cover certain domestic international employees company may make contributions plans discretion retirement benefits earned generally based years service compensation active employment eligibility generally determined accordance local statutory requirements however level benefits terms vesting may vary among plans company contributed approximately 16 million 16 million 13 million plans 2007 2006 2005 respectively substantially bruker axs gmbh employees employed company september 30 1997 participate defined benefit pension plan provides pension benefits based upon average salary years service company elected recognize impact projected benefit obligation actual experience differs actuarial assumptions immediate basis company recognize actuarial losses gains years ended december 31 2007 2006 2005 respectively changes benefit obligations plan assets defined benefit pension plans accumulated benefit obligations funded status plan follows december 31 thousands weightedaverage assumptions used determine projected benefit obligations years ended december 31 2007 2006 2005 follows net periodic pension benefit cost includes following components years ended december 31 2007 2006 2005 thousands date company funded plan required make contributions 2008 company expects pay following benefits plan thousands note 14commitments contingencies operating leases certain vehicles office equipment buildings leased agreements accounted operating leases total rental expense operating leases 46 million 32 million 26 million years ended december 31 2007 2006 2005 respectively future minimum lease payments noncancelable operating leases december 31 2007 next five years thereafter follows thousands license agreements company entered license agreements allowing utilize certain patents used connection commercial product sale company pays royalties ranging 015 500 related product revenues licensing fees years ended december 31 2007 2006 2005 approximately 12 million 16 million 10 million respectively grants companys indirect subsidiary bruker daltonik gmbh recipient grants german government authorities grants made connection companys development specific spectrometers components spectrometers total grants awarded date amount 106 million agreements grants awarded expire 2008 amounts received grants 2007 2006 2005 totaled 06 million 07 million 20 million respectively classified revenue total expenditures related grants approximately 15 million 21 million 39 million 2007 2006 2005 respectively companys whollyowned direct subsidiary bruker daltonics inc recipient grant agency united states government grant made direct connection companys development standalone monitor chemical agents total grants awarded date amount 10 million agreement grant awarded extended 2010 amounts received grant 2007 2006 2005 totaled 01 million 04 million 05 million respectively classified revenue total expenditures related grant approximate grant revenues received companys whollyowned indirect subsidiary bruker optik gmbh recipient certain grants german government grants made connection companys development specific advanced vibrational spectroscopy equipment total awards granted date total 17 million amounts received grants 2007 2006 2005 totaled 02 million 01 million 03 million respectively classified revenue total expenditures related grants approximated grant revenues received legal lawsuits claims proceedings nature considered normal businesses may pending time company believes outcome proceedings material impact companys financial position results operations december 31 2007 2006 accruals recorded potential contingencies letters credit guarantees december 31 2007 2006 company bank guarantees 132 million 91 million respectively customer advances guarantees affect availability lines credit indemnifications company enters standard indemnification arrangements companys ordinary course business pursuant arrangements company indemnifies holds harmless agrees reimburse indemnified parties losses suffered incurred indemnified party generally business partners customers connection patent copyright intellectual property infringement claim third party respect products term indemnification agreements generally perpetual anytime execution agreement maximum potential amount future payments company could required make agreements unlimited company never incurred costs defend lawsuits settle claims related indemnification agreements result company believes estimated fair value agreements minimal company entered indemnification agreements directors officers may require company indemnify directors officers liabilities may arise reason status service directors officers liabilities arising willful misconduct culpable nature advance expenses incurred result proceeding could indemnified obtain directors officers insurance available reasonable terms company currently place note 15shareholders equity public offerings common stock february 12 2007 company group selling stockholders completed public offering 11960000 shares common stock 2530000 sold company 9430000 sold four selling stockholders 710 per share generating net proceeds approximately 169 million company approximately 632 million selling stockholders aggregate issuance restricted stock november 2007 company issued 8753 shares restricted stock connection acquisition certain assets micron restrictions time based expire 90 days june 2007 company issued 29740 shares restricted stock connection acquisition analyskonsult restrictions time based expire ratably shares vest period three years september 2006 company issued 202223 shares restricted stock connection acquisition quantron restrictions time based expire ratably shares vest period three years january 2006 company issued 267302 shares restricted stock connection acquisition socabim sas restrictions time based expire ratably shares vest period three years november 2005 company issued 209271 shares restricted stock connection acquisition roentec ag restrictions time based expire ratably shares vest period three years restricted shares companys common stock periodically awarded executive officers directors certain key employees company companys amended restated 2000 stock option plan see section stock plans information restricted stock awarded year ended december 31 2007 blank check preferred stock december 31 2007 5000000 shares blank check preferred stock stated par value 001 per share authorized none issued dividends terms companys indebtedness restrict ability pay dividends shareholders stock plans 2000 board directors adopted stockholders approved 2000 stock option plan 2000 stock option plan provides issuance 2200000 shares common stock connection awards plan 2000 stock option plan allows committee board directors committee grant incentive stock options nonqualified stock options stock appreciation rights stock awards including use restricted stock phantom shares committee authority determine employees receive rewards amount awards terms conditions award awards granted committee typically vest period threetofive years july 1 2003 companys stockholders approved amendment restatement 2000 stock option plan change plan name increase number shares available issuance name amended plan bruker biosciences corporation amended restated 2000 stock option plan amendment authorized 4132000 additional shares common stock company issuable pursuant plan june 29 2006 companys stockholders approved increase number shares available issuance plan 6320000 shares 8000000 shares increase 1680000 shares restricted shares companys common stock periodically awarded executive officers directors certain key employees company subject service restriction expires ratably period threetofive years restricted shares common stock may sold transferred restriction period stock compensation restricted stock recorded based stock price grant date charged expense ratably restriction period following table summarizes information restricted stock activity years ended december 31 2007 2006 unrecognized pretax expense 24 million related restricted stock awards expected recognized weighted average remaining service period 34 years awards outstanding december 31 2007 stock option activity years ended december 31 2007 2006 2005 follows following table summarizes information stock options outstanding exercisable december 31 2007 intrinsic values based companys closing stock price 1330 december 31 2007 weightedaverage grantdate fair value options granted year ended december 31 2007 594 unrecognized pretax expense 85 million related stock options expected recognized weighted average remaining service period 27 years awards outstanding december 31 2007 company record compensation expense years ended december 31 2007 2006 stock options granted nonemployees year ended december 31 2005 company recorded compensation expense 27500 stock options granted nonemployees compensation expense amortized straightline basis underlying vesting terms fair value option granted estimated date grant using blackscholes optionpricing model accelerated vesting unvested stock options october 3 2005 compensation committee board directors company approved acceleration vesting unvested options purchase shares common stock company held current employees officers directors company exercise price per share equal greater 464 closing market price companys common stock october 3 2005 primary purpose accelerated vesting enable us avoid recognizing income statement noncash compensation expense associated options upon adoption sfas 123r january 1 2006 options purchase 857923 shares common stock subject acceleration options exercise prices excess current market values underwater fully achieving original objectives incentive compensation employee retention company believes acceleration underwater options may positive effect employee morale retention accounting stock options accordance accounting principles board opinion 25 accounting stock issued employees fasb interpretation 44 accounting certain transactions involving stock compensation acceleration vesting options result compensation charge exercise prices affected options modified greater closing price companys common stock date event occurred company estimated pretax charge eliminated future accounting periods approximately 37 million note 16business segment information sfas 131 disclosures segments enterprise related information establishes standards reporting information operating segments annual financial statements public business enterprises also establishes standards related disclosures products service geographic areas major customers company evaluated business activities regularly reviewed chief executive officer discrete financial information available result evaluation company determined subsidiaries bruker daltonics bruker axs bruker optics reportable operating segment bruker axs business manufacturing distributing advanced xray oesspark instrumentation used nondestructive molecular elemental analysis academic research industrial applications bruker daltonics business manufacturing distributing mass spectrometry instruments integrated used along analytical instruments bruker optics leading developer provider research analytical process analysis instruments solutions based infrared raman molecular spectroscopy technologies bruker corporation parent company bruker daltonics bruker axs bruker optics corporate entity holds excess cash shortterm investments incurs certain public company costs selected business segment information years ended december 31 2007 2006 2005 presented thousands total assets capital expenditures depreciation amortization segment years ended december 31 2007 2006 2005 follows thousands revenue longlived assets geographical area years ended december 31 2007 2006 2005 follows thousands locations include primarily france united kingdom netherlands sweden italy poland switzerland hong kong note 17interest income expense net components interest income expense net years ended december 31 2007 2006 2005 follows thousands note 18related parties prior acquisition bruker biospin group february 26 2008 affiliated common shareholders several entities use bruker name sharing agreement certain affiliates provides sharing specified intellectual property rights services facilities related items december 31 2007 2006 company payables related parties 83 million 59 million respectively december 31 2007 2006 receivables related parties 72 million 90 million respectively payment terms balances related parties similar third party customers sales related parties subsidiaries company included revenues consolidated financial statements related parties maintain sales offices countries distribution network sales primarily resale products sales amounted 145 million 113 million 130 million years ended december 31 2007 2006 2005 respectively addition company purchased products services amounted 240 million 211 million 170 million affiliated entities years ended december 31 2007 2006 2005 respectively company shares various general administrative expenses items including umbrella insurance policies accounting services leases various related parties general administrative expenses amounted 51 million 37 million 28 million years ended december 31 2007 2006 2005 respectively years ended december 31 2007 2006 2005 company paid 13 million 13 million 05 million respectively law firm one directors partner years ended december 31 2007 2006 2005 company paid 01 million year financial services firm one directors partner bruker optics rents various office space principal stockholder lease agreements years ended december 31 2007 2006 2005 stockholder paid approximately 04 million 03 million 03 million respectively estimated equal fair market value less cost capital improvements provided bruker optics 2004 bruker optics subleased portion office space affiliate 2007 2006 2005 received rental income includes charges utilities occupancy costs 31500 period rental income recorded reduction rent utilities building maintenance expenses note 19recent accounting pronouncements december 2007 fasb issued sfas 141r business combinations sfas 141r statement significantly change accounting business combinations sfas 141r acquiring entity required recognize assets acquired liabilities assumed transaction acquisition date fair value certain limited exceptions addition sfas 141r change accounting treatment acquisition costs inprocess research development restructuring costs associated business combinations changes deferred tax asset valuation allowances income tax uncertainties acquisition date sfas 141r also includes significant number new disclosure requirements early adoption sfas 141r prohibited company required apply sfas 141r acquisitions occur january 1 2009 december 2007 fasb issued sfas 160 noncontrolling interests consolidated financial statementsan amendment arb 51 sfas 160 statement establishes new accounting reporting standards minority interest subsidiary deconsolidation subsidiary sfas 160 effective beginning fiscal 2009 early adoption prohibited company yet assessed effect adoption sfas 160 results operations financial position february 2007 fasb issued sfas 159 fair value option financial assets liabilities including amendment fasb statement 115 sfas 159 statement permits entities choose measure many financial instruments certain items fair value currently required measured fair value sfas 159 effective beginning fiscal 2008 company expect adoption sfas 159 material impact results operations financial position september 2006 fasb issued sfas 157 fair value measurements sfas 157 statement effective financial statements issued fiscal years beginning november 15 2007 february 2008 fasb issued fasb staff position 1571 application fasb statement 157 fasb statement 13 accounting pronouncements address fair value measurements purposes lease classification measurement statement 13 fsp 1571 fasb staff position 1572 effective date fasb statement 157 fsp 1572 fsp 1572 defers effective date sfas 157 fiscal years beginning november 15 2008 certain nonfinancial assets liabilities sfas 157 provides common fair value hierarchy companies follow determining fair value measurements preparation financial statements expands disclosure requirements relating fair value measurements developed sfas 157 clarifies principle fair value based assumptions marketplace would use pricing asset liability rather company specific data company currently assessing impact sfas 157 results operations financial position note 20quarterly financial data unaudited companys common stock trading symbol brkr summary operating results quarterly periods two years ended december 31 2007 2006 set forth thousands except per share data note 21subsequent events february 26 2008 company completed acquisition outstanding capital stock bruker biospin group accordance terms various stock purchase agreements dated december 2 2007 completion acquisition company paid aggregate 9140 million consideration shareholders bruker biospin group financed 57544872 shares unregistered common stock valued 5260 million 3510 million cash obtained new credit facility balance cash hand value shares common stock issued connection merger determined using trailing average closing market prices companys stock period ten consecutive trading days ending two days prior signing various stock purchase agreements stock purchase agreements 988 million purchase price paid escrow accounts pending resolution indemnification obligations working capital obligations sellers unused portion 920 million indemnity escrow released sellers later 1 30th day following receipt company combined audited financial statements bruker biospin group fiscal year ended december 31 2008 2 resolution claim indemnification sellers received notice prior conclusion 30 day period described 1 unused portion 68 million working capital escrow released sellers within 25 business days following receipt company combined audited financial statements bruker biospin group fiscal year ended december 31 2007 connection acquisition bruker biospin group company entered five year credit agreement syndication lenders provided revolving credit line maximum commitment 2300 million term facility 1500 million outstanding principal term loan payable quarterly installments december 2012 borrowings credit agreement bear interest companys option either higher prime rate federal funds rate plus 050 ii adjusted libor plus margins ranging 040 125 facility fee ranging 010 020 borrowings credit agreement secured pledge banks 100 capital stock companys whollyowned domestic subsidiaries 65 capital stock certain companys direct indirect whollyowned foreign subsidiaries credit agreement also requires company maintain certain financial ratios related maximum leverage minimum interest coverage ratios defined credit agreement addition financial ratios credit agreement restricts among things companys ability following make certain payments incur additional debt incur certain liens make certain investments including derivative agreements merge consolidate sell transfer substantially companys assets enter certain transactions affiliates acquisition bruker biospin group represented combination companies common control due majority ownership companies six related individuals affiliated shareholder group result acquisition bruker biospin group accounted historical carrying values closing transaction historical consolidated balance sheets statements operations statements cash flows notes consolidated financial statements future filings securities exchange commission beginning companys quarterly report form 10q quarter ending march 31 2008 restated combining historical consolidated financial statements bruker corporation bruker biospin group following unaudited pro forma condensed combined balance sheet statements operations prepared combining historical consolidated financial statements bruker corporation bruker biospin group financial statements include pro forma adjustments reflecting consideration paid shareholders bruker biospin group february 26 2008 include certain pro forma adjustments including interest expense incurred credit agreement unaudited pro forma condensed financial statements read conjunction historical consolidated financial statements related notes bruker corporation bruker corporation including historical results bruker biospin group pro forma condensed consolidated balance sheets thousands bruker corporation including historical results bruker biospin group pro forma condensed consolidated statements operations thousands except per share data item 9item 8 financial statements supplementary data index consolidated financial statements page reports independent registered public accounting firms consolidated balance sheets december 31 2017 2016 consolidated statements income comprehensive income years ended december 31 2017 2016 2015 consolidated statements shareholders equity years ended december 31 2017 2016 consolidated statements cash flows years ended december 31 2017 2016 notes consolidated financial statements report independent registered public accounting firm board directors shareholders bruker corporation opinions financial statements internal control financial reporting audited accompanying consolidated balance sheets bruker corporation subsidiaries december 31 2017 2016 related consolidated statements income comprehensive income shareholders equity cash flows years ended including related notes collectively referred consolidated financial statements also audited companys internal control financial reporting december 31 2017 based criteria established internal controlintegrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion consolidated financial statements referred present fairly material respects financial position company december 31 2017 2016 results operations cash flows years ended conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2017 based criteria established internal controlintegrated framework 2013 issued coso change accounting principles discussed notes 6 16 consolidated financial statements respectively company changed manner accounts measurement inventory manner accounts income tax effects share based payment transactions 2017 basis opinions companys management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included managements report internal control financial reporting appearing item 9a responsibility express opinions companys consolidated financial statements companys internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits consolidated financial statements included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions described managements report internal control financial reporting management excluded hysitron incorporated hysitron assessment internal control financial reporting december 31 2017 acquired company purchase business combination 2017 also excluded hysitron audit internal control financial reporting hysitron whollyowned subsidiary whose total assets total revenues excluded managements assessment audit internal control financial reporting represent 07 09 respectively related consolidated financial statement amounts year ended december 31 2017 definition limitations internal control financial reporting companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp boston massachusetts march 16 2018 served companys auditor since 2016 report independent registered public accounting firm board directors shareholders bruker corporation audited accompanying consolidated statements income comprehensive income loss shareholders equity cash flows bruker corporation year ended december 31 2015 financial statements responsibility companys management responsibility express opinion financial statements based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion financial statements referred present fairly material respects consolidated results bruker corporations operations cash flows year ended december 31 2015 conformity us generally accepted accounting principles ernst young llp boston massachusetts february 26 2016 except note 2summary significant accounting policiesrestricted cash date march 16 bruker corporation consolidated balance sheets millions except share per share data accompanying notes integral part consolidated financial statements bruker corporation consolidated statements income comprehensive income millions except per share data accompanying notes integral part consolidated financial statements bruker corporation consolidated statements shareholders equity millions except share data accompanying notes integral part consolidated financial statements bruker corporation consolidated statements cash flows millions accompanying notes integral part consolidated financial statements bruker corporation notes consolidated financial statements note 1description business bruker corporation together consolidated subsidiaries bruker company develops manufactures distributes highperformance scientific instruments analytical diagnostic solutions enable customers explore life materials microscopic molecular cellular levels many companys products used detect measure visualize structural characteristics chemical biological industrial material samples companys products address rapidly evolving needs diverse array customers life science research pharmaceuticals biotechnology applied markets cell biology clinical research microbiology invitro diagnostics nanotechnology materials science research company two reportable segments bruker scientific instruments bsi represented approximately 90 93 companys revenues year ended december 31 2017 2016 respectively bruker energy supercon technologies best represented remainder companys revenues within bsi company organized three operating segments bruker biospin group bruker calid group bruker nano group financial reporting purposes bruker biospin bruker calid bruker nano operating segments aggregated bsi reportable segment similar economic characteristics production processes service offerings types classes customers methods distribution regulatory environments bruker biospin bruker biospin group designs manufactures distributes enabling life science tools based magnetic resonance technology majority bruker biospin groups revenues generated academic government research customers include pharmaceutical biotechnology companies nonprofit laboratories well chemical food beverage clinical industrial companies bruker calid chemicals applied markets life science invitro diagnostics detection bruker calid group designs manufactures distributes life science mass spectrometry ion mobility spectrometry solutions analytical process analysis instruments solutions based infrared raman molecular spectroscopy technologies radiologicalnuclear detectors chemical biological radiological nuclear explosive cbrne detection customers bruker calid group include academic institutions medical schools pharmaceutical biotechnology diagnostics companies contract research organizations nonprofit forprofit forensics laboratories agriculture food beverage safety laboratories environmental clinical microbiology laboratories hospitals government departments agencies bruker nano bruker nano group designs manufactures distributes advanced xray instruments atomic force microscopy instrumentation advanced fluorescence optical microscopy instruments analytical tools electron microscopes xray metrology defectdetection equipment semiconductor process control handheld portable mobile xray fluorescence spectrometry instruments spark optical emission spectroscopy systems customers bruker nano group include academic institutions governmental customers nanotechnology companies semiconductor companies raw material manufacturers industrial companies biotechnology pharmaceutical companies businesses involved materials analysis companys best reportable segment develops manufactures superconducting nonsuperconducting materials devices use renewable energy infrastructure healthcare big science research segment focuses metallic low temperature superconductors use magnetic resonance imaging nuclear magnetic resonance fusion energy research applications well ceramic high temperature superconductors primarily energy grid magnet applications note 2summary significant accounting policies accompanying consolidated financial statements reflect application certain significant accounting policies described elsewhere notes consolidated financial statements principles consolidation accompanying consolidated financial statements include accounts company majority whollyowned subsidiaries intercompany accounts transactions eliminated noncontrolling interests noncontrolling interests represents minority shareholders proportionate share companys majorityowned subsidiaries portion net income net loss attributable noncontrolling interests presented net income attributable noncontrolling interests consolidated subsidiaries consolidated statements income comprehensive income portion comprehensive income subsidiaries presented consolidated statements shareholders equity subsequent events company evaluated subsequent events determined material recognized unrecognized subsequent events subsequent events required mentioned footnotes consolidated financial statements cash equivalents cash equivalents primarily include cash hand money market funds time deposits original maturities three months less date acquisition time deposits represent amounts deposit banks temporarily invested instruments maturities three months less time purchase certain investments represent deposits insured fdic government agency cash equivalents carried cost approximates fair value shortterm investments shortterm investments represent time call deposits original maturities greater three months date acquisition shortterm investments classified availableforsale reported fair value unrealized gains losses recorded december 31 2017 2016 cost approximates current fair value restricted cash november 2016 financial accounting standards board fasb issued accounting standards update asu 201618 statement cash flows restricted cash requiring restricted cash restricted cash equivalents included cash equivalents statement cash flows reconciling beginningofperiod endofperiod total amounts shown statement cash flows guidance effective interim annual periods beginning december 15 2017 early adoption permitted company adopted standard first quarter 2017 restricted cash included component cash equivalents restricted cash companys consolidated statement cash flows company certain subsidiaries required local governance maintain restricted cash balances cover future employee benefit payments restricted cash balances classified noncurrent unless terms applicable agreements funds released restrictions within one year balance sheet date current noncurrent portion restricted cash recorded within current assets longterm assets respectively accompanying consolidated balance sheets inclusion restricted cash increased balances consolidated statement cash flows follows derivative financial instruments hedging activities derivatives whether designated hedging relationship recorded consolidated balance sheets fair value accounting changes fair value derivative instrument depends whether designated qualifies part hedging relationship type hedging relationship derivative instruments designated qualify hedging instruments company must designate hedging instrument based exposure hedged fair value hedge cash flow hedge foreign currency hedge net investment foreign operation fair value financial instruments company applies following hierarchy determine fair value financial instruments prioritizes inputs used measure fair value three levels bases categorization within hierarchy upon lowest level input available significant fair value measurement levels hierarchy defined follows • level 1 inputs valuation methodology quoted prices unadjusted identical assets liabilities active markets • level 2 inputs valuation methodology include quoted prices similar assets liabilities active markets inputs observable asset liability either directly indirectly substantially full term financial instrument • level 3 inputs valuation methodology unobservable significant fair value measurement valuation techniques may used company determine fair value level 2 level 3 financial instruments market approach income approach cost approach market approach uses prices relevant information generated market transactions involving identical comparable assets liabilities income approach uses valuation techniques convert future amounts single present value based current market expectations future amounts including present value techniques optionpricing models excess earnings method cost approach based amount would required replace service capacity asset replacement cost companys financial instruments consist primarily cash equivalents shortterm investments restricted cash derivative instruments consisting forward foreign exchange contracts commodity contracts derivatives embedded certain purchase sale contracts accounts receivable accounts payable contingent consideration longterm debt carrying amounts companys cash equivalents shortterm investments restricted cash accounts receivable borrowings revolving credit agreement accounts payable approximate fair value shortterm nature derivative assets liabilities measured fair value recurring basis companys longterm debt consists principally private placement arrangement entered 2012 various fixed interest rates based maturity date borrowings revolving credit agreement company evaluated estimated fair value financial instruments using available market information managements estimates use different market assumptions andor estimation methodologies could significant effect estimated fair value amounts concentration credit risk financial instruments subject company credit risk consist cash equivalents shortterm investments derivative instruments accounts receivables restricted cash risk respect cash equivalents shortterm investments minimized companys policy investing shortterm financial instruments issued highlyrated financial institutions risk respect derivative instruments minimized companys policy entering arrangements highlyrated financial institutions risk respect accounts receivables minimized creditworthiness diversity companys customers company performs periodic credit evaluations customers financial condition generally requires advanced deposit portion purchase price credit losses within managements expectations allowance doubtful accounts totaled 47 million 79 million december 31 2017 2016 respectively december 31 2017 2016 single customer represented 10 companys accounts receivable years ended december 31 2017 2016 2015 single customer represented 10 companys total revenue inventories components inventory include raw materials workinprocess demonstration units finished goods demonstration units include systems located companys demonstration laboratories installed sites potential customers considered available sale finished goods include intransit systems shipped companys customers yet installed accepted customer inventories stated lower cost net realizable value cost determined principally firstin firstout method majority subsidiaries averagecost certain subsidiaries company reduces carrying value inventories differences cost estimated net realizable value taking consideration usage preceding twelve months expected demand technological obsolescence information including physical condition demonstration inventories company records charge cost product revenue amount required reduce carrying value inventory net realizable value costs associated procurement inventories inbound freight charges purchasing receiving costs capitalized part inventory also included cost product revenue line item within consolidated statements income comprehensive