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UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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(Mark One)
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[X]
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2008
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to .
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Commission file number 0-25317
Life Technologies
Corporation
(Exact name of registrant as
specified in its charter)
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Delaware
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33-0373077
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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5791 Van Allen Way
Carlsbad, California
(Address of principal
executive offices)
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92008
(Zip Code)
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Registrants telephone number, including area code:
760-603-7200
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, $0.01 par value
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NASDAQ Global Select Market
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Preferred Stock Purchase Rights, $0.01 par value
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NASDAQ Global Select Market
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Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes [X] or No [ ]
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes [ ] or No [X]
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] or No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated filer [X]
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Accelerated filer [ ]
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Non-accelerated filer [ ]
(Do not check if a smaller reporting company)
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Smaller reporting company [ ]
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Indicate by checkmark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Act). Yes [ ] No [X]
The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant as of
June 30, 2008 was $3,616,442,556.
The number of outstanding shares of the registrants common
stock as of February 25, 2009 was 173,800,545.
INCORPORATION
BY REFERENCE
Portions of the registrants proxy statement to be filed
with the SEC pursuant to Regulation 14A in connection with
the registrants 2009 Annual Meeting of Stockholders, to be
filed subsequent to the date hereof, are incorporated by
reference into Part III of this annual report on
Form 10-K.
Such proxy statement will be filed with the SEC not later than
120 days after the conclusion of the registrants
fiscal year ended December 31, 2008.
LIFE
TECHNOLOGIES CORPORATION
Annual Report on
Form 10-K
for the Fiscal Year Ended December 31, 2008
TABLE OF
CONTENTS
FORWARD-LOOKING
STATEMENTS
Any statements in this Annual Report on
Form 10-K
about our expectations, beliefs, plans, objectives, prospects,
financial condition, assumptions or future events or performance
are not historical facts and are forward-looking statements.
These statements are often, but not always, made through the use
of words or phrases such as believe,
anticipate, should, intend,
plan, will, expects,
estimates, projects,
positioned, strategy,
outlook and similar expressions. Additionally,
statements concerning future matters, such as the development of
new products, enhancements of technologies, sales levels and
operating results and other statements regarding matters that
are not historical are forward-looking statements. Accordingly,
these statements involve estimates, assumptions and
uncertainties that could cause actual results to differ
materially from the results expressed in the statements. Any
forward-looking statements are qualified in their entirety by
reference to the factors discussed throughout this annual report
on
Form 10-K.
The following cautionary statements identify important factors
that could cause our actual results to differ materially from
those projected in the forward-looking statements made in this
annual report on
Form 10-K.
Among the key factors that have an impact on our results of
operations are:
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the risks and other factors described under the caption
Risk Factors under Item 1A of this annual
report on
Form 10-K;
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the integration of acquired businesses into our operations;
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general economic and business conditions;
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industry trends;
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our assumptions about customer acceptance, overall market
penetration and competition from providers of alternative
products and services;
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our funding requirements; and
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availability, terms and deployment of capital.
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Because the factors referred to above could cause actual results
or outcomes to differ materially from those expressed in any
forward-looking statements made by us, you should not place
undue reliance on any such forward-looking statements. Further,
any forward-looking statement speaks only as of the date on
which it is made, and we undertake no obligation to update any
forward-looking statement to reflect events or circumstances
after the date on which such statement is made or to reflect the
occurrence of unanticipated events. New factors emerge from time
to time, and their emergence is impossible for us to predict. In
addition, we cannot assess the impact of each factor on our
business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from
those contained in any forward-looking statements.
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In this Annual Report on
Form 10-K,
unless the context requires otherwise, Life
Technologies, Company, we,
our, and us means Life Technologies
Corporation and its subsidiaries.
PART I
General
Development of Our Business
Life Technologies Corporation (also referred to as the
Company, we, or Life Technologies)
is a global biotechnology tools company dedicated to improving
the human condition. Our systems, consumables and services
enable researchers to accelerate scientific exploration, leading
to discoveries and developments that better the quality of life.
On November 21, 2008, Invitrogen Corporation (also referred
to as Invitrogen), a predecessor company to Life
Technologies, completed the acquisition of Applied Biosystems,
Inc. (also referred to as Applied Biosystems) to
form a new company called Life Technologies Corporation. Life
Technologies employs approximately 9,700 people, has a
presence in more than 100 countries, and possesses a rapidly
growing intellectual property estate of approximately 3,600
patents and exclusive licenses.
We deliver a broad range of products and services, including
systems, instruments, reagents, and custom services. Our growing
portfolio of products includes innovative technologies for
capillary electrophoresis based sequencing, next generation
sequencing, mass spectrometry, sample preparation, cell culture,
RNA interference analysis, functional genomics research,
proteomics and cell biology applications, as well as clinical
diagnostic applications and water testing analysis. We also give
our customers convenient purchasing options through our 3,000
sales and service professionals,
e-commerce
capabilities and onsite supply center solutions.
In early 2003, the Company embarked upon a strategy to complete
its product offerings by way of acquired and internally
developed technologies. Since that time, the Company has
expanded its overall size and breadth of the products offered by
completing over fifteen acquisitions, including the 2008
acquisition of CellzDirect Inc. and Visigen Biotechnologies,
Inc, the 2007 acquisition of Cascade Biologics, Inc. and Genomed
GmbH, the 2006 acquisition of Sentigen Holding Corp. and the
asset purchase of Xcyte Therapies, Inc. (Xcyte), and the 2005
acquisitions of Dynal Biotech Holding AS (Dynal), BioSource
International, Inc. (BioSource), Caltag Laboratories (Caltag)
and Zymed Laboratories, Inc. (Zymed). We have also acquired a
number of other companies over the past several years. In 2007,
we sold the BioReliance Corporation.
We began operations as a California partnership in 1987 and
incorporated in California in 1989. In 1997, we reincorporated
as a Delaware corporation. Our principal offices are in
Carlsbad, California.
Our website is www.lifetechnologies.com. This Annual
Report on
Form 10-K,
our Quarterly Reports on
Form 10-Q,
our Current Reports on
Form 8-K
and any amendments thereto are made available without charge on
our website. We make these materials available on our website as
soon as reasonable practicable after we file these materials
with, or furnish them to, the Securities and Exchange Commission.
Financial
Information About Our Segments and Geographic Areas
In 2008, we divided our business into three principal business
segments, BioDiscovery (a legacy Invitrogen business segment),
Cell Systems (a legacy Invitrogen business segment), and Applied
Biosystems. Financial information regarding these segments is
included in the notes to our consolidated financial statements,
which begin on page 56.
Financial information about our revenues from foreign countries
and assets located in those countries is also included in the
notes to our consolidated financial statements.
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Description
of Our Business
Company
Overview
We are a global biotechnology tools company dedicated to helping
our customers make scientific discoveries and ultimately improve
the quality of life. Our systems, reagents, and services enable
researchers to accelerate scientific exploration, driving to
discoveries and developments that better the quality of life.
Life Technologies customers do their work across the biological
spectrum, advancing personalized medicine, regenerative science,
molecular diagnostics, agricultural and environmental research,
and 21st century forensics. The Company employs
approximately 9,700 people, has a presence in more than 100
countries, and possesses a rapidly growing intellectual property
estate of approximately 3,600 patents and exclusive licenses.
Our systems and reagents enable, simplify and accelerate a broad
spectrum of biological research of genes, proteins and cells
within academic and life science research and commercial
applications. Our scientific expertise assists in making
biodiscovery research techniques more effective and efficient
for pharmaceutical, biotechnology, agricultural, government and
academic researchers with backgrounds in a wide range of
scientific disciplines.
We offer many different products and services, and are
continually developing
and/or
acquiring others. Some of our specific product categories
include the following:
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High-throughput gene cloning and expression
technology, which allows customers to clone and expression-test
genes on an industrial scale.
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Pre-cast electrophoresis products, which improve the speed,
reliability and convenience of separating nucleic acids and
proteins.
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Antibodies, which allow researchers to capture and label
proteins, visualize their location through use of Molecular
Probes dyes and discern their role in disease.
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Magnetic beads, which are used in a variety of settings, such as
attachment of molecular labels, nucleic acid purification, and
organ and bone marrow tissue type testing.
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Molecular Probes fluorescence-based technologies, which
facilitate the labeling of molecules for biological research and
drug discovery.
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Transfection reagents, which are widely used to transfer genetic
elements into living cells enabling the study of protein
function and gene regulation.
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PCR and Real Time PCR systems and reagents, which enable
researchers to amplify and detect targeted nucleic acids (DNA
and RNA molecules) for a host of applications in molecular
biology.
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Cell culture media and reagents used to preserve and grow
mammalian cells, which are used in large scale cGMP
bio-production facilities to produce large molecule biologic
therapies.
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RNA Interference reagents, which enable scientists to
selectively turn off genes in biology systems to
gain insight into biological pathways.
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Capillary electrophoresis and massively parallel
SOLiDtm
DNA sequencing systems and reagents, which are used to discover
sources of genetic and epigenetic variation, to catalog the DNA
structure of organisms de novo, to verify the composition
of genetic research material, and to apply these genetic
analysis discoveries in markets such as forensic human
identification.
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High performance mass spectrometer systems which are used in
numerous applications such as drug discovery and clinical
development of therapeutics as well as in basic biological
research, food and beverage quality testing, environmental
testing, and other applied or clinical research applications.
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Scientific
Background
The genome is the entirety of a living organisms
genetic information coded in the form of DNA. Within the genome
are individual segments of DNA that form genes, which encode the
instructions used by cells to assemble proteins. These
instructions are relayed from the gene to the cells
protein assembly machinery through the intermediary of a
transcript composed of RNA. The total set of RNA transcripts
expressed by the genome in a cell or organism is known as the
transcriptome. It is the proteins, however, that
ultimately carry out most of the essential biological activities
required for life. The total complement of proteins expressed by
the genome in a cell or organism is known as the
proteome. Proteins have many different functional
properties, and are the key biological molecules involved in
processes such as growth, development, reproduction, aging, and
disease.
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Researchers seeking to learn the causes of disease to develop
treatments historically have used molecular biology techniques
focused on the study of single or small numbers of genes and the
proteins they code for, as opposed to the study of the genome or
proteome as a whole. The study of the genome is known as
genomics, while the study of the proteome is known as
proteomics. Technological advances over the past two
decades, including many developed and marketed by Life
Technologies have rapidly accelerated scientists ability
to perform genomics and proteomics research. These advances
include the development of automated instruments that can
perform high-throughput analysis of samples and specialized
reagents and consumables that enable researchers to perform
analysis accurately and efficiently. Genomics research has
evolved from the sequencing of the first viral genome of just
over 5,000 bases three decades ago to the complete sequencing of
the more than 3 billion bases of the human genome in 2001.
The recent advances in genomic and proteomic studies have also
led to the rapid development of bioinformatics, which
integrates biology and computing to analyze the massive amounts
of data generated by such studies.
Following the sequencing of the complete human genome,
functional genomics and the study of the transcriptome and
proteome have come to prominence. Rather than replacing the
study of single genes, these disciplines have complemented and
enhanced such studies. In the field of drug development,
researchers study how drugs being developed for disease
treatment affect the transcript and protein expression of the
entire organism. These types of studies are used to determine
the efficacy of drugs, and identify patient groups for which the
drug may be particularly beneficial. Pharmaceutical-based
research also includes the development of safe and effective
methods of bioproduction for protein-based therapeutic agents.
In the field of disease treatment, research is often focused on
the discovery of biomarkers. These are transcripts or
proteins that are used as markers for the diagnosis of certain
disease states and their prognosis for treatment.
High-throughput production and screening of peptides (short
chains of amino acids, the building blocks of proteins) can also
assist in the design of vaccines against diseases for which
current vaccines are ineffective or unavailable.
In medicine, basic research is focused on cell differentiation,
cell proliferation, and cell death. These have wide applications
in the study of regenerative medicine, which focuses on
repairing organs damaged by trauma or disease. The study of
aging is another important field in this category, and focuses
on alleviating debilitating conditions associated with the aging
process.
Customer
Segment / Target Markets
We divide our target customer base into three major categories:
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Life science researchers. The life sciences research
market consists of laboratories generally associated with
universities, medical research centers, government institutions
such as the United States National Institutes of Health, or the
NIH, and other research institutions as well as biotechnology,
pharmaceutical, diagnostic, energy, agricultural, and chemical
companies. Researchers at these institutions are using our
products and services in a broad spectrum of scientific
activities, such as: searching for drugs or other techniques to
combat a wide variety of diseases, such as cancer and viral and
bacterial disease; researching diagnostics for disease
identification or for improving the efficacy of drugs to
targeted patient groups; and assisting in vaccine design,
bioproduction, and agriculture. Our products and services
provide the research tools needed for genomics studies,
proteomics studies, gene splicing, cellular analysis, and other
key research applications that are required by these life
science researchers.
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Commercial producers of biopharmaceutical and other high
valued proteins. We serve industries that apply genetic
engineering to the research and commercial production of useful
but otherwise rare or difficult to obtain substances, such as
proteins, interferons, interleukins, t-PA and monoclonal
antibodies. Once a discovery has been proven, the manufacturers
of these materials require larger quantities of the same sera
and other cell growth media that we provide in smaller
quantities to researchers. Industries involved in the commercial
production of genetically engineered products include the
biotechnology pharmaceutical, food processing and agricultural
industries.
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Users who apply our technologies to enable or improve
particular activities. We provide tools that apply our
technology to enable or improve activities in particular
markets, which we refer to as applied
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markets. The current focus of our products for these markets is
in the areas of: forensic analysis, which is used to identify
individuals based on their DNA; quality and safety testing, such
as testing required to measure food, beverage, or environmental
quality and pharmaceutical manufacturing quality and safety;
production animal health testing, which enables the detection of
pathogens in livestock; and biosecurity, which refers to
products needed in response to the threat of biological
terrorism and other malicious, accidental, and natural
biological dangers. The Applied Biosystems branded forensic
testing and human identification products and services are
innovative and market-leading tools that have been widely
accepted by investigators and laboratories in connection with,
for example, criminal investigations, the exoneration of
individuals wrongly accused or convicted of crimes, identifying
victims of disasters, and paternity testing.
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While we do not believe that any single customer or small group
of customers is material to our business as a whole or to our
product segments (described below), approximately 20% of our
customers in our target markets receive funding for their
research, either directly or indirectly from grants from the
federal government of the United States.