income property plant equipment property plant equipment stated cost less accumulated depreciation amortization major improvements capitalized expenditures maintenance repairs minor improvements charged expense incurred assets retired otherwise disposed assets related accumulated depreciation amortization eliminated accounts resulting gain loss reflected consolidated statements income comprehensive income depreciation amortization calculated straightline basis estimated useful lives assets follows goodwill intangible assets goodwill indefinitelived intangible assets amortized evaluated impairment annual basis interim basis events changes circumstances indicate carrying value may recoverable assessing recoverability goodwill indefinitelived intangible assets company must make assumptions regarding estimated future cash flows factors determine fair value assets estimates related assumptions change future company may required record impairment charges assets reporting period impairment determined company tests goodwill impairment reporting unit level operating segment one level operating segment company option performing qualitative assessment determine whether impairment testing necessary performing twostep quantitative assessment result qualitative assessment morelikelythannot fair value reporting unit less carrying amount quantitative impairment test required otherwise testing required quantitative impairment test performed first step involves comparing fair values applicable reporting units aggregate carrying values including goodwill company generally determines fair value reporting units using weighting market income methodologies estimating fair value reporting units requires significant judgment management carrying amount reporting unit exceeds fair value reporting unit company performs second step goodwill impairment test measure amount impairment second step goodwill impairment test company compares implied fair value reporting units goodwill carrying value goodwill process research development iprd acquired part business combinations acquisition method represents ongoing development work associated enhancements existing products well development next generation products iprd initially capitalized fair value intangible asset indefinite life assessed impairment annual basis indicators impairment identified iprd project complete reclassified finitelived intangible asset amortized estimated useful life iprd project abandoned completion otherwise determined impaired value asset amount impairment charged consolidated statements income comprehensive income period project abandoned impaired intangible assets finite useful life amortized straightline basis estimated useful lives follows impairment longlived assets impairment losses recorded longlived assets used operations indicators impairment present quoted market price available estimated fair value assets less assets carrying value recoverable determination recoverability based estimate undiscounted future cash flows resulting use asset eventual disposition event cash flows expected sufficient recover carrying amount assets writtendown fair values impairment losses charged consolidated statements income comprehensive income difference fair value carrying value asset warranty costs deferred revenue company typically provides one year parts labor warranty purchase equipment anticipated cost warranty accrued upon recognition sale included current liability accompanying consolidated balance sheets companys warranty reserve reflects estimated material labor costs potential product issues company expects incur obligation companys estimates anticipated rates warranty claims costs primarily based historical information company assesses adequacy warranty reserve quarterly basis adjusts amount necessary historical data used calculate adequacy warranty reserve indicative future requirements additional reduced warranty reserves may required company also offers customers extended warranty service agreements extending beyond initial warranty fee fees recorded deferred revenue recognized ratably income life extended warranty contract service agreement income taxes deferred tax assets liabilities recognized expected future tax consequences temporary differences financial statement carrying amounts income tax basis assets liabilities valuation allowance applied net deferred tax asset based available evidence likely deferred tax assets realized company records liabilities related uncertain tax positions accordance guidance clarifies accounting uncertainty income taxes recognized companys financial statements guidance prescribes minimum recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return company includes accrued interest penalties related unrecognized tax benefits income tax liabilities applicable income tax expense customer advances company typically requires advance deposit terms conditions contracts customers deposits recorded current longterm liability revenue recognized specific contract accordance companys revenue recognition policy revenue recognition company recognizes revenue systems sales persuasive evidence arrangement exists price fixed determinable title risk loss transferred customer collectability resulting receivable reasonably assured title risk loss generally transfers upon shipment certain systems based upon customer acceptance system delivered installed customer facility systems include customerspecific acceptance criteria company required assess demonstrate acceptance criteria met generally upon successful factory acceptance testing customer acceptance evidence installation products sold independent distributor strategic distribution partner assumes responsibility installation company recognizes system sale product shipped title risk loss transferred distributor companys distributors price protection rights return however companys products typically warranted free defect period one year revenue deferred cash received collectability reasonably assured price fixed determinable transactions include multiple elements arrangement consideration allocated element using fair value hierarchy required asu 200913 company limits amount revenue recognized delivered elements amount contingent future delivery products services future performance obligations subject customerspecific return refund privileges company determines fair value products services based upon vendor specific objective evidence vsoe company determines vsoe based normal selling pricing discounting practices specific product service sold standalone basis determining vsoe companys policy requires substantial majority selling prices product service within reasonably narrow range company also considers class customer method distribution geographies products services sold determining vsoe cannot established company attempts establish selling price based thirdparty evidence tpe vsoe cannot established instances product service sold separately standalone sales infrequent product pricing within sufficiently narrow range tpe determined based competitor prices similar deliverables sold separately company cannot determine vsoe tpe uses estimated selling price esp allocation arrangement consideration objective esp determine price company would typically transact standalone sale product service esp determined considering number factors including companys pricing policies internal costs gross profit objectives method distribution market research information recent technological trends competitive landscape geographies company analyzes selling prices used allocation arrangement consideration minimum annual basis selling prices analyzed frequently significant change companys business factors necessitate frequent analysis company experiences significant variances selling prices revenue accessories parts generally recognized based shipping terms service revenue recognized services performed ratably contractual obligation includes maintenance contracts extended warranty training application support ondemand services company also contracts applies percentageofcompletion model completed contract model revenue recognition application percentageofcompletion method requires company make reasonable estimates extent progress toward completion contract total costs company incur contract losses recorded immediately estimate contracts ultimately result loss changes estimates could affect timing revenue recognition revenues primarily comprised development arrangements recognized costplusfixedfee basis licensing arrangements recognized ratably term related contracts shipping handling costs company includes costs incurred connection shipping handling products within selling general administrative expenses accompanying consolidated statements income comprehensive income shipping handling costs 232 million 213 million 206 million years ended december 31 2017 2016 2015 respectively amounts billed customers connection costs included total revenues research development company commits substantial capital resources internal collaborative research development projects order provide innovative products solutions customers company conducts research primarily enhance system performance improve reliability existing products develop revolutionary new products solutions research development costs expensed incurred include salaries wages personnel related costs material costs depreciation consulting costs facility costs capitalized software purchased software capitalized cost amortized estimated useful life generally three years software developed use companys products expensed incurred research development expense technological feasibility achieved subsequent achievement technological feasibility amounts capitalizable however date amounts material advertising company expenses advertising costs incurred advertising expenses 140 million 127 million 129 million years ended december 31 2017 2016 2015 respectively stockbased compensation company recognizes stockbased compensation expense consolidated statements income comprehensive income based fair value sharebased award grant date companys primary types sharebased compensation stock options restricted stock awards restricted stock units company recorded stockbased compensation expense years ended december 31 2017 2016 2015 follows millions compensation expense amortized straightline basis underlying vesting terms sharebased award stock options purchase companys common stock periodically awarded executive officers employees company subject vesting period three four years fair value option award estimated date grant using blackscholes optionpricing model assumptions regarding volatility expected term dividend yield riskfree interest rates required blackscholes model presented table riskfree interest rates based yield zerocoupon us treasury securities period commensurate expected life assumption expected life determined calculation based historical data company believes best estimate expected term new option expected volatility based number factors company currently believes exclusive use historical volatility results best estimate expectations future volatility expected term expected dividend yield included option pricing formula beginning february 2016 company adopted dividend policy addition company utilizes estimated forfeiture rate calculating stockbased compensation expense period company applied estimated forfeiture rates derived analysis historical data 67 62 58 years ended december 31 2017 2016 2015 respectively determining expense recorded accompanying consolidated statements income comprehensive income starting 2017 members companys board directors receive annual award restricted stock units vest one year service period earnings per share net income per common share attributable bruker corporation shareholders calculated dividing net income attributable bruker corporation weightedaverage shares outstanding period diluted net income per share computation includes effect shares would issuable upon exercise outstanding stock options vesting restricted stock reduced number shares assumed purchased company treasury stock method following table sets forth computation basic diluted weighted average shares outstanding years ended december 31 millions except per share data stock options restricted stock units purchase approximately 03 million shares 06 million shares 13 million shares excluded computation diluted earnings per share years ended december 31 2017 2016 2015 respectively effect would antidilutive post retirement benefit plans company recognizes overfunded underfunded status defined benefit pension postretirement defined benefit plans asset liability respectively consolidated balance sheets recognizes changes funded status year changes occur comprehensive income comprehensive income loss comprehensive income loss refers revenues expenses gains losses excluded net income amounts recorded directly adjustment shareholders equity net tax companys comprehensive income loss composed foreign currency translation adjustments pension liability adjustments foreign currency translation assets liabilities companys foreign subsidiaries functional currency local currency translated us dollars using yearend exchange rates historical rates appropriate revenues expenses foreign subsidiaries translated average exchange rates effect year adjustments resulting financial statement translations included separate component shareholders equity gains losses resulting translation foreign currency monetary transactions reported interest income expense net consolidated statements income comprehensive income periods presented company certain intercompany foreign currency transactions deemed longterm investment nature exchange adjustments related transactions made directly separate component shareholders equity risk uncertainties company subject risks common industry including limited global economic conditions rapid technological change government academic funding levels changes commodity prices spending patterns customers protection intellectual property availability key raw materials components compliance existing future regulation government agencies fluctuations foreign currency exchange rates loss contingencies loss contingency provisions recorded potential loss claim asserted unasserted legal proceeding related patents products matters considered probable amount reasonably estimated range loss determined accruals represent managements best estimate probable loss disclosure provided reasonably possible loss incurred reasonably possible amount loss exceed recorded provision use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant estimates judgments made management preparing financial statements include revenue recognition allowances doubtful accounts writedowns excess obsolete inventory estimated fair values used record impairment charges related intangible assets goodwill longlived assets amortization periods expected future cash flows used evaluate recoverability longlived assets stockbased compensation expense warranty allowances restructuring related charges contingent liabilities recoverability companys net deferred tax assets although company regularly reassesses assumptions underlying estimates actual results could differ materially estimates changes estimates recorded period become known company bases estimates historical experience various assumptions believes reasonable circumstances actual results may differ managements estimates results differ historical experience assumptions prove substantially accurate even assumptions reasonable made note 3acquisitions may 5 2017 company acquired 100 shares luxendo gmbh luxendo privately held spinoff european molecular biology laboratory purchase price euro 17 million approximately 188 million potential additional consideration based revenue achievements 2018 2021 luxendo developer manufacturer proprietary lightsheet fluorescence microscopy instruments company believes acquisition enhances companys portfolio sweptfield confocal superresolution multiphoton fluorescence microscope product lines small organism embryology livecell imaging brain development cleared brain tissue optogenetics applications luxendo located heidelberg germany integrated bruker nano group within bsi reportable segment acquisition luxendo accounted acquisition method components fair value allocation consideration transferred connection acquisition follows millions preliminary fair value allocation included contingent consideration amount 31 million represented estimated fair value future payments former shareholders luxendo based achieving annual revenue targets years 2018 2021 company completed fair value allocation third quarter 2017 amortization period intangible assets acquired connection acquisition luxendo 10 years trade names 7 years technology results luxendo including amount allocated goodwill attributable expected synergies expected deductible tax purposes included bsi segment date acquisition pro forma financial information reflecting acquisition luxendo presented impact revenues net income total assets material january 23 2017 company acquired 100 shares hysitron incorporated hysitron acquisition adds hysitrons nanomechanical testing instruments companys existing portfolio atomic force microscopes surface profilometers tribology mechanical testing systems hysitron included bruker nano group within bsi reportable segment acquisition hysitron accounted acquisition method components fair value allocation consideration transferred connection acquisition hysitron follows millions fair value allocation included contingent consideration amount 16 million represented estimated fair value future payments former shareholders hysitron based achieving annual revenue targets years 2017 2018 company completed fair value allocation second quarter 2017 maximum potential future payments related contingent consideration 10 million amortization period intangible assets acquired connection hysitron 7 years customer relationships trademarks intangibles 5 years existing technology results hysitron including amount allocated goodwill attributable expected synergies expected deductible tax purposes included bsi segment date acquisition pro forma financial information reflecting acquisition hysitron presented impact revenues net income total assets material addition acquisitions noted year ended december 31 2017 company completed various acquisitions collectively complemented companys existing product offerings added aftermarket software capabilities companys existing microbiology business impact acquisitions individually collectively revenues net income total assets material pro forma financial information reflecting acquisitions presented impact individually collectively revenues net income total assets material following table reflects consideration transferred respective reporting segment acquisitions december 14 2016 acquired 100 stock active spectrum inc manufacturer magnetic resonance spectroscopy november 17 2016 acquired 100 membership interests oxford instruments superconducting wire llc ost manufacturer lowtemperature superconductors november 2 2016 acquired assets renishaw diagnostics ltd developer producer molecular assays applications microbiology november 21 2016 acquired preclinical imaging business oncovision leading provider innovative medical imaging devices june 20 2016 acquired assets yingsheng technology pty ltd comprise technology advanced minerals identification characterization products acquired companies intended complement companys existing product portfolio technology base following table reflects consideration transferred respective reporting segment acquisitions components fair value allocation consideration transferred connection acquisitions follows millions company completed fair value allocation acquisitions december 31 2016 fair value allocation included contingent consideration amount 51 million represented estimated fair value future payments former shareholders acquired companies based achieving annual revenue gross margin targets future years future payments contingent consideration may differ fair value recorded based financial results acquired businesses amortization period intangible assets 5 7 years bargain purchase gain 92 million related acquisition ost recorded within interest income net consolidated statements income comprehensive income acquisition resulted bargain purchase gain assets acquired exceeded consideration paid pro forma financial information reflecting acquisitions presented impact revenues net income total assets material october 2015 company completed acquisition jordan valley semiconductors ltd jordan valley company headquartered israel provides xray metrology defectdetection equipment semiconductor process control acquisition jordan valley accounted acquisition method components fair value allocation consideration transferred connection acquisition jordan valley follows millions company completed fair value allocation fourth quarter 2015 fair value allocation included contingent consideration amount 41 million represented estimated fair value future payments former shareholders jordan valley based achieving annual revenue gross margin targets years 20162017 year ended december 31 2016 company recorded additional 77 million charges net additional consideration based 2016 revenue gross margin achievements maximum potential future payments related contingent consideration 41 million december 31 2016 amortization period intangible assets acquired connection jordan valley 7 years customer relationships existing technology trade name results jordan valley including amount allocated goodwill attributable expected synergies expected deductible tax purposes included bsi segment date acquisition pro forma financial information reflecting acquisition jordan valley presented impact revenues net income total assets material note 4fair value financial instruments company measures following financial assets liabilities fair value recurring basis following tables set forth companys financial instruments presents within fair value hierarchy using lowest level input significant fair value measurement december 31 2017 2016 millions derivative financial instruments classified within level 2 active market derivative contract however inputs used calculate value instruments obtained active markets fair value longterm fixed interest rate debt classified level 2 2313 million 2533 million december 31 2017 2016 respectively based market observable sources similar maturity dates company measures certain assets liabilities fair value changes fair value recognized earnings fair value treatment may elected either upon initial recognition eligible asset liability existing asset liability event triggers new basis accounting company elect remeasure existing financial assets liabilities years ended december 31 2017 2016 excluded table cash equivalents restricted cash shortterm investments cost approximates current fair value company program enter time deposits call deposit money market funds time call deposits varying maturity dates ranging one twelve month company ability redeem invested amounts period 31 95 days company classified investments within cash equivalents shortterm investments within consolidated balance sheets based call maturity dates cash equivalents 40 million 34 million restricted cash 1142 million 1579 million shortterm investments outstanding december 31 2017 2016 respectively quarterly basis company reviews shortterm investments determine events could create impairment none noted years ended december 31 2017 2016 part certain acquisitions 2017 2016 2015 company recorded contingent consideration liabilities classified level 3 fair value hierarchy contingent consideration represents estimated fair value future payments former shareholders applicable acquired companies based achieving annual revenue gross margin targets certain years specified purchase sale agreements company initially values contingent considerations using monte carlo simulation income approach method monte carlo method models future revenue costs goods sold projections discounts average results present value income approach method involves calculating earnout payment based forecasted cash flows adjusting future earnout payment risk reaching projected financials discounting future payments present value counterparty risk counterparty risk considers risk buyer cash make earnout payments commensurate cost debt appropriate term changes fair value contingent consideration recognized earnings years ended december 31 2017 december 31 2016 23 million 69 million respectively amounts recorded charges net consolidated statements income comprehensive income increases contingent consideration representing expected achievement financial targets following table sets forth changes contingent consideration liabilities years ended december 31 2017 2016 millions note 5accounts receivable following summary trade accounts receivable december 31 millions allowance doubtful accounts managements estimate credit losses accounts receivable allowance doubtful accounts based number factors including evaluation customer credit worthiness age outstanding receivable economic trends historical experience allowance doubtful accounts reviewed quarterly basis changes estimates reflected period become known company records account balances allowance means collection exhausted potential recovery considered remote provisions doubtful accounts recorded selling general administrative expenses accompanying consolidated statements income comprehensive income following summary activity companys allowance doubtful accounts december 31 millions note 6inventories inventories consisted following december 31 millions finished goods include intransit systems shipped companys customers yet installed accepted customer december 31 2017 2016 inventoryintransit 414 million 375 million respectively july 2015 fasb issued asu 201511 simplifying measurement inventory guidance eliminates measurement inventory market value inventory measured lower cost net realizable value asu defines net realizable value estimated selling prices ordinary course business less reasonably predictable costs completion disposal transportation changes made current guidance inventory measurement company adopted asu 201511 prospective basis first quarter 2017 note 7property plant equipment net following summary property plant equipment net major asset class december 31 millions depreciation expense includes amortization leasehold improvements years ended december 31 2017 2016 2015 343 million 326 million 326 million respectively years ended december 31 2017 2016 2015 company recorded impairment charges 11 million 08 million 21 million respectively representing write fair value certain property plant equipment net related restructuring outsourcing activities undertaken respective years impairment charges recorded within charges net accompanying consolidated statements income comprehensive income please see note 17other charges net additional details restructuring activities note 8goodwill intangible assets goodwill following table sets forth changes carrying amount goodwill years ended december 31 2017 2016 2015 millions december 31 2017 2016 goodwill allocated within bsi segment company performed annual impairment evaluation using qualitative approach december 31 2017 2016 quantitative approach december 31 2015 concluded likely goodwill impaired based recent quantitative analysis fair values reporting units significantly greater carrying amounts therefore additional impairment required intangible assets following summary intangible assets december 31 millions years ended december 31 2017 2016 2015 company recorded amortization expense approximately 296 million 217 million 207 million respectively consolidated statements income comprehensive income year ended december 31 2015 company recorded impairment charge 18 million representing impairment intangible assets bruker biospin group related certain restructuring outsourcing activities year estimated future amortization expense related amortizable intangible assets december 31 2017 follows millions note 9other current liabilities following summary current liabilities december 31 millions following table sets forth changes accrued warranty years ended december 31 2017 2016 2015 millions note 10debt companys debt obligations consist following december 31 millions credit agreements october 27 2015 company entered new revolving credit agreement referred 2015 credit agreement 2015 credit agreement provides maximum commitment companys revolving credit line 500 million maturity date october 2020 borrowings revolving credit line 2015 credit agreement accrue interest companys option either greatest prime rate ii federal funds rate plus 050 iii adjusted libor plus 100 plus margins ranging 000 030 b libor plus margins ranging 090 130 also facility fee ranging 010 020 borrowings 2015 credit agreement secured guarantees certain material subsidiaries defined 2015 credit agreement 2015 credit agreement also requires company maintain certain financial ratios related maximum leverage minimum interest coverage defined 2015 credit agreement specifically companys leverage ratio cannot exceed 35 companys interest coverage ratio cannot less 25 addition financial ratios 2015 credit agreement contains negative covenants including among others restrictions liens indebtedness company subsidiaries asset sales dividends transactions affiliates failure comply restrictions covenants may result event default 2015 credit agreement could permit acceleration debt require company prepay debt scheduled due date december 31 2017 company compliance covenants 2015 credit agreement companys leverage ratio defined 2015 credit agreement 132 interest coverage ratio defined 2015 credit agreement 155 following summary maximum commitments net amounts available company 2015 credit agreement lines credit various financial institutions located primarily germany switzerland unsecured typically due upon demand interest payable monthly december 31 2017 millions note purchase agreement january 2012 company entered note purchase agreement referred note purchase agreement group accredited institutional investors pursuant note purchase agreement company issued sold 2400 million senior notes referred senior notes consist following • 20 million 316 series 2012a senior notes tranche due january 18 2017 • 15 million 374 series 2012a senior notes tranche b due january 18 2019 • 105 million 431 series 2012a senior notes tranche c due january 18 2022 • 100 million 446 series 2012a senior notes tranche due january 18 2024 january 18 2017 outstanding 200 million principal amount tranche senior notes repaid accordance terms note purchase agreement terms note purchase agreement company may issue sell additional senior notes aggregate principal amount 600 million subject certain conditions interest senior notes payable semiannually january 18 july 18 year senior notes unsecured obligations company fully unconditionally guaranteed certain companys direct indirect subsidiaries senior notes rank pari passu right repayment companys senior unsecured indebtedness company may prepay senior notes time amount less 10 original aggregate principal amount senior notes prepaid price equal sum 100 principal amount thereof plus accrued unpaid interest b applicable makewhole amount upon less 30 60 days written notice holders senior notes event change control company defined note purchase agreement company may required prepay notes price equal 100 principal amount thereof plus accrued unpaid interest note purchase agreement contains affirmative covenants including without limitation maintenance corporate existence compliance laws maintenance insurance properties payment taxes addition subsidiary guarantors furnishing notices information note purchase agreement also contains certain restrictive covenants restrict companys ability among things incur liens transfer sell assets engage certain mergers consolidations enter transactions affiliates note purchase agreement also includes customary representations warranties events default case event default arising specified events bankruptcy insolvency outstanding senior notes become due payable immediately without action notice case payment events defaults holder senior notes affected thereby may declare senior notes held due payable immediately case event default majority holders senior notes may declare senior notes due payable immediately pursuant note purchase agreement long senior notes outstanding company permit leverage ratio determined pursuant note purchase agreement end fiscal quarter exceed 350 100 ii interest coverage ratio determined pursuant note purchase agreement end fiscal quarter period four consecutive fiscal quarters less 250 1 iii priority debt time exceed 25 consolidated net worth determined pursuant note purchase agreement december 31 2017 company compliance covenants note purchase agreement companys leverage ratio defined note purchase agreement 132 interest coverage ratio defined note purchase agreement 155 annual maturities debt outstanding less deferred financing cost amortization december 31 2017 follows millions interest expense years ended december 31 2017 2016 2015 154 million 132 million 130 million respectively april 2015 financial accounting standards board fasb issued accounting standards update asu 201503 simplifying presentation debt issuance costs amended existing guidance require debt issuance costs presented consolidated balance sheet reduction carrying amount related debt liability instead asset company adopted asu 201503 retrospective basis year ended december 31 2016 december 31 2017 2016 07 million 08 million respectively debt issuance costs recorded reduction carrying value related debt liability note purchase agreement 07 million debt issuance costs december 31 2017 amortized remaining term note purchase agreement company also adopted asu 201515 presentation subsequent measurement debt issuance costs associated lineofcredit arrangements elected reclassify debt issuance costs related lineofcredit arrangements 2015 credit agreement note 11derivative instruments hedging activities interest rate risks companys exposure interest rate risk relates primarily outstanding variable rate debt adverse movements related shortterm market rates significant component companys interest rate risk relates amounts outstanding 2015 credit agreement totaled 1950 million december 31 2017 company currently approximately equal levels fixed floating rate debt limits exposure adverse movements interest rates foreign exchange rate risk management company generates substantial portion revenues expenses international markets principally germany countries european union switzerland subjects operations exposure foreign rate fluctuations impact foreign exchange rate movement positive negative period company periodically enters foreign currency contracts order minimize volatility fluctuations currency translation monetary transactions arrangements company typically agrees purchase fixed amount foreign currency exchange fixed amount us dollars currencies specified dates maturities less twelve months transactions qualify hedge accounting accordingly instrument recorded fair value corresponding gains losses recorded consolidated statements income comprehensive income company following notional amounts outstanding foreign currency contracts december 31 millions addition company periodically enters purchase sales contracts denominated currencies functional currency parties transaction company accounts transactions separately valuing embedded derivative component contracts denominated currencies functional currency transacting parties amounted 983 million delivery products 36 million purchase products december 31 2017 1207 million delivery products 23 million purchase products december 31 2016 changes fair value embedded derivatives recorded interest income expense net consolidated statements income comprehensive income commodity price risk management company arrangement customer firm commitment deliver copper based superconductors fixed price order minimize volatility fluctuations price copper companys sales commodities company enters commodity hedge contracts december 31 2017 2016 company fixed price commodity contracts notional amounts aggregating 30 million 27 million respectively changes fair value commodity contracts recorded interest income expense net consolidated statements income comprehensive income fair value derivative instruments described recorded consolidated balance sheets years ended december 31 2017 2016 follows millions impact net income unrealized gains losses resulting changes fair value derivative instruments years ending december 31 follows millions recorded within interest income expense net consolidated statements income comprehensive income note 12income taxes december 22 2017 enactment date president united states signed tax reform legislation 2017 tax act enacted wide range changes us corporate income tax system many differ significantly provisions previous us tax law 2017 tax act contains several key provisions including among things • onetime tax mandatory deemed repatriation post1986 untaxed foreign earnings profits ep referred toll charge • reduction corporate tax rate 350 210 tax years beginning december 31 2017 • introduction new us tax certain offshore earnings referred global intangible lowtaxed income gilti effective tax rate 105 tax years beginning december 31 2017 increasing 13125 tax years beginning december 31 2025 partial offset foreign tax credits • introduction territorial tax system beginning 2018 providing 100 dividends received deduction certain qualified dividends foreign subsidiaries also december 22 2017 securities exchange commission sec issued staff accounting bulletin sab 118 provides companies additional guidance implement provisions 2017 tax act financial statements guidance provides measurement period one year enactment date provisional amounts may adjusted additional information obtained prepared analyzed facts circumstances existed enactment date known would impacted amounts initially recorded company yet completed assessment tax effects associated enactment 2017 tax act however reasonable estimate made effects existing deferred tax balances onetime transition tax changes tax rates laws accounted period enactment therefore fourth quarter 2017 company recorded incremental income tax provision 689 million primarily comprised following • estimated income tax provision 550 million federal state impacts onetime deemed repatriation pre2018 ep accordance 2017 tax act federal portion toll charge liability may paid eight years liability reduced certain credits accordingly recorded 306 million 27 million longterm income tax liabilities accrued income taxes current respectively december 31 2017 • estimated net income tax benefit 14 million remeasurement deferred tax assets liabilities newly enacted tax rate 21 • result 2017 tax act expectations distributing certain cash balances foreign subsidiaries united states also recorded estimated income tax provisions estimated state income taxes foreign withholding taxes 125 million net charge 689 million recorded based currently available information interpretations applying provisions 2017 tax act time filing annual report form 10k company expects finalize provisional estimates end 2018 completing review analysis including reviews analysis interpretations issued measurement period company still evaluating gilti provisions 2017 tax act impact consolidated financial statements december 31 2017 companies allowed adopt accounting policy either recognize deferred taxes gilti treat tax cost year incurred company yet determined accounting policy determining impact gilti provisions requires analysis existing legal entity structure reversal us gaap us tax basis differences assets liabilities foreign subsidiaries ability offset tax foreign tax credits company record deferred income tax expense benefit related gilti provisions 2017 tax act consolidated statement income year ended december 31 2017 also finalized measurement period company recorded provisional amount toll charge represents reasonable estimate liability due mandatory deemed repatriation post1986 untaxed foreign ep determining provisional toll charge liability required significant effort based number factors including • analyzing accumulated untaxed foreign ep since 1986 including historical practices assertions made determining • determining composition including intercompany receivables payables specified foreign corporations post1986 untaxed foreign ep held cash liquid assets several measurement dates required different tax rate applied determining toll charge liability • assessing potential impact existing uncertain tax positions determining accumulated undistributed ep due timing enactment date company limited time understand 2017 tax act various interpretations assess apply new tax law specific facts circumstances company determine toll charge amounts recorded toll charge provisional actual results implementation 2017 tax act may materially differ companys current estimate due among things guidance may issued us tax authorities regulatory bodies including sec fasb interpret 2017 tax act company continue analyze 2017 tax act additional guidance may issued finalize full effects applying new legislation measurement period domestic foreign components income taxes follows years ended december 31 millions components income tax provision follows years ended december 31 millions income tax provision differs tax provision computed us federal statutory rate due following significant components years ended december 31 tax effect temporary items give rise significant portions deferred tax assets liabilities december 31 2017 2016 follows millions company uses liability method account income taxes method deferred income taxes recognized future tax consequences differences tax financial accounting bases assets liabilities reporting period deferred income taxes based enacted tax laws statutory tax rates applicable period differences expected affect taxable income valuation allowance established necessary reduce deferred tax assets expected realizable amounts company recognize deferred tax asset extent likely assets realized judgments around realizability depend availability weight positive negative evidence changes valuation allowance deferred tax assets years ended december 31 2017 2016 2015 follows decreases related primarily realizability foreign net operating capital losses based future taxable income december 31 2017 company approximately 232 million net operating loss carryforwards available reduce state taxable income company also approximately 774 million german trade tax corporate income tax net operating losses carried forward indefinitely additionally company 139 million foreign net operating losses expected expire various times beginning 2018 company also state research development tax credits 75 million utilization credits state net operating losses may subject annual limitations due ownership percentage change limitations provided internal revenue code section 382 similar state provisions event deemed change control internal revenue code section 382 annual limitation utilization net operating losses credits may result expiration portion net operating loss credit carryforwards company reflects certain statutory reserves tabular reconciliation unrecognized tax benefits effective year ended december 31 2013 thereafter unrecognized tax benefits presented reduction associated net deferred tax assets december 31 2017 accordance 2017 tax act company recorded state foreign withholding taxes cash liquid assets portion unremitted earnings profits ep foreign subsidiaries expected repatriated foreign subsidiaries united states company continues indefinitely reinvested amounting 7400 million noncash ep related 2017 tax act deemed repatriation ep ultimately distributed united states form dividends otherwise company would likely subject additional withholding tax company continue evaluate assertions cumulative historical outside basis differences foreign subsidiaries december 31 2017 company expects finalize analysis accounting related toll charge remaining outside basis differences foreign subsidiaries measurement period company estimates amount unrecognized deferred withholding taxes undistributed ep approximately 27 million december 31 2017 company gross unrecognized tax benefits excluding interest approximately 44 million december 31 2017 recognized would reduce companys effective tax rate next twelve months reasonably possible company reduce unrecognized tax benefits 08 million due expiration statutes limitations favorable settlement taxing authorities would reduce companys effective tax rate tabular reconciliation beginning ending amount unrecognized tax benefits follows millions companys policy include accrued interest penalties related unrecognized tax benefits income tax liabilities applicable income tax expense december 31 2017 2016 company approximately 02 million 05 million respectively accrued interest penalties related uncertain tax positions included longterm liabilities consolidated balance sheets company recorded benefit 03 million 18 million penalties interest related unrecognized tax benefits provision income taxes year ended december 31 2017 december 31 2016 respectively company files tax returns united states includes federal state local jurisdictions many foreign jurisdictions varying statutes limitations company considers germany united states switzerland significant tax jurisdictions majority companys earnings derived germany switzerland accounting various federal local taxing authorities statutory rates 2017 approximately 300 200 germany switzerland respectively mix earnings two jurisdictions resulted reduction 78 us statutory rate 350 2017 company party tax holiday agreements tax years 2013 2016 open examination germany switzerland third quarter 2015 company settled tax audits germany italy 2016 company settled tax audits germany switzerland settlements immaterial consolidated financial statements tax years 2011 2016 remain open examination united states note 13post retirement benefit plans defined contribution plans company sponsors various defined contribution plans cover certain domestic international employees company may make contributions plans discretion company contributed 64 million 60 million 65 million plans years ended december 31 2017 2016 2015 respectively defined benefit plans substantially companys employees switzerland france japan well certain employees germany covered companysponsored defined benefit pension plans retirement benefits generally earned based years service compensation active employment eligibility generally determined accordance local statutory requirements however level benefits terms vesting varies among plans components net periodic benefit costs years ended december 31 2017 2016 2015 follows millions net periodic benefit costs year ended december 31 2015 includes onetime noncash settlement loss 102 million company outsourced pension plan switzerland outside insurance provider transferred certain plan assets pension obligations retirees certain members population made certain plan design changes remeasured liability company measures benefit obligation fair value plan assets december 31st year changes benefit obligations plan assets defined benefit pension plans projected benefit obligation funded status plans follows december 31 millions accumulated benefit obligation defined benefit pension plans 2172 million 1999 million december 31 2017 2016 respectively defined benefit pension plans accumulated benefit obligation projected benefit obligation excess plan assets december 31 2017 2016 following amounts recognized accompanying consolidated balance sheets companys defined benefit plans december 31 millions following pretax amounts recognized accumulated comprehensive income companys defined benefit plans december 31 millions amount accumulated comprehensive income december 31 2017 expected recognized amortization net loss within net periodic benefit cost 2018 39 million defined benefit pension plans company uses corridor approach amortize actuarial gains losses approach net actuarial gains losses excess ten percent larger projected benefit obligation fair value plan assets amortized average remaining service active participants expected receive benefits plans range assumptions used defined benefit pension plans reflects different economic environments within various countries range assumptions used determine projected benefit obligations years ended december 31 follows determine expected longterm rate return pension plan assets company considers current asset allocations well historical expected returns various asset categories plan assets defined benefit pension plans company applies expected rate return marketrelated value assets stabilizes variability assets expected return applied asset allocations asset category fair value companys pension plan assets december 31 2017 2016 asset category level fair value hierarchy follows millions athe companys pension plan france invested larger fund invests variety instruments assets directly dedicated french pension plan group bpce life fund invests debt securities foreign corporations governments equity securities foreign government funds private real estate funds bthe companys pension plan switzerland outsourced swiss life ag outside insurance provider insurance contract plan assets invested swiss life collective bvg foundation umbrella fund retirement savings interest rates guaranteed minimum 175 mandatory withdrawal portion defined swiss law 075 125 years ended december 31 2017 2016 respectively nonmandatory portion foundation utilizes plan administrators investment managers oversee investment allocation process set longterm strategic targets monitor asset allocations target allocations 75 bonds including cash 5 equity investments 20 real estate mortgages foundation yield return greater guaranteed amounts company according swiss law shall receive 90 additional return swiss life ag retaining 10 withdrawal benefits interest allocations secured times swiss life ag contributions estimated future benefit payments 2018 company expects contributions consistent 2017 estimated future benefit payments based assumptions used measure companys benefit obligation december 31 2017 following benefit payments reflect future employee service appropriate millions note 14commitments contingencies accordance asc topic 450 contingencies company accrues anticipated costs settlement damages costs extent specific losses probable estimable litigation related contingencies lawsuits claims proceedings nature considered normal businesses may pending time company third parties might allege company collaborators infringing patent rights company otherwise violating intellectual property rights loss contingency provisions recorded potential loss claim asserted unasserted legal proceeding considered probable amount reasonably estimated range loss determined accruals represent managements best estimate probable loss disclosure also provided reasonably possible loss incurred reasonably possible amount loss exceed recorded provision company believes outcome pending proceedings individually aggregate material impact companys financial statements december 31 2017 2016 material accruals recorded potential contingencies governmental investigations company subject time investigations us foreign governmental agencies civil criminal administrative proceedings could result october 19 2017 company received notice investigation subpoena produce documents division enforcement sec subpoena seeks information related employee terminated part restructuring certain matters involving companys policies accounting practices related revenue recognition restructuring activities well related financial reporting disclosure compliance matters since january 1 2013 subpoena also seeks information concerning among things companys previously identified material weakness internal controls accounting income taxes related financial reporting matters certain payments nonemployee travel expenses company producing documents response subpoena intends continue cooperate fully secs investigation time company unable predict duration scope outcome investigation korea fair trade commission kftc conducted investigation improper bidding bruker korea co ltd several companies connection bids sales xray systems 2010 2012 three bids investigation involved bruker korea company cooperated fully kftc regarding matter september 2016 kftc fined bruker korea approximately 15000 referred matter korean public prosecutors office ppo criminal prosecution may 31 2017 ppo issued official notice decision pursue criminal proceedings bruker korea additionally since december 2016 various korean governmental entities imposed suspensions bruker korea overlapping suspension periods ranging three six months periods suspensions bruker korea prohibited bidding conducting sales korean governmental agencies sales customers less 1 companys revenue year ended december 31 2016 december 31 2017 suspension periods lapsed company considers matters resolved additional payments owed accrued december 31 2017 connection resolutions operating leases certain buildings office equipment vehicles leased agreements accounted operating leases total rental expense operating leases 237 million 220 million 230 million years ended december 31 2017 2016 2015 respectively future minimum lease payments noncancelable operating leases december 31 2017 next five years thereafter follows millions capital leases company leases certain assets agreements classified capital leases cost assets capital leases included consolidated balance sheets property plant equipment 09 million december 31 2017 accumulated amortization leased buildings december 31 2017 05 million assets capital lease agreements december 31 2016 amortization expense related assets capital leases included depreciation expense obligations related capital leases recorded component longterm debt current portion longterm debt consolidated balance sheets depending lease payments due unconditional purchase commitments company entered unconditional purchase commitments ordinary course business include agreements purchase goods services fixed assets pay royalties enforceable legally binding specify significant terms including fixed minimum quantities purchased fixed minimum variable price provisions approximate timing transaction purchase commitments exclude agreements cancelable time without penalty aggregate amount companys unconditional purchase commitments totaled 1640 million december 31 2017 majority commitments expected settled 2018 license agreements company entered crosslicensing agreements various technologies allow companies utilize certain patents related technologies various periods perpetuity income agreements years ended december 31 2017 2016 2015 21 million 19 million 25 million respectively classified revenue consolidated statements income comprehensive income unearned portions proceeds crosslicensing agreements classified shortterm longterm deferred revenue depending revenue earned company also entered license agreements allowing utilize certain patents used connection commercial product sale company pays royalties related product revenues licensing fees years ended december 31 2017 2016 2015 35 million 30 million 32 million respectively recorded cost product revenue consolidated statements income comprehensive income letters credit guarantees december 31 2017 2016 company bank guarantees 1388 million 1315 million respectively related primarily customer advances arrangements guarantee refund advance payments received customers event merchandise delivered warranty obligations fulfilled compliance terms contract guarantees affect availability companys lines credit indemnifications company enters standard indemnification arrangements companys ordinary course business pursuant arrangements company indemnifies holds harmless agrees reimburse indemnified parties losses suffered incurred indemnified party parties generally companys business partners customers connection patent copyright intellectual property infringement claim third party respect products term indemnification agreements generally perpetual time execution agreement maximum potential amount future payments company could required make agreements unlimited company believes estimated fair value agreements minimal based historical experiences note 15shareholders equity share repurchase program may 2015 companys board directors approved share repurchase program antidilutive repurchase program company authorized repurchase companys common stock amounts intended approximately offset annual basis dilutive effect shares may issued pursuant option restricted stock awards companys incentive compensation plans 2015 total 1245000 shares repurchased aggregate cost 249 million antidilutive repurchase program november 2015 companys board directors suspended antidilutive repurchase program january 1 2017 approved additional share repurchase program authorized repurchases common stock 225 million time amounts prices times company deemed appropriate subject market conditions legal requirements considerations total 9312522 shares repurchased aggregate cost 2250 million december 31 2016 completed repurchase program may 2017 companys board directors approved additional share repurchase program repurchase program repurchases common stock 2250 million authorized occur time amounts prices times company deems appropriate subject market conditions legal requirements considerations total 5318063 shares repurchased aggregate cost 1522 million year ended december 31 2017 repurchase program future repurchases funded cash hand future cash flows operations available borrowings revolving credit facility repurchased shares reflected within treasury stock accompanying consolidated balance sheet december 31 2017 2016 cash dividends common stock february 22 2016 company announced establishment dividend policy declaration board directors initial quarterly cash dividend amount 004 per share companys issued outstanding common stock dividend policy company target cash dividend companys shareholders amount 016 per share per annum payable equal quarterly installments following summary dividends paid years ended december 31 2017 2016 millions subsequent dividend declarations establishment record payment dates future dividend payments subject board directors continuing determination dividend policy best interests companys shareholders dividend policy may suspended cancelled discretion board directors time accumulated comprehensive income loss following summary components accumulated comprehensive income loss net tax december 31 millions note 16stockbased compensation february 2010 bruker biosciences corporation amended restated 2000 stock option plan 2000 plan expired end scheduled tenyear term march 9 2010 companys board directors unanimously approved adopted bruker corporation 2010 incentive compensation plan 2010 plan may 14 2010 plan approved companys stockholders 2010 plan provided issuance 8000000 shares companys common stock 2010 plan allowed committee board directors compensation committee grant incentive stock options nonqualified stock options restricted stock awards compensation committee authority determine employees would receive awards amount awards terms conditions awards granted 2010 plan typically made subject vesting period three five years may 2016 bruker corporation 2016 incentive compensation plan 2016 plan approved companys stockholders approval 2016 plan grants made 2010 plan 2016 plan provides issuance 9500000 shares companys common stock permits grant awards nonqualified stock options incentive stock options stock appreciation rights restricted stock unrestricted stock restricted stock units performance shares performance units well cashbased awards 2016 plan administered compensation committee compensation committee authority determine employees receive awards amount awards terms conditions awards stock option awards granted 2016 plan typically vest period three four years stock option activity year ended december 31 2017 follows addition options vested december 31 2017 company expects portion unvested options vest future options expected vest future determined applying estimated forfeiture rate options unvested december 31 2017 bthe aggregate intrinsic value based positive difference fair value companys common stock price 3432 december 31 2017 date exercises appropriate exercise price underlying stock options weighted average fair value options granted 761 772 782 per share years ended december 31 2017 2016 2015 respectively total intrinsic value options exercised 162 million 112 million 82 million years ended december 31 2017 2016 2015 respectively unrecognized pretax stockbased compensation expense 83 million related stock options awarded 2010 2016 plans expected recognized weighted average remaining service period 22 years stock options outstanding december 31 2017 restricted shares companys common stock periodically awarded executive officers directors certain key employees company subject service restrictions vest ratably periods one four years restricted shares common stock may sold transferred restriction period stockbased compensation restricted stock recorded based stock price grant date charged expense ratably throughout restriction period following table summarizes information restricted stock award activity year ended december 31 2017 total fair value restricted stock vested 23 million 15 million 10 million years ended december 31 2017 2016 2015 respectively unrecognized pretax stockbased compensation expense 11 million related restricted stock awarded 2010 plan expected recognized weighted average remaining service period 144 years awards outstanding december 31 2017 restricted stock units companys common stock periodically awarded executive officers directors certain employees company vest ratably service periods one four years stockbased compensation restricted stock units recorded based stock price grant date charged expense ratably throughout vesting period following table summarizes information restricted stock unit activity year ended december 31 2017 total fair value restricted stock vested 20 million year ended december 31 2017 restricted stock units vested years ended december 31 2016 2015 unrecognized pretax stockbased compensation expense 132 million related restricted stock units awarded 2016 plan expected recognized weighted average remaining service period 338 years units outstanding december 31 2017 march 2016 fasb issued asu 201609 stock compensationimprovements employee sharebased payment accounting new standard simplifies accounting sharebased payment transactions including income tax consequences classification tax impact statement cash flows company adopted standard effective january 1 2017 asu requires difference actual tax benefit realized upon exercise vesting applicable tax benefit recorded based fair value stock award time grant excess tax benefits reflected reduction current period provision income taxes shortfall recorded increase tax provision rather component changes additional paidin capital asu also required excess tax benefit realized reflected operating cash flow rather financing cash flow standard adopted company modified retrospective basis respect previously unrecognized windfalls resulted cumulative adjustment retained earnings 36 million january 1 2017 related timing excess tax benefits recognized company adopted standard prospective basis respect statements income cash flows recognized excess tax benefit related stock compensation decreased income tax expense amount 19 million year ended december 31 2017 excess tax benefits previously recorded equity company continues utilize historical forfeiture rate estimate future forfeitures note 17other charges net components charges net years ended december 31 2017 2016 2015 follows millions restructuring initiatives company commenced restructuring initiative 2016 address lower demand bruker calid bruker nano groups result delays european academic funding ongoing weakness several industrial end market segments affect bruker nano group initiative intended improve bruker calid bruker nano group operating results response market conditions restructuring actions result reduction approximately 125 employees within bruker calid bruker nano groups following summary restructuring expenses related initiative recorded accompanying consolidated statements income comprehensive income years ended december 31 2017 2016 company commenced restructuring initiative second quarter 2015 within bruker biospin group developed result revenue decline occurred second half 2014 continued first half 2015 initiative intended improve bruker biospin groups operating results restructuring actions resulted reduction employee headcount within bruker biospin group approximately 9 closure consolidation bruker biospin group manufacturing facility following summary restructuring expenses related initiative recorded accompanying consolidated statements income comprehensive income years ended december 31 2017 2016 2015 december 31 2017 expenses incurred restructuring initiative substantially complete restructuring charges years ended december 31 2017 2016 2015 included charges various programs recorded accompanying consolidated statements income comprehensive income follows following table sets forth changes restructuring reserves years ended december 31 2017 2016 2015 millions restructuring charges segment years ended december 31 follows millions note 18interest income expense net components interest income expense net years ended december 31 2017 2016 2015 follows millions note 19business segment information company two reportable segments bsi best discussed note 1 consolidated financial statements selected business segment information presented years ended december 31 millions arepresents product service revenue reportable segments brepresents corporate costs eliminations allocated reportable segments company recorded impairment charge 11 million 08 million 46 million years ended december 31 2017 2016 2015 respectively within bsi best segments please see note 7property plant equipment net note 8goodwill intangible assets description impairment charges recorded 2017 2016 2015 impairment charges included within charges net accompanying consolidated statements income comprehensive income total assets segment years ended december 31 follows millions aassets allocated reportable segments eliminations intercompany transactions total capital expenditures depreciation amortization segment presented years ended december 31 millions revenue property plant equipment net geographical area year ended december 31 follows millions note 20related parties company leases certain office space certain principal shareholders including director executive officer another member companys board directors members immediate families expiration dates ranging 2018 2020 total rent expense leases 35 million 39 million 18 million years ended december 31 2017 2016 2015 respectively years ended december 31 2017 2016 2015 company recorded revenue 26 million 11 million 07 million respectively arising commercial transactions life sciences company member companys board directors chairman chief executive officer year ended december 31 2016 2015 company recorded revenue 02 million 05 million respectively commercial transactions thermal analysis company one former members board directors serves consultant note 21recent accounting pronouncements january 2017 financial accounting standards board fasb issued accounting standards update asu 201704 intangiblesgoodwill topic 350 simplifying test goodwill impairment new standard simplifies subsequent measurement goodwill eliminating second step goodwill impairment test asu applied prospectively effective annual interim goodwill impairment tests fiscal years beginning december 15 2019 adoption standard expected material impact companys consolidated financial statements upon adoption january 2017 fasb issued asu 201701 business combinations topic 805 clarifying definition business new standard clarifies definition business provides screen determine integrated set assets activities business screen requires substantially fair value gross assets acquired disposed concentrated single identifiable asset group similar identifiable assets set business new standard adopted effective date january 1 2018 company evaluated provisions standard determined impact adoption asu 201701 material consolidated financial statements october 2016 fasb issued asu 201616 income taxes topic 740intraentity transfer assets inventory new standard requires recognition current deferred income taxes resulting intraentity transfer asset excluding inventory transfer occurs change existing us gaap prohibits recognition current deferred income taxes asset sold third party new standard adopted effective date january 1 2018 company evaluated provisions standard determined impact adoption asu 201616 material consolidated financial statements february 2016 fasb issued asu 201602 leases new standard provides guidance recognition measurement presentation disclosure leases new standard supersedes present us gaap guidance leases requires substantially leases reported balance sheet rightofuse assets lease liabilities well additional disclosures new standard effective january 1 2019 early adoption permitted company evaluating provisions standard determined impact adoption asu 201602 companys consolidated financial statements may 2014 fasb issued asu 201409 revenue contracts customers supersedes revenue recognition requirements accounting standards codification asc topic 605 new guidance result joint project fasb international accounting standards board clarify principles recognizing revenue develop common revenue standards us gaap international financial reporting standards core principle new guidance revenue recognized depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services august 2015 fasb elected defer effective date asu 201409 one year annual periods beginning december 15 2017 early application permitted original effective date new guidance may applied retrospective basis prior periods presented modified retrospective basis cumulative effect new guidance date initial application new guidance effective company january 1 2018 company currently intends use modified retrospective transition method new guidance specific criteria determine performance obligation recognized time point time accordingly company identified certain projectbased orders best segment cbrne detection orders bruker calid group timing company recognizes revenue may impacted due complexity projectbased orders revenue recognition new standard highly dependent specific contract terms fourth quarter 2017 company substantially completed assessment impact new standard consolidated balance sheets company preliminarily expects recognize adjustment approximately 60 million retained earnings january 1 2018 reflect cumulative effect accounting changes made upon adoption standard finalization assessment may result significant changes estimates may materially impact preliminary estimate cumulative effect note 22quarterly financial data unaudited summary operating results quarterly periods years ended december 31 2017 2016 set forth millions except per share