Our
Products
As of the end of our 2008 fiscal year, we divided our products
and services into the following three broad segments, which are
further described below: BioDiscovery, (also referred to as
BD); Cell Systems, (also referred to as
CS); and Applied Biosystems, (also referred to as
AB). The BD and CS markets are closely aligned with
the target markets of our business prior to the acquisition of
Applied Biosystems while the AB segment represents the products
and services of the acquired AB business. Upon completion of the
acquisition, we commenced the process of integrating the
businesses and administration of the combined companies. A key
part of this process was a reorganization of the business,
research and development, and sales and marketing organizations
within Life Technologies such that they are focused on
optimizing the unique technologies and capabilities of the
combined companies to drive new developments and business
performance.
BioDiscovery (BD). Our BD segment includes molecular
biology, cell biology and drug discovery product lines.
Molecular biology encompasses products from the initial cloning
and manipulation of DNA, to examining RNA levels and regulating
gene expression in cells, to capturing, separating and analyzing
proteins. These include the research tools used in reagent and
kit form that simplify and improve gene acquisition, gene
cloning, gene expression and gene analysis techniques. This
segment also includes a full range of enzymes, nucleic acids,
other biochemicals and reagents. These biologics are
manufactured to the highest research standards and are matched
in a gene specific, validated manner (gene, ORF, RNAi, protein,
antibodies, etc.) to ensure researchers the highest purity and
scientific relevance for their experimentation. We also offer
software through this segment that enables more efficient,
accelerated analysis and interpretation of genomic, proteomic
and other biomolecular data for application in pharmaceutical,
therapeutic and diagnostic development. The acquisitions of
Zymed, Caltag, Dynal and Biosource have enhanced our ability to
offer new technology and products, such as antibodies and
proteins (Zymed, Caltag and BioSource) and magnetic beads used
for biological separation (Dynal), which is the first step in
almost every biologic investigative or diagnostic process.
Cell Systems (CS). Researchers studying cells, and
manufacturers that use cells to make biopharmaceuticals and
other products, need to grow cells in the laboratory (referred
to as in vitro) under conditions that simulate the
environment in which cells live naturally (referred to as in
vivo), and they need to provide those cells with the
nutrients required for them to remain alive. Our CS segment
includes all of our GIBCO cell culture products and services,
which are used for these purposes. Products include sera, cell
and tissue culture media, reagents used in both life sciences
research and in processes to grow cells in the laboratory and to
produce biopharmaceuticals and other end products made through
cultured cells. CS services include the creation of commercially
viable stable cell lines and the optimization of production
processes used for the production of therapeutic drugs.
Applied Biosystems (AB). The AB products and
services include a broad portfolio of instrument-based systems,
consumables, software, and services for academic research, the
life science industry, and applied markets. These products and
services incorporate proprietary technology used for DNA, RNA,
protein, and small molecule analysis. Our AB products include
complete instrument-reagent systems, such as PCR and Real-Time
PCR
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systems, capillary electrophoresis sequencing systems and
next-generation DNA sequencing systems. Additional products
include mass spectrometry systems which are used to identify and
quantify a wide range of analytes, including proteins and
chemical compounds, Ambion RNA reagents and specialized applied
markets products and services, which are described above under
the heading Target Markets.
We plan to continue to introduce new research products and
services, as we believe continued new product development and
rapid product introduction is a critical competitive factor in
all of the markets that we serve. We may continue to increase
expenditures in sales and marketing, manufacturing and research
and development to support increased levels of sales and to
augment our long-term competitive position.
For BD and CS segments, we principally purchase raw materials
and components from third parties and use those ingredients to
manufacture products for inventory. We typically ship those
products shortly after the receipt of orders. Our
oligonucleotide, genomic services, general services, RNAi (gene
regulation), and some CS businesses, however, are all made to
order. Some of our products are made for us by third parties.
Most of our capillary electrophoresis DNA sequencers are made by
Hitachi. Because we ship shortly after receipt of orders, make
products to order or purchase from third parties, we do not have
a significant backlog in either of our BD and CS segment and do
not anticipate we will develop a material backlog in the future
for these segments.
AB segment recorded total backlog of $216.3 million at
December 31, 2008 for products with higher demand as well
as longer terms in contractual sales. Recorded backlog may not
result in sales because of cancellation or other factors. It is
anticipated that most of the orders included in backlog at
December 31, 2008, will be delivered before the period
ended December 31, 2009.
Service
and Support
We generally provide limited warranties on all equipment at the
time of sale, for periods of time ranging up to two years from
the date of sale depending on the product subject to warranty.
However, warranties included with any sale can vary, and may be
excluded altogether, depending on the particular circumstances
of the sale. The sale of some equipment includes installation,
basic user training,
and/or
application support. We also offer service contracts to our
customers that are generally one to five years in duration after
the original warranty period. We provide both repair services
and routine maintenance services under these arrangements, and
also offer repair and maintenance services on a time and
material basis to customers that do not have service contracts.
Service in the U.S. and major markets outside of the
U.S. is provided by our service staff. In some foreign
countries, service is sometimes provided through third-party
distributorship arrangements.
Research
and Development
We have a strong history of developing pioneering technology
through the combination of science and engineering. We continue
to build on that legacy by generating innovative products across
the scientific continuum of discovery, development, and
validation. In 2008, we launched more than 2,900 new products in
fields ranging from genomic analysis to cell biology to human
identification and diagnostics. We invested $142.5 million,
$115.8 million and $104.3 million in research and
development in the years 2008, 2007 and 2006, respectively.
As of December 31, 2008, we had approximately
1,200 employees engaged in research and development
activities in the United States, Germany, Israel, Singapore,
India, and Norway. We also continue to maintain a comprehensive
network of collaborators and scientific advisors across the
globe. Our research and development activities are focused in
segments where we are current market leaders and in emerging
growth areas in which we can leverage our expertise in
instrumentation, reagent and consumable solutions.
Sales
and Marketing
Our go-to-market strategy, the way in which we sell to our
customers, is to maintain the brand equity we have with both the
Invitrogen and Applied Biosystems brand names. Our products
continue to be marketed and sold under those two brand
platforms, with the Applied Biosystems brand representing
end-to-end systems, instruments and workflow solutions, and
Invitrogen brand representing platform independent reagents. The
channels we use to take these brands to market include a broad
commercial organization of approximately 3,000 employees in
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than 100 countries, with a highly educated and well-trained
sales force, more than 1,000 supply centers around the world,
based in our customers laboratories to provide easy access
to our products, and platform brand websites that are the
conduit for on-line transactions.
Our sales strategy has been to employ scientists to work as our
sales representatives. We have two types of direct sales
personnel: generalists and technical sales specialists.
Generalists are typically responsible for total customer account
management. They work closely with the technical specialists who
have an extensive background in biology or other scientific
fields of study and who focus on specific product offerings. A
thorough knowledge of biological techniques and an understanding
of the research process allow our sales representatives to
become advisors, acting in a consultative role with our
customers. Our use of technical sales representatives also
enables us to identify market needs and new technologies that we
can license and develop into new products.
Our marketing departments located in the North American,
European and Asia-Pacific regions use a variety of media
communication vehicles and methods to keep our customers
informed of new products and services, as well as enhancements
to existing products and services. Those vehicles include
internally produced print catalogs, newsletters, magazines,
brochures, direct mailers, product inserts, tradeshow posters
and sourcebooks as well as web-based newsletters, email,
seminars and forums. Our main website includes pages detailing
our products and services, along with purchasing, technical and
directional information. The technical information includes
interactive online tools enabling customers to link to public
research databases, download scientific analyses and search for
project-specific data. We also advertise in numerous print and
web-based publications related to science and industry, and we
exhibit and present information at scientific events worldwide.
Technology
Licensing
Some of our existing products are manufactured or sold under the
terms of license agreements that require us to pay royalties to
the licensor based upon a percentage of the sales of products
containing the licensed materials or technology. These licenses
also typically impose obligations on us to market the licensed
technology. Although we emphasize our own research and
development, we believe our ability to in-license new technology
from third parties is and will continue to be critical to our
ability to offer competitive new products. Our ability to obtain
these in-licenses depends in part on our ability to convince
inventors that we will be successful in bringing new products
incorporating their technology to market. Several significant
licenses or exclusivity rights expire at various times during
the next 15 years. There are certain risks associated with
relying on third-party licensed technologies, including our
ability to identify attractive technologies, license them on
acceptable terms, meet our obligations under the licenses, renew
those licenses should they expire before we retire the related
product and the risk that the third party may lose patent
protection. These risks are more fully described under the
heading Risk Related to the Development and Manufacture of
Products and Risks Related to Our Intellectual
Property below.
Patents
and Proprietary Technologies
Our products are based on complex, rapidly developing
technologies. Some of these technologies are covered by patents
we own, and others are owned by third parties and are used by us
under license. We have pursued a policy of seeking patent
protection in the U.S. and other countries for
developments, improvements, and inventions originating within
our organization that are incorporated into our products or that
fall within our fields of interest. We consider the protection
of our proprietary technologies and products in both of our
product segments to be important to the success of our business
and rely on a combination of patents and exclusive licenses to
protect these technologies and products.
We currently own approximately 2,800 patents. Of this amount we
control over 1,200 patents in the United States, and over 1,600
in other countries. We also have exclusive rights to another 800
patents. We also have numerous pending patent applications both
domestic and internationally. Our success depends, to a
significant degree, upon our ability to develop proprietary
products and technologies and it is important to our success
that we protect the intellectual property associated with these
products and technologies. We intend to continue to file patent
applications as we develop new products and technologies.
Patents provide some degree of, but not complete, protection for
our intellectual property.
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We also rely in part on trade secret, copyright and trademark
protection of our intellectual property. We protect our trade
secrets by, among other things, entering into confidentiality
agreements with third parties, employees and consultants. It is
our general policy to require employees and consultants to sign
agreements to assign to us their interests in intellectual
property arising from their work for us. There are risks related
to our reliance on patents, trade secret, copyright and
trademark protection laws, which are described in more detail
under the heading Risks Related to Our Intellectual
Property below.
We are currently, and could in the future, be subject to
lawsuits, arbitrations, investigations, and other legal actions
with private parties and governmental entities, particularly
involving claims for infringement of patents and other
intellectual property rights. From time to time, we have
asserted that various competitors and others are infringing our
patents, and similarly, from time to time, others have asserted
that we were or are infringing patents owned by them. These
claims are sometimes settled by mutual agreement on a
satisfactory basis and result in the granting of licenses by or
to us or the cessation of the alleged infringing activities.
However, we cannot make any assurances as to the outcome of any
pending or future claims. More information about the risk
factors associated with our reliance on intellectual property is
set forth in more detail under the heading Risks Related
to Our Intellectual Property below.
Competition
The markets for the products of each of our segments are
competitive and are characterized by the application of advanced
technologies. New technologies in life sciences could make our
products and services obsolete unless we continue to develop new
and improved products and services and pursue new market
opportunities. Given the breadth of our product and service
offerings, our competition comes from a wide array of
competitors with a high degree of technical proficiency, ranging
from specialized companies that have strengths in narrow
segments of the life science markets to larger manufacturers and
distributors offering a broad array of biotechnology products
and services and have significant financial, operational,
research and development, and sales and marketing resources.
These and other companies may have developed or could in the
future develop new technologies that compete with our products
or even render our products obsolete. Additionally, there are
numerous scientists making materials themselves instead of using
kits. We believe that a companys competitive position in
our markets is determined by product function, product quality,
speed of delivery, technical support, price, breadth of product
line, distribution capabilities, and timely product development.
Our customers are diverse and may place varying degrees of
importance on the competitive attributes listed above. While it
is difficult to rank these attributes for all our customers in
the aggregate, we believe we are well positioned to compete in
each category.
Suppliers
Our manufacturing operations require a wide variety of raw
materials, electronic and mechanical components, chemical and
biochemical materials, and other supplies. We buy materials for
our products from many suppliers and our AB segment has OEM
arrangements with several third parties for the manufacture of
various instruments sold under the AB brand. While there are
some raw materials that we obtain from a single supplier, we are
not dependent on any one supplier or group of suppliers for our
business as a whole, or for any of our segments. Raw materials,
other than raw fetal bovine serum, or FBS, are generally
available from a number of suppliers. Even so, due to factors
out of our control some supplies may occasionally be difficult
to obtain. Any interruption in the availability of our
manufacturing supplies could force us to suspend manufacturing
of the affected product and therefore harm our operations.
Government
Regulation
Certain of our products and services, as well as the
manufacturing process of the products, are subject to regulation
under various portions of the U.S. Federal Food, Drug and
Cosmetic Act. In addition, a number of our manufacturing
facilities are subject to periodic inspection by the
U.S. Food and Drug Administration, or FDA, other
product-oriented federal agencies and various state and local
authorities in the U.S. We believe such facilities are in
compliance in all material aspects with the requirements of the
FDAs Quality System Regulation (formerly known as Good
Manufacturing Practices), other federal, state and local
regulations and other quality standards such as ISO
8
9001 or ISO 13485. Portions of our business subject to the
Federal Food, Drug and Cosmetic Act include certain CS segment
products with respect to their testing, safety, efficacy,
marketing, labeling, and other matters.
Materials used in development and testing activities at several
of our facilities are also subject to the Controlled Substances
Act, administered by the Drug Enforcement Agency, or DEA.
Required procedures for control, use, and inventory of these
materials are in place at these facilities.
We also voluntarily employ Centers for Disease Control/National
Institutes of Health, Guidelines for Research Involving
Recombinant DNA Molecules, Biosafety in Microbiological and
Biomedical Laboratories and the hazard classification system
recommendations for handling bacterial and viral agents, with
capabilities through biosafety level three.
We are subject to federal, state, and local laws and regulations
regulating the discharge of materials into the environment, or
otherwise relating to the protection of the environment, in
those jurisdictions where we operate or maintain facilities. We
do not believe that any liability arising under, or compliance
with, these laws and regulations will have a material effect on
our business, and no material capital expenditures are expected
for environmental control.
In addition to the foregoing, we are subject to other federal,
state and local laws and regulations applicable to our business,
including the Occupational Safety and Health Act; the Toxic
Substances Control Act; national restrictions on technology
transfer, import, export and customs regulations; statutes and
regulations relating to government contracting; and similar laws
and regulations in foreign countries. In particular, we are
subject to various foreign regulations sometimes restricting the
importation or the exportation of animal-derived products such
as FBS.