data 1the first fourth quarter 2017 includes impairment assets 03 million 08 million respectively comprised longlived assets 2the second fourth quarter 2016 includes impairment assets 07 million 01 million respectively comprised longlived assets 3the third quarter 2017 includes bargain purchase gain 11 million related merlin diagnostika gmbh acquisition fourth quarter 2017 includes adjustment bargain purchase gain 05 million related acquisition 4the fourth quarter 2016 includes bargain purchase gain 92 million related oxford instruments superconducting wire llc acquisition 5the fourth quarter 2017 includes 689 million incremental income tax provision related 2017 tax act item 9item 8 financial statements supplementary data index consolidated financial statements page report independent registered public accounting firm consolidated balance sheets december 31 2020 2019 consolidated statements income comprehensive income years ended december 31 2020 2019 2018 consolidated statements redeemable noncontrolling interest shareholders’ equity years ended december 31 2020 2019 2018 consolidated statements cash flows years ended december 31 2020 2019 2018 notes consolidated financial statements report independent registered public accounting firm board directors shareholders bruker corporation opinions financial statements internal control financial reporting audited accompanying consolidated balance sheets bruker corporation subsidiaries “company” december 31 2020 2019 related consolidated statements income comprehensive income redeemable noncontrolling interest shareholders’ equity cash flows three years period ended december 31 2020 including related notes collectively referred “consolidated financial statements” also audited company’s internal control financial reporting december 31 2020 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion consolidated financial statements referred present fairly material respects financial position company december 31 2020 2019 results operations cash flows three years period ended december 31 2020 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2020 based criteria established internal control integrated framework 2013 issued coso change accounting principle discussed note 2 consolidated financial statements company changed manner accounts leases 2019 basis opinions company’s management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included managements report internal control financial reporting appearing item 9a responsibility express opinions company’s consolidated financial statements company’s internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits consolidated financial statements included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions described management’s report internal control financial reporting management excluded canopy biosciences llc smarttip bv assessment internal control financial reporting december 31 2020 acquired company purchase business combinations 2020 also excluded canopy biosciences llc smarttip bv audit internal control financial reporting canopy biosciences llc smarttip bv whollyowned subsidiaries whose total assets total revenues excluded management’s assessment audit internal control financial reporting collectively represent 02 01 respectively related consolidated financial statement amounts year ended december 31 2020 definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate critical audit matters critical audit matter communicated matter arising current period audit consolidated financial statements communicated required communicated audit committee relates accounts disclosures material consolidated financial statements ii involved especially challenging subjective complex judgments communication critical audit matters alter way opinion consolidated financial statements taken whole communicating critical audit matter providing separate opinion critical audit matter accounts disclosures relates goodwill impairment assessment reporting unit bruker scientific instrumentsbsi nano segment described notes 2 9 consolidated financial statements company’s consolidated goodwill balance 3204 million december 31 2020 2280 million relates bsi nano segment management evaluates goodwill impairment annual basis interim basis events changes circumstances indicate carrying value may recoverable management tests goodwill impairment reporting unit level operating segment one level operating segment management determines fair value reporting units using weighting market income methodologies assessing recoverability goodwill management must make assumptions regarding estimated future cash flows including forecasted revenue growth discount rate determine fair value carrying amount reporting unit exceeds fair value reporting unit management recognizes impairment charge amount carrying amount exceeds reporting unit’s fair value total amount goodwill allocated reporting unit principal considerations determination performing procedures relating goodwill impairment assessment reporting unit bsi nano segment critical audit matter significant judgment management developing fair value measurement reporting unit turn led high degree auditor judgment subjectivity effort performing procedures evaluating management’s siginificant assumptions related forecasted revenue growth discount rate audit effort also involved use professionals specialized skill knowledge addressing matter involved performing procedures evaluating audit evidence connection forming overall opinion consolidated financial statements procedures included testing effectiveness controls relating management’s goodwill impairment assessment including controls valuation company’s reporting unit procedures also included among others testing management’s process developing fair value estimate reporting unit evaluating appropriateness using weighting market income methodologies testing completeness accuracy relevance underlying data used methodologies evaluating significant assumptions used management related forecasted revenue growth discount rate evaluating management’s assumptions related forecasted revenue growth discount rate involved evaluating whether assumptions used management reasonable considering current past performance reporting unit ii consistency external market industry data iii whether assumptions consistent evidence obtained areas audit professionals specialized skill knowledge used assist evaluation company’s methodologies discount rate assumption pricewaterhousecoopers llp boston massachusetts march 1 2021 served company’s auditor since 2016 bruker corporation consolidated balance sheets millions except share per share data accompanying notes integral part consolidated financial statements bruker corporation consolidated statements income comprehensive income millions except per share data accompanying notes integral part consolidated financial statements bruker corporation consolidated statements redeemable noncontrolling interest shareholders’ equity millions except share data accompanying notes integral part consolidated financial statements bruker corporation consolidated statements cash flows millions accompanying notes integral part consolidated financial statements notes consolidated financial statements 1 description business bruker corporation together consolidated subsidiaries bruker company develops manufactures distributes highperformance scientific instruments analytical diagnostic solutions enable customers explore life materials microscopic molecular cellular levels many company’s products used detect measure visualize structural characteristics chemical biological industrial material samples company’s products address rapidly evolving needs diverse array customers life science research pharmaceuticals biotechnology applied markets cell biology clinical research microbiology invitro diagnostics nanotechnology materials science research company four operating segments bruker biospin group bruker calid group bruker scientific instruments bsi nano segment bruker energy supercon technologies best company three reportable segments bsi life science segment bsi nano segment best financial reporting purposes bruker biospin group bruker calid group operating segments aggregated reportable bsi life science segment similar economic characteristics production processes service offerings types classes customers methods distribution regulatory environments bruker biospin bruker biospin group designs manufactures distributes enabling life science tools based magnetic resonance technology bruker biospin group’s revenues generated academic government research customers pharmaceutical biotechnology companies nonprofit laboratories well chemical food beverage clinical industrial companies bruker calid chemicals applied markets life science invitro diagnostics detection bruker calid group designs manufactures distributes life science mass spectrometry ion mobility spectrometry solutions analytical process analysis instruments solutions based infrared raman molecular spectroscopy technologies radiologicalnuclear detectors chemical biological radiological nuclear explosive cbrne detection customers bruker calid group include academic institutions medical schools pharmaceutical biotechnology diagnostics companies contract research organizations nonprofit forprofit forensics laboratories agriculture food beverage safety laboratories environmental clinical microbiology laboratories hospitals government departments agencies bsi nano segment designs manufactures distributes advanced xray instruments atomic force microscopy instrumentation advanced fluorescence optical microscopy instruments analytical tools electron microscopes xray metrology defectdetection equipment semiconductor process control handheld portable mobile xray fluorescence spectrometry instruments spark optical emission spectroscopy systems customers bsi nano segment include academic institutions governmental customers nanotechnology companies semiconductor companies raw material manufacturers industrial companies biotechnology pharmaceutical companies businesses involved materials analysis best reportable segment develops manufactures superconducting nonsuperconducting materials devices use renewable energy infrastructure healthcare “big science” research segment focuses metallic low temperature superconductors use magnetic resonance imaging nuclear magnetic resonance fusion energy research applications 2 summary significant accounting policies principles consolidation accompanying consolidated financial statements include accounts company majority wholly owned subsidiaries intercompany accounts transactions eliminated noncontrolling interests noncontrolling interests represents minority shareholders’ proportionate share company’s majorityowned subsidiaries portion net income net loss attributable noncontrolling interests presented net income attributable noncontrolling interests consolidated subsidiaries consolidated statements income comprehensive income portion comprehensive income subsidiaries presented consolidated statements shareholders’ equity redeemable noncontrolling interests company agreement noncontrolling interest holders provided company right purchase noncontrolling interest holders right sell remaining minority interest contractually defined redemption value rights accelerated certain events redemption contingently redeemable option noncontrolling interest shareholders company classified carrying amount redeemable noncontrolling interest mezzanine section consolidated balance sheet presented equity section liabilities subsequent acquisition redeemable noncontrolling interest measured greater amount would paid settlement occurred balance sheet date based contractually defined redemption value carrying amount adjusted net income loss attributable noncontrolling interest adjustments carrying value redeemable noncontrolling interest recorded retained earnings company exercised option purchase remainder entity 2020 carrying value noncontrolling interest accreted redemption value retained earnings reclassified additional paid capital december 31 2020 redeemable noncontrolling interests business combinations company accounts business combinations acquisition method accounting accordingly date acquisition company measures fair value identifiable assets acquired including intangible assets liabilities assumed remaining noncontrolling interests allocates amounts paid items measured fair value identifiable intangible assets acquired based valuations use information assumptions determined management consider management’s best estimates inputs assumptions market participant would use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant estimates judgments made management preparing financial statements include revenue recognition allowances doubtful accounts writedowns excess obsolete inventory estimated fair values used record impairment charges related intangible assets goodwill longlived assets amortization periods expected future cash flows used evaluate recoverability longlived assets record intangible assets business combinations stockbased compensation expense warranty allowances restructuring related charges contingent liabilities recoverability company’s net deferred tax assets changes estimates recorded period become known company bases estimates historical experience various assumptions believes reasonable circumstances actual results may differ management’s estimates results differ historical experience assumptions prove substantially accurate even assumptions reasonable made subsequent events considerations company considers events transactions occur balance sheet date prior issuance financial statements provide additional evidence certain estimates identify matters require additional disclosure subsequent events evaluated required company evaluated subsequent events determined reported herein material recognized unrecognized subsequent events cash equivalents cash equivalents primarily include cash hand money market funds time deposits original maturities three months less date acquisition time deposits represent amounts deposit banks temporarily invested instruments maturities three months less time purchase certain investments represent deposits insured fdic government agency cash equivalents carried cost approximates fair value shortterm investments shortterm investments represent time call deposits original maturities greater three months date acquisition shortterm investments classified availableforsale reported fair value unrealized gains losses recorded december 31 2020 2019 2018 cost approximates current fair value shortterm investments held company december 31 2018 restricted cash restricted cash included component cash equivalents restricted cash company’s consolidated statement cash flows company certain subsidiaries required local laws regulations maintain restricted cash balances cover future employee benefit payments restricted cash balances classified noncurrent unless terms applicable agreements funds released restrictions within one year balance sheet date current noncurrent portion restricted cash recorded within current assets longterm assets respectively accompanying consolidated balance sheets accounts receivable net accounts receivable reduced allowance doubtful accounts allowance doubtful accounts represents company’s best estimate amount probable credit losses accounts receivable company’s allowance based number factors including evaluation customer credit worthiness age outstanding receivable economic trends historical experience provisions doubtful accounts recorded selling general administrative expenses accompanying consolidated statements income comprehensive income derivative financial instruments hedging activities derivatives whether designated hedging relationship recorded consolidated balance sheets fair value accounting changes fair value derivative instrument depends whether designated qualifies part hedging relationship type hedging relationship derivative instruments designated qualify hedging instruments company must designate hedging instrument based exposure hedged fair value hedge cash flow hedge foreign currency hedge net investment foreign operation derivative designated hedge depending nature hedge changes fair value derivative either offset change fair value hedged item earnings recognized comprehensive income hedged item recognized earnings derivatives designated hedges recorded fair value earnings company presents crosscurrency swap periodic settlements investing activities interest rate swap periodic settlements operating activities statement cash flows fair value financial instruments company applies following hierarchy determine fair value financial instruments prioritizes inputs used measure fair value three levels bases categorization within hierarchy upon lowest level input available significant fair value measurement levels hierarchy defined follows ●level 1 inputs valuation methodology quoted prices unadjusted identical assets liabilities active markets ●level 2 inputs valuation methodology include quoted prices similar assets liabilities active markets inputs observable asset liability either directly indirectly substantially full term financial instrument ●level 3 inputs valuation methodology unobservable significant fair value measurement valuation techniques may used company determine fair value level 2 level 3 financial instruments market approach income approach cost approach market approach uses prices relevant information generated market transactions involving identical comparable assets liabilities income approach uses valuation techniques convert future amounts single present value based current market expectations future amounts including present value techniques optionpricing models excess earnings method cost approach based amount would required replace service capacity asset replacement cost company’s financial instruments consist primarily cash equivalents shortterm investments restricted cash derivative instruments consisting forward foreign exchange contracts crosscurrency interest rate swap agreements commodity contracts derivatives embedded certain purchase sale contracts derivatives embedded within noncontrolling interests accounts receivable accounts payable contingent consideration longterm debt carrying amounts company’s cash equivalents shortterm investments restricted cash accounts receivable borrowings revolving credit agreement accounts payable approximate fair value shortterm nature derivative assets liabilities measured fair value recurring basis company’s longterm debt consists principally note purchase agreement entered 2012 revolving credit agreement long term loan agreement note purchase agreement entered 2019 company evaluated estimated fair value financial instruments using available market information management’s estimates use different market assumptions andor estimation methodologies could significant effect estimated fair value amounts concentration credit risk financial instruments subject company credit risk consist cash equivalents shortterm investments derivative instruments accounts receivables restricted cash risk respect cash equivalents shortterm investments minimized company’s policy investing shortterm financial instruments issued highly rated financial institutions risk respect derivative instruments minimized company’s policy entering arrangements highly rated financial institutions risk respect accounts receivables minimized creditworthiness diversity company’s customers company performs periodic credit evaluations customers’ financial condition generally requires advanced deposit portion purchase price credit losses within management’s expectations allowance doubtful accounts totaled 30 million 34 million december 31 2020 2019 respectively december 31 2020 2019 single customer represented 10 company’s accounts receivable years ended december 31 2020 2019 2018 single customer represented 10 company’s total revenue inventories components inventory include raw materials workinprocess demonstration units finished goods demonstration units include systems located company’s demonstration laboratories installed sites potential customers considered available sale finished goods include intransit systems shipped company’s customers yet installed accepted customer inventories stated lower cost net realizable value cost determined principally firstin firstout method majority subsidiaries averagecost certain subsidiaries company reduces carrying value inventories differences cost estimated net realizable value taking consideration usage preceding twelve months expected demand technological obsolescence information including physical condition demonstration inventories company records charge cost product revenue amount required reduce carrying value inventory net realizable value costs associated procurement inventories inbound freight charges purchasing receiving costs capitalized part inventory also included cost product revenue line item within consolidated statements income comprehensive income property plant equipment property plant equipment stated cost less accumulated depreciation amortization major improvements extend useful lives capitalized expenditures maintenance repairs minor improvements charged expense incurred assets retired otherwise disposed assets related accumulated depreciation amortization eliminated accounts resulting gain loss reflected consolidated statements income comprehensive income depreciation amortization calculated straightline basis estimated useful lives assets follows goodwill intangible assets goodwill indefinitelived intangible assets amortized evaluated impairment annual basis interim basis events changes circumstances indicate carrying value may recoverable assessing recoverability goodwill indefinitelived intangible assets company must make assumptions regarding estimated future cash flows including forecasted revenue growth discount rate determine fair value assets estimates related assumptions change future company may required record impairment charges assets reporting period impairment determined january 2017 fasb issued asu 201704 intangiblesgoodwill topic 350 simplifying test goodwill impairment new standard simplifies subsequent measurement goodwill eliminating second step goodwill impairment test adoption asu january 1 2020 material impact companys consolidated financial statements company tests goodwill impairment reporting unit level operating segment one level operating segment company option performing qualitative assessment determine whether impairment testing necessary performing quantitative assessment result qualitative assessment morelikelythannot fair value reporting unit less carrying amount quantitative impairment test required otherwise testing required quantitative impairment test performed company compares fair values applicable reporting units aggregate carrying values including goodwill company determines fair value reporting units using weighting market income methodologies estimating fair value reporting units requires significant judgment management carrying amount reporting unit exceeds fair value reporting unit impairment charge recognized amount carrying value amount exceeds reporting unit’s fair value total amount goodwill allocated reporting unit process research development iprd acquired part business combinations acquisition method represents ongoing development work associated enhancements existing products well development next generation products iprd initially capitalized fair value intangible asset indefinite life assessed impairment annual basis indicators impairment identified iprd project complete reclassified finitelived intangible asset amortized estimated useful life iprd project abandoned completion otherwise determined impaired value asset amount impairment charged consolidated statements income comprehensive income period project abandoned impaired december 31 2020 2019 company iprd intangible assets finite useful life amortized straightline basis estimated useful lives follows impairment longlived assets impairment losses recorded longlived assets used operations indicators impairment present quoted market price available estimated fair value assets less assets’ carrying value recoverable determination recoverability based estimate undiscounted future cash flows resulting use asset eventual disposition event cash flows expected sufficient recover carrying amount assets written fair values impairment losses charged consolidated statements income comprehensive income difference fair value carrying value asset warranty costs deferred revenue company typically provides oneyear parts labor warranty purchase equipment anticipated cost warranty accrued upon recognition sale included current liability accompanying consolidated balance sheets company’s warranty reserve reflects estimated material labor costs potential product issues company expects incur obligation company’s estimates anticipated rates warranty claims costs primarily based historical information company assesses adequacy warranty reserve quarterly basis adjusts amount necessary historical data used calculate adequacy warranty reserve indicative future requirements additional reduced warranty reserves may required company also offers customers extended warranty service agreements extending beyond initial warranty fee fees recorded deferred revenue recognized ratably income life extended warranty contract service agreement income taxes deferred tax assets liabilities recognized expected future tax consequences temporary differences financial statement carrying amounts income tax basis assets liabilities valuation allowance applied net deferred tax asset based available evidence likely deferred tax assets realized company records liabilities related uncertain tax positions accordance guidance clarifies accounting uncertainty income taxes recognized company’s financial statements guidance prescribes minimum recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return company includes accrued interest penalties related unrecognized tax benefits income tax liabilities applicable income tax expense customer advances company typically requires advance deposit terms conditions contracts customers deposits recorded current longterm liability revenue recognized specific contract accordance company’s revenue recognition policy revenue recognition may 2014 financial accounting standards board fasb issued accounting standards update asu 201409 revenue contracts customers supersedes revenue recognition requirements accounting standards codification asc topic 605 new guidance result joint project fasb international accounting standards board clarify principles recognizing revenue develop common revenue standards us gaap international financial reporting standards core principle new guidance revenue recognized depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services new guidance effective january 1 2018 applied modified retrospective basis company elected practical expedient evaluated contracts substantially revenue recognized asc 605 cumulative effect new guidance recorded date initial application impact adoption increase beginning retained earnings 61 million net 21 million related taxes adoption impact primarily due change license revenue recognized point time asc 606 rather time recognized asc 605 difference asc 606 asc 605 material year ended december 31 2018 company recognizes revenue accordance asc 606 revenue contracts customers key elements asc 606 1 identifying contract customer 2 identifying performance obligations contract 3 determining transaction price 4 allocating transaction price performance obligations contract 5 recognizing revenue performance obligation satisfied performance obligation promise contract transfer distinct good service customer contract’s transaction price allocated distinct performance obligation recognized revenue performance obligation satisfied company’s contracts multiple performance obligations commonly due providing additional goods services along system installation accessories parts services contracts multiple performance obligations company allocates contract’s transaction price performance obligation using best estimate standalone selling price distinct good service provided customer company’s best evidence standalone selling price normal selling pricing discounting practices specific product service sold standalone basis alternatively sold separately company may determine standalone selling price using expected cost plus margin approach company’s performance obligations typically satisfied point time commonly either shipment customer acceptance certain performance obligations maintenance contracts extended warranty recognized time based contractual obligation period addition certain arrangements provide customized deliverables may satisfied time based extent progress towards completion performance obligations recognized time revenue measured progress toward completion performance obligation reflects transfer control typically progress measured using costtocost method based cost incurred date relative total estimated costs upon completion best depicts transfer control customer application costtocost method requires company make reasonable estimates extent progress toward completion total costs company expects incur losses recorded immediately company estimates contracts ultimately result loss changes estimates could affect timing revenue recognition company includes costs incurred connection shipping handling products within selling general administrative costs amounts billed customers connection costs included total revenues control goods transfers prior completion company’s obligation ship products customers company elected practical expedient account shipping services fulfillment cost company expenses incremental costs obtaining contract incurred expected amortization period one year less amount immaterial company excludes transaction price taxes assessed governmental authority revenueproducing transactions collected company customer company recognizes revenue systems sales upon transfer control amount reflects consideration expects receive transfer control generally occurs upon shipment certain systems based upon customer acceptance system delivered installed customer facility systems include customerspecific acceptance criteria company required assess demonstrate acceptance criteria met generally upon successful factory acceptance testing customer acceptance evidence installation systems require installation system revenue recognized upon shipment standalone selling price installation deferred customer acceptance revenue accessories parts generally recognized based shipment service revenue recognized services performed ratably contractual obligation includes maintenance contracts extended warranties training application support ondemand services products sold independent distributor strategic distribution partner company recognizes system sale upon transfer control typically shipment company responsible installation standalone selling price installation deferred customer acceptance company’s distributors price protection rights return however company’s products typically warranted free defect period one year company requires advance deposit based terms conditions contracts customers many contracts typically revenue recognized within one year receiving advance deposit company material payment terms extend beyond one year minimal variable consideration included transaction price company’s contracts revenues primarily comprised development arrangements recognized costplusfixedfee basis licensing arrangements recognized either licenses provided ratably contract term depending nature arrangement contract assets liabilities contract assets represent unbilled receivables revenue recognized exceeds amount billed customer right payment subject passage time contract assets typically result system revenue recorded portion transaction price billable future event customer acceptance contracts recognized costtocost costplusfixedfee basis revenue exceeds amount billed customer amounts may exceed net realizable value contract assets generally classified current contract liabilities consist customer advances deferred revenue billings excess revenue contracts recognized costtocost costplusfixedfee basis contract liabilities classified current longterm based timing company expects recognize revenue contract assets liabilities reported net position contractbycontract basis end reporting period leases february 2016 fasb issued asu 201602 leases provides guidance recognition measurement presentation disclosure leases new standard effective january 1 2019 superseded previous us gaap guidance leases requires leases terms longer 12 months reported balance sheet rightofuse rou assets lease liabilities well additional disclosures pertaining leases lease liability represents lessee’s obligation make lease payments arising lease measured present value lease payments rightofuse asset represents lessee’s right use specified asset lease term measured lease liability amount adjusted lease prepayment lease incentives received lessee’s initial direct costs asu 201602 companies required transition new standard period adoption beginning earliest period presented financial statements january 1 2017 company july 2018 fasb issued asu 201811 update asu 201602 part provided companies option transitioning new standard adoption date recognizing cumulativeeffect adjustment opening balance retained earnings period adoption company adopted new standard january 1 2019 using alternative transition method asu 201811 recognized cumulativeeffect adjustment opening balance sheet company’s prior period financial statements adjusted due adopting new standard based alternative transition method company elected available package practical expedients leases commenced prior effective date allows reassess 1 whether expired existing contracts contain leases 2 lease classification expired existing leases 3 accounting treatment initial direct costs expired existing leases company also elected practical expedient allows lessees treat lease nonlease components leases single lease component asset classes adoption new standard resulted recording 755 million 779 million rou assets lease liabilities respectively january 1 2019 company’s balance sheet adoption new standard significantly affect company’s results operations starting first quarter 2019 company accounts leases accordance asc 842 leases inception arrangement company determines whether arrangement contains lease based unique facts circumstances present leases term greater 12 months recognized balance sheet rou assets corresponding lease liability company elected recognize balance sheet leases initial term 12 months less leases initial term 12 months less directly expensed incurred leases classified either operating finance depending specific terms arrangement company’s leases mainly consist facilities office equipment vehicles majority leases classified operating remaining lease term ranges 2021 2034 leases including option extend lease varying periods time terminate prior end lease term certain lease agreements contain provisions future rent increases lease payments included measurement lease liability comprise fixed payments future rent increases tied index rate exercise price company option purchase underlying asset company reasonably certain exercise option future rent increases dependent index rate initially measured index rate commencement date company’s leases typically contain residual value guarantees commencement date operating finance lease liabilities corresponding rou assets recorded based present value lease payments expected lease term lease term