Employees
As of December 31, 2008, we had approximately
9,700 employees, approximately 3,600 of whom were employed
outside the United States. These numbers include part time
employees. In addition, we employ a number of temporary and
contract employees not reflected in these numbers. Our success
will depend in large part upon our ability to attract and retain
employees. We face competition in this regard from other
companies, research and academic institutions, government
entities and other organizations. None of our
U.S. employees are subject to collective bargaining
agreements. We generally consider our relations with our
employees to be good.
Integration
of Applied Biosystems
On November 21, 2008, we completed the merger with Applied
Biosystems, whereby, amoung other things, Applied Biosystems
became a wholly owned subsidiary of the Company. To be
successful after the merger, we need to combine and integrate
the separate organizations and operations of the two companies.
We have established an internal integration management office
that is responsible for the day-to-day management of integration
related activities. In addition, we have contracted with outside
consultants to work with our staff to drive integration planning
and execution. We are expecting $175 million in revenue and
cost synergies over the next three years. Plans for achieving
these goals have been carefully mapped out with specific actions
and timelines for each cost savings or revenue generation
initiative. Revenue synergies associated with the merger are
expected to come from enhanced cross selling abilities,
penetration into new markets, and pricing optimization. Cost
savings are expected to be achieved through elimination of
redundant corporate overhead, vendor consolidation, facility
rationalization, raw material savings, and research and
development program optimization. Actions taken in the fourth
quarter of 2008 are expected to deliver $50 million in cost
savings towards our 2009 target of $80 million. More
information about the risk factors associated with our
integration of Applied Biosystems is set forth in more detail
under the heading Risks Related to the Growth of Our
Business.
Executive
Officers of the Registrant
The Board of Directors appoints executive officers of Life
Technologies, and the Chief Executive Officer has authority to
hire and terminate such officers. Each executive officer holds
office until the earlier of his or her death, resignation,
removal from office or the appointment of his or her successor.
No family relationships exist among any
9
of Life Technologies executive officers, directors or
persons nominated to serve in those positions. We have listed
the ages, positions held and the periods during which our
current executive officers have served in those positions below:
Gregory T. Lucier (age 44) serves as
Chief Executive Officer and as Chairman of the Board of
Directors of Life Technologies. From May 2003 until November
2008, Mr. Lucier served as Chief Executive Officer of
Invitrogen Corporation, which merged with Applied Biosystems in
November 2008 to form Life Technologies. In April 2004,
Mr. Lucier was appointed Chairman of the Board of Directors
of Invitrogen Corporation. From June 2000 to May 2003,
Mr. Lucier was the President and Chief Executive Officer of
General Electric, or GE, Medical Systems Information
Technologies. Mr. Lucier was named a corporate officer of
GE in 1999 by GEs board of directors and served in a
variety of leadership roles during his career at GE, including
Vice President of Global Services, GE Medical Systems.
Mr. Lucier is currently a board member of the Biotechnology
Industry Organization, or BIO, and serves on BIO policy
subcommittees. He is also a board member of the Burnham Research
Institute, the chairman of the board of directors of BIOCOM and
is actively involved at San Diego State University as a
distinguished lecturer. He received his B.S. in Engineering from
Pennsylvania State University and an M.B.A. from Harvard
Business School.
Joseph C. Beery (age 46) serves as Chief
Information Officer of Life Technologies. From September 2008 to
November 2008, Mr. Beery served as Chief Information
Officer of Invitrogen Corporation, which merged with Applied
Biosystems in November 2008 to form Life Technologies.
Prior to joining Invitrogen Corporation, Mr. Beery held the
executive position of Chief Information Officer at US Airways
and America West Airlines. Mr. Beery also spent ten years
at Motorola Semiconductor, holding various positions in the
computer integrated manufacturing group. Mr. Beery also
served as a manufacturing and software engineer at NV Philips in
Albuquerque, N.M. Mr. Beery holds a B.S. in Business
Administration and Business Computer Systems from the University
of New Mexico.
Nicolas M. Barthelemy (age 43) serves as
President of Cell Systems of Life Technologies. From January
2006 to November 2008, Mr. Barthelemy served as Senior Vice
President of Cell Systems of Invitrogen Corporation, which
merged with Applied Biosystems in November 2008 to
form Life Technologies. Mr. Barthelemy served as
Senior Vice President of Global Operations of Invitrogen
Corporation from March 2004 to January 2006. Prior to joining
Invitrogen Corporation, Mr. Barthelemy held several
executive positions at Biogen Idec, including Vice President of
Manufacturing. Mr. Barthelemy is a recognized operations
leader in large scale mammalian cell culture and purification.
Mr. Barthelemy received his M.S. in Chemical Engineering
from the University of California, Berkeley and the equivalent
of an M.S. in Chemistry from École Supérieure de
Physiques et Chimie Industrielles (Paris, France) and the
equivalent of a B.S. in Mathematics, Physics and Chemistry from
Ecole Sainte Geneviève (Versailles, France).
Bernd Brust (age 41) serves as President
and Chief Commercial Operations Officer of Life Technologies.
From November 2006 to November 2008, Mr. Brust served as
Senior Vice President of Global Sales of Invitrogen Corporation,
which merged with Applied Biosystems in November 2008 to
form Life Technologies. Mr. Brust joined Invitrogen
Corporation in 2004 and served as General Manager and Vice
President of European Operations until November 2006. He has
more than 15 years of sales, commercial operations,
marketing and management experience. Prior to joining Invitrogen
Corporation, he served in various senior leadership roles at GE
Medical Systems Information Technologies, including as General
Manager of Sales & Marketing, where he was awarded GE
Medical Systems IT Commercial Leader of the Year. Mr. Brust
holds a degree in Engineering from MTS in Amsterdam.
Mr. Brust is a board member of the San Diego Regional
Chamber of Commerce.
John A. Cottingham (age 54) serves as
Chief Legal Officer and Secretary of Life Technologies. From May
2004 to November 2008, Mr. Cottingham served as Senior Vice
President, General Counsel and Secretary of Invitrogen
Corporation, which merged with Applied Biosystems in November
2008 to form Life Technologies. Mr. Cottingham served
as Vice President, General Counsel of Invitrogen Corporation
from September 2000 to May 2004. Prior to the merger of the
former Life Technologies, Inc., or LTI, with Invitrogen
Corporation in September 2000, Mr. Cottingham was the
General Counsel and Assistant Secretary of LTI from January 1996
to September 2000. From May 1988 to December 1995,
Mr. Cottingham served as an international corporate
attorney with the Washington, D.C. office of Fulbright and
Jaworski L.L.P. Mr. Cottingham received his B.S. in
Political Science
10
from Furman University, his J.D. from the University of South
Carolina, his L.L.M. in Securities Regulation from Georgetown
University and his M.S.E.L. from the University of
San Diego. Mr. Cottingham is a member of the board of
the California Healthcare Institute and a member of the board of
the San Diego Chapter of the Association of Corporate
Counsel.
Peter M. Dansky (age 48) serves as
President of Molecular Biology Systems of Life Technologies.
From July 2007 to November 2008, Mr. Dansky served as
Division President of the Molecular and Cell Biology
Functional Analysis Division of Applied Biosystems, which merged
with Invitrogen Corporation in November 2008 to form Life
Technologies. Mr. Dansky has more than 23 years of
leadership experience in marketing, product development and
sales from a variety of life science companies, including
Affymetrix, PerSeptive Biosystems and Millipore. Prior to
joining Applied Biosystems, Mr. Dansky was Vice President
of Marketing for Arcturus Bioscience, where he led commercial
strategy for the life science research and clinical diagnostics
businesses. Mr. Dansky holds an M.B.A. from Boston College
and a M.S. and B.S. in Chemical Engineering from Tufts
University.
Paul D. Grossman (age 48) serves as
Senior Vice President of Strategy and Corporate Development of
Life Technologies. From May 2007 to November 2008,
Dr. Grossman served as Senior Vice President of Strategy
and Corporate Development of Invitrogen Corporation, which
merged with Applied Biosystems in November 2008 to
form Life Technologies. Prior to joining Invitrogen
Corporation, Dr. Grossman held a variety of leadership
roles during his more than 20 years at Applied Biosystems.
At Applied Biosystems, Dr. Grossman worked as a research
scientist, patent attorney and as Vice President of Intellectual
Property and Chief Group Counsel of Applied Biosystems. Most
recently, he served as Vice President of Strategy and Business
Development. Dr. Grossman received B.S. and Ph.D. degrees
in Chemical Engineering from the University of California at
Berkeley, a M.S. in Chemical Engineering from the University of
Virginia, and a J.D. from Santa Clara University School of
Law. He has authored numerous scientific publications and holds
more than 70 U.S. and foreign patents.
David F. Hoffmeister (age 54) serves as
Chief Financial Officer of Life Technologies. From October 2004
to November 2008, Mr. Hoffmeister served as Chief Financial
Officer and leader of Global Finance of Invitrogen Corporation,
which merged with Applied Biosystems in November 2008 to
form Life Technologies. Prior to joining Invitrogen
Corporation, Mr. Hoffmeister held various positions over
the course of 20 years with McKinsey & Company,
most recently as a senior partner serving clients in the
healthcare, private equity and specialty chemicals industries.
Prior to joining McKinsey & Company,
Mr. Hoffmeister held financial positions at GTE and
W.R.Grace. Mr. Hoffmeister is a member of the board of
Celanese Corporation. Mr. Hoffmeister received his B.S. in
Business from the University of Minnesota and an M.B.A. from the
University of Chicago.
Peter M. Leddy (age 45), serves as Senior
Vice President of Global Human Resources of Life Technologies.
From July 2005 to November 2008, Dr. Leddy served as Senior
Vice President of Global Human Resources of Invitrogen
Corporation, which merged with Applied Biosystems in November
2008 to form Life Technologies. Prior to joining Invitrogen
Corporation, Dr. Leddy held several senior management
positions with Dell Incorporated from 2000 to 2005 and was most
recently, Vice President of Human Resources for the Americas
Operations. Prior to joining Dell Incorporated, Dr. Leddy
served as the Executive Vice President of Human Resources at
Promus Hotel Corporation (Doubletree, Embassy Suites).
Dr. Leddy also served in a variety of executive and human
resource positions at PepsiCo. Dr. Leddy received his B.A.
in Psychology from Creighton University and his M.S. and Ph.D.
in Industrial/Organizational Psychology from the Illinois
Institute of Technology. Dr. Leddy is a member of the
California State University Professional Science Masters
Executive Board of Directors and is a member of the board of the
Biotechnology Institute.
John L. Miller (age 50) serves as
President of Genetic Systems of Life Technologies. From December
2005 to November 2008, Mr. Miller served as Senior Vice
President of Biodiscovery of Invitrogen Corporation, which
merged with Applied Biosystems in November 2008 to
form Life Technologies. Mr. Miller has a strong
background in general management, sales and marketing and
extensive experience in life science, research and diagnostic
markets. Prior to joining Invitrogen Corporation,
Mr. Miller was Vice President, General Manager Americas for
BD Biosciences in San Diego with responsibility for US,
Canada and Latin America. Prior to that, Mr. Miller was
Vice President, General Manager for BD Biosciences Research Cell
Analysis and BD Pharmingen, a division of BD Biosciences.
Additionally, Mr. Miller has held a variety of leadership
positions in the sales and service
11
organizations for BD Biosciences and for Leica Inc.
Mr. Miller has a B.S. in Engineering from Michigan State
University. Mr. Miller is a member of the board of UCSD
CONNECT.
Mark ODonnell (age 52) serves as
Senior Vice President of Global Operations and Services of Life
Technologies. From September 2007 to November 2008,
Mr. ODonnell served as leader of the Global Services
Division of Applied Biosystems, which merged with Invitrogen
Corporation in November 2008 to form Life Technologies.
Mr. ODonnell has more than 25 years of
operational experience in supply chain, manufacturing and
service. Mr. ODonnell joined Applied Biosystems in
1981 with Perkin-Elmer Corporation. In 2001,
Mr. ODonnell became Vice President, Global Supply
Chain of Applied Biosystems, managing the forecasting, planning,
procurement, engineering, transportation, and warehousing of raw
materials and products. In 2007, Mr. ODonnell was
promoted to President of Global Service and Supply Chain of
Applied Biosystems with added responsibilities for service,
customer support and business systems groups.
Mr. ODonnell holds a B.A. in Liberal Arts from the
University of Connecticut at Storrs, and an M.B.A. from the
University of New Haven, Connecticut.
Kelli A. Richard (age 40) serves as Vice
President of Finance and Chief Accounting Officer of Life
Technologies. Ms. Richard served as Vice President of
Finance and Chief Accounting Officer of Invitrogen Corporation
prior to the merger with Applied Biosystems in November of 2008,
which formed Life Technologies. Ms. Richard joined
Invitrogen Corporation in August 2005 with more than
14 years of accounting and financial reporting experience,
previously serving as Vice President of Accounting and
Reporting. Prior to joining Invitrogen Corporation,
Ms. Richard held the position of Principal Accounting
Officer at Gateway, Inc. Ms. Richard is a certified public
accountant with a Bachelor of Business Administration degree
from the University of Iowa.
Mark P. Stevenson (age 46) serves as
President and Chief Operating Officer of Life Technologies. From
December 2007 to November 2008, Mr. Stevenson served as
President and Chief Operating Officer of Applied Biosystems,
which merged with Invitrogen Corporation in November 2008 to
form Life Technologies. Mr. Stevenson joined Applied
Biosystems in Europe in 1998, and held roles of increasing
responsibility in Europe and Japan. Mr. Stevenson moved to
the U.S. in 2004 to establish the Applied Markets Division
of Applied Biosystems and in 2006 was named President of the
Molecular and Cellular Biology Division of Applied Biosystems.
In July 2007, Mr. Stevenson became Executive Vice President
of Applied Biosystems, a role that expanded his responsibility
to include formal oversight of Europe, Japan, Global Services
and the Applied Markets business, and added the Proteomics and
Small Molecule business and Asia Pacific region to these
responsibilities. Mr. Stevenson has more than 20 years
of sales, marketing, and international executive management
experience and received his B.S. in Chemistry from the
University of Reading, UK, and an M.B.A. from Henley Management
School, UK.
You should carefully consider the following risks, together with
other matters described in this Annual Report on
Form 10-K
or incorporated herein by reference in evaluating our business
and prospects. If any of the following risks occurs, our
business, financial condition or operating results could be
harmed. In such case, the trading price of our securities could
decline, in some cases significantly. The risks described below
are not the only ones we face. Additional risks not presently
known to us or that we currently deem immaterial may also impair
our business operations. Certain statements in this
Form 10-K
(including certain of the following factors) constitute
forward-looking statements. Please refer to the section entitled
Forward-Looking Statements on page 1 of this
Form 10-K
for important limitations on these forward-looking statements.
Risks
Related to the Growth of Our Business
We must
continually offer new products and technologies
We sell our products and services in industries that are
characterized by rapid and significant technological changes,
frequent new product and service introductions and enhancements,
and evolving industry standards. Our success depends in large
part on continuous, timely, cost-effective development and
introduction of improvements to our existing products and
services, or new products and services, which address these
evolving market requirements and are attractive to customers.
For example, if we do not appropriately innovate and invest in
new technologies, then our technologies will become dated and
our customers could move to new technologies offered by our
competitors and we could lose our competitive position in the
markets that we serve.
12
These facts require us to make appropriate investments in the
development and identification of new technologies and products
and services. As a result, we are continually looking to
develop, license or acquire new technologies and products and
services to further broaden and deepen our already broad product
and service line. If we fail to develop, license or otherwise
acquire new technologies, our customers will likely purchase
products
and/or
services from our competitors, significantly harming our
business. Once we have developed or obtained a new technology,
to the extent that we fail to introduce new and innovative
products and services that are accepted by our markets, we may
not obtain an adequate return on our research and development,
licensing and acquisition investments and could lose market
share to our competitors, which would be difficult to regain and
could seriously damage our business. Some of the factors
affecting market acceptance of our products and services include:
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availability, quality and price as compared to competitive
products and services;
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the functionality of new and existing products and services, and
their conformity to industry standards and regulatory standards
that may be applicable to our customers;
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the timing of introduction of our products and services as
compared to competitive products and services;
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scientists and customers opinions of the
products or services utility and our ability to
incorporate their feedback into future products and services;
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the extent to which new products and services are within the
scope of our proven expertise;
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citation of the products and services in published
research; and
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general trends in life sciences research and life science
informatics software development.
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We must
be able to manufacture new and improved products to meet
customer demand on a timely and cost-effective basis
We must be able to resolve in a timely manner manufacturing
issues that may arise from time to time as we commence
production of our complex products. Unanticipated difficulties
or delays in manufacturing improved or new products in
sufficient quantities to meet customer demand could diminish
future demand for our products and harm our business.
We may
not successfully integrate the Applied Biosystems business or
realize all of the anticipated benefits of our merger with
Applied Biosystems
On November 21, 2008, we completed the merger with Applied
Biosystems, a leading worldwide biotechnology company similar in
size to our company prior to the acquisition, whereby, among
other things, Applied Biosystems become a wholly owned
subsidiary of the Company. To be successful after the merger, we
need to combine and integrate the separate organizations and
operations of the two companies. The combination of two
independent companies, particularly in the case of an
acquisition of this size, is a complex, costly, and
time-consuming process. As a result, we must devote significant
management attention and resources to integrating the diverse
business practices and operations of the two companies. We may
encounter difficulties that could harm the combined businesses,
adversely affect our financial condition, and cause our stock
price to decline, including the following:
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We may have difficulty maintaining employee morale and retaining
key managers and other employees as we take steps to combine the
personnel and business cultures of two separate organizations
into one, and to eliminate duplicate positions and functions;
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We may have difficulty preserving important relationships with
others, such as strategic partners, customers, and suppliers,
who may delay or defer decisions on agreements with us, or seek
to change existing agreements with us, because of the merger;
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We may encounter unanticipated issues in integrating complex
information technology, communications, and other systems used
by the separate companies;
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We may identify incompatible methods, practices, or policies
used by the sales and marketing functions of the separate
companies that make it difficult for us to coordinate those
functions efficiently and in a manner that results in
anticipated product and service synergies; and
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Our integration efforts may result in substantially greater
costs and expenses than currently anticipated, and we may
identify liabilities of the combined business that were not
anticipated.
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The integration process may divert the attention of our officers
and management from day-to-day operations and disrupt our
business, particularly if we encounter these types of
difficulties. We have not previously completed a merger or
acquisition comparable in size or scope to this transaction. The
failure of the combined company to meet the challenges involved
in the integration process could cause an interruption of, or a
loss of momentum in, the activities of the combined company and
could seriously harm our results of operations.
Even if the operations of the two organizations are integrated
successfully, the combined company may not fully realize the
expected benefits of the transaction, including the synergies,
cost savings, or sales or growth opportunities. These benefits
may not be achieved within the anticipated time frame, or at
all. The success of the combined company depends on many factors
outside of our control, including for example general economic
conditions, the level of governmental funding of life sciences
research and development, demand for the types of products and
services that we offer, market acceptance of our products and
services, the availability of supplies needed for our products
and services, and the level of competition from other companies.
Our
future growth depends in part on our ability to acquire new
products, services, and technologies through additional
acquisitions, which may absorb significant resources and may not
be successful
As part of our strategy to develop and identify new products,
services, and technologies, we have made and continue to make
acquisitions. Our integration of the operations of acquired
businesses requires significant efforts, including the
coordination of information technologies, research and
development, sales and marketing, operations, manufacturing and
finance. These efforts result in additional expenses and divert
significant amounts of managements time from other
projects. Our failure to manage successfully and coordinate the
growth of the combined company could also have an adverse impact
on our business. In addition, there is no guarantee that some of
the businesses we acquire will become profitable or remain so.
If our acquisitions do not reach our initial expectations, we
may record unexpected impairment charges. Our acquisitions
involve a number of risks and financial, managerial and
operational challenges, including the following, any of which
could cause significant operating inefficiencies and adversely
affect our growth and profitability:
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any acquired business, technology, service or product could
under-perform relative to our expectations and the price that we
paid for it;
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we could experience difficulty in integrating personnel,
operations and financial and other systems;
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we could have difficulty in retaining key managers and other
employees of the acquired company;
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acquisition-related earnings charges could adversely impact
operating results;
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acquisitions could place unanticipated demands on our
management, operational resources and financial and internal
control systems;
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we may be unable to achieve cost savings anticipated in
connection with the integration of an acquired business; and
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in an acquisition we may assume known contingent liabilities
that become realized, known liabilities that prove greater than
anticipated, unknown liabilities that come to light or
deficiencies in internal controls, and the realization of any of
these liabilities or deficiencies may increase our expenses and
adversely affect our financial position.
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We face
significant competition
The markets for our products and services are very competitive
and price sensitive. Our competitors, which could include some
of our customers, such as large pharmaceutical companies, have
significant financial, operational, sales and marketing
resources, and experience in research and development. Our
competitors could develop new technologies that compete with our
products and services or even render our products and services
obsolete. If a competitor develops a superior technology or
cost-effective alternatives to our products and services, our
business could be seriously harmed.
The markets for some of our products, such as electrophoresis
products, custom primers, amplification products and fetal
bovine serum, are also subject to specific competitive risks.
These markets are highly price competitive. Our competitors have
competed in the past by lowering prices on certain products. If
they did so again
14
we may be forced to respond by lowering our prices and thereby
reduce our revenues and profits. Failure to anticipate and
respond to price competition may hurt our market share.
We believe that customers in our markets display a significant
amount of loyalty to their initial supplier of a particular
product. Therefore, it may be difficult to generate sales to
potential customers who have purchased products from
competitors. Additionally, there are numerous scientists making
materials themselves instead of using kits or reagents that we
supply. To the extent we are unable to be the first to develop
and supply new products; customers may buy from our competitors
or make materials themselves, causing our competitive position
to suffer.
Consolidation
trends in both our market and that of our customers have
increased competition.
There has been a trend toward industry consolidation in our
markets for the past several years. We expect this trend toward
industry consolidation to continue as companies attempt to
strengthen or hold their market positions in an evolving
industry and as companies are acquired or are unable to continue
operations. We believe that industry consolidation may result in
stronger competitors that are better able to compete as
sole-source vendors for customers. This could lead to more
variability in operating results and could harm our business.
Additionally, there has been a trend toward consolidation in
many of the customer markets we sell to, in particular the
pharmaceutical industry. Consolidation in our customer markets
results in increased competition for important market segments
and fewer available accounts, and larger consolidated customers
may be able to exert increased pricing pressure on companies in
our market.
Adverse
conditions in the global economy and disruption of financial
markets may significantly harm our revenue, profitability and
results of operations.
The global economy is currently experiencing a significant
economic downturn. An economic downturn in the businesses or
geographic areas in which we sell our products
and/or
services, such as one that we are currently experiencing, could
reduce demand for these products
and/or
services and result in a decrease in sales volume that could
have a negative impact on our results of operations. Global
credit and capital markets have experienced unprecedented
volatility and disruption. Business credit and liquidity have
tightened in much of the world. Volatility and disruption of
financial markets could limit our customers ability to
obtain adequate financing or credit to purchase and pay for our
products
and/or
services in a timely manner, or to maintain operations, and
result in a decrease in sales volume that could harm our results
of operations. General concerns about the fundamental soundness
of domestic and international economies may also cause our
customers to reduce their purchases. Changes in governmental
banking, monetary and fiscal policies to restore liquidity and
increase credit availability may not be effective. Significant
government investment and allocation of resources to assist the
economic recovery of sectors which do not include our customers
may reduce the resources available for government grants and
related funding for life sciences research and development.
Economic conditions and market turbulence may also impact our
suppliers ability to supply us with sufficient quantities
of product components in a timely manner, which could impair our
ability to manufacture our products. It is difficult to
determine the extent of the economic and financial market
problems and the many ways in which they may affect our
suppliers, customers and our business in general. Continuation
or further deterioration of these financial and macroeconomic
conditions could significantly harm our sales, profitability and
results of operations.
A
significant portion of our sales are dependent upon our
customers capital spending policies and research and
development budgets, and government funding of research and
development programs at universities and other organizations,
which are subject to significant and unexpected
decreases
Our customers include pharmaceutical and biotechnology
companies, academic institutions, government laboratories, and
private foundations. Fluctuations in the research and
development budgets at these organizations could have a
significant effect on the demand for our products and services.
Research and development budgets fluctuate due to changes in
available resources, mergers of pharmaceutical and biotechnology
companies, spending priorities, general economic conditions, and
institutional and governmental budgetary policies. Also, a
significant portion of our instrument product sales are capital
purchases by our customers, and these policies fluctuate due to
similar factors. Our business could be seriously damaged by any
significant decrease in capital equipment purchases
15
or life sciences research and development expenditures by
pharmaceutical and biotechnology companies, academic
institutions, government laboratories, or private foundations.
The timing and amount of revenues from customers that rely on
government funding of research may vary significantly due to
factors that can be difficult to forecast. Research funding for
life science research has increased more slowly during the past
several years compared to the previous years and has declined in
some countries, and some grants have been frozen for extended
periods of time or otherwise become unavailable to various
institutions, sometimes without advance notice. In particular,
approximately 20% of our sales have been to researchers whose
funding is dependent upon grants from the NIH. Although the
level of research funding increased significantly during the
years of 1999 through 2003, increases for fiscal 2004 through
2008 were significantly lower. Government funding of research
and development is subject to the political process, which is
inherently fluid and unpredictable. Other programs, such as
homeland security or defense, or general efforts to reduce the
federal budget deficit could be viewed by the
U.S. government as a higher priority. These budgetary
pressures may result in reduced allocations to government
agencies that fund research and development activities. Past
proposals to reduce budget deficits have included reduced NIH
and other research and development allocations. Any shift away
from the funding of life sciences research and development or
delays surrounding the approval of government budget proposals
may cause our customers to delay or forego purchases of our
products, which could seriously damage our business.
Our U.S. customers generally receive funds from approved
grants at particular times of the year, as determined by the
U.S. federal government. In the past, such grants have been
frozen for extended periods or have otherwise become unavailable
to various institutions without advance notice. The timing of
the receipt of grant funds affects the timing of purchase
decisions by our customers and, as a result, can cause
fluctuations in our sales and operating results.
Some of
our customers are requiring us to change our purchasing
arrangements to lower their costs which may limit our pricing
flexibility and harm our business
Some of our customers have developed purchasing initiatives to
reduce the number of vendors from which they purchase to lower
their supply costs. In some cases these accounts have
established agreements with large distributors, which include
discounts and the distributors direct involvement with the
purchasing process. These activities may force us to supply the
large distributors with our products at a discount to reach
those customers. For similar reasons, many larger customers,
including the U.S. government, have requested and may in
the future request, special pricing arrangements, including
blanket purchase agreements. These agreements may limit our
pricing flexibility, which could harm our business, financial
condition, and results of operations. For a limited number of
customers, we have made sales, at the customers request,
through third-party online intermediaries, to whom we are
required to pay commissions. If such intermediary sales grow, it
could have a negative impact on our gross margins.
Risks
Related to the Development and Manufacturing of Our
Products
Our
business depends on our ability to license new technologies from
others
We believe our ability to in-license new technologies from third
parties is and will continue to be critical to our ability to
offer new products and therefore to our business. A significant
portion of our current revenues is from products manufactured or
sold under licenses from third parties. Our ability to gain
access to technologies that we need for new products and
services depends in part on our ability to convince inventors
and their agents or assignees that we can successfully
commercialize their inventions. We cannot guarantee that we will
be able to continue to identify new technologies of interest to
our customers, which are developed by others. Even if we are
able to identify new technologies of interest, we may not be
able to negotiate a license on acceptable terms, or at all.
Our
business could be harmed if we lose rights to technologies that
we have licensed from others
Several of our licenses, such as licenses for biological
materials, have finite terms. We may not be able to renew these
existing licenses on favorable terms, or at all. Licenses for
biological materials such as antibodies are of growing
significance to our product and service offerings. If we lose
the rights to a biological material or a patented technology, we
may need to stop selling these products
and/or
services and possibly other products and services,
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redesign our products, or lose a competitive advantage. While
some of our licenses are exclusive to us in certain markets,
potential competitors could also in-license technologies that we
fail to license exclusively and potentially erode our market
share for these and other products and services. Our licenses
also typically subject us to various economic and
commercialization obligations. If we fail to comply with these
obligations we could lose important rights under a license, such
as exclusivity. In some cases, we could lose all rights under a
license. Loss of such rights could, in some cases, harm our
business.
In addition, some rights granted under the license could be lost
for reasons outside of our control. For example, the licensor
could lose patent protection for a number of reasons, including
invalidity of the licensed patent, or a third party could obtain
a patent that curtails our freedom to operate under one or more
licenses. Changes in patent law could affect the value of the
licensed technology. We may receive third-party claims of
intellectual property infringement for which we may not be
indemnified by the licensor.