includes noncancellable period lease plus additional periods covered either company option extend terminate lease company reasonably certain exercise option extend terminate lease controlled lessor interest rate implicit lease contracts typically readily determinable therefore incremental borrowing rate used calculate lease liability incremental borrowing rate incurred borrow collateralized basis similar term amount equal lease payments similar economic environment certain adjustments rou asset may required items prepayments lease incentives received initial direct costs paid shipping handling costs company includes costs incurred connection shipping handling products within selling general administrative expenses accompanying consolidated statements income comprehensive income shipping handling costs 283 million 270 million 252 million years ended december 31 2020 2019 2018 respectively amounts billed customers connection costs included total revenues research development company commits substantial capital resources internal collaborative research development projects order provide innovative products solutions customers company conducts research primarily enhance system performance improve reliability existing products develop revolutionary new products solutions research development costs expensed incurred include salaries wages personnel related costs material costs depreciation consulting costs facility costs capitalized software purchased software capitalized cost amortized estimated useful life generally three years software developed use company’s products expensed incurred research development expense technological feasibility achieved subsequent achievement technological feasibility amounts capitalizable however date amounts material advertising company expenses advertising costs incurred advertising expenses 97 million 154 million 144 million years ended december 31 2020 2019 2018 respectively stockbased compensation company recognizes stockbased compensation expense consolidated statements income comprehensive income based fair value sharebased award grant date company’s primary types sharebased compensation stock options restricted stock awards restricted stock units compensation expense amortized straightline basis underlying vesting terms sharebased award stock options purchase company’s common stock periodically awarded executive officers employees company subject vesting period three four years fair value option award estimated date grant using blackscholes optionpricing model determination fair value stockbased payment awards using blackscholes model affected stock price number assumptions including expected volatility expected life riskfree interest rates expected dividends riskfree interest rates based yield zerocoupon us treasury securities period commensurate expected life assumption expected life determined calculation based historical experience expected volatility based company’s historical volatility results expected dividend yield based estimated annualized dividend yield stock based history paying dividends company utilizes estimated forfeiture rate derived analysis historical data assumptions regarding volatility expected term dividend yield riskfree interest rates required blackscholes model presented table stockbased compensation restricted stock awards restricted stock units expensed ratably vesting period based grant date fair value earnings per share net income per common share attributable bruker corporation shareholders calculated dividing net income attributable bruker corporation adjusted reflect changes redemption value redeemable noncontrolling interest weightedaverage shares outstanding period diluted net income per share computation includes effect shares would issuable upon exercise outstanding stock options vesting restricted stock reduced number shares assumed purchased company treasury stock method redemption value adjustment redeemable noncontrolling interest years ended december 31 2020 2019 post retirement benefit plans company recognizes overfunded underfunded status defined benefit pension postretirement defined benefit plans asset liability respectively consolidated balance sheets recognizes changes funded status year changes occur comprehensive income comprehensive income loss comprehensive income loss refers revenues expenses gains losses excluded net income amounts recorded directly adjustment shareholders’ equity net tax company’s comprehensive income loss composed foreign currency translation adjustments pension liability adjustments foreign currency translation assets liabilities company’s foreign subsidiaries functional currency local currency translated us dollars using current exchange rate consolidated balance sheet date shareholders’ equity translated using historical rates revenues expenses foreign subsidiaries translated average exchange rates effect year adjustments resulting financial statement translations included separate component shareholders’ equity gains losses resulting translation foreign currency monetary transactions reported interest income expense net consolidated statements income comprehensive income periods presented company certain intercompany foreign currency transactions deemed longterm investment nature exchange adjustments related transactions made directly separate component shareholders’ equity risks uncertainties company subject risks common industry including limited global economic conditions government academic funding levels impact covid19 pandemic rapid technological change changes commodity prices spending patterns customers protection intellectual property availability key raw materials components compliance existing future regulation government agencies fluctuations foreign currency exchange rates december 2019 novel strain coronavirus referred covid19 surfaced wuhan china march 2020 covid19 outbreak declared pandemic world health organization virus spread globally impact pandemic likely continue extensive many aspects society resulted likely continue result disruptions global economy well businesses capital markets around world impacts company’s business include temporary closures many government university customers suppliers disruptions restrictions employees’ customers’ ability travel delays product installations shipments affected countries effort halt outbreak covid19 number countries including united states implemented continue implement significant restrictions travel shelter place stay home orders business closures certain jurisdictions including many within united states implemented policies goal reopening markets return restrictions face increases new covid19 cases example number states including california massachusetts new jersey company significant operations issued shelter place stayathome orders although states begun implementing phased reopening policies many company’s employees areas continue work remotely reopenings may delayed pulled back virus continues spread new strains virus emerge addition number company’s production facilities either temporarily close operate reduced capacity commercial activity sales marketing customer demonstrations applications training either conducted remotely postponed customer purchasing departments operating reduced capacity many customers could delay cut capital expenditures operating budgets even customers reopened sites many still operate productivity levels prepandemic levels effort accommodate safety protocols resurgence virus emergence new strains virus may require company customers close partially close operations travel restrictions business closures reduction operations bruker customers distributors andor suppliers continue adversely impact company’s operations worldwide including ability manufacture sell distribute products well cause temporary closures foreign distributors facilities suppliers customers disruption company’s employees distributors suppliers customers continue impact company’s global sales future operating results company continuing monitor assess effects covid19 pandemic commercial operations including impact revenue 2021 however company cannot time accurately predict effects conditions ultimately operations due uncertainties relating severity disease duration outbreak including impact resurgence virus emergence new strains virus length severity travel restrictions business closures safety precautionary measures imposed governments impacted countries pandemic also adversely affected economies financial markets many countries affected likely continue affect demand company’s products operating results preparation consolidated financial statements requires company make estimates judgments assumptions may affect reported amounts assets liabilities equity revenues expenses related disclosure contingent assets liabilities ongoing basis company evaluates estimates judgments methodologies changes estimates recorded period become known company bases estimates historical experience various assumptions believe reasonable results form basis making judgments carrying values assets liabilities equity amount revenues expenses full extent covid19 pandemic directly indirectly impact business results operations financial condition including sales expenses reserves allowances manufacturing research development costs employeerelated amounts depend future developments highly uncertain including result new information may emerge concerning covid19 effectiveness covid19 vaccines actions taken contain treat well economic impact local regional national international customers markets company made estimates impact covid19 within financial statements may changes estimates future periods actual results may differ managements estimates results differ historical experience loss contingencies loss contingency provisions recorded potential loss claim asserted unasserted legal proceeding related patents products matters considered probable amount reasonably estimated range loss determined accruals represent management’s best estimate probable loss disclosure provided reasonably possible loss incurred reasonably possible amount loss exceed recorded provision 3 recent accounting pronouncements march 2020 fasb issued accounting standards updates “asu” 202004 reference rate reform topic 848 facilitation effects reference rate reform financial reporting “asu 202004” provides temporary optional guidance ease potential burden accounting reference rate reform new guidance provides optional expedients exceptions applying generally accepted accounting principles transactions affected reference rate reform certain criteria met transactions include contract modifications hedging relationships sale transfer debt securities classified heldtomaturity january 2021 fasb issued asu 202101 reference rate reform topic 848 scope clarify certain optional expedients exceptions reference rate reform guidance contract modifications hedge accounting apply derivatives affected discounting transition specifically certain provisions reference rate reform guidance elected entity apply derivative instruments use interest rate margining discounting contract price alignment modified result reference rate reform temporary guidance effective entities march 12 2020 december 31 2022 company may elect apply guidance contract modifications eligible hedging relationships time period subject certain criteria company still evaluating impact reference rate reform whether guidance adopted january 2020 fasb issued asu 202001 investmentsequity securities topic 321 investmentsequity method joint ventures topic 323 derivatives hedging topic 815clarifying interactions topic 321 topic 323 topic 815 consensus emerging issues task force clarifies interaction accounting certain equity securities equity method investments certain forward contracts purchased options guidance clarifies entity consider observable transactions require either apply discontinue equity method accounting purposes applying measurement principles certain equity securities immediately applying discontinuing equity method company adopted guidance using prospective method adoption asu material impact company’s consolidated financial statements december 2019 fasb issued asu 201912 income taxes topic 740 simplifying accounting income taxes guidance simplifies accounting income taxes removing certain exceptions within current guidance including approach intraperiod tax allocation methodology calculating income taxes interim period recognition deferred tax liabilities outside basis differences amendment also improves consistent application clarifying amending existing guidance related aspects accounting franchise taxes enacted changes tax laws rates clarifies accounting transactions result step tax basis goodwill guidance effective annual interim periods beginning december 15 2020 early adoption permitted assessment adoption asu process expected material impact company’s consolidated financial statements august 2018 fasb issued asu 201813 fair value measurement topic 820 disclosure framework changes disclosure requirements fair value measurement modifies disclosure requirements fair value measurements including consideration costs benefits asu effective company fiscal years beginning december 15 2019 company adopted guidance january 1 2020 adoption material impact it’s consolidated financial statements january 2017 fasb issued asu 201704 intangiblesgoodwill topic 350 simplifying test goodwill impairment new standard simplifies subsequent measurement goodwill eliminating second step goodwill impairment test asu applied prospectively effective annual interim goodwill impairment tests fiscal years beginning december 15 2019 company adopted asu january 1 2020 adoption material impact it’s consolidated financial statements june 2016 fasb issued asu 201613 financial instrumentscredit losses topic 326 measurement credit losses financial instruments guidance modifies recognition credit losses related financial assets debt securities trade receivables net investments leases offbalance sheet credit exposures financial assets contractual right receive cash current guidance requires recognition credit loss considered probable loss event occurred new guidance requires measurement expected credit losses based upon relevant information including historical experience current conditions reasonable supportable forecasts affect collectability asset expected credit losses may recognized sooner new guidance due broader range information required determine credit loss estimates new guidance also amends current otherthantemporary impairment model used debt securities classified availableforsale fair value availableforsale debt security amortized cost new guidance requires total unrealized loss bifurcated credit noncredit components expected credit losses subsequent recoveries recognized earnings changes considered credit related continue recognized within comprehensive income loss guidance effective annual interim periods beginning december 15 2019 company adopted new standard january 1 2020 using modified retrospective method financial assets measured amortized cost new standard impacts companys accounts receivables offbalance sheet credit exposures new standard impact company’s results operations cash flows 4 revenue following table presents company’s revenues group millions revenue company recognized point time versus time follows dollars millions remaining performance obligations remaining performance obligations represent aggregate transaction price allocated promise transfer good service fully partially unsatisfied end period december 31 2020 remaining performance obligations approximately 20067 million company expects recognize revenue approximately 673 remaining performance obligations next twelve months remaining performance obligations primarily within one three years contract balances timing revenue recognition billings cash collections results billed accounts receivable unbilled receivables contract assets deferred revenue customer deposits billings excess revenue recognized contract liabilities company’s consolidated balance sheets contract assetsmost company’s longterm contracts billed work progresses accordance contract terms conditions either periodic intervals upon achievement certain milestones billing often occurs subsequent revenue recognition resulting contract assets contract assets generally classified current assets consolidated balance sheets balance contract assets december 31 2020 december 31 2019 418 million 439 million respectively contract liabilitiesthe company often receives cash payments customers advance company’s performance resulting contract liabilities contract liabilities classified either current longterm consolidated balance sheet based timing revenue recognition expected december 31 2020 december 31 2019 contract liabilities 3994 million 3125 million respectively increase contract liability balance year ended december 31 2020 primarily result delay instrument installation due customer facility closures reduced operations result covid19 approximately 1848 million contract liability balance december 31 2019 recognized revenue year ended december 31 2020 5 acquisitions impact acquisitions individually collectively revenues net income total assets material pro forma financial information reflecting acquisitions presented impact individually collectively revenues net income total assets material amounts allocated goodwill attributable expected synergies expected deductible tax purposes canopy biosciences september 10 2020 bruker acquired canopy biosciences llc “canopy” purchase price 242 million potential additional consideration 50 million based achieving revenue targets calendar years 2021 2022 canopy leader high multiplex biomarker imaging immunology immuneoncology cell therapy canopy integrated bsi nano segment acquisition accounted acquisition method components fair value allocation consideration transferred connection acquisition follows millions preliminary fair value allocation included contingent consideration amount 05 million represented estimated fair value future payments former shareholders canopy based achieving revenue targets calendar years 2021 2022 company expects complete fair value allocation measurement period amortization period intangible assets acquired ten years customer relationships technology eight years trade name one year backlog intangible asset hain october 15 2018 bruker acquired 80 interest hain lifescience gmbh “hain” purchase price euro 66 million approximately 764 million options acquire remaining 20 hain infectious disease specialist broad range molecular diagnostics solutions detection microbial viral pathogens well molecular antibiotic resistance testing hain located nehren germany integrated bsi life science segment january 31 2020 company acquired remaining 20 interest hain purchase price eur 20 million approximately 222 million carrying value noncontrolling interest accreted redemption value eur 20 million retained earnings reclassified additional paid capital addition acquisitions noted 2020 company completed acquisitions complemented company’s existing product offerings following table reflects consideration transferred respective reportable segment acquisitions millions april 2 2019 company acquired rave llc rave privately held company purchase price 522 million potential additional consideration 50 million based revenue gross margin achievements 2019 2020 rave develops manufactures nanomachining laser photomask repair equipment rave integrated bsi nano segment acquisition rave accounted acquisition method components fair value allocation consideration transferred connection acquisition follows millions fair value allocation included contingent consideration amount 44 million represented estimated fair value future payments former shareholders rave based achieving revenue gross margin percentage targets period ended april 30 2020 company completed fair value allocation 2020 amortization period intangible assets acquired connection rave ten years addition rave acquisition noted year ended december 31 2019 company completed various acquisitions collectively complemented company’s existing product offerings added aftermarket software capabilities company’s existing businesses following table reflects consideration transferred respective reportable segment acquisitions millions year ended december 31 2018 company completed various acquisitions collectively complemented existing product offerings added aftermarket software capabilities company’s existing businesses following tables reflect consideration transferred respective reportable segment 2018 acquisitions millions anasys april 8 2018 company acquired 100 interest anasys instruments corp anasys privately held company purchase price 270 million potential additional consideration based achieving revenue targets 2019 2020 anasys develops manufactures nanoscale infrared spectroscopy thermal measurement instruments anasys integrated bsi nano segment fair value allocation included contingent consideration amount 53 million represented estimated fair value future payments former shareholders anasys based anasys achieving annual revenue targets years 2019 2020 company completed fair value allocation fourth quarter 2018 amortization period intangible assets acquired connection anasys eight years except backlog amortized one year jpk july 11 2018 company acquired 100 interest jpk instruments ag jpk privately held company purchase price euro 142 million approximately 166 million potential additional consideration based various operational achievements throughout 2019 2020 jpk adds indepth expertise livecell imaging cellular mechanics adhesion molecular force measurements optical trapping biological stimulusresponse characterization bruker’s capabilities jpk located berlin germany integrated bsi nano segment fair value allocation included contingent consideration amount 43 million represented estimated fair value future payments former shareholders jpk based jpk achieving various operational achievements years 2019 2020 company completed fair value allocation second quarter 2019 amortization period intangible assets acquired connection jpk eight years except backlog amortized one year mestrelab october 1 2018 bruker acquired 249 interest mestrelab research sl mestrelab purchase price euro 47 million approximately 54 million acquired additional 261 interest december 4 2018 purchase price euro 52 million approximately 59 million company options exercised 2022 acquire remaining 49 mestrelab adds indepth expertise assist advancing chemistry software handles spectroscopic data extracts manages chemical information variety analytical techniques including example nmr mass spectrometry mestrelab located santiago de compostela spain integrated bsi life science segment company completed fair value allocation fourth quarter 2019 amortization period intangible assets acquired connection mestrelab nine years except customer relationships amortized ten years concurrent acquisition company entered agreement noncontrolling interest holders provides company right purchase noncontrolling interest holders right sell remaining 49 mestrelab cash contractually defined redemption value rights embedded derivative exercisable beginning 2022 accelerated discounted redemption value upon certain events related post combination services option tied continued employment company classified hybrid instrument noncontrolling interest embedded derivative longterm liability consolidated balance sheet subsequent acquisition carrying value hybrid instrument remeasured fair value changes recorded stockbased compensation expense proportion requisite service period vested year ended december 31 2019 fair value remeasurement resulted 23 million stock compensation benefit hain october 15 2018 bruker acquired 80 interest hain lifescience gmbh hain purchase price euro 66 million approximately 764 million options acquire remaining 20 exercisable 2022 hain infectious disease specialist broad range molecular diagnostics solutions detection microbial viral pathogens well molecular antibiotic resistance testing hain located nehren germany integrated bsi life science segment company completed fair value allocation fourth quarter 2019 amortization period intangible assets acquired connection hain 15 years concurrent acquisition company entered agreement noncontrolling interest holders provided company right purchase noncontrolling interest holders right sell remaining 20 hain cash contractually defined redemption value rights accelerated certain events redemption contingently redeemable option noncontrolling interest shareholders company classifies carrying amount redeemable noncontrolling interest mezzanine section consolidated balance sheet presented equity section liabilities agreement establishes redemption price floor euro 167 million beginning 2022 redemption price capped euro 46 million increases euro 6 million year thereafter unexercised either party subsequent acquisition redeemable noncontrolling interest measured greater amount would paid settlement occurred balance sheet date based contractually defined redemption value carrying amount adjusted net income loss attributable noncontrolling interest adjustments carrying value redeemable noncontrolling interest recorded retained earnings year ended december 31 2019 adjustments carrying value redeemable noncontrolling interest alicona december 17 2018 bruker acquired 100 interest agapetus gmbh alicona purchase price euro 489 million approximately 554 million alicona provider opticalbased metrology products alicona located graz austria integrated bsi nano segment company completed fair value allocation fourth quarter 2019 amortization period intangible assets acquired connection alicona 8 years customer relationships technology intangible assets 12 years trade name intangible asset 1 year backlog intangible asset acquisitions addition acquisitions noted year ended december 31 2018 company completed various acquisitions collectively complemented company’s existing product offerings added aftermarket software capabilities company’s existing businesses total consideration transferred additional acquisitions 127 million 6 allowance doubtful accounts following summary components allowance doubtful accounts millions 7 inventories consisted following millions finished goods include intransit systems shipped company’s customers yet installed accepted customer december 31 2020 2019 inventoryintransit 678 million 360 million respectively 8 property plant equipment net following summary property plant equipment net major asset class millions depreciation expense includes amortization leasehold improvements years ended december 31 2020 2019 2018 447 million 373 million 360 million respectively 9 goodwill intangible assets goodwill following table sets forth changes carrying amount goodwill segment millions result impact covid19 pandemic company performed interim impairment assessment goodwill balance march 31 2020 using combination quantitative qualitative approaches based interim assessment company concluded fair values reporting units significantly greater carrying amounts therefore impairment required goodwill assessment based managements estimates assumptions certain dependent external factors triggering events identified subsequent march 31 2020 extent actual results differ materially estimates risks presented covid19 current economic environment persist negatively affect company’s operations subsequent periods interim impairment assessments could required could result impairment goodwill company performed annual impairment evaluation using quantitative qualitative approach december 31 2020 2019 quantitative approach december 31 2018 concluded likely goodwill impaired based recent quantitative analysis fair values company’s reporting units greater carrying amounts therefore impairment required company recorded 31 million cumulative impairment goodwill intangible assets following summary intangible assets millions years ended december 31 2020 2019 2018 company recorded amortization expense approximately 358 million 383 million 289 million respectively consolidated statements income comprehensive income estimated future amortization expense related amortizable intangible assets follows millions 10 current liabilities following summary current liabilities millions following table sets forth changes accrued warranty millions 11 debt company’s debt obligations consist following millions december 11 2019 company entered 1 new revolving credit agreement establish new revolving credit facility aggregate principal amount 600 million 2 term loan agreement establish new term loan facility aggregate principal amount 300 million 3 note purchase agreement issue sell chf 297 million aggregate principal amount 101 senior notes due december 11 2029 new revolving credit agreement replaced company’s 500 million fiveyear revolving credit agreement established october 27 2015 terminated december 11 2019 existing 105 million 431 series 2012a senior notes tranche c due january 18 2022 existing 100 million 446 series 2012a senior notes tranche due january 18 2024 company issued pursuant note purchase agreement dated january 18 2012 remain full force effect revolving credit agreements term loan agreement note purchase agreements described 2019 revolving credit agreement december 11 2019 company entered new credit agreement referred 2019 revolving credit agreement 2019 revolving credit agreement provides fiveyear revolving credit facility us dollar equivalent amount 600 million comprised subfacilities revolving loans swingline loans letters credit foreign borrowings 2019 revolving credit agreement also provides uncommitted incremental facility whereby certain circumstances company may option increase amount revolving facility incur term loans aggregate amount exceed 250 million loans 2019 revolving credit agreement repayable full maturity may also prepaid company’s option whole part without premium penalty amounts borrowed 2019 revolving credit agreement may repaid reborrowed time prior maturity date obligations 2019 revolving credit agreement unsecured fully unconditionally guaranteed company certain subsidiaries borrowings 2019 revolving credit agreement bear interest rate equal company’s option london interbank offered rate libor applicable relevant currency plus margin ranging 1000 1500 based company’s leverage ratio b highest federal funds effective rate plus ½ 1 ii prime rate announced bank america na iii libor adjusted plus 1 plus case margin rate ranging 0100 0500 based company’s leverage ratio company also agreed pay quarterly facility fee based aggregate unused amount available 2019 revolving credit agreement ranging 0100 0200 based company’s leverage ratio 2019 revolving credit agreement includes affirmative negative financial covenants events default customary financings type negative covenants include among others restrictions liens indebtedness company subsidiaries asset equity sales dividends transactions affiliates financial covenants include maximum leverage ratio minimum interest coverage ratios company specifically company’s leverage ratio cannot exceed 35 interest coverage ratio cannot less 25 events default include among others payment defaults performance affirmative negative covenants inaccuracy representations warranties bankruptcy insolvency related events certain erisa events material judgments occurrence change control following summary maximum commitments net amounts available company 2019 revolving credit agreement lines credit various financial institutions located primarily germany switzerland unsecured typically due upon demand interest payable monthly dollars millions 2019 term loan agreement december 11 2019 company together certain subsidiaries borrowers entered term loan agreement referred term loan agreement bank consortium term loan agreement provides 300 million sevenyear term loan facility subject terms conditions substantially consistent provisions contained 2019 revolving credit agreement loans term loan agreement repayable full maturity subject scheduled amortization beginning 2022 may also prepaid company’s option whole part without premium penalty obligations term loan agreement unsecured fully unconditionally guaranteed certain company’s subsidiaries amounts outstanding term loan agreement bear interest rate equal company’s option us dollar london interbank offered rate usd libor plus margin ranging 1000 1500 based company’s leverage ratio b highest federal funds effective rate plus ½ 1 ii prime rate announced bank america na iii usd libor adjusted plus 1 plus margin ranging 0100 0500 based company’s leverage ratio terms term loan agreement substantially similar terms 2019 revolving credit agreement including representations warranties affirmative negative financial covenants events default 2019 note purchase agreement december 11 2019 company entered note purchase agreement referred 2019 note purchase agreement group institutional accredited investors pursuant 2019 note purchase agreement company issued sold chf 297 million aggregate principal amount 101 senior notes due december 11 2029 referred 2019 senior notes obligations note purchase agreement unsecured fully unconditionally guaranteed certain company’s subsidiaries interest 2019 senior notes payable semiannually june 11 december 11 year commencing june 11 2020 2019 senior notes unsecured obligations company fully unconditionally guaranteed certain company’s subsidiaries company may prepay 2019 senior notes time amount less 10 aggregate principal amount 2019 senior notes outstanding price equal sum principal amount prepaid plus accrued unpaid interest b applicable “makewhole” amount c certain fees expenses event change control defined 2019 note purchase agreement company may required prepay 2019 senior notes price equal 100 principal amount thereof plus accrued unpaid interest certain fees expenses 2019 note purchase agreement contains customary affirmative negative covenants including among others restrictions company’s ability incur liens transfer sell equity assets engage certain mergers consolidations enter transactions affiliates engage permit subsidiary engage certain lines business 2019 note purchase agreement also includes customary representations warranties events default additionally long 2019 senior notes outstanding company may permit leverage ratio determined pursuant 2019 note purchase agreement end fiscal quarter exceed 350 100 unless material acquisition causes adjusted leverage ratio apply pursuant 2019 note purchase agreement ii interest coverage ratio determined pursuant 2019 note purchase agreement end fiscal quarter period four consecutive fiscal quarters less 250 100 iii priority debt time exceed 15 consolidated total assets determined pursuant 2019 note purchase agreement 2012 note purchase agreement january 2012 company entered note purchase agreement referred 2012 note purchase agreement group accredited institutional investors pursuant 2012 note purchase agreement company issued sold 2400 million senior notes referred 2012 senior notes consist following ●20 million 316 series 2012a senior notes tranche due january 18 2017 ●15 million 374 series 2012a senior notes tranche b due january 18 2019 ●105 million 431 series 2012a senior notes tranche c due january 18 2022 ●100 million 446 series 2012a senior notes tranche due january 18 2024 january 18 2017 outstanding 200 million principal amount tranche 2012 senior notes repaid accordance terms 2012 note purchase agreement january 18 2019 outstanding 150 million principal amount tranche b 2012 senior notes repaid accordance terms 2012 note purchase agreement terms 2012 note purchase agreement interest payable semiannually january 18 july 18 year 2012 senior notes