Violation
of government regulations or voluntary quality programs could
harm demand for our products or services
Some of our products and test services are regulated by the
U.S. Food and Drug Administration, or FDA, and comparable
agencies in other countries as medical devices, pharmaceuticals,
or biologics. As a result we must register with the state and
federal FDA as both a medical device and diagnostic manufacturer
and a manufacturer of drug products and comply with all required
regulations. Failure to comply with these regulations can lead
to sanctions by the FDA, such as written observations made
following inspections, warning letters, product recalls, fines,
product seizures, and consent decrees. Test data for use in
client submissions with the FDA could be disqualified. If the
FDA were to take such actions, the FDAs sanctions would be
available to the public. This publicity could harm our ability
to sell these regulated products globally.
Medical device laws and regulations are also in effect in many
countries, ranging from comprehensive device approval
requirements to requests for product data or certifications. The
number and scope of these requirements are increasing. We may
not be able to obtain regulatory approvals in such countries or
may incur significant costs in obtaining or maintaining our
foreign regulatory approvals. In addition, the export by us of
certain of our products which have not yet been cleared for
domestic commercial distribution may be subject to FDA or other
export restrictions.
Additionally, some of our customers use our products and
services in the manufacturing process for their drug and medical
device products, and such end products are regulated by the FDA
under Quality System Regulations, or QSR. Although the customer
is ultimately responsible for QSR compliance for their products,
it is also the customers expectation that the materials
sold to them will meet QSR requirements. We could lose sales and
customers and be exposed to product liability claims, if our
products do not meet QSR requirements.
ISO 13485 is an internationally recognized voluntary quality
standard that requires compliance with a variety of quality
requirements somewhat similar to the QSR requirements. Our
facilities in Camarillo, California; Frederick, Maryland; Grand
Island, New York; Madison, Wisconsin; Bromborough, United
Kingdom; Paisley, Scotland; Oslo, Norway; and Singapore are each
intended to comply with ISO 13485. Failure to comply with this
voluntary standard can lead to observations of non-compliance or
even suspension of ISO certification by the registrar. If we
lose ISO certification, this loss could cause some customers to
purchase products from other suppliers.
If we violate a government mandated or voluntary quality
program, we may incur additional expense to come back into
compliance with the government mandated or voluntary standards.
That expense may be material and we may not have anticipated
that expense in our financial forecasts. Our financial results
could suffer as a result of these increased expenses.
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We rely
on other companies for the manufacture of some of our products
and also for the supply of some components of the products we
manufacture on our own which may hinder our ability to satisfy
customer demand
Although we have contracts with most of these manufacturers and
suppliers, their operations could be disrupted. These
disruptions could be caused by conditions unrelated to our
business or operations, including the current global economic
downturn. Although we have our own manufacturing facilities, and
generally believe we might be able to manufacture some of the
products and components currently sourced from other companies,
we also believe that it could take considerable time and
resources for us to establish the capability to do so.
Accordingly, if these other manufacturers or suppliers are
unable or fail to fulfill their obligations to us, we might not
be able to satisfy customer demand in a timely manner, and our
business could be harmed.
Risks
Related to Our Operations
Loss of
key personnel may adversely affect our business
Our products and services are highly technical in nature. In
general, only highly qualified and trained scientists have the
necessary skills to develop and market our products and provide
our services. In addition, some of our manufacturing positions
are highly technical as well. We face intense competition for
these professionals from our competitors, customers, marketing
partners, and other companies throughout our industry. We do not
generally enter into employment agreements requiring these
employees to continue in our employment for any period of time.
Any failure on our part to hire, train, and retain a sufficient
number of qualified employees could seriously damage our
business. Additionally, integration of acquired companies and
businesses can be disruptive, causing key employees of the
acquired business to leave. Further, we use stock options,
restricted stock, and restricted stock units/awards to provide
incentives to these individuals to remain with us and to build
their long-term stockholder value to align their interests with
those of the Company. If our stock price decreases, this reduces
the value of these equity awards and therefore a key
employees incentive to stay. If we were to lose a
sufficient number of our key employees and were unable to
replace them, these losses could seriously damage our business.
We have
substantial indebtedness, which could adversely affect our cash
flows, business and financial condition
As of December 31, 2008, we had outstanding indebtedness of
approximately $3.5 billion. As of December 31, 2008,
we also had availability of $237.1 million (net of
outstanding borrowings of zero and standby letters of credit of
$12.9 million) under our revolving credit facility.
Our substantial level of debt could, among other things:
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require us to dedicate a substantial portion of our cash flow
from operations to the servicing and repayment of our debt,
thereby reducing funds available for working capital, capital
expenditures, dividends, acquisitions and other purposes;
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increase our vulnerability to, and limit our flexibility in
planning for, adverse economic and industry conditions;
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adversely affect our credit rating, with the result that the
cost of servicing our indebtedness might increase;
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limit our ability to obtain additional financing to fund future
working capital, capital expenditures, additional acquisitions
and other general corporate requirements;
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create competitive disadvantages compared to other companies
with less indebtedness;
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adversely affect our stock price;
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limit our ability to apply proceeds from an offering, debt
incurrence or asset sale to purposes other than the servicing
and repayment of our debt; and
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limit our ability to pay dividends and repurchase stock.
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Our
credit facilities contain restrictions that limit our
flexibility in operating our business
Our credit facilities contain various covenants that limit our
ability to engage in specified types of transactions. These
covenants limit our and our subsidiaries ability to, among
other things:
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incur additional indebtedness (including guarantees or other
contingent obligations);
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pay dividends on, repurchase, or make distributions in respect
of our common stock or make other restricted payments;
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make specified investments (including loans and advances);
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sell or transfer assets;
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create liens;
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consolidate, merge, sell or otherwise dispose of all or
substantially all of our assets; and
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enter into certain transactions with our affiliates.
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In addition, under our credit facilities, we are required to
satisfy and maintain specified financial ratios and other
financial condition tests. Our ability to meet those financial
ratios and tests can be affected by events beyond our control,
and we cannot be assured that we will meet those ratios and
tests. A breach of any of these covenants could result in a
default under our credit facilities. Upon the occurrence of an
event of default under our credit facilities, our lenders could
elect to declare all amounts outstanding under our credit
facilities to be immediately due and payable and terminate all
commitments to extend further credit. If we were unable to repay
those amounts, the lenders under our credit facilities could
proceed against the collateral granted to them to secure such
indebtedness. We have pledged substantially all of our and our
domestic subsidiaries assets as collateral under our
credit facilities.
We could
incur more indebtedness, which may increase the risks associated
with our substantial leverage, including our ability to service
our indebtedness and pay dividends on our common stock
The indentures governing our senior convertible notes and our
credit facilities permit us, under some circumstances, to incur
a significant amount of additional indebtedness. For example,
our credit facilities allow us to incur up to an additional
$500.0 million of incremental term loans or revolving
commitments under our credit facility, subject to certain
conditions. In addition, we may incur additional indebtedness
through our revolving credit facility. If we incur additional
debt, the risks associated with our substantial leverage,
including our ability to service our debt and pay dividends on
our common stock, would increase. This, in turn, could
negatively affect the market price of our common stock.
We could
lose the tax deduction for interest expense associated with our
convertible senior notes due in 2023, the convertible senior
notes due in 2024 and the convertible senior notes due in
2025
We could lose some or all of the tax deduction for interest
expense associated with our convertible senior notes due in
2023, the convertible senior notes due in 2024, and the
convertible senior notes due in 2025 if, under certain
circumstances, the foregoing notes are not subject to the
special Treasury Regulations governing contingent payment debt
instruments or the exchange of these notes is deemed to be a
taxable exchange. We also could lose the tax deduction for
interest expense associated with the foregoing notes if we were
to invest in non-taxable investments.
We will
record a significant increase in interest expense upon the
adoption of FSP APB14-1
In May of 2008, FASB issued FASB Staff Position No. APB
14-1,
Accounting for Convertible Debt Instruments that May be
Settled in Cash upon Conversion (Including Partial Cash
Settlement) (FSP
APB 14-1)
that significantly impacts the accounting for convertible debt.
The FSP requires cash settled convertible debt, such as our
$1,150 million aggregate principal amount of convertible
notes that are currently outstanding, to be separated into debt
and equity components at issuance and a value to be assigned to
each. The value assigned to the debt component is the estimated
fair value, as of the issuance date, of a similar bond without
the conversion feature. The difference between the bond cash
proceeds and this estimated fair value is recorded as a debt
discount and amortized to interest expense over the life of the
bond. Although FSP APB
14-1 will
have no impact on our actual past or future cash flows, it
requires us to record a significant amount of non-cash interest
expense as the debt discount is
19
amortized. As a result, there will be a material adverse impact
on our earnings from operations and earnings per share.
Our
federal, state and local income tax returns may, from time to
time, be selected for audit by the taxing authorities, which may
result in tax assessments or penalties.
We are subject to federal, state and local taxes in the U.S and
abroad. Significant judgment is required in determining the
provision for taxes. Although we believe our tax estimates are
reasonable, if the IRS or other taxing authority disagrees with
the positions taken by the Company on its tax returns, we could
have additional tax liability, including interest and penalties.
If material, payment of such additional amounts upon final
adjudication of any disputes could have a material impact on our
results of operations and financial position.
Our
business, particularly the development and marketing of
information-based products and services, depends on the
continuous, effective, reliable, and secure operation of our
computer hardware, software, and Internet applications and
related tools and functions.
Our business requires manipulating and analyzing large amounts
of data, and communicating the results of the analysis to our
internal research personnel and to our customers via the
Internet. Also, we rely on a global enterprise software system
to operate and manage our business. Our business therefore
depends on the continuous, effective, reliable, and secure
operation of our computer hardware, software, networks, Internet
servers, and related infrastructure. To the extent that our
hardware or software malfunctions or access to our data by
internal research personnel or customers through the Internet is
interrupted, our business could suffer.
Our computer and communications hardware is protected through
physical and software safeguards. However, it is still
vulnerable to fire, storm, flood, power loss, earthquakes,
telecommunications failures, physical or software break-ins,
software viruses, and similar events. In addition, our online
products and services are complex and sophisticated, and as
such, could contain data, design, or software errors that could
be difficult to detect and correct. Software defects could be
found in current or future products. If we fail to maintain and
further develop the necessary computer capacity and data to
support our computational needs and our customers access
to information-based product and service offerings, we could
experience a loss of or delay in revenues or market acceptance.
In addition, any sustained disruption in Internet access
provided by other companies could harm our business.
Business
disruptions could seriously harm our future revenue and
financial condition and increase our costs and
expenses
Our worldwide operations could be subject to earthquakes, power
shortages, telecommunications failures, water shortages,
tsunamis, floods, hurricanes, typhoons, fires, extreme weather
conditions, medical epidemics and other natural or manmade
disasters or business interruptions, for which we are
predominantly self-insured. The occurrence of any of these
business disruptions could seriously harm our revenue and
financial condition and increase our costs and expenses. Our
corporate headquarters, and a portion of our principal research
and development, manufacturing and administrative facilities,
are located in California, and other critical business
operations and some of our suppliers are located in California
and Asia, near major earthquake faults and fire zones. The
ultimate impact on us, our significant suppliers and our general
infrastructure of being located near major earthquake faults,
fire zones and being consolidated in certain geographical areas
is unknown, but our revenue, profitability and financial
condition could suffer in the event of a major earthquake, fire
or other natural disaster.
Risks
Related to Our International Operations
International
unrest or foreign currency fluctuations could cause volatility
in our international sales and our financial results.
Our products are currently marketed in approximately 100
countries throughout the world. Our international revenues,
which include revenues from our
non-U.S. subsidiaries
and export sales from the U.S., represented 56% of our product
revenues in 2008, 53% of our product revenues in 2007 and 46% of
our product revenues in 2006. We
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expect that international revenues will continue to account for
a significant percentage of our revenues for the foreseeable
future. There are a number of risks arising from our
international business, including those related to:
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foreign currency exchange rate fluctuations, potentially
reducing the U.S. Dollars we receive for sales denominated
in foreign currency;
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the possibility that unfriendly nations or groups could boycott
our products;
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general economic and political conditions in the markets in
which we operate;
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potential increased costs associated with overlapping tax
structures;
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potential trade restrictions and exchange controls;
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more limited protection for intellectual property rights in some
countries;
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difficulties and costs associated with staffing and managing
foreign operations;
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unexpected changes in regulatory requirements;
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the difficulties of compliance with a wide variety of foreign
laws and regulations;
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longer accounts receivable cycles in certain foreign countries,
whether due to cultural differences, exchange rate fluctuation
or other factors;
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import and export licensing requirements; and
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changes to our distribution networks.
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A significant portion of our revenues are received in currencies
other than the U.S. dollar, which is our reporting
currency. Most of our costs, however, are incurred in
U.S. dollars. While we have at times attempted to hedge our
net cash flows in currencies other than the U.S. dollar,
our hedging program relies in part on forecasts of these cash
flows. As a result, we cannot guarantee this program will
adequately protect our cash flows from the full effects of
exchange rate fluctuations. We also continually evaluate the
costs and benefits of our hedging program and cannot guarantee
that we will continue to conduct hedging activities. As a
result, fluctuations in exchange rates for the currencies in
which we do business have caused and will continue to cause
fluctuations in the US dollar value of our financial results. We
cannot predict the effects of currency exchange rate
fluctuations upon our future financial results because of the
number of currencies involved, the variability of currency
exposures and the volatility of currency exchange rates.
Risks
Related to Our Intellectual Property
We may
not be able to effectively and efficiently protect and enforce
our proprietary technology
Our success depends to a significant degree upon our ability to
develop proprietary products and technologies. When we develop
such technologies, we routinely seek patent protection in the
United States and abroad to the extent permitted by law.
However, the intellectual property rights of biotechnology
companies, including us, involve complex factual, scientific,
and legal questions. We cannot assure you that patents will be
granted on any of our patent applications or that the scope of
any of our issued patents will be sufficiently broad to offer
meaningful protection. Even if we receive a patent that we
believe is valid for a particular technology, we may not be able
to realize the expected value to us from that technology due to
several factors, including the following:
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Although we have licensing programs to provide industry access
to some of our patent rights, some other companies have in the
past refused to participate in these licensing programs and some
companies may refuse to participate in them in the future. Also,
our licenses typically provide our customers with access for
limited use of our technology, such as for certain fields of use
or to provide certain kinds of products and services. The
validity of the restrictions contained in these licenses could
be contested, and we cannot provide assurances that we would
either be aware of an unauthorized use or be able to enforce the
restrictions in a cost-effective manner;
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Legal actions to enforce patent rights can be expensive and may
involve the diversion of significant management time. Our
enforcement actions may not be successful, and furthermore they
could give risk to legal claims against us and could result in
the invalidation of some of our intellectual property rights or
legal determinations that they are not enforceable;
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We only seek to have patents issued in selected countries. Third
parties can make, use and sell products covered by our patents
in any country in which we do not have patent protection;
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Our issued patents or patents we exclusively license from others
could be successfully challenged through legal actions or other
proceedings, such as by challenging the validity and scope of a
patent with the United States Patent and Trademark Office, or
USPTO, foreign patent offices, or the International Trade
Commission. These actions or proceedings could result in
amendments to or rejection of certain patent claims; and
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Judicial decisions in third party litigation and legislative
changes could harm the value of our patents and the
effectiveness of our label licenses by altering our rights to
our technology.
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We are
currently, and could in the future be, subject to lawsuits,
arbitrations, investigations, and other legal actions with
private parties and governmental entities, particularly
involving claims for infringement of patents and other
intellectual property rights, and we may need to obtain licenses
to intellectual property from others.
The outcome of legal actions is inherently uncertain, and we
cannot be sure that we will prevail in any of these actions. An
adverse determination in some of our current legal actions could
harm our business and financial condition. Our products are
based on complex, rapidly developing technologies. These
products could be developed without knowledge of previously
filed patent applications that mature into patents that cover
some aspect of these technologies. In addition, we may seek to
protect and commercialize a technology though we are aware that
patents have been applied for and, in some cases, issued to
others claiming technologies that are closely related to ours.
Because patent litigation is complex and the outcome inherently
uncertain, our belief that our products do not infringe valid
and enforceable patents owned by others could be successfully
challenged. We have from time to time been notified that we may
be infringing patents and other intellectual property rights of
others. Also, in the course of our business, we may from time to
time have access to confidential or proprietary information of
others, and they could bring a claim against us asserting that
we had misappropriated their technologies, which though not
patented are protected as trade secrets, and had improperly
incorporated those technologies into our products.
Due to these factors, litigation regarding patents and other
intellectual property rights is extensive in the biotechnology
industry, and there remains a constant risk of intellectual
property litigation and other legal actions affecting us, which
could include antitrust claims. We have been made a party to
litigation and have been subject to other legal actions
regarding intellectual property matters, which have included
claims of violations of antitrust laws. These actions, some of
which, if determined adversely, could harm our business and
financial condition. To avoid or settle legal claims, it may be
necessary or desirable in the future to obtain licenses relating
to one or more products or relating to current or future
technologies. We may not be able to obtain these licenses or
other rights on commercially reasonable terms, or at all, and
might need to discontinue an important product or product line
or alter our products and processes. In some situations,
settlement of claims may require an agreement to cease allegedly
infringing activities.
We are involved in several legal actions that could affect our
intellectual property rights and our products and services. The
cost of litigation and the amount of management time associated
with these cases has been, and is expected to continue to be,
significant. These matters might not be resolved favorably. If
they are not resolved favorably, we could be enjoined from
selling the products or services in question or other products
or services as a result, and monetary or other damages could be
assessed against us. The damages assessed against us could
include damages for past infringement, which in some cases can
be trebled by the court. These outcomes could harm our business
or financial condition.
Disclosure
of trade secrets could cause harm to our business
We attempt to protect our trade secrets by, among other things,
entering into confidentiality agreements with third parties, our
employees, and our consultants. However, these agreements can be
breached and, if they are, there may not be an adequate remedy
available to us. If our trade secrets become known, we may lose
our competitive position.
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Some of
the intellectual property that is important to our business is
owned by other companies or institutions and licensed to us, and
legal actions against them could harm our business
Even if we are not a party to these legal actions, an adverse
outcome could harm our business because it might prevent these
other companies or institutions from continuing to license
intellectual property that we may need for our business.
Furthermore, an adverse outcome could result in infringement or
other legal actions being brought directly against us.
Risks
Related to Environmental and Product Liability Issues
Risks
related to handling of hazardous materials and other regulations
governing environmental safety
Our research and development and manufacturing activities
involve the use of potentially hazardous materials, including
biological materials, chemicals, and various radioactive
compounds. Also, some of our products are hazardous materials or
include hazardous materials. Our operations also involve the
generation, transportation and storage of waste. These
activities are subject to complex and stringent federal, state.
local, and foreign environmental, health, safety and other
governmental laws, regulations, and permits governing the use,
storage, handling, and disposal of hazardous materials and
specified waste products, as well as the shipment and labeling
of materials and products containing hazardous materials. Both
public officials and private individuals or organizations may
seek to enforce these legal requirements against us. While we
believe we are in material compliance with these laws,
regulations, and permits, we could discover that we or an
acquired business is not in material compliance. Under some laws
and regulations, a party can be subject to strict
liability for damages caused by some hazardous materials,
which means that a party can be liable without regard to fault
or negligence. Existing laws and regulations may also be revised
or reinterpreted, or new laws and regulations may become
applicable to us, whether retroactively or prospectively, that
may have a negative effect on our business and results of
operations. It is therefore impossible to eliminate completely
the risk of contamination or injury from the hazardous and other
materials that we use in our business and products. If we fail
to comply with any of these laws, regulations, or permits, or if
we are held strictly liable under any of these laws,
regulations, or permits despite our compliance, we could be
subject to substantial fine or penalty, payment of remediation
costs, loss of permits,
and/or other
adverse governmental action, and we could be liable for
substantial damages. Any of these events could harm our business
and financial condition.
In acquiring Dexter Corporation in 2000, we assumed certain of
Dexter Corporations environmental liabilities, including
clean-up of
formerly owned locations as well as several hazardous waste
sites listed on the National Priority List under federal
Superfund law. We also assumed certain Applied Biosystems
environmental liabilities, including
clean-up of
formerly owned locations as well as hazardous waste sites under
state and federal environmental laws, in connection with our
acquisition of Applied Biosystems in 2008. Unexpected results
related to the investigation and
clean-up of
any of these sites could cause our financial exposure in these
matters to exceed stated reserves and insurance, requiring us to
allocate additional funds and other resources to address our
environmental liabilities, which could cause a material adverse
effect on our business.
Potential
product liability claims could cause harm to our
business
We face a potential risk of liability claims based on our
products or services. We carry product liability insurance
coverage, which is limited in scope and amount. We cannot assure
you, however, that we will be able to maintain this insurance at
a reasonable cost and on reasonable terms. We also cannot assure
you that this insurance will be adequate to protect us against a
product liability claim, should one arise.
Some of our services include the manufacture of biologic
products to be tested in human clinical trials. We could be held
liable for errors and omissions in connection with these
services, even though we are not the party performing the
clinical trials. In addition, we formulate, test, and
manufacture products intended for use by the public. These
activities could expose us to risk of liability for personal
injury or death to persons using such products. We seek to
reduce our potential liability through measures such as
contractual indemnification provisions with clients (the scope
of which may vary from client-to-client and the performances of
which are not secured), insurance maintained by clients and
conducting certain of these businesses through subsidiaries.
Nonetheless, we could be materially harmed if we were required
to pay damages or incur defense costs in connection with a claim
that is outside the scope of the
23
indemnification agreements, if the indemnity, although
applicable, is not performed in accordance with its terms or if
our liability exceeds the amount of applicable insurance or
indemnity. In addition, we could be held liable for errors and
omissions in connection with the services we perform. We
currently maintain product liability and errors and omissions
insurance with respect to these risks. There can be no assurance
that our insurance coverage will be adequate or that insurance
coverage will continue to be available on terms acceptable to us.
Risks
Related to the Market for Our Securities
Operating
results and the market price of our stock and convertible notes
could be volatile
Our operating results and the price of our stock and convertible
notes have been in the past, and will continue to be, subject to
fluctuations as a result of a number of factors, including those
listed in this section of this Annual Report and those we have
failed to foresee. Our stock price and the price of our
convertible notes could also be affected by any: inability to
meet analysts expectations; general fluctuations in the
stock market, or fluctuations in the stock prices of companies
in our industry or those of our customers; conditions and
publicity regarding the genomics, biotechnology, pharmaceutical,
or life sciences industries generally, including, for example,
comments by securities analysts or public officials regarding
such matters. Such volatility has had a significant effect on
the market prices of many companies securities for reasons
unrelated to their operating performance and has in the past led
to securities class action litigation. Securities litigation
against us could result in substantial costs and a diversion of
our managements attention and resources, which could have
an adverse effect on our business.
The
factors that affect our operating results and the market price
for our common stock may have changed because of the merger with
Applied Biosystems
The merger with Applied Biosystems in November 2008 involved the
combination of two different, though complimentary, businesses.
We have operated the combined businesses for a very limited
period of time. The extent to which the new, combined business
will be subject to the various risks and uncertainties of the
separate businesses is not known, and the results of operations
of the combined company and the market price of our common stock
may be affected by factors different from those affecting the
shares of our common stock
and/or
Applied Biosystems common stock prior to the merger. Our results
of operations and the market price of our common stock may be
more difficult to predict as a result, and our financial results
and common stock price may be adversely affected.
|
|
ITEM 1B.
|
Unresolved
Staff Comments
|
Not applicable.
We own or lease approximately 3,000,000 square feet of
property being used in current operations at the following
principal locations within the United States, each of which
contains office, manufacturing, storage
and/or
laboratory or office facilities used by our BioDiscovery (BD),
Cell Systems (CS) and Applied Biosystems (AB) segments, as noted:
|
|
|
|
|
Carlsbad, California (owned (land only) and leased)used by
BD segment
|
|
|
Frederick, Maryland (owned and leased)used by BD and CS
segments
|
|
|
Grand Island, New York (owned and leased)used by CS segment
|
|
|
Madison, Wisconsin (owned and leased)used by BD segment
|
|
|
Brown Deer, Wisconsin (leased)used by BD segment
|
|
|
Eugene, Oregon (owned and leased)used by BD segment
|
|
|
Branford, Connecticut (leased)used by BD segment
|
|
|
Camarillo, California (leased)used by BD segment
|
|
|
Foster City, California (owned and leased)used by AB
segment
|
|
|
Hayward, California (leased)used by AB segment
|
|
|
Pleasanton, California (owned)used by AB segment
|
|
|
Norwalk, Connecticut (leased)used by AB segment
|
|
|
Bedford, Massachusetts (leased)used by AB segment
|
24
|
|
|
|
|
Framington, Massachusetts (leased)used by AB segment
|
|
|
Austin, Texas (leased)used by AB segment
|
In addition, we own or lease approximately 1,500,000 square
feet of property at locations outside the United States
including these principal locations, each of which also contains
office, manufacturing, storage
and/or
laboratory or office facilities:
|
|
|
|
|
Glasgow area, principally Paisley, Scotland (owned and
leased)used by BD and CS segments
|
|
|
Oslo, Norway (owned (land only) and leased)used by BD
segment
|
|
|
Auckland and Christchurch, New Zealand (owned and
leased)used by BD and CS segments
|
|
|
Shanghai and Beijing, China (leased)used by BD segment
|
|
|
Newcastle, Australia (owned and leased)used by CS segment
|
|
|
Darmstadt, Germany (leased)used by AB segment
|
|
|
Warrington, UK (owned and leased)used by AB segment
|
|
|
Rotterdam, Holland (leased)used by AB segment
|
|
|
Singapore (leased)used by AB segment
|
|
|
Tokyo, Japan (leased)used by AB segment
|
|
|
Narita, Japan (owned)used by AB segment
|
|
|
Shanghai, China (leased)used by AB segment
|
In addition to the principal properties listed above, we lease
other properties in locations throughout the world, including
India, Japan, Taiwan, Hong Kong, Singapore, Australia,
Argentina, Brazil, Canada, Israel, Belgium, Denmark, France,
Germany, Italy, the Netherlands and Spain. Many of our plants
have been constructed, renovated, or expanded during the past
ten years. We are currently using substantially all of our
finished space, with some space available for expansion at some
of our locations. We consider the facilities to be in a
condition suitable for their current uses. Because of
anticipated growth in the business and due to the increasing
requirements of customers or regulatory agencies, we may need to
acquire additional space or upgrade and enhance existing space
during the next five years. We believe that adequate facilities
will be available upon the conclusion of our leases.
We also have leases in Bethesda and Rockville, Maryland;
Worcester, Massachusetts; South San Francisco, California;
and Auckland, New Zealand; which are subleased or are being
offered for sublease. These properties are not used in current
operations and therefore are not included in the discussion
above.
Most of our products and services are manufactured or provided
from our facilities in Austin, Texas; Bedford, Massachusetts;
Carlsbad, Camarillo, Foster City and Pleasanton, California;
Eugene, Oregon; Frederick, Maryland; Grand Island, New York;
Madison, Wisconsin; Auckland, New Zealand; Oslo, Norway;
Paisley, Scotland; and Warrington, United Kingdom. We also have
manufacturing facilities in Japan, Israel and Singapore.
Additional information regarding our properties is contained in
Notes 1 and 6 to the consolidated financial statements
included in this Annual Report on
Form 10-K.
|
|
ITEM 3.
|
Legal
Proceedings
|
We are subject to potential liabilities under government
regulations and various claims and legal actions that are
pending or may be asserted. These matters have arisen in the
ordinary course and conduct of our business, as well as through
acquisitions. They include, for example, commercial,
intellectual property, antitrust, environmental, securities, and
employment matters. Some are expected to be covered, at least
partly, by insurance. Estimated amounts for claims that are
probable and can be reasonably estimated are reflected as
liabilities in the consolidated financial statements. We believe
that we have meritorious defenses against the claims currently
asserted against us and intend to defend them vigorously.
However, the ultimate resolution of these matters is subject to
many uncertainties, and we cannot be sure that we will prevail
in our defense of claims currently asserted against us. It is
reasonably possible that some of the matters that are pending or
may be asserted could be decided unfavorably to us, and an
adverse determination could harm our business or financial
condition.
25
|
|
ITEM 4.
|
Submission
of Matters to a Vote of Security Holders
|
We held a special meeting of stockholders on October 28,
2008, to approve matters in connection with our merger with
Applied Biosystems.