unsecured obligations company fully unconditionally guaranteed certain company’s direct indirect subsidiaries 2012 senior notes rank pari passu right repayment company’s senior unsecured indebtedness company may prepay 2012 senior notes time amount less 10 original aggregate principal amount 2012 senior notes prepaid price equal sum 100 principal amount thereof plus accrued unpaid interest b applicable makewhole amount upon less 30 60 days’ written notice holders 2012 senior notes event change control company defined note purchase agreement company may required prepay notes price equal 100 principal amount thereof plus accrued unpaid interest 2012 note purchase agreement contains affirmative covenants including without limitation maintenance corporate existence compliance laws maintenance insurance properties payment taxes addition subsidiary guarantors furnishing notices information 2012 note purchase agreement also contains certain restrictive covenants restrict company’s ability among things incur liens transfer sell assets engage certain mergers consolidations enter transactions affiliates 2012 note purchase agreement also includes customary representations warranties events default case event default arising specified events bankruptcy insolvency outstanding 2012 senior notes become due payable immediately without action notice case payment events defaults holder 2012 senior notes affected thereby may declare 2012 senior notes held due payable immediately case event default majority holders 2012 senior notes may declare 2012 senior notes due payable immediately pursuant 2012 note purchase agreement long 2012 senior notes outstanding company permit leverage ratio determined pursuant 2012 note purchase agreement end fiscal quarter exceed 350 100 ii interest coverage ratio determined pursuant 2012 note purchase agreement end fiscal quarter period four consecutive fiscal quarters less 250 1 iii priority debt time exceed 25 consolidated net worth determined pursuant 2012 note purchase agreement december 31 2020 company compliance covenants debt agreements annual maturities debt outstanding less deferred financing cost amortization follows millions december 31 2020 2019 company entered several crosscurrency interest rate swap agreements notional value 1500 million us swiss franc notional value 3550 million us euro hedge variability movement foreign currency exchange rates portions euro swiss franc denominated net asset investments agreements qualify hedge accounting accordingly change fair value derivative recorded comprehensive income part foreign currency translation adjustments remain accumulated comprehensive income loss attributable bruker corporation shareholders’ equity sale substantial liquidation foreign operation difference interest rate received paid interest rate crosscurrency swap agreements recorded interest income expenses consolidated statements income comprehensive income result entering agreements company lowered net interest expense 72 million 06 million 2020 2019 respectively losses related hedges net asset investments international operations recorded within cumulative translational adjustment section comprehensive income 471 million 68 million years ended december 31 2020 2019 respectively interest expense years ended december 31 2020 2019 2018 144 million 160 million 126 million respectively 12 fair value financial instruments company measures following financial assets liabilities fair value recurring basis following tables set forth company’s financial instruments presents within fair value hierarchy using lowest level input significant fair value measurement millions derivative financial instruments classified within level 2 active market derivative contract however inputs used calculate value instruments obtained active markets company measures certain assets liabilities fair value changes fair value recognized earnings fair value treatment may elected either upon initial recognition eligible asset liability existing asset liability event triggers new basis accounting company elect remeasure existing financial assets liabilities elect fair value option financial assets liabilities originated year ended december 31 2020 2019 fair value longterm fixed interest rate debt classified level 2 5498 million 5174 million december 31 2020 2019 respectively based market observable sources similar maturity datesthe remaining longterm debt variable interest rates cost approximates fair value accordingly quarterly basis company reviews shortterm investments determine events could create impairment none noted years ended december 31 2020 2019 2018 debt securities consist investments redeemable preferred stock debt securities classified either current longterm investments based contractual maturities unless company intends sell investment within next twelve months case classified current consolidated balance sheets debt securities classified available sale carried fair value contingent consideration recorded within current liabilities represents estimated fair value future payments former shareholders part certain acquisitions contingent considerations primarily based applicable acquired company achieving annual revenue gross margin targets certain years specified relevant purchase sale agreement company initially values contingent consideration acquisition date using monte carlo simulation income approach method monte carlo method models future revenue costs goods sold projections discounts average results present value income approach method involves calculating earnout payment based forecasted cash flows adjusting future earnout payment risk reaching projected financials discounting future payments present value counterparty risk counterparty risk considers risk buyer cash make earnout payments commensurate cost debt appropriate term following table sets forth changes contingent consideration liabilities millions part mestrelab acquisition company entered agreement noncontrolling interest holders provides company right purchase noncontrolling interest holders right sell remaining 49 mestrelab cash contractually defined redemption value rights embedded derivative exercisable beginning 2022 accelerated discounted redemption value upon certain events related post combination services option tied continued employment company classified hybrid instrument noncontrolling interest embedded derivative longterm liability consolidated balance sheet subsequent acquisition carrying value hybrid instrument remeasured fair value changes recorded stockbased compensation expense proportion requisite service period vested hybrid instrument classified level 3 fair value hierarchy following table sets forth changes hybrid instrument liability millions 13 derivative instruments hedging activities interest rate risk company’s exposure interest rate risk relates primarily outstanding variable rate debt adverse movements related market rates typically significant component company’s interest rate risk relates amounts outstanding 2019 credit agreement 2019 term loan commodity price risk management company arrangements certain customers firm commitment deliver copper based superconductors fixed price order minimize volatility fluctuations price copper company’s sales commodities company enters commodity hedge contracts december 31 2020 2019 company fixed price commodity contracts notional amounts aggregating 88 million 56 million respectively commodity contracts settle gains losses result changes fair values adjusted contracts customers revenues foreign exchange rate risk management company generates substantial portion revenues expenses international markets principally germany countries european union switzerland subjects operations exposure exchange rate fluctuations impact currency exchange rate movement positive negative period company periodically enters foreign currency contracts order minimize volatility fluctuations currency translation monetary transactions arrangements company typically agrees purchase fixed amount foreign currency exchange fixed amount us dollars currencies specified dates maturities less twelve months agreements extending longer periods transactions qualify hedge accounting accordingly instrument recorded fair value corresponding gains losses recorded consolidated statements income comprehensive income company following notional amounts outstanding foreign exchange contracts crosscurrency interest rate swap agreements millions 1 derivatives designated accounting hedges 2 derivatives designated accounting hedges addition company periodically enters purchase sales contracts denominated currencies functional currency parties transaction company accounts transactions separately valuing “embedded derivative” component contracts denominated currencies functional currency transacting parties amounted 75 million delivery products 48 million purchase products december 31 2020 123 million delivery products 61 million purchase products december 31 2019 changes fair value embedded derivatives recorded interest income expense net consolidated statements income comprehensive income fair value derivative instruments described recorded consolidated balance sheets follows millions following summary activity included consolidated statements income comprehensive income related derivative instruments described millions 14 income taxes domestic foreign components income taxes follows millions components income tax provision follows millions income tax provision differs tax provision computed us federal statutory rate due following significant components tax effect temporary items give rise significant portions deferred tax assets liabilities follows millions company uses liability method account income taxes method deferred income taxes recognized future tax consequences differences tax financial accounting bases assets liabilities reporting period deferred income taxes based enacted tax laws statutory tax rates applicable period differences expected affect taxable income valuation allowance established necessary reduce deferred tax assets expected realizable amounts company recognize deferred tax asset extent “more likely not” assets realized judgments around realizability depend availability weight positive negative evidence changes valuation allowance deferred tax assets follows millions december 31 2020 company approximately 652 million net operating loss carryforwards available reduce state taxable income expected expire various times beginning 2021 company also approximately 1084 million german trade tax corporate income tax net operating losses carried forward indefinitely additionally company 185 million foreign net operating losses expected expire various times beginning 2021 company also state research development tax credit carryforwards 71 million utilization credits state net operating losses may subject annual limitations due ownership percentage change limitations provided code section 382 similar state provisions event deemed change control code section 382 annual limitation utilization net operating losses credits may result expiration portion net operating loss credit carryforwards december 31 2020 company recorded state income foreign withholding taxes cash liquid assets portion unremitted earnings profits ep foreign subsidiaries expected repatriated foreign subsidiaries united states except amounts certain subsidiaries company asserted indefinitely reinvested specifically company asserts total 17 billion unremitted foreign earnings indefinitely reinvested figure comprised 12 billion unremitted earnings well 436 million noncash ep jurisdictions indefinitely reinvested ep ultimately distributed united states form dividends otherwise company would likely subject additional withholding tax company estimates amount unrecognized deferred withholding taxes undistributed ep approximately 63 million december 31 2020 company gross unrecognized tax benefits excluding interest approximately 227 million december 31 2020 recognized would reduce company’s effective tax rate next twelve months reasonably possible company reduce unrecognized tax benefits immaterial amount due expiration statutes limitations tabular reconciliation company’s gross unrecognized tax benefits follows millions company’s policy include accrued interest penalties related unrecognized tax benefits income tax liabilities applicable income tax expense december 31 2020 2019 company approximately 18 million 07 million respectively accrued interest penalties related uncertain tax positions included longterm liabilities consolidated balance sheets company recorded expense 11 million penalties interest related unrecognized tax benefits provision income taxes year ended december 31 2020 benefit recognized year ended december 31 2020 company files tax returns united states includes federal state local jurisdictions many foreign jurisdictions varying statutes limitations company considers germany united states switzerland significant tax jurisdictions majority company’s earnings derived germany switzerland accounting various federal local taxing authorities statutory rates 2020 approximately 300 200 germany switzerland respectively mix earnings two jurisdictions resulted increase 52 us statutory rate 21 2020 tax years 2013 present open examination germany switzerland 2020 fiscal year company settled tax audits entities located germany tax years 2013 2014 settlements immaterial consolidated financial statements tax years 2013 present remain open examination united states 2020 company granted income tax holiday manufacturing facility malaysia tax holiday allows taxfree operations february 28 2023 option apply 5 year extension certain conditions met malaysia tax holiday immaterial impact earnings per share year ended december 31 2020 connection tax act sec issued staff accounting bulletin 118 income tax accounting implications tax cuts jobs act “sab 118” provide guidance companies completed accounting income tax effects tax act sab 118 companies permitted record provisional amounts extent reasonable estimates could made additionally upon obtaining preparing analyzing additional information including computations companies permitted record additional tax effects adjustments previously recorded provisional amounts within one year enactment date tax act fourth quarter 2018 company completed accounting elements us tax reform 2018 company recorded tax adjustments sab 118 equal net benefit 54 million among adjustments 66 million additional tax expense related toll charge liability estimated 550 million 2017 addition 120 million tax benefit recorded 2018 reduced estimated liability 125 company recorded 2017 expected state income foreign withholding taxes associated unremitted foreign earnings change 14 million recorded 2017 net deferred tax liability related reduction us federal statutory tax rate 35 21 2020 company recorded tax expense 11 million related recalculation toll charge liability reflected 2017 amended tax return total toll charge liability december 31 2020 354 million amount approximately 85 million already paid 2020 us treasury department issued final regulations regarding foreign derived intangible income “fdii” global intangible lowtaxed income “gilti” determined elect gilti high tax exception allowed final regulations assessing impact 2018 2019 us federal consolidated income tax returns 15 leases operating lease cost recognized lease term straightline basis finance lease cost amortized expected term straightline basis variable lease cost dependent index rate recognized incurred typically consists amounts owed company lessor fixed reimbursement common area maintenance utilities cost components lease expense follows millions prior adoption new lease standard total rental expense operating leases 251 million year ended december 31 2018 supplemental balance sheet information related leases follows dollars millions supplemental cash flow information related leases follows millions future lease payments operating leases finance leases follows millions 16 post retirement benefit plans defined contribution plans company sponsors various defined contribution plans cover certain domestic international employees company may make contributions plans discretion company contributed 81 million 87 million 84 million plans years ended december 31 2020 2019 2018 respectively defined benefit plans substantially company’s employees switzerland france japan well certain employees germany covered companysponsored defined benefit pension plans retirement benefits generally earned based years service compensation active employment eligibility generally determined accordance local statutory requirements however level benefits terms vesting varies among plans company records pension service cost within cost sales selling general administrative research development expenses nonservice related pension costs recorded within interest income expense net consolidated statements income comprehensive income components net periodic benefit costs included accompanying consolidated statements income follows millions company measures benefit obligation fair value plan assets december 31st year changes benefit obligations plan assets defined benefit pension plans projected benefit obligation funded status plans follows millions plan amendments relate reduction conversion rate pension plan switzerland effective 2022 accumulated benefit obligation defined benefit pension plans 2604 million 2436 million december 31 2020 2019 respectively defined benefit pension plans accumulated benefit obligation projected benefit obligation excess plan assets december 31 2020 2019 following amounts recognized accompanying consolidated balance sheets company’s defined benefit plans millions following pretax amounts recognized accumulated comprehensive income company’s defined benefit plans millions amount accumulated comprehensive income december 31 2020 expected recognized amortization net loss within net periodic benefit cost 2021 37 million defined benefit pension plans company uses corridor approach amortize actuarial gains losses approach net actuarial gains losses excess ten percent larger projected benefit obligation fair value plan assets amortized average remaining service active participants expected receive benefits plans range assumptions used defined benefit pension plans reflects different economic environments within various countries range assumptions used determine net periodic benefit costs projected benefit obligations follows determine expected longterm rate return pension plan assets company considers current asset allocations well historical expected returns various asset categories plan assets defined benefit pension plans company applies expected rate return marketrelated value assets stabilizes variability assets expected return applied asset allocations asset category fair value company’s pension plan assets asset category level fair value hierarchy follows millions athe company’s pension plan france invested larger fund invests variety instruments assets directly dedicated french pension plan group bpce life fund invests debt securities foreign corporations governments equity securities foreign government funds private real estate funds bthe company’s pension plan switzerland outsourced swiss life ag outside insurance provider insurance contract plan assets invested swiss life collective bvg foundation umbrella fund retirement savings interest rates guaranteed minimum 10 mandatory withdrawal portion defined swiss law 0125 nonmandatory portion starting 2021 foundation utilizes plan administrators investment managers oversee investment allocation process set longterm strategic targets monitor asset allocations target allocations 65 bonds 25 cash 75 equity investments 25 real estate mortgages foundation yield return greater guaranteed amounts company according swiss law shall receive 90 additional return swiss life ag retaining 10 withdrawal benefits interest allocations secured times swiss life ag contributions estimated future benefit payments 2021 company expects contributions consistent 2020 estimated future benefit payments based assumptions used measure company’s benefit obligation december 31 2020 following benefit payments reflect future employee service appropriate millions 17 commitments contingencies accordance asc topic 450 contingencies company accrues anticipated costs settlement damages costs extent specific losses probable estimable litigation related contingencies lawsuits claims proceedings nature considered normal businesses may pending time company third parties might allege company collaborators infringing patent rights company otherwise violating intellectual property rights loss contingency provisions recorded potential loss claim asserted unasserted legal proceeding considered probable amount reasonably estimated range loss determined accruals represent management’s best estimate probable loss disclosure also provided reasonably possible loss incurred reasonably possible amount loss exceed recorded provision company believes outcome pending proceedings individually aggregate material impact company’s financial statements september 25 2019 complaint filed düsseldorf germany district court carl zeiss microscopy gmbh subsidiary carl zeiss ag zeiss sued luxendo gmbh luxendo subsidiary bruker corporation infringement recently registered german utility model patent licensed zeiss pertaining one specific luxendo product category company vigorously defending claims september 23 2019 complaint filed düsseldorf germany district court micromass uk limited subsidiary waters corporation sued bruker corporation well affiliate bruker daltonik gmbh infringement european patent pertaining timstof product line february 17 2020 micromass expanded complaint düsseldorf assert another recently granted european patent germany company vigorously defending claims expect material losses excess amounts already accrued december 31 2020 2019 material accruals recorded potential contingencies governmental investigations company subject regulation national state local government agencies united states countries operates time company subject governmental investigations often involving regulatory marketing business practices governmental investigations may result commencement civil criminal proceedings fines penalties administrative remedies could material adverse effect company’s financial position results operations andor liquidity august 2018 korea fair trade commission kftc informed company conducting investigation public tender bidding activities number life science instrument companies operating korea including bruker korea co ltd bruker korea company cooperated fully kftc june 16 2019 kftc announced decision impose civil fine approximately 20000 bruker korea declined impose criminal liability bruker korea connection matter result kftc’s decision korea public procurement service pps imposed threemonth suspension bruker korea’s ability bid conduct sales korean government entities ended march 27 2020 sales korean entities less 4 company’s revenue year ended december 31 2020 late august 2019 kftc informed company conducting separate investigation public tender bidding activities number life science instrument companies operating korea including five public tenders involving bruker korea 2015 company cooperated fully kftc july 8 2020 kftc announced decision impose civil fine approximately 11000 bruker korea declined impose criminal liability bruker korea connection matter suspension imposed connection matter december 31 2020 2019 material accruals recorded potential contingencies related matters company expect additional losses incurred excess amounts accrued internal investigations previously disclosed company’s current report form 8k filed february 18 2020 company’s audit committee initiated internal investigation allegation received connection company’s fiscal year 2019 yearend close primarily relating income tax matters including effective income tax rate 2019 related income tax balance sheet accounts audit committee assistance independent external legal counsel independent forensic accountants concluded investigation march 2020 investigation identify material misstatements omissions regarding company’s financial statements misconduct violations company’s code conduct tone top failures unconditional purchase commitments company entered unconditional purchase commitments ordinary course business include agreements purchase goods services fixed assets pay royalties enforceable legally binding specify significant terms including fixed minimum quantities purchased fixed minimum variable price provisions approximate timing transaction purchase commitments exclude agreements cancelable time without penalty majority commitments expected settled 2021 unconditional purchase commitments fixed determinable follows millions license agreements company entered license agreements allowing utilize certain patents used connection commercial product sale company pays royalties related product revenues licensing fees years ended december 31 2020 2019 2018 84 million 26 million 37 million respectively recorded cost product revenue consolidated statements income comprehensive income letters credit guarantees december 31 2020 2019 company bank guarantees 1330 million 1432 million respectively related primarily customer advances arrangements guarantee refund advance payments received customers event merchandise delivered warranty obligations fulfilled compliance terms contract guarantees affect availability company’s lines credit indemnifications company enters standard indemnification arrangements company’s ordinary course business pursuant arrangements company indemnifies holds harmless agrees reimburse indemnified parties losses suffered incurred indemnified party parties generally company’s directors officers business partners customers connection patent copyright intellectual property infringement claim third party respect products term indemnification agreements generally perpetual time execution agreement maximum potential amount future payments company could required make agreements unlimited company believes estimated fair value agreements minimal based historical experiences 18 earnings per share following table sets forth computation basic diluted weighted average shares outstanding net income per common share attributable bruker shareholders millions except per share amounts following common share equivalents excluded computation diluted weightedaverage shares outstanding effect would antidilutive millions shares 19 shareholders’ equity share repurchase program may 2019 company’s board directors approved share repurchase program authorizes purchase common stock 3000 million time amounts prices times management deems appropriate subject market conditions legal requirements considerations company purchased total 2711952 shares aggregate cost 1232 million year ended december 31 2020 company purchased total 3323104 shares aggregate cost 1423 million year ended december 31 2019 remaining authorization december 31 2020 345 million plan expires may 13 2021 additional purchases funded cash hand future cash flows operations available borrowings revolving credit facility cash dividends common stock dividends declared company’s board directors accordance company’s dividend policy company target 016 per share cash dividend per annum company’s shareholders payable equal quarterly installments subsequent dividend declarations establishment record payment dates future dividend payments subject board directors’ continuing determination dividend policy best interests company’s shareholders dividend policy may suspended cancelled discretion board directors time accumulated comprehensive income loss following summary components accumulated comprehensive income loss net tax millions stock compensation plans march 9 2010 company’s board directors unanimously approved adopted bruker corporation 2010 incentive compensation plan “2010 plan” may 14 2010 plan approved company’s stockholders 2010 plan provided issuance 8000000 shares company’s common stock 2010 plan allowed committee board directors determined compensation committee grant incentive stock options nonqualified stock options restricted stock awards compensation committee authority determine employees would receive awards amount awards terms conditions awards granted 2010 plan typically made subject vesting period three five years december 31 2020 5545090 options 570011 restricted stock awards granted 2010 plan december 31 2020 893045 options outstanding 2010 plan may 2016 bruker corporation 2016 incentive compensation plan “2016 plan” approved company’s stockholders approval 2016 plan grants made 2010 plan 2016 plan provides issuance 9500000 shares company’s common stock permits grant awards nonqualified stock options incentive stock options stock appreciation rights restricted stock unrestricted stock restricted stock units performance shares performance units well cashbased awards 2016 plan administered compensation committee compensation committee authority determine employees receive awards amount awards terms conditions awards stock option awards granted 2016 plan typically vest period one four years december 31 2020 1406191 options 1882358 restricted stock units granted 2016 plan december 31 2020 963131 options 805052 restricted stock units outstanding 2016 plan members company’s board directors receive annual award restricted stock units vest oneyear service period stock options purchase company’s common stock periodically awarded executive officers employees company subject vesting period three four years restricted shares company’s common stock periodically awarded executive officers directors certain key employees company subject service restrictions vested ratably periods one four years restricted shares common stock may sold transferred restriction period restricted stock units company’s common stock periodically awarded executive officers directors certain employees company vest ratably service periods one four years stockbased compensation following presents impact stockbased compensation expense consolidated statements income millions addition awards company recorded stockbased compensation 26 million year ended december 31 2020 benefit 23 million year ended december 31 2019 additional expense 05 million year ended december 31 2018 related 2018 acquisition mestrelab research sl december 31 2020 company 249 million unrecognized pretax stockbased compensation expense related employee director unvested stock options restricted stock units expected recognized weighted average remaining service period 26 years stock option awards stock option activity follows arepresents number vested options december 31 2020 plus number unvested options december 31 2020 ultimately expected vest based estimated forfeiture rate bthe aggregate intrinsic value calculated positive difference exercise price underlying options quoted price common stock december 31 2020 total intrinsic value options exercised 61 million 152 million 80 million years ended december 31 2020 2019 2018 respectively unvested restricted stock units unvested restricted stock unit activity presented total fair value restricted stock vested 150 million 79 million 69 million years ended december 31 2020 2019 2018 respectively 20 charges net components charges net follows millions restructuring initiatives restructuring charges years ended december 31 2020 2019 2018 included charges various programs recorded accompanying consolidated statements income comprehensive income follows millions restructuring charges included gain sale building 77 million year ended december 31 2019 following table sets forth changes restructuring reserves millions 21 interest income expense net components interest income expense net follows millions 22 business segment information company three reportable segments bsi life science bsi nano best discussed note 1 consolidated financial statements selected reportable segment information presented millions represents product service revenue reportable segments b represents corporate costs eliminations allocated reportable segments total assets segment follows millions assets allocated reportable segments eliminations intercompany transactions company unable without unreasonable effort expense disclose amount total assets bsi life science bsi nano segments well corporate function company’s chief operating decision maker receive asset information operating segment total capital expenditures depreciation amortization segment presented millions revenue longlived assets including property plant equipment net operating lease right use assets geographical area follows millions 23 related parties february 26 2020 company acquired land buildings 15 fortune drive 44 manning road billerica total purchase price 123 million property owned trust controlled equally bruker’s president ceo frank laukien halfbrother dirk laukien properties acquired adjacent bruker’s headquarters building 40 manning road property already owned company bruker biospin formerly leased property 15 fortune drive continue occupy property foreseeable future property 44 manning road currently fully leased unrelated third parties provides potential expansion bruker operations future purchase price allocated two properties follows 56 million 15 fortune drive 67 million 44 manning road price property established based independent thirdparty appraisal audit committee board reviewed voted approved related party transaction accordance bruker’s related persons transactions policy audit committee charter item 9 nanitem 15 exhibits financial statements schedules reports form 8k afinancial statements schedules 1financial statements report independent auditors consolidated balance sheets december 31 2001 2002 consolidated statements operations years ended december 31 2000 2001 2002 consolidated statements stockholders equity years ended december 31 2000 2001 2002 consolidated statements cash flows years ended december 31 2000 2001 2002 notes financial statements 2financial statement schedules 3exhibits see c breports form 8k none clist exhibits exhibit title 21 asset purchase agreement dated july 1 1996 registrant spectrospin ag 22 share purchase agreement dated december 9 1998 among registrant bruker physik ag estate dr guenther r laukien 23 asset purchase agreement dated may 28 1999 registrant viking instruments corp 24 proteigene share purchase agreement dated december 6 1999 registrant frank h laukien 25 proteigene share purchase agreement dated march 1 2000 registrant sidney r kaufman 31 amended restated certificate incorporation registrant 32 amended restated bylaws registrant 41 specimen stock certificate representing shares common stock registrant 101 2000 stock option plan 102 sharing agreement dated february 28 2000 among registrant 13 affiliates registrant 103 collaboration oem agreement dated march 6 2000 perkinelmer instruments llc affiliates registrant affiliates 104 cooperation agreement dated november 15 1999 bruker daltonik gmbh mwgbiotech ag 105 license agreement dated august 10 1998 registrant indiana universitys advanced research technology institute 106 lease dated june 27 1996 registrant bruker instruments inc bruker biospin inc amended 107 itms collaboration agreement hewlettpackard registrant bruker daltonik gmbh dated april 28 1999 108 collaboration agreement dated december 4 1997 brukerfranzen analytik gmbh sequenom instruments gmbh 109 agreement bruker daltonik gmbh bruker saxonia analytik gmbh bruker optik gmbh dated march 31 2000 1010 strategic alliance agreement registrant geneva proteomics inc dated september 12 2000 1011 standard form purchase sale agreement bruker daltonics inc isolde laukien dated december 1 2000 211 subsidiaries registrant 