The following proposals were submitted to a vote of the
stockholders of the Company during the fourth quarter of the
fiscal year covered by this annual report on
Form 10-K:
Proposal 1: A proposal to approve the issuance of our
common stock to Applied Biosystems stockholders in the merger
with Applied Biosystems. This proposal received 66,391,787
affirmative votes, 128,755 negative votes, and 1,104,473
abstentions and broker non-votes.
Proposal 2: A proposal to approve an amendment to the
Companys restated certificate of incorporation to increase
the number of authorized shares of common stock from 200,000,000
to 400,000,000. This proposal received 65,098,181 affirmative
votes, 1,409,759 negative votes, and 1,117,075 abstentions and
broker non-votes.
Proposal 3: A proposal to approve any adjournments of
the special meeting, if necessary, to solicit additional proxies
in favor of all or any of the foregoing proposals. This proposal
received 61,820,601 affirmative votes, 4,409,621 negative votes,
and 1,394,793 abstentions and broker non-votes.
The proposals above are described in detail in the joint proxy
statement/prospectus dated September 10, 2008.
26
PART II
ITEM 5. Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Market
and Stockholder Information
Our common stock trades on The NASDAQ Global Select
Market®
under the symbol LIFE. Our common stock previously
traded under the symbol IVGN. The trading symbol was
changed prior to November 24, 2008, in connection with the
change of our corporate name from Invitrogen Corporation to Life
Technologies Corporation. The table below provides the high and
low sales prices of our common stock for the periods indicated,
as reported by The NASDAQ Global Select Market.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Year ended December 31, 2008
|
|
|
|
|
|
|
|
|
Fourth quarter
|
|
$
|
38.52
|
|
|
$
|
19.56
|
|
Third quarter
|
|
|
44.65
|
|
|
|
36.56
|
|
Second quarter
|
|
|
48.13
|
|
|
|
36.73
|
|
First quarter
|
|
|
49.00
|
|
|
|
38.89
|
|
Year ended December 31, 2007
|
|
|
|
|
|
|
|
|
Fourth quarter
|
|
$
|
49.58
|
|
|
$
|
40.62
|
|
Third quarter
|
|
|
41.88
|
|
|
|
35.12
|
|
Second quarter
|
|
|
37.50
|
|
|
|
31.71
|
|
First quarter
|
|
|
33.81
|
|
|
|
27.96
|
|
On February 25, 2009, the last reported sale price of our
common stock was $28.85. As of February 25, 2009, there
were approximately 5,986 stockholders of record of our
common stock. The approximate number of holders is based upon
the actual number of holders registered in our records at such
date and excludes holders of shares in street name
or persons, partnerships, associations, corporations, or other
entities identified in security positions listings maintained by
depository trust companies. The calculations of the market value
of shares of Life Technologies stock held by non-affiliates as
of June 30, 2008, shown on the cover of this report, was
made on the assumption that there were no affiliates other than
executive officers and directors as of the date of calculation.
All share and per share information presented in this annual
report on
Form 10-K
has been restated to reflect the effect of our two for one stock
split effective May 27, 2008.
27
Price
Performance Graph
Set forth below is a graph comparing the total return on an
indexed basis of a $100 investment in the Companys common
stock, the NASDAQ
Composite®
(US) Index and the NASDAQ Pharmaceutical Index. The measurement
points utilized in the graph consist of the last trading day in
each calendar year, which closely approximates the last day of
the respective fiscal year of the Company.
Dividends
We have never declared or paid any cash dividends on our common
stock and currently do not anticipate paying such cash
dividends, although Applied Biosystems historically declared and
paid dividends prior to the merger. We currently anticipate that
we will retain all of our future earnings for use in the
development and expansion of our business, for debt repayment
and for general corporate purposes. Any determination to pay
dividends in the future will be at the discretion of our Board
of Directors and will depend upon our results of operations,
financial condition, tax laws and other factors as the Board of
Directors, in its discretion, deems relevant. In addition, our
ability to pay dividends in the future may be restricted by the
financial covenants of our credit agreement that was executed in
November 2008 in connection with the merger with Applied
Biosystems.
Securities
Purchased Under Life Technologies Stock Repurchase
Program
In July 2007, the Board approved a program authorizing
management to repurchase up to $500.0 million of common
stock over the next three years, which remains open at
December 31, 2008. Under this plan, the Company repurchased
1.5 million shares at a total cost of approximately
$135.0 million during the year ended December 31,
28
2007. The Company purchased an additional 1.2 million
shares at a total cost of approximately $100.0 million
during the year ended December, 31, 2008. The cost of
repurchased shares are included in treasury stock and reported
as a reduction in stockholders equity.
The following table represents stock purchases during the fourth
quarter:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
|
(d)
|
|
|
|
|
|
|
|
|
|
Total Dollar
|
|
|
Maximum Number
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
(or Approximate
|
|
|
|
|
|
|
|
|
|
(or Units)
|
|
|
Dollar Value) of
|
|
|
|
(a)
|
|
|
(b)
|
|
|
Purchased as
|
|
|
Shares (or Units)
|
|
|
|
Total Number
|
|
|
Average Price
|
|
|
Part of Publicly
|
|
|
that May Yet Be
|
|
|
|
of Shares
|
|
|
Paid per
|
|
|
Announced
|
|
|
Purchased Under
|
|
|
|
(or Units)
|
|
|
Share (includes
|
|
|
Plans or
|
|
|
the Plans or
|
|
Period
|
|
purchased
|
|
|
commissions)
|
|
|
Programs
|
|
|
Programs
|
|
|
October 1October 31
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
265,015,297
|
|
November 1November 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
265,015,297
|
|
December 1December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
265,015,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
265,015,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 6.
|
Selected
Financial Data
|
The following selected data should be read in conjunction
with our financial statements located elsewhere in this Annual
Report on
Form 10-K
and Item 7. Managements Discussion and Analysis
of Financial Condition and Results of Operations.
FIVE YEAR
SELECTED FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share data)
|
|
2008(1,2)
|
|
|
2007(1)
|
|
|
2006(1,3)
|
|
|
2005(1,4)
|
|
|
2004(1)
|
|
|
Revenues
|
|
$
|
1,620,323
|
|
|
$
|
1,281,747
|
|
|
$
|
1,151,175
|
|
|
$
|
1,079,137
|
|
|
$
|
911,558
|
|
Gross profit
|
|
|
940,752
|
|
|
|
715,887
|
|
|
|
608,331
|
|
|
|
549,535
|
|
|
|
464,207
|
|
Net income from continuing operations
|
|
|
29,962
|
|
|
|
130,279
|
|
|
|
75,759
|
|
|
|
121,485
|
|
|
|
80,987
|
|
Net income (loss) from discontinued operations
|
|
|
1,359
|
|
|
|
12,911
|
|
|
|
(266,808
|
)
|
|
|
10,561
|
|
|
|
7,838
|
|
Net income (loss)
|
|
|
31,321
|
|
|
|
143,190
|
|
|
|
(191,049
|
)
|
|
|
132,046
|
|
|
|
88,825
|
|
Earnings from continuing operations per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.31
|
|
|
$
|
1.39
|
|
|
$
|
0.74
|
|
|
$
|
1.17
|
|
|
$
|
0.79
|
|
Diluted
|
|
$
|
0.29
|
|
|
$
|
1.35
|
|
|
$
|
0.72
|
|
|
$
|
1.08
|
|
|
$
|
0.75
|
|
Earnings (loss) from discontinued operations per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.01
|
|
|
$
|
0.14
|
|
|
$
|
(2.60
|
)
|
|
$
|
0.10
|
|
|
$
|
0.07
|
|
Diluted
|
|
$
|
0.01
|
|
|
$
|
0.13
|
|
|
$
|
(2.52
|
)
|
|
$
|
0.09
|
|
|
$
|
0.07
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.32
|
|
|
$
|
1.53
|
|
|
$
|
(1.86
|
)
|
|
$
|
1.27
|
|
|
$
|
0.86
|
|
Diluted
|
|
$
|
0.30
|
|
|
$
|
1.48
|
|
|
$
|
(1.80
|
)
|
|
$
|
1.17
|
|
|
$
|
0.82
|
|
Current assets
|
|
$
|
1,612,171
|
|
|
$
|
1,090,484
|
|
|
$
|
740,604
|
|
|
$
|
1,079,234
|
|
|
$
|
1,265,104
|
|
Noncurrent assets
|
|
|
7,301,746
|
|
|
|
2,239,263
|
|
|
|
2,179,696
|
|
|
|
2,241,376
|
|
|
|
1,794,370
|
|
Current liabilities (including convertible debt)
|
|
|
1,007,242
|
|
|
|
234,413
|
|
|
|
228,086
|
|
|
|
468,148
|
|
|
|
168,791
|
|
Noncurrent liabilities (including convertible debt)
|
|
|
4,506,208
|
|
|
|
1,327,381
|
|
|
|
1,296,191
|
|
|
|
1,310,941
|
|
|
|
1,476,523
|
|
Total stockholders equity
|
|
|
3,400,467
|
|
|
|
1,765,447
|
|
|
|
1,630,427
|
|
|
|
2,041,790
|
|
|
|
1,913,251
|
|
29
|
|
|
(1) |
|
During 2008, 2007, 2006, 2005 and 2004 the Company completed
acquisitions that were not material and their results of
operations have been included in the accompanying consolidated
financial statements from their respective dates of acquisition.
See Note 2 to the Notes to Consolidated Financial
Statements. |
(2) |
|
2008 includes the results of operations of Applied Biosystems,
Inc. as of November 21, 2008, the date of acquisition,
which affects the comparability of the Selected Financial Data. |
(3) |
|
In 2006, the FASB issued Financial Accounting Standard 123
revised Share Based Payments in which share based
payment is included in the results of operations and impacts the
net income as reported. This adoption affects comparability
between the Selected Financial Data. See Note 1 in the
Notes to Consolidated Financial Statements. |
(4) |
|
2005 includes the results of operations of Dynal Biotech Holding
as of April 1, 2005, the date of acquisition, which affects
the comparability of the Selected Financial Data. |
30
|
|
ITEM 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
OVERVIEW
We are a global biotechnology tools company dedicated to helping
our customers make scientific discoveries and ultimately improve
the quality of life. Our systems, reagents, and services enable
researchers to accelerate scientific exploration, driving to
discoveries and developments that make life better. Life
Technologies customers do their work across the biological
spectrum, working to advance personalized medicine, regenerative
science, molecular diagnostics, agricultural and environmental
research, and 21st century forensics. In 2008, the Company
had sales of approximately $1.6 billion, employed
9,700 people, had a presence in more than 100 countries,
and possessed a rapidly growing intellectual property estate of
approximately 3,600 patents and exclusive licenses.
Our systems and reagents, enable, simplify and improve a broad
spectrum of biological research of genes, proteins and cells
within academic and life science research and commercial
applications. Our scientific know-how is making biodiscovery
research techniques more effective and efficient to
pharmaceutical, biotechnology, agricultural, government and
academic researchers with backgrounds in a wide range of
scientific disciplines.
We offer many different products and services, and are
continually developing
and/or
acquiring others. Some of our specific product categories
include the following:
|
|
|
|
|
High-throughput gene cloning and expression
technology, which allows customers to clone and expression-test
genes on an industrial scale.
|
|
|
Pre-cast electrophoresis products, which improve the speed,
reliability and convenience of separating nucleic acids and
proteins.
|
|
|
Antibodies, which allow researchers to capture and label
proteins, visualize their location through use of Molecular
Probes dyes and discern their role in disease.
|
|
|
Magnetic beads, which are used in a variety of settings, such as
attachment of molecular labels, nucleic acid purification, and
organ and bone marrow tissue type testing.
|
|
|
Molecular Probes fluorescence-based technologies, which
facilitate the labeling of molecules for biological research and
drug discovery.
|
|
|
Transfection reagents, which are widely used to transfer genetic
elements into living cells enabling the study of protein
function and gene regulation.
|
|
|
PCR and Real Time PCR systems and reagents, which enable
researchers to amplify and detect targeted nucleic acids (DNA
and RNA molecules) for a host of applications in molecular
biology.
|
|
|
Cell culture media and reagents used to preserve and grow
mammalian cells, which are used in large scale cGMP
bio-production facilities to produce large molecule biologic
therapies.
|
|
|
RNA Interference reagents, which enable scientists to
selectively turn off genes in biology systems to
gain insight into biological pathways.
|
|
|
Capillary electrophoresis and massively parallel
SOLiDtm
DNA sequencing systems and reagents, which are used to discover
sources of genetic and epigenetic variation, to catalog the DNA
structure of organisms de novo, to verify the composition
of genetic research material, and to apply these genetic
analysis discoveries in markets such as forensic human
identification.
|
|
|
High performance mass spectrometer systems which are used in
numerous applications such as drug discovery and clinical
development of therapeutics as well as in basic biological
research, food and beverage quality testing, environmental
testing, and other applied or clinical research applications.
|
During the 2008 fiscal year, we divided our products and
services into the following three broad segments, which are
further described below: BioDiscovery, Cell Systems and Applied
Biosystems. The BD and CS markets are closely aligned with the
target markets of our business prior to our acquisition of
Applied Biosystems. The AB segment represents the products and
services of the acquired AB business. Upon completion of the
acquisition, we commenced the process of integrating the
businesses and administration of the two organizations.
BioDiscovery (BD). Our BD segment includes molecular
biology, cell biology and drug discovery product lines.
Molecular biology encompasses products from the initial cloning
and manipulation of DNA, to examining RNA levels and regulating
gene expression in cells, to capturing, separating and analyzing
proteins. These include the research tools used in reagent and
kit form that simplify and improve gene acquisition, gene
cloning, gene
31
expression and gene analysis techniques. This segment also
includes a full range of enzymes, nucleic acids, other
biochemicals and reagents. These biologics are manufactured to
the highest research standards and are matched in a gene
specific, validated manner (gene, ORF, RNAi, protein,
antibodies, etc.) to ensure researchers the highest purity and
scientific relevance for their experimentation. We also offer
software through this segment that enables more efficient,
accelerated analysis and interpretation of genomic, proteomic
and other biomolecular data for application in pharmaceutical,
therapeutic and diagnostic development. The acquisitions of
Zymed, Caltag, Dynal and Biosource have enhanced our ability to
offer new technology and products, such as antibodies and
proteins (Zymed, Caltag and BioSource) and magnetic beads used
for biological separation (Dynal), which is the first step in
almost every biologic investigative or diagnostic process.