231 consent ernst young llp independent auditors 241 power attorney included page s1 991 certification chief executive officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 992 certification chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 incorporated reference registration statement form s1 registration number 33334820 declared effective securities exchange commission august 3 2000 incorporated reference annual report form 10k fiscal year ended december 31 2001 confidential treatment requested certain portions omitted filed separately commission dfinancial statement schedules schedule iivaluation qualifying accounts thousands schedules omitted since either applicable required information included elsewhere herein signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bruker daltonics inc frank h laukien phd name frank h laukien phd title president chief executive officer chairman date march 26 2003 undersigned officers directors bruker daltonics inc hereby severally constitute appoint frank h laukien phd sign us names capacities indicated report form 10k filed herewith amendments report file exhibits thereto documents connection therewith case securities exchange commission generally things names behalf capacities consistent provisions securities act 1934 amended requirements securities exchange commission pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated name title date frank h laukien phd frank h laukien phd president chief executive officer chairman board principal executive officer march 26 2003 john j hulburt cpa john j hulburt cpa chief financial officer treasurer principal financial accounting officer march 26 2003 dieter koch phd dieter koch phd director march 26 2003 bernhard wangler bernhard wangler director march 26 2003 william linton william linton director march 26 2003 collin dsilva collin dsilva director march 26 2003 richard stein richard stein director march 26 2003 christopher canavan jr christopher canavan jr director march 26 2003 s1 certification frank h laukien certify 1i reviewed annual report form 10k bruker daltonics inc 2based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4the registrants certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant adesigned disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared bevaluated effectiveness registrants disclosure controls procedures date within 90 days prior filing date annual report evaluation date cpresented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5the registrants certifying officers disclosed based recent evaluation registrants auditors audit committee registrants board directors persons performing equivalent functions aall significant deficiencies design operation internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls bany fraud whether material involves management employees significant role registrants internal controls 6the registrants certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses date march 26 2003 frank h laukien phd frank h laukien phd president chief executive officer chairman principal executive officer certification john j hulburt certify 1i reviewed annual report form 10k bruker daltonics inc 2based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4the registrants certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant adesigned disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared bevaluated effectiveness registrants disclosure controls procedures date within 90 days prior filing date annual report evaluation date cpresented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5the registrants certifying officers disclosed based recent evaluation registrants auditors audit committee registrants board directors persons performing equivalent functions aall significant deficiencies design operation internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls bany fraud whether material involves management employees significant role registrants internal controls 6the registrants certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses date march 26 2003 john j hulburt cpa john j hulburt cpa chief financial officer treasurer principal financial accounting officeritem 15 exhibits financial statements schedules reports form 8k afinancial statements schedules 1financial statements following consolidated financial statements bruker biosciences corporation filed part report item 8 financial statements supplementary data 2financial statement schedules 3exhibits see c breports form 8k threemonth period ended december 31 2003 company furnished following reports form 8k •report form 8k filed october 20 2003 item 7 financial statements exhibits item 12 results operations financial condition •report form 8k filed november 6 2003 item 12 results operations financial condition clist exhibits exhibit title 31 amended restated certificate incorporation registrant1 32 amended restated bylaws registrant1 41 specimen stock certificate representing shares common stock registrant1 101 2000 stock option plan1 102 sharing agreement dated february 28 2000 among registrant 13 affiliates registrant1 103 license agreement dated august 10 1998 registrant indiana universitys advanced research technology institute1 104 itms collaboration agreement hewlettpackard registrant bruker daltonik gmbh dated april 28 19991 105 collaboration agreement dated december 4 1997 brukerfranzen analytik gmbh sequenom instruments gmbh1 106 agreement bruker daltonik gmbh bruker saxonia analytik gmbh bruker optik gmbh dated march 31 20001 107 strategic alliance agreement registrant geneva proteomics inc dated september 12 20002 108 standard form purchase sale agreement bruker daltonics inc isolde laukien dated december 1 20002 109 shared services agreement dated september 26 2000 bruker sa bruker axs sa3 1010 supply agreement dated march 30 1998 registrant fairchild imaging inc formerly known lockheed martin fairchild systems3 1011 supply agreement dated october 1 1998 bruker axs gmbh gkss forschungszentrum geesthacht gmbh amended3 1012 development agreement dated july 31 1997 bruker axs gmbh siemens aktiengesellschaft berlin und munchen bereich medizinische technik3 1013 development agreement 9906 dated may 5 1999 bruker axs gmbh baltic scientific instruments3 1014 development agreement 9910 dated october 7 1999 bruker axs gmbh baltic scientific instruments3 1015 strategic alliance agreement dated march 12 2001 registrant affinium pharmaceuticals formerly known integrative proteomics inc3 1016 purchase agreement dated april 10 2001 among delft instruments nv delft instruments nederland bv delft instruments france sa delft instruments international bv enfarm bv nonius inc delft instruments brd gmbh delft instruments uk ltd nonius bv nonius company lp nonius uk ltd nonius gmbh nonius france sarl registrant bruker axs gmbh bruker axs sa bruker uk ltd3 1017 services agreement dated april 10 2001 delft instruments nv registrant3 1018 managing director contract dated july 1 2000 registrant martin haase3 1019 agreement development supply marketing dated august 2 2001 bruker axs gmbh siemens medical solutions rontgenwerk rudolstadt3 1020 strategic alliance agreement dated october 2 2001 registrant geneformatics incorporated3 1021 lease office space delft netherlands dated october 12 2001 bruker nonius bv van haaren beheer bv3 1022 memorandum agreement strategic collaboration dated october 16 2001 registrant fairchild imaging inc3 1023 separation agreement general release dated november 7 2001 registrant john bourke3 1024 purchase agreement dated october 24 2001 bruker axs gmbh siemens industriepark karlsruhe gmbh co ohg3 211 subsidiaries registrant 231 consent ernst young llp independent auditors 232 consent pricewaterhousecoopers llp independent accountants 241 power attorney included page s1 311 certification chief executive officer pursuant section 302 sarbanesoxley act 2002 312 certification chief financial officer pursuant section 302 sarbanesoxley act 2002 321 certification chief executive officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 322 certification chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 1incorporated reference registration statement form s1 registration number 33334820 declared effective securities exchange commission august 3 2000 2incorporated reference annual report form 10k fiscal year ended december 31 2001 3incorporated reference bruker axs inc registration statement form s1 registration number 33366066 declared effective securities exchange commission december 13 2001 confidential treatment requested certain portions omitted filed separately commission dfinancial statement schedules schedule iivaluation qualifying accounts thousands schedules omitted since either applicable required information included elsewhere herein signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bruker biosciences corporation date march 15 2004 frank h laukien name frank h laukien phd title president chief executive officer chairman undersigned officers directors bruker biosciences corporation hereby severally constitute appoint frank h laukien phd sign us names capacities indicated report form 10k filed herewith amendments report file exhibits thereto documents connection therewith case securities exchange commission generally things names behalf capacities consistent provisions securities act 1934 amended requirements securities exchange commission pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated name title date frank h laukien phd frank h laukien phd president chief executive officer chairman board principal executive officer march 15 2004 laura francis laura francis chief financial officer treasurer principal financial accounting officer march 15 2004 christopher canavan jr christopher canavan jr director march 15 2004 taylor j crouch taylor j crouch director march 15 2004 daniel dross daniel dross director march 15 2004 collin dsilva director march 15 2004 martin haase martin haase director march 15 2004 richard kniss richard kniss director march 15 2004 william linton director march 15 2004 richard stein richard stein director march 15 2004 bernhard wangler bernhard wangler director march 15 2004 bruker biosciences corporation annual report form 10k table contents part bruker daltonics bruker axs part ii report independent auditors report independent accountants bruker biosciences corporation consolidated balance sheets thousands except per share data bruker biosciences corporation consolidated statements operations thousands except per share data bruker biosciences corporation consolidated statements shareholders equity comprehensive income loss thousands except share data bruker biosciences corporation consolidated statements cash flows thousands bruker biosciences corporation notes condensed consolidated financial statements part iii part iv signaturesitem 15 exhibits financial statements schedules reports form 8k afinancial statements schedules 1financial statements following consolidated financial statements bruker biosciences corporation filed part report item 8financial statements supplementary data 2financial statement schedules 3exhibits see b blist exhibits exhibit title 31 amended restated certificate incorporation registrant1 32 amended restated bylaws registrant1 41 specimen stock certificate representing shares common stock registrant1 42 specimen stock certificate representing shares common stock registrant5 101 amended restated 2000 stock option plan4 102 sharing agreement dated february 28 2000 among registrant 13 affiliates registrant1 103 license agreement dated august 10 1998 registrant indiana universitys advanced research technology institute1 104 itms collaboration agreement hewlettpackard registrant bruker daltonik gmbh dated april 28 19991 105 collaboration agreement dated december 4 1997 brukerfranzen analytik gmbh sequenom instruments gmbh1 106 agreement bruker daltonik gmbh bruker saxonia analytik gmbh bruker optik gmbh dated march 31 20001 1010 supply agreement dated march 30 1998 registrant fairchild imaging inc formerly known lockheed martin fairchild systems3 1011 supply agreement dated october 1 1998 bruker axs gmbh gkss forschungszentrum geesthacht gmbh amended3 1012 development agreement dated july 31 1997 bruker axs gmbh siemens aktiengesellschaft berlin und munchen bereich medizinische technik3 1013 development agreement 9906 dated may 5 1999 bruker axs gmbh baltic scientific instruments3 1014 development agreement 9910 dated october 7 1999 bruker axs gmbh baltic scientific instruments3 1019 agreement development supply marketing dated august 2 2001 bruker axs gmbh siemens medical solutions rontgenwerk rudolstadt3 1021 lease office space delft netherlands dated october 12 2001 bruker nonius bv van haaren beheer bv3 1022 memorandum agreement strategic collaboration dated october 16 2001 registrant fairchild imaging inc3 1025 employment offer letter dated september 27 2004 bruker biosciences corporation william j knight6 1026 companys form incentive stock option agreement6 211 subsidiaries registrant7 231 consent ernst young llp independent registered public accounting firm7 232 consent pricewaterhousecoopers llp independent registered public accounting firm7 241 power attorney included page 99 311 certification chief executive officer pursuant section 302 sarbanesoxley act 20027 312 certification chief financial officer pursuant section 302 sarbanesoxley act 20027 321 certification chief executive officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 20028 322 certification chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 20028 1incorporated reference registration statement form s1 registration number 33334820 declared effective securities exchange commission august 3 2000 2incorporated reference annual report form 10k fiscal year ended december 31 2001 3incorporated reference bruker axs inc registration statement form s1 registration number 33366066 declared effective securities exchange commission december 13 2001 4incorporated reference registration statement form s4 registration number 333104885 declared effective securities exchange commission may 19 2003 5incorporated reference registration statement form s3 registration number 333113774 declared effective securities exchange commission april 23 2004 6incorporated reference current report form 8k dated september 27 2004 filed securities exchange commission october 12 2004 7filed herewith 8furnished herewith confidential treatment requested certain portions omitted filed separately commission dfinancial statement schedules schedule iivaluation qualifying accounts thousands schedules omitted since either applicable required information included elsewhere herein signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bruker biosciences corporation date march 31 2005 frank h laukien phd name frank h laukien phd title president chief executive officer chairman undersigned officers directors bruker biosciences corporation hereby severally constitute appoint frank h laukien phd sign us names capacities indicated report form 10k filed herewith amendments report file exhibits thereto documents connection therewith case securities exchange commission generally things names behalf capacities consistent provisions securities act 1934 amended requirements securities exchange commission pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated name title date frank h laukien phd frank h laukien phd president chief executive officer chairman board principal executive officer march 31 2005 william j knight william j knight chief financial officer principal financial accounting officer march 31 2005 christopher canavan jr christopher canavan jr director march 31 2005 taylor j crouch taylor j crouch director march 31 2005 daniel dross daniel dross director march 31 2005 collin dsilva collin dsilva director march 31 2005 richard kniss richard kniss director march 31 2005 joerg c laukien joerg c laukien director march 31 2005 william linton william linton director march 31 2005 richard stein richard stein director march 31 2005 bernhard wangler bernhard wangler director march 31 2005 bruker biosciences corporation annual report form 10k table contents part item 1 business item 2 properties item 3 legal proceedings item 4 submission matters vote security holders part ii item 5 market registrants common equity related stockholder matters issuer purchases equity securities item 6 selected financial data item 7 managements discussion analysis financial condition results operations item 7a quantitative qualitative disclosures market risk item 8 financial statements supplementary data report independent registered public accounting firm report independent registered public accounting firm report independent registered public accounting firm bruker biosciences corporation consolidated balance sheets thousands except per share data bruker biosciences corporation consolidated statements operations thousands except per share data bruker biosciences corporation consolidated statements shareholders equity comprehensive income loss thousands except share data bruker biosciences corporation consolidated statements cash flows thousands bruker biosciences corporation notes consolidated financial statements item 9 changes disagreements accountants accounting financial disclosure item 9a controls procedures item 9b information part iii item 10 directors executive officers registrant item 11 executive compensation item 12 security ownership certain beneficial owners management part iv item 13 certain relationships related transactions item 14 principal accountant fees services item 15 exhibits financial statements schedules reports form 8k signaturesitem 15 exhibits financial statements schedules reports form 8k financial statements schedules 1 financial statements following consolidated financial statements bruker biosciences corporation filed part report item 8financial statements supplementary data reports independent registered public accounting firm consolidated balance sheets december 31 2005 2004 consolidated statements operations years ended december 31 2005 2004 consolidated statements shareholders’ equity comprehensive income loss years ended december 31 2005 2004 2003 consolidated statements cash flows years ended december 31 2005 2004 notes financial statements 2 financial statement schedules page report independent registered public accounting firm schedule iivaluation qualifying accounts 3 exhibits see b list exhibits exhibit title 21 share transfer deed dated august 13 20058 22 purchase transfer agreement shares röntec ag dated october 10 2005 bruker axs gmbh sellers defined therein9 23 asset purchase agreement dated october 21 2005 bruker axs inc princeton gammatech instruments inc princeton gammatech uk ltd finnpartners inc third letter corporation9 31 amended restated certificate incorporation registrant1 32 amended restated bylaws registrant1 41 specimen stock certificate representing shares common stock registrant1 42 specimen stock certificate representing shares common stock registrant5 101 amended restated 2000 stock option plan4 102 sharing agreement dated february 28 2000 among registrant 13 affiliates registrant1 103 license agreement dated august 10 1998 registrant indiana university’s advanced research technology institute1 104 itms collaboration agreement hewlettpackard registrant bruker daltonik gmbh dated april 28 19991 105 collaboration agreement dated december 4 1997 brukerfranzen analytik gmbh sequenom instruments gmbh1 106 agreement bruker daltonik gmbh bruker saxonia analytik gmbh bruker optik gmbh dated march 31 20001 1010 supply agreement dated march 30 1998 registrant fairchild imaging inc formerly known lockheed martin fairchild systems3 1011 supply agreement dated october 1 1998 bruker axs gmbh gkss forschungszentrum geesthacht gmbh amended3 1012 development agreement dated july 31 1997 bruker axs gmbh siemens aktiengesellschaft berlin und munchen bereich medizinische technik3 1013 development agreement 9906 dated may 5 1999 bruker axs gmbh baltic scientific instruments3 1014 development agreement 9910 dated october 7 1999 bruker axs gmbh baltic scientific instruments3 1019 agreement development supply marketing dated august 2 2001 bruker axs gmbh siemens medical solutions rontgenwerk rudolstadt3 1021 lease office space delft netherlands dated october 12 2001 bruker nonius bv van haaren beheer bv3 1022 memorandum agreement strategic collaboration dated october 16 2001 registrant fairchild imaging inc3 1025 employment offer letter dated september 27 2004 bruker biosciences corporation william j knight6 1026 company’s form incentive stock option agreement6 1027 amendment itms collaboration agreement oem agreement agilent technologies inc registrant effective february 25 20057 1028 company’s form restricted stock agreement10 211 subsidiaries registrant10 231 consent ernst young llp independent registered public accounting firm10 241 power attorney included page 97 311 certification chief executive officer pursuant section 302 sarbanesoxley act 200210 312 certification chief financial officer pursuant section 302 sarbanesoxley act 200210 321 certification chief executive officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 200211 322 certification chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 200211 1 incorporated reference registration statement form s1 registration number 33334820 declared effective securities exchange commission august 3 2000 2 incorporated reference annual report form 10k fiscal year ended december 31 2001 3 incorporated reference bruker axs inc registration statement form s1 registration number 33366066 declared effective securities exchange commission december 13 2001 4 incorporated reference registration statement form s4 registration number 333104885 declared effective securities exchange commission may 19 2003 5 incorporated reference registration statement form s3 registration number 333113774 declared effective securities exchange commission april 23 2004 6 incorporated reference current report form 8k dated september 27 2004 filed securities exchange commission october 12 2004 7 incorporated reference quarterly report form 10q period ended march 31 2005 8 incorporated reference current report form 8k dated august 13 2005 filed securities exchange commission august 16 2005 9 incorporated reference quarterly report form 10q period ended september 30 2005 10 filed herewith 11 furnished herewith confidential treatment requested certain portions omitted filed separately commission financial statement schedules schedule iivaluation qualifying accounts thousands schedules omitted since either applicable required information included elsewhere herein signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized undersigned officers directors bruker biosciences corporation hereby severally constitute appoint frank h laukien phd sign us names capacities indicated report form 10k filed herewith amendments report file exhibits thereto documents connection therewith case securities exchange commission generally things names behalf capacities consistent provisions securities act 1934 amended requirements securities exchange commission pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated name title date frank h laukien phd president chief executive officer frank h laukien phd chairman board principal executive officer march 13 2006 william j knight chief financial officer principal william j knight financial accounting officer march 13 2006 christopher canavan jr director christopher canavan jr march 13 2006 taylor j crouch director taylor j crouch march 13 2006 daniel dross director daniel dross march 13 2006 collin d’silva director collin d’silva march 13 2006 richard kniss director richard kniss march 13 joerg c laukien director joerg c laukien march 13 2006 william linton director william linton march 13 2006 richard stein director richard stein march 13 2006 bernhard wangler director bernhard wangler march 13 2006item 15 exhibits financial statements schedules financial statements schedules 1 financial statements following consolidated financial statements bruker biosciences corporation filed part report item 8financial statements supplementary data reports independent registered public accounting firm consolidated balance sheets december 31 2006 2005 consolidated statements operations years ended december 31 2006 2005 2004 consolidated statements shareholders’ equity comprehensive income loss years ended december 31 2006 2005 2004 consolidated statements cash flows years ended december 31 2006 2005 2004 notes financial statements 2 financial statement schedules page schedule iivaluation qualifying accounts 3 exhibits see b list exhibits exhibit title 21 share transfer deed dated august 13 20051 22 purchase transfer agreement shares röntec ag dated october 10 2005 bruker axs gmbh sellers defined therein2 23 asset purchase agreement dated october 21 2005 bruker axs inc princeton gammatech instruments inc princeton gammatech uk ltd finnpartners inc third letter corporation2 24 stock purchase agreement dated april 17 2006 among bruker biosciences corporation bruker optics inc stockholders bruker optics inc3 25 purchase transfer agreement shares röntec ag dated october 10 2005 bruker axs gmbh sellers defined therein4 26 asset purchase agreement dated october 21 2005 bruker axs inc princeton gammatech instruments inc princeton gammatech uk ltd finnpartners inc third letter corporation5 31 amended restated certificate incorporation registrant6 32 amended restated bylaws registrant6 41 specimen stock certificate representing shares common stock registrant7 101 amended restated 2000 stock option plan8 102 sharing agreement dated february 28 2000 among registrant 13 affiliates registrant6 103 license agreement dated august 10 1998 registrant indiana university’s advanced research technology institute6 104 itms collaboration agreement hewlettpackard registrant bruker daltonik gmbh dated april 28 19996 105 collaboration agreement dated december 4 1997 brukerfranzen analytik gmbh sequenom instruments gmbh6 106 agreement bruker daltonik gmbh bruker saxonia analytik gmbh bruker optik gmbh dated march 31 20006 1010 supply agreement dated march 30 1998 registrant fairchild imaging inc formerly known lockheed martin fairchild systems9 1011 supply agreement dated october 1 1998 bruker axs gmbh gkss forschungszentrum geesthacht gmbh amended9 1012 development agreement dated july 31 1997 bruker axs gmbh siemens aktiengesellschaft berlin und munchen bereich medizinische technik9 1013 development agreement 9906 dated may 5 1999 bruker axs gmbh baltic scientific instruments9 1014 development agreement 9910 dated october 7 1999 bruker axs gmbh baltic scientific instruments9 1019 agreement development supply marketing dated august 2 2001 bruker axs gmbh siemens medical solutions rontgenwerk rudolstadt9 1021 lease office space delft netherlands dated october 12 2001 bruker nonius bv van haaren beheer bv9 1022 memorandum agreement strategic collaboration dated october 16 2001 registrant fairchild imaging inc9 1025 employment offer letter dated september 27 2004 bruker biosciences corporation william j knight10 1026 company’s form incentive stock option agreement10 1027 amendment itms collaboration agreement oem agreement agilent technologies inc registrant effective february 25 200511 1028 company’s form restricted stock agreement12 1029 compensation indemnification agreement dated april 18 2006 among company william linton christopher canavan jr taylor j crouch daniel dross3 1030 demand promissory note dated july 5 2006 amount 40000000 payable citizens bank massachusetts13 1031 exclusive distribution agreement dated january 1 2002 brucker biospin gmbh bruker optics inc amended april 17 200614 211 subsidiaries registrant14 231 consent ernst young llp independent registered public accounting firm12 241 power attorney included signature page hereto 311 certification chief executive officer pursuant section 302 sarbanesoxley act 200214 312 certification chief financial officer pursuant section 302 sarbanesoxley act 200214 321 certification chief executive officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 200215 322 certification chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 200215 1 incorporated reference current report form 8k filed august 16 2005 2 incorporated reference quarterly report form 10q period ended september 30 2005 3 incorporated reference current report form 8k filed april 18 2006 4 incorporated reference quarterly report form 10q period ended june 30 2006 5 incorporated reference quarterly report form 10q period ended september 30 2006 6 incorporated reference registration statement form s1 registration 33334820 declared effective securities exchange commission august 3 2000 7 incorporated reference registration statement form s3 registration 333113774 declared effective securities exchange commission april 23 2004 8 incorporated reference registration statement form s4 registration 333104885 declared effective securities exchange commission may 19 2003 9 incorporated reference bruker axs inc registration statement form s1 registration 33366066 declared effective securities exchange commission december 13 2001 10 incorporated reference current report form 8k filed october 12 2004 11 incorporated reference quarterly report form 10q period ended march 31 2005 12 incorporated reference annual report form 10ka year ended december 31 2005 13 incorporated reference current report form 8k filed july 7 2006 14 filed herewith 15 furnished herewith confidential treatment requested certain portions omitted filed separately commission c financial statement schedules schedule iivaluation qualifying accounts thousands schedules omitted since either applicable required information included elsewhere herein signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bruker biosciences corporation date march 15 frank h laukien phd name frank h laukien phd title president chief executive officer chairman undersigned officers directors bruker biosciences corporation hereby severally constitute appoint frank h laukien phd sign us names capacities indicated report form 10k filed herewith amendments report file exhibits thereto documents connection therewith case securities exchange commission generally things names behalf capacities consistent provisions securities act 1934 amended requirements securities exchange commission pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated william linton director march 15 2007 william linton richard stein director march 15 richard stein bernhard wangler director march 15 bernhard wangleritem 15 exhibits financial statements schedules afinancial statements schedules 1financial statements following consolidated financial statements bruker corporation filed part report item 8financial statements supplementary data report independent registered public accounting firm consolidated balance sheets december 31 2008 2007 consolidated statements operations years ended december 31 2008 2007 2006 consolidated statements shareholders equity comprehensive income loss years ended december 31 2008 2007 2006 consolidated statements cash flows years ended december 31 2008 2007 2006 notes consolidated financial statements 2financial statement schedules schedule iivaluation qualifying accounts see b 3exhibits blist exhibits confidential treatment requested certain portions omitted filed separately securities exchange commission accordance rule 12b32 securities exchange act 1934 amended reference made documents previously filed securities exchange commission documents hereby incorporated reference dates listed forms 8k dates respective forms filed dates listed forms 10q forms 10k forms 10ka quarterly annual period ended dates listed forms s1 forms s3 forms s4 dates securities exchange commission declared effective cfinancial statement schedules schedule iivaluation qualifying accounts millions schedules omitted since either applicable required information included elsewhere herein signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bruker corporation date march 16 2009 frank h laukien phd name frank h laukien phd title president chief executive officer chairman undersigned officers directors bruker corporation hereby severally constitute appoint frank h laukien phd sign us names capacities indicated report form 10k filed herewith amendments report file exhibits thereto documents connection therewith case securities exchange commission generally things names behalf capacities consistent provisions securities act 1934 amended requirements securities exchange commission pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statements schedules afinancial statements schedules 1financial statements following consolidated financial statements bruker corporation filed part report item 8financial statements supplementary data 2financial statement schedules schedule iivaluation qualifying accounts 3exhibits blist exhibits confidential treatment requested certain portions omitted filed separately securities exchange commission accordance rule 12b32 securities exchange act 1934 amended reference made documents previously filed securities exchange commission documents hereby incorporated reference dates listed forms 8k dates respective forms filed dates listed forms 10q forms 10k forms 10ka quarterly annual period ended dates listed forms s1 forms s3 forms s4 dates securities exchange commission declared effective cfinancial statement schedules schedule iivaluation qualifying accounts millions schedules omitted since applicable required information included elsewhere herein signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bruker corporation date march 12 2010 frank h laukien phd name frank h laukien phd title president chief executive officer chairman undersigned officers directors bruker corporation hereby severally constitute appoint frank h laukien phd sign us names capacities indicated report form 10k filed herewith amendments report file exhibits thereto documents connection therewith case securities exchange commission generally things names behalf capacities consistent provisions securities act 1934 amended requirements securities exchange commission pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statements schedules afinancial statements schedules 1financial statements following consolidated financial statements bruker corporation filed part report item 8financial statements supplementary data 2financial statement schedules omitted required information provided consolidated financial statements notes thereto set forth item 8 3exhibits blist exhibits confidential treatment requested certain portions omitted filed separately securities exchange commission accordance rule 12b32 securities exchange act 1934 amended reference made documents previously filed securities exchange commission documents hereby incorporated reference dates listed forms 8k dates respective forms filed dates listed forms 10q forms 10k forms 10ka quarterly annual period ended dates listed forms s1 forms s3 forms s4 dates securities exchange commission declared effective signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bruker corporation frank h laukien phd name frank h laukien phd title president chief executive officer chairman undersigned officers directors bruker corporation hereby severally constitute appoint frank h laukien phd sign us names capacities indicated report form 10k filed herewith amendments report file exhibits thereto documents connection therewith case securities exchange commission generally things names behalf capacities consistent provisions securities act 1934 amended requirements securities exchange commission pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statements schedules afinancial statements schedules 1financial statements following consolidated financial statements bruker corporation filed part report item 8financial statements supplementary data 2financial statement schedules omitted required information provided consolidated financial statements notes thereto set forth item 8 3exhibits blist exhibits incorporated reference 1 filed herewith exhibit description form date following materials bruker corporation annual report form 10k fiscal year ended december 31 2011 formatted extensible business reporting language xbrl consolidated balance sheets ii consolidated statements income iii consolidated statements shareholders equity comprehensive income iv consolidated statements cash flows iv notes condensed consolidated financial statements2 x certain portions omitted pursuant order granting confidential treatment filed separately securities exchange commission confidential treatment requested certain portions omitted filed separately securities exchange commission designates management contract compensatory plan arrangement 1in accordance rule 12b32 exchange act reference made documents previously filed securities exchange commission documents hereby incorporated reference dates listed forms 8k dates respective forms filed dates listed forms 10q forms 10k forms 10ka quarterly annual period ended dates listed forms s1 forms s3 forms s4 dates securities exchange commission declared effective 2in accordance rule 406t regulation st xbrlrelated information exhibit 101 annual report form 10k deemed part registration statement prospectus purposes sections 11 12 securities act deemed filed purposes section 18 exchange act otherwise subject liability sections signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bruker corporation date february 29 2012 frank h laukien phd name frank h laukien phd title president chief executive officer chairman undersigned officers directors bruker corporation hereby severally constitute appoint frank h laukien phd sign us names capacities indicated report form 10k filed herewith amendments report file exhibits thereto documents connection therewith case securities exchange commission generally things names behalf capacities consistent provisions securities exchange act 1934 amended requirements securities exchange commission pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statements schedules afinancial statements schedules 1financial statements following consolidated financial statements bruker corporation filed part report item 8financial statements supplementary data 2financial statement schedules omitted required information provided consolidated financial statements notes thereto set forth item 8 3exhibits blist exhibits incorporated reference1 filed herewith exhibit description form date following materials bruker corporation annual report form 10k fiscal year ended december 31 2012 formatted extensible business reporting language xbrl consolidated balance sheets ii consolidated statements income comprehensive income iii consolidated statements shareholders equity comprehensive income iv consolidated statements cash flows iv notes condensed consolidated financial statements2 x certain portions omitted pursuant order granting confidential treatment filed separately securities exchange commission designates management contract compensatory plan arrangement 1in accordance rule 12b32 exchange act reference made documents previously filed securities exchange commission documents hereby incorporated reference dates listed forms 8k dates respective forms filed dates listed forms 10q forms 10k forms 10ka quarterly annual period ended dates listed forms s1 forms s3 forms s4 dates securities exchange commission declared effective 2in accordance rule 406t regulation st xbrlrelated information exhibit 101 annual report form 10k deemed part registration statement prospectus purposes sections 11 12 securities act deemed filed purposes section 18 exchange act otherwise subject liability sections signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bruker corporation date february 28 2013 frank h laukien phd name frank h laukien phd title president chief executive officer chairman undersigned officers directors bruker corporation hereby severally constitute appoint frank h laukien phd sign us names capacities indicated report form 10k filed herewith amendments report file exhibits thereto documents connection therewith case securities exchange commission generally things names behalf capacities consistent provisions securities exchange act 1934 amended requirements securities exchange commission pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statements schedules afinancial statements schedules 1financial statements following consolidated financial statements bruker corporation filed part report item 8financial statements supplementary data 2financial statement schedules omitted required information provided consolidated financial statements notes thereto set forth item 8 3exhibits blist exhibits incorporated reference 1 filed herewith exhibit description form date following materials bruker corporation annual report form 10k fiscal year ended december 31 2013 formatted extensible business reporting language xbrl consolidated balance sheets ii consolidated statements income comprehensive income iii consolidated statements shareholders equity comprehensive income iv consolidated statements cash flows iv notes condensed consolidated financial statements x certain portions omitted pursuant order granting confidential treatment filed separately securities exchange commission designates management contract compensatory plan arrangement 1in accordance rule 12b32 exchange act reference made documents previously filed securities exchange commission documents hereby incorporated reference dates listed forms 8k dates respective forms filed dates listed forms 10q forms 10k forms 10ka quarterly annual period ended dates listed forms s1 forms s3 forms s4 dates securities exchange commission declared effective signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bruker corporation date february 27 2014 frank h laukien phd name frank h laukien phd title president chief executive officer chairman undersigned officers directors bruker corporation hereby severally constitute appoint frank h laukien phd sign us names capacities indicated report form 10k filed herewith amendments report file exhibits thereto documents connection therewith case securities exchange commission generally things names behalf capacities consistent provisions securities exchange act 1934 amended requirements securities exchange commission pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statements schedules afinancial statements schedules 1financial statements following consolidated financial statements bruker corporation filed part report item 8 financial statements supplementary data 2financial statement schedules omitted required information provided consolidated financial statements notes thereto set forth item 8 3exhibits blist exhibits incorporated reference 1 filed herewith exhibit description form date 321 certification chief executive officer chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 x following materials bruker corporation annual report form 10k fiscal year ended december 31 2014 formatted extensible business reporting language xbrl consolidated balance sheets ii consolidated statements income comprehensive income iii consolidated statements shareholders equity comprehensive income iv consolidated statements cash flows iv notes condensed consolidated financial statements x certain portions omitted pursuant order granting confidential treatment filed separately securities exchange commission designates management contract compensatory plan arrangement 1in accordance rule 12b32 exchange act reference made documents previously filed securities exchange commission documents hereby incorporated reference dates listed forms 8k dates respective forms filed dates listed forms 10q forms 10k forms 10ka quarterly annual period ended dates listed forms s1 forms s3 forms s4 dates securities exchange commission declared effective signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bruker corporation date february 27 2015 frank h laukien phd name frank h laukien phd title president chief executive officer chairman undersigned officers directors bruker corporation hereby severally constitute appoint frank h laukien phd sign us names capacities indicated report form 10k filed herewith amendments report file exhibits thereto documents connection therewith case securities exchange commission generally things names behalf capacities consistent provisions securities exchange act 1934 amended requirements securities exchange commission pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statements schedules afinancial statements schedules 1financial statements following consolidated financial statements bruker corporation filed part report item 8 financial statements supplementary data 2financial statement schedules omitted required information provided consolidated financial statements notes thereto set forth item 8 3exhibits blist exhibits certain portions omitted pursuant order granting confidential treatment filed separately securities exchange commission designates management contract compensatory plan arrangement 1in accordance rule 12b32 exchange act reference made documents previously filed securities exchange commission documents hereby incorporated reference dates listed forms 8k dates respective forms filed dates listed forms 10q forms 10k forms 10ka quarterly annual period ended dates listed forms s1 forms s3 forms s4 dates securities exchange commission declared effective signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bruker corporation date february 26 2016 frank h laukien phd name frank h laukien phd title president chief executive officer chairman undersigned officers directors bruker corporation hereby severally constitute appoint frank h laukien phd sign us names capacities indicated report form 10k filed herewith amendments report file exhibits thereto documents connection therewith case securities exchange commission generally things names behalf capacities consistent provisions securities exchange act 1934 amended requirements securities exchange commission pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statements schedules afinancial statements schedules 1financial statements following consolidated financial statements bruker corporation filed part report item 8 financial statements supplementary data 2financial statement schedules omitted required information provided consolidated financial statements notes thereto set forth item 8 3exhibits blist exhibits certain portions omitted pursuant order granting confidential treatment filed separately securities exchange commission designates management contract compensatory plan arrangement 1in accordance rule 12b32 exchange act reference made documents previously filed securities exchange commission documents hereby incorporated reference dates listed forms 8k dates respective forms filed dates listed forms 10q forms 10k forms 10ka quarterly annual period ended dates listed forms s1 forms s3 forms s4 dates securities exchange commission declared effective item 16 form 10k summary applicable signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bruker corporation date march 1 2017 frank h laukien phd name frank h laukien phd title president chief executive officer chairman undersigned officers directors bruker corporation hereby severally constitute appoint frank h laukien phd sign us names capacities indicated report form 10k filed herewith amendments report file exhibits thereto documents connection therewith case securities exchange commission generally things names behalf capacities consistent provisions securities exchange act 1934 amended requirements securities exchange commission pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statements schedules afinancial statements schedules 1financial statements following consolidated financial statements bruker corporation filed part report item 8 financial statements supplementary data 2financial statement schedules omitted required information provided consolidated financial statements notes thereto set forth item 8 3exhibits blist exhibits certain portions omitted pursuant order granting confidential treatment filed separately securities exchange commission designates management contract compensatory plan arrangement denotes management contracts compensatory plans arrangements required filed exhibits form 10k amendments modifications exhibits previously filed omitted opinion registrant exhibits amended modified longer material certain instances longer required filed exhibits instruments defining rights holders longterm debt registrant subsidiaries filed exhibits instruments met threshold materiality requirements regulation sk registrant agrees however furnish copy instruments commission upon request item 16 form 10k summary applicable signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bruker corporation date march 1 2019 frank h laukien phd name frank h laukien phd title president chief executive officer chairman undersigned officers directors bruker corporation hereby severally constitute appoint frank h laukien phd sign us names capacities indicated report form 10k filed herewith amendments report file exhibits thereto documents connection therewith case securities exchange commission generally things names behalf capacities consistent provisions securities exchange act 1934 amended requirements securities exchange commission pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statements schedules financial statements schedules 1 financial statements following consolidated financial statements bruker corporation filed part report item 8 financial statements supplementary data report pricewaterhousecoopers llp independent registered public accounting firm consolidated balance sheets december 31 2019 2018 consolidated statements income comprehensive income years ended december 31 2019 2018 2017 consolidated statements redeemable noncontrolling interest shareholders’ equity years ended december 31 2019 2018 2017 consolidated statements cash flows years ended december 31 2019 2018 2017 notes consolidated financial statements 2 financial statement schedules omitted required information provided consolidated financial statements notes thereto set forth item 8 3 exhibits b list exhibits exhibit description exhibit 31 restated certificate incorporation bruker corporation 32 bylaws bruker corporation incorporated reference exhibit 32 company’s registration statement form s1 filed april 14 2000 file 33334820 41 specimen stock certificate representing shares common stock bruker corporation incorporated reference exhibit 41 company’s annual report form 10k filed march 1 2017 file 00030833 42 description registrant’s securities registered pursuant section12 securities exchange act 1934 101 † bruker corporation 2010 incentive compensation plan incorporated reference appendix company’s definitive proxy statement schedule 14a filed april 14 2010 file 00030833 102 † bruker corporation 2010 incentive compensation plan form incentive stock option agreement incorporated reference exhibit 101 company’s quarterly report form 10q filed august 9 2010 file 00030833 103 † bruker corporation 2010 incentive compensation plan form nonqualified stock option agreement incorporated reference exhibit 102 company’s quarterly report form 10q filed august 9 2010 file 00030833 exhibit description exhibit 104 † bruker corporation 2010 incentive compensation plan form restricted stock agreement incorporated reference exhibit 103 company’s quarterly report form 10q filed august 9 2010 file 00030833 105 amended restated credit agreement dated may 24 2011 among company bruker axs gmbh bruker daltonik gmbh bruker optik gmbh bruker physik gmbh bruker biospin invest ag bruker biospin ag bruker biospin international ag foreign subsidiary borrowers time party thereto lenders time party thereto deutsche bank securities inc commerzbank ag new york grand cayman stuttgart branches rbs citizens national association codocumentation agents bank america na syndication agent jpmorgan chase bank na administrative agent incorporated reference exhibit 101 company’s current report form 8k filed may 25 2011 file 00030833 106 note purchase agreement dated january 18 2012 incorporated reference exhibit 101 company’s current report form 8k filed january 19 2012 file 00030833 107 † bruker energy supercon technologies inc 2009 stock option plan incorporated reference exhibit 1034 company’s annual report form 10k filed march 12 2010 file 00030833 108 † bruker energy supercon technologies inc 2009 stock option plan form incentive stock option agreement incorporated reference exhibit 1035 company’s annual report form 10k filed march 12 2010 file 00030833 109 † bruker energy supercon technologies inc 2009 stock option plan form nonqualified stock option agreement incorporated reference exhibit 1036 company’s annual report form 10k filed march 12 2010 file 00030833 1010 † employment offer letter agreement dated june 25 2012 company juergen srega incorporated reference exhibit 101 company’s quarterly report form 10q filed may 9 2013 file 00030833 1011 credit agreement dated october 27 2015 among company certain foreign subsidiaries borrowers citizens bank na deutsche bank securities inc td bank na codocumentation agents bank america na wells fargo bank national association cosyndication agents jpmorgan chase bank na administrative agent lenders party thereto several banks financial institutions entities time party thereto lenders incorporated reference exhibit 101 company’s current report form 8k filed october 29 2015 file 00030833 1012 † bruker corporation 2016 incentive compensation plan incorporated reference appendix company’s definitive proxy statement schedule 14a filed april 22 2016 file 00030833 1013 † bruker corporation 2016 incentive compensation plan form incentive stock option agreement incorporated reference exhibit 101 company’s quarterly report form 10q filed august 9 2019 file 00030833 1014 † bruker corporation 2016 incentive compensation plan form nonqualified stock option agreement incorporated reference exhibit 102 company’s quarterly report form 10q filed august 9 2019 file 00030833 exhibit description exhibit 1015 † bruker corporation 2016 incentive compensation plan form restricted stock unit agreement incorporated reference exhibit 103 company’s quarterly report form 10q filed august 9 2019 file 00030833 1016 † bruker corporation 2016 incentive compensation plan form director restricted stock unit agreement incorporated reference exhibit 1048 company’s annual report form 10k filed march 1 2017 file 00030833 1017 † project completion agreement dated march 23 2017 company michael knell incorporated reference exhibit 101 company’s quarterly report form 10q filed may 10 2017 file 00030833 1018 † bruker corporation 2019 shortterm incentive compensation program incorporated reference exhibit 101 company’s current report form 8k filed february 21 2019 file 00030833 1019 † offer letter dated march 17 2018 company gerald n herman incorporated reference exhibit 102 company’s quarterly report form 10q filed may 10 2018 file 00030833 1020 † offer letter dated june 4 2018 company gerald n herman incorporated reference exhibit 101 company’s quarterly report form 10q filed august 9 2018 file 00030833 1021 † contract employment dated may 1 2018 company falko busse incorporated reference exhibit 102 company’s quarterly report form 10q filed august 9 2018 file 00030833 1022 † form indemnification agreement officers directors incorporated reference exhibit 101 company’s current report form 8k filed february 11 2019 file 00030833 1023 purchase sale agreement bruker corporation frank laukien dirk laukien trustees 44 manning road realty trust umbrina associates dated october 31 2019 incorporated reference exhibit 101 company’s quarterly report form 10q filed november 4 2019 file 00030833 1024 credit agreement dated december 11 2019 among company certain subsidiaries borrowers deutsche bank securities inc wells fargo bank national association cosyndication agents citizens bank na credit suisse switzerland ltd td bank na us bank national association codocumentation agents bank america na administrative agent swing line lender issuing bank several banks financial institutions entities time party thereto lenders incorporated reference exhibit 101 company’s current report form 8k filed december 12 2019 file 00030833 1025 term loan agreement dated december 11 2019 among company certain subsidiaries bank america na administrative agent td bank na banks financial institutions entities time party thereto lenders incorporated reference exhibit 101 company’s current report form 8k filed december 12 2019 file 00030833 exhibit description exhibit 1026 note purchase agreement dated december 11 2019 incorporated reference exhibit 101 company’s current report form 8k filed december 12 2019 file 00030833 1027 † managing director employment contract dated june 28 2012 bruker daltonik gmbh juergen srega amended pursuant supplement managing director employment contract dated december 12 2019 211 subsidiaries company 231 consent pricewaterhousecoopers llp independent registered public accounting firm 241 power attorney included signature page hereto 311 certification principal executive officer pursuant section 302 sarbanesoxley act 2002 312 certification principal financial officer pursuant section 302 sarbanesoxley act 2002 321 certification chief executive officer chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 101ins inline xbrl instance document 101sch inline xbrl taxonomy extension schema document 101cal inline xbrl taxonomy extension calculation linkbase document 101def inline xbrl taxonomy extension definition linkbase document 101lab inline xbrl taxonomy extension label linkbase document 101pre inline xbrl taxonomy extension presentation linkbase document cover page company’s annual report form 10k year ended december 31 2019 formatted inline xbrl included exhibit 101 certain portions omitted pursuant order granting confidential treatment filed separately securities exchange commission † designates management contract compensatory plan arrangement filed furnished herewith instruments defining rights holders longterm debt registrant subsidiaries filed exhibits instruments met threshold materiality requirements regulation sk registrant agrees however furnish copy instruments commission upon request item 16 form 10k summary applicable page left blank intentionally signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bruker corporation date march 27 2020 frank h laukien phd name frank h laukien phd title president chief executive officer chairman undersigned officers directors bruker corporation hereby severally constitute appoint frank h laukien phd sign us names capacities indicated report form 10k filed herewith amendments report file exhibits thereto documents connection therewith case securities exchange commission generally things names behalf capacities consistent provisions securities exchange act 1934 amended requirements securities exchange commission pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated name title date frank h laukien phd president chief executive officer chairman march 27 2020 frank h laukien phd principal executive officer gerald n herman chief financial officer vice president march 27 2020 gerald n herman principal financial officer principal accounting officer cynthia friend phd director march 27 2020 cynthia friend phd marc kastner phd director march 27 2020 marc kastner phd william linton director march 27 2020 william linton gilles g martin phd director march 27 2020 gilles g martin john ornell director march 27 2020 john ornell richard packer director march 27 2020 richard packer adelene q perkins director march 27 2020 adelene q perkins hermann requardt phd director march 27 2020 hermann requardt phd robert rosenthal phd director march 27 2020 robert rosenthal phdnanitem 15 exhibits financial statements schedules afinancial statements schedules 1financial statements following consolidated financial statements bruker corporation filed part report item 8financial statements supplementary data reports independent registered public accounting firm consolidated balance sheets december 31 2007 2006 consolidated statements operations years ended december 31 2007 2006 2005 consolidated statements shareholders equity comprehensive income loss years ended december 31 2007 2006 2005 consolidated statements cash flows years ended december 31 2007 2006 2005 notes consolidated financial statements 2financial statement schedules schedule iivaluation qualifying accounts 3exhibits see b blist exhibits 27 us stock purchase agreement dated december 2 2007 among registrant bruker biospin inc stockholders bruker biospin inc 8k december 3 2007 28 german share purchase agreement dated december 2 2007 among registrant bruker physik gmbh techneon ag shareholders bruker physik gmbh 8k december 3 2007 29 agreement plan merger dated december 2 2007 among registrant bruker biospin invest ag bruker biospin beteiligungs ag shareholders bruker biospin invest ag 8k december 3 2007 31 amended certificate incorporation registrant x 32 bylaws registrant s1 august 3 2000 41 specimen stock certificate representing shares common stock registrant s3 april 22 2004 101 amended restated 2000 stock option plan s4 may 19 2003 102 sharing agreement dated february 28 2000 among registrant 13 affiliates registrant s1 august 3 2000 103 license agreement dated august 10 1998 registrant indiana universitys advanced research technology institute s1 august 3 2000 104 itms collaboration agreement hewlettpackard registrant bruker daltonik gmbh dated april 28 1999 s1 august 3 2000 105 collaboration agreement dated december 4 1997 brukerfranzen analytik gmbh sequenom instruments gmbh s1 august 3 2000 106 agreement bruker daltonik gmbh bruker saxonia analytik gmbh bruker optik gmbh dated march 31 2000 s1 august 3 2000 1010 supply agreement dated march 30 1998 registrant fairchild imaging inc formerly known lockheed martin fairchild systems s1 december 13 2001 1011 contract dated october 1 1998 bruker axs gmbh gkss forschungszentrum geesthacht gmbh amended s1 december 13 2001 1012 contract dated july 31 1997 bruker axs gmbh siemens aktiengesellschaft berlin und munchen bereich medizinische technik s1 december 13 2001 1013 development agreement 9906 dated may 5 1999 bruker axs gmbh baltic scientific instruments s1 december 13 2001 1014 development agreement 9910 dated october 7 1999 bruker axs gmbh baltic scientific instruments s1 december 13 2001 1019 agreement development supply marketing dated august 2 2001 bruker axs gmbh siemens medical solutions rontgenwerk rudolstadt s1 december 13 2001 1021 lease office space delft netherlands dated october 12 2001 bruker nonius bv van haaren beheer bv s1 december 13 2001 1022 memorandum agreement strategic collaboration dated october 16 2001 registrant fairchild imaging inc s1 december 13 2001 1025 employment offer letter dated september 25 2004 bruker biosciences corporation william j knight 8k october 12 2004 1026 companys form incentive stock option agreement 8k october 12 2004 1027 amendment itms collaboration agreement oem agreement agilent technologies inc registrant effective february 25 2005 10q march 31 2005 1028 companys form restricted stock agreement 10ka december 31 2005 1029 compensation indemnification agreement dated april 18 2006 among company william linton christopher canavan jr taylor j crouch daniel dross 8k april 18 2006 1030 demand promissory note dated july 5 2006 amount 40000000 payable citizens bank massachusetts 8k july 7 2006 1031 exclusive distribution agreement dated january 1 2002 bruker biospin gmbh bruker optics inc amended april 17 2006 10k december 31 2006 1032 compensation indemnification agreement dated december 2 2007 among company william linton collin dsilva richard kniss 8k december 3 2007 1033 credit agreement dated february 26 2008 among registrant bruker axs gmbh bruker daltonik gmbh bruker optik gmbh bruker physik gmbh bruker biospin invest ag bruker biospin ag bruker biospin international ag foreign subsidiary borrowers time party thereto lenders time party thereto citibank na syndication agent rbs citizens national association deutsche bank ag dresdner bank ag codocumentation agents jpmorgan chase bank na administrative agent 8k february 27 2008 211 subsidiaries registrant x 231 consent ernst young llp independent registered public accounting firm x 241 power attorney included signature page hereto x 311 certification chief executive officer pursuant section 302 sarbanesoxley act 2002 x 312 certification chief financial officer pursuant section 302 sarbanesoxley act 2002 x 321 certification chief executive officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 x 322 certification chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 x confidential treatment requested certain portions omitted filed separately commission accordance rule 12b32 securities exchange act 1934 amended reference made documents previously filed securities exchange commission documents hereby incorporated reference dates listed forms 8k dates respective forms filed dates listed forms 10q forms 10k form 10ka quarterly annual period ended dates listed forms s1 forms s3 forms s4 dates security exchange commission declared effective cfinancial statement schedules schedule iivaluation qualifying accounts thousands schedules omitted since either applicable required information included elsewhere herein signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bruker corporation date march 17 2008 frank h laukien phd name frank h laukien phd title president chief executive officer chairman undersigned officers directors bruker corporation hereby severally constitute appoint frank h laukien phd sign us names capacities indicated report form 10k filed herewith amendments report file exhibits thereto documents connection therewith case securities exchange commission generally things names behalf capacities consistent provisions securities act 1934 amended requirements securities exchange commission pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated name title date frank h laukien phd frank h laukien phd president chief executive officer chairman board principal executive officer march 17 2008 william j knight william j knight chief financial officer principal financial accounting officer march 17 2008 daniel dross daniel dross director march 17 2008 collin dsilva collin dsilva director march 17 2008 wolfdieter emmerich phd wolfdieter emmerich phd director march 17 2008 brenda j furlong brenda j furlong director march 17 2008 tony w keller phd tony w keller phd director march 17 2008 richard kniss richard kniss director march 17 2008 dirk laukien phd dirk laukien phd director march 17 2008 joerg c laukien joerg c laukien director march 17 2008 william linton william linton director march 17 2008 richard packer richard packer director march 17 2008 richard stein richard stein director march 17 2008 bernhard wangler bernhard wangler director march 17 2008item 15 exhibits financial statements schedules afinancial statements schedules 1financial statements following consolidated financial statements bruker corporation filed part report item 8 financial statements supplementary data 2financial statement schedules omitted required information provided consolidated financial statements notes thereto set forth item 8 3exhibits blist exhibits incorporated reference 1 exhibit filed herewith description form date following materials bruker corporation annual report form 10k fiscal year ended december 31 2017 formatted extensible business reporting language xbrl consolidated balance sheets ii consolidated statements income comprehensive income iii consolidated statements shareholders equity comprehensive income loss iv consolidated statements cash flows iv notes consolidated financial statements x certain portions omitted pursuant order granting confidential treatment filed separately securities exchange commission designates management contract compensatory plan arrangement 1in accordance rule 12b32 exchange act reference made documents previously filed securities exchange commission documents hereby incorporated reference dates listed forms 8k dates respective forms filed dates listed forms 10q forms 10k forms 10ka quarterly annual period ended dates listed forms s1 forms s3 forms s4 dates securities exchange commission declared effective item 16 form 10k summary applicable signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bruker corporation date march 16 2018 frank h laukien phd name frank h laukien phd title president chief executive officer chairman undersigned officers directors bruker corporation hereby severally constitute appoint frank h laukien phd sign us names capacities indicated report form 10k filed herewith amendments report file exhibits thereto documents connection therewith case securities exchange commission generally things names behalf capacities consistent provisions securities exchange act 1934 amended requirements securities exchange commission pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statements schedules financial statements schedules 1 financial statements financial statements required item filed part report item 8 financial statements supplementary data 2 financial statement schedules financial statements required item filed part report item 8 financial statements supplementary data 3 exhibits b list exhibits exhibit index certain portions omitted pursuant order granting confidential treatment filed separately securities exchange commission † designates management contract compensatory plan arrangement filed furnished herewith instruments defining rights holders longterm debt registrant subsidiaries filed exhibits instruments met threshold materiality requirements regulation sk registrant agrees however furnish copy instruments commission upon request item 16 form 10k summary applicable signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bruker corporation date march 1 2021 frank h laukien phd name frank h laukien phd title president chief executive officer chairman undersigned officers directors bruker corporation hereby severally constitute appoint frank h laukien phd sign us names capacities indicated report form 10k filed herewith amendments report file exhibits thereto documents connection therewith case securities exchange commission generally things names behalf capacities consistent provisions securities exchange act 1934 amended requirements securities exchange commission pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated name title date frank h laukien phd president chief executive officer chairman march 1 2021 frank h laukien phd principal executive officer gerald n herman chief financial officer vice president march 1 2021 gerald n herman principal financial officer principal accounting officer bonnie h anderson director march 1 2021 bonnie h anderson cynthia friend phd director march 1 2021 cynthia friend phd marc kastner phd director march 1 2021 marc kastner phd william linton director march 1 2021 william linton john ornell director march 1 2021 john ornell richard packer director march 1 2021 richard packer adelene q perkins director march 1 2021 adelene q perkins hermann requardt phd director march 1 2021 hermann requardt phd robert rosenthal phd director march 1 2021 robert rosenthal phd