Cell Systems (CS). Researchers studying cells, and
manufacturers that use cells to make biopharmaceuticals and
other products, need to grow cells in the laboratory (referred
to as in vitro) under conditions that simulate the
environment in which cells live naturally (referred to as in
vivo), and they need to provide those cells with the
nutrients required for them to remain alive. Our CS segment
includes all of our GIBCO cell culture products and services,
which are used for these purposes. Products include sera, cell
and tissue culture media, reagents used in both life sciences
research and in processes to grow cells in the laboratory and to
produce biopharmaceuticals and other end products made through
cultured cells. CS services include the creation of commercially
viable stable cell lines and the optimization of production
processes used for the production of therapeutic drugs.
Applied Biosystems (AB). The AB products and services
include a broad portfolio of instrument-based systems,
consumables, software, and services for academic research, the
life science industry, and commercial markets. These products
and services incorporate proprietary technology used for DNA,
RNA, protein, and small molecule analysis. Our AB products
include complete instrument-reagent systems, such as PCR and
Real-Time PCR systems, capillary electrophoresis sequencing
systems and next-generation DNA sequencing systems. Additional
products include mass spectrometry systems which are used to
identify and quantify a wide range of analytes, including
proteins and chemical compounds, Ambion RNA reagents, as well
as, specialized applied markets products and services.
The principal markets for our products include the life sciences
research market and the biopharmaceutical production market. We
divide our principal market and customer base into principally
three categories:
Life science researchers. The life sciences research
market consists of laboratories generally associated with
universities, medical research centers, government institutions
such as the United States National Institutes of Health, or the
NIH, and other research institutions as well as biotechnology,
pharmaceutical, diagnostic, energy, agricultural, and chemical
companies. Researchers at these institutions are using our
products and services in a broad spectrum of scientific
activities, such as: searching for drugs or other techniques to
combat a wide variety of diseases, such as cancer and viral and
bacterial disease; researching diagnostics for disease
identification [or prognosis] or for improving the efficacy of
drugs to targeted patient groups; and assisting in vaccine
design, bioproduction, and agriculture. Our products and
services provide the research tools needed for genomics studies,
proteomics studies, gene splicing, cellular analysis, and other
key research applications that are required by these life
science researchers. In addition, our research tools are
important in the development of diagnostics for disease
determination as well as identification of patients for more
targeted therapy.
Commercial producers of biopharmaceutical and other high
valued proteins. We serve industries that apply genetic
engineering to the commercial production of useful but otherwise
rare or difficult to obtain substances, such as proteins,
interferons, interleukins, t-PA and monoclonal antibodies. The
manufacturers of these materials require larger quantities of
the same sera and other cell growth media that we provide in
smaller quantities to researchers. Industries involved in the
commercial production of genetically engineered products include
the biotechnology, pharmaceutical, food processing and
agricultural industries.
Users who apply our technologies to enable or improve
particular activities. We provide tools that apply our
technology to enable or improve activities in particular
markets, which we refer to as applied markets. The current focus
of our products for these markets is in the areas of: forensic
analysis, which is used to identify individuals based on their
DNA; quality and safety testing, such as testing required to
measure food, beverage, or environmental quality, and
pharmaceutical manufacturing quality and safety; and
biosecurity, which refers to products needed in response to the
threat of biological terrorism and other malicious, accidental,
and natural
32
biological dangers. The Applied Biosystems branded forensic
testing and human identification products and services are
innovative and market-leading tools that have been widely
accepted by investigators and laboratories in connection with,
for example, criminal investigations, the exoneration of
individuals wrongly accused or convicted of crimes, identifying
victims of disasters, and paternity testing.
Our
Strategy
Our objective is to provide essential life science technologies
for disease research, drug discovery diagnostics and commercial
applications.
Our strategies to achieve this objective include:
Ø New
Product Innovation and Development
|
|
|
|
Ø
|
Developing innovative new products. We place a great
emphasis on internally developing new technologies for the life
sciences research commercial markets. Additionally, we are
looking to leverage the broad range of our technologies to
create unique customer application based solutions. A
significant portion of our growth and current revenue base has
been created by the application of technology to accelerate our
customers research process.
|
|
|
Ø
|
In-licensing technologies. We actively and selectively
in-license new technologies, which we modify to create high
value kits, many of which address bottlenecks in the research or
drug discovery laboratories. We have a dedicated group of
individuals that is focused on in-licensing technologies from
academic and government institutions, as well as biotechnology
and pharmaceutical companies.
|
|
|
Ø
|
Acquisitions. We actively and selectively seek to acquire
and integrate companies with complementary products and
technologies, trusted brand names, strong market positions and
strong intellectual property positions. We have made numerous
acquisitions since becoming a public company in 1999.
|
|
|
Ø
|
Divestitures. In April 2007, Life Technologies completed
the sale of its BioReliance subsidiary to Avista Capital
Partners and received net cash proceeds of approximately
$209.0 million. No loss on the sale was recorded in 2007.
The results of operations for BioReliance for the period from
January through April 2007 and the results for all prior periods
are reported as discontinued operations. The Company finalized
the sale of BioSource Europe, S.A., a diagnostic business
located in Belgium, in April of 2007, to a private investor
group in Belgium for proceeds of $5.5 million. Net proceeds
from both divestitures less cash spent as part of the disposal
process were $209.9 million.
|
Ø Leverage
Existing Sales, Distribution and Manufacturing
Infrastructure
|
|
|
|
Ø
|
Multi-national sales footprint. We have developed a broad
sales and distribution network with sales a presence in more
than 100 countries. Our sales force is highly trained, with many
of our sales people possessing degrees in molecular biology,
biochemistry or related fields. We believe our sales force has a
proven track record in successfully marketing our products
across the globe and we expect to leverage this capacity to
increase sales of our existing, newly developed and acquired
products.
|
|
|
Ø
|
High degree of customer satisfaction. Our sales,
marketing, customer service and technical support staff provide
our customers exceptional service and have been highly rated in
customer satisfaction surveys. We use this strength to attract
new customers and maintain existing customers.
|
|
|
Ø
|
Rapid product delivery. We have the ability to ship
typical orders on a
same-day or
next-day
basis. We use this ability to provide convenient service to our
customers to generate additional sales.
|
33
Ø Invest
in High Growth Markets
We will focus our investments and resources in markets that
provide high growth opportunities, particularly in four areas:
|
|
|
|
Ø
|
Emerging Geographies. We continue to focus and invest in
high growth geographic markets such as China and India, with
direct sales and marketing personnel, as well as manufacturing
and distribution facilities. We will further optimize our
presence in these markets by leveraging collaborations with key
government and academic institutions and local companies.
|
|
|
Ø
|
Regenerative Medicine. We are the premier provider of
biological products and services for advancing the field of
regenerative medicine. We will continue to invest in
supplementing our comprehensive suite of product offerings,
including animal origin free reagents for stem cell research,
and unique primary and stem cells for drug discovery screening.
|
|
|
Ø
|
Applied Markets. We will leverage the growing trend of
applying biology based approaches to markets beyond basic life
science research. We have a strong presences in these markets
and we will continue to invest time and resources to further add
to our product portfolio and customer contacts in many applied
markets, including, but not limited to, forensics, food and
water safety testing, agbio, animal health, and human
diagnostics.
|
|
|
Ø
|
Next Generation DNA Sequencing. Our SOLiD technology
system represents the latest innovation in next generation
sequencing, a method of sequencing the genome at high throughput
and relatively low cost. We will continue to invest in
cutting-edge technology, customer collaborations, and sales
force expertise to remain the leader in this important area of
research. We will also continue to invest in future sequencing
technologies that will allow for more rapid and lower cost
sequencing.
|
We anticipate that our results of operations may fluctuate on a
quarterly and annual basis and will be difficult to predict. The
timing and degree of fluctuation will depend upon several
factors, including those discussed under Risk Factors
Related to Our Operations.
RESULTS
OF OPERATIONS
Comparison
of Years Ended December 31, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ Increase/
|
|
|
% Increase/
|
|
(in millions)
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
BioDiscovery revenues
|
|
$
|
989.9
|
|
|
$
|
902.2
|
|
|
$
|
87.7
|
|
|
|
10
|
%
|
Cell Systems revenues
|
|
|
443.7
|
|
|
|
379.5
|
|
|
|
64.2
|
|
|
|
17
|
%
|
Applied Biosystems revenues
|
|
|
191.0
|
|
|
|
|
|
|
|
191.0
|
|
|
|
|
|
Unallocated purchased deferred revenue adjustment
|
|
|
(4.3
|
)
|
|
|
|
|
|
|
(4.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,620.3
|
|
|
$
|
1,281.7
|
|
|
$
|
338.6
|
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BioDiscovery gross margin
|
|
|
71
|
%
|
|
|
70
|
%
|
|
|
|
|
|
|
|
|
Cell Systems gross margin
|
|
|
54
|
%
|
|
|
50
|
%
|
|
|
|
|
|
|
|
|
Applied Biosystems gross margin
|
|
|
66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross margin
|
|
|
58
|
%
|
|
|
56
|
%
|
|
|
|
|
|
|
|
|
Revenues
Revenues increased $342.9 million or 27% for 2008 compared
to 2007 before the unallocated adjustment of purchased deferred
revenue. Of the $342.9 million increase in revenue, revenue
from AB accounted for 56% of total increase or
$191.0 million. The remaining $151.9 million was
primarily a result of $71.8 million of increased volume and
new product revenue, $40.3 million in favorable foreign
currency translation, $30.1 million in increased price and
product mix optimization, $6.7 million of freight recovery
and $2.8 million of royalty revenue. The Company continues
to drive revenue through new product offerings and market
expansion combined with price and product mix optimization.
34
Changes in exchange rates of foreign currencies, especially the
Japanese yen, the British pound sterling, the euro and the
Canadian dollar, can significantly increase or decrease our
reported revenue on sales made in these currencies and could
result in a material positive or negative impact on our reported
results. In addition to currency exchange rates, we expect that
future revenues will be affected by, among other things, new
product introductions, competitive conditions, customer research
budgets, government research funding, the rate of expansion of
our customer base, price increases, product discontinuations and
acquisitions or dispositions of businesses or product lines.
BioDiscovery (BD). BD revenues increased
$87.7 million or 10% for 2008 compared to 2007. The
increase was primarily driven by $27.4 million in increased
volume and new product revenue, favorable impacts of
$27.1 million in foreign currency translation,
$25.7 million in increased price and product mix
optimization, and $3.1 million increase in royalty revenue.
Cell Systems (CS). CS revenues increased
$64.2 million or 17% for 2008 compared to 2007. The
increase was primarily a result of increased volume and new
product revenue of $44.4 million, favorable impacts of
$13.3 million from foreign currency translation, and
increased price and product mix optimization of
$4.4 million.
Sales of cell culture products for large-scale production
applications can vary significantly due to customer demand. In
addition, cell culture revenues include sales of sera products
whose price has historically been volatile. As a result, cell
culture revenue growth rates can vary significantly.
Applied Biosystems (AB). AB revenues were
$191.0 million for the period ending December 31,
2008. As the Company acquired AB as of November 21, 2008,
as a result only five weeks of operations are included in the
statement of operations and comparable results to the prior year
are not applicable. Revenues from AB for the year ended 2008
adjusted for currency impacts were in line with management
expectations. Consumables and instruments sales consisted of 47%
and 39% or $90.0 million and $75.0 million,
respectively, of total segment revenues.
Gross
Profit
Gross profit increased $224.9 million or 31% for 2008
compared to 2007. Of the $224.9 million increase in gross
profit, gross profit from AB accounts for 56% of the total
increase or $126.7 million. The remaining
$98.2 million increase was primarily a result of
$33.6 million in increased volume and new products,
increased price of $30.1 million, and $28.2 million in
favorable foreign currency impacts. Drivers of year over year
changes in the gross margin are consistent with the drivers of
revenue year over year. Gross profit for 2008 included an
increase of $4.3 million and $30.8 million of deferred
revenue adjustments and acquired inventory fair market value
adjustments as a result of a business combination. These
adjustments impact the results of Applied Biosystems margins. In
accordance with purchase accounting rules, the acquired deferred
revenue and inventory is adjusted to fair value. The Company
amortizes this fair value adjustment into income in line with
the underlying acquired assets and liabilities.
Amortization expense related to purchased intangible assets was
$86.9 million for 2008 compared to $98.7 million for
2007. The decrease in intangible amortization is due to the
completion of amortization of certain acquired intangibles at
the end of 2007, partially offset by the amortization of the new
intangibles acquired in the Applied Biosystem acquisition.
We believe that gross margin for future periods will be affected
by, among other things, the integration of acquired businesses
in addition to sales volumes, competitive conditions, royalty
payments received or paid on licensed technologies, the cost of
raw materials, changes in average selling prices, our ability to
make productivity improvements and foreign currency rates.
BioDiscovery (BD). BD gross margin increased 1% to 71%
for 2008 compared to 70% in 2007 primarily due to lower
operating costs, improved pricing and increased sales volume
with favorable foreign currency translation.
Cell Systems (CS). CS gross margin increased 4% to 54%
for 2008 compared to 50% in 2007. The increase in gross margin
was primarily the result of improved productivity and increased
sales volume with favorable foreign currency translation.
35
Applied Biosystems (AB). AB gross margin was 66% for the
year ended December 31, 2008. The higher gross margins were
primarily the result of lower operating costs as the Company
focused on spending during the period, which was offset by
unfavorable foreign currency impact of $12.1 million. As
the Company acquired AB as of November 21, 2008, as a
result only five weeks of operations are included in the income
statement and comparable results to the prior year are not
applicable.
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
As a
|
|
|
|
|
|
As a
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
of Segment
|
|
|
Operating
|
|
|
of Segment
|
|
|
$ Increase
|
|
|
% Increase
|
|
(in millions)
|
|
Expense
|
|
|
Revenues
|
|
|
Expense
|
|
|
Revenues
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
BioDiscovery Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
$
|
199.5
|
|
|
|
20
|
%
|
|
$
|
185.1
|
|
|
|
21
|
%
|
|
$
|
14.4
|
|
|
|
8
|
%
|
General and administrative
|
|
|
106.5
|
|
|
|
11
|
%
|
|
|
105.2
|
|
|
|
12
|
%
|
|
|
1.3
|
|
|
|
1
|
%
|
Research and development
|
|
|
104.8
|
|
|
|
11
|
%
|
|
|
97.2
|
|
|
|
11
|
%
|
|
|
7.6
|
|
|
|
8
|
%
|
Cell Systems Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
$
|
74.6
|
|
|
|
17
|
%
|
|
$
|
60.9
|
|
|
|
16
|
%
|
|
$
|
13.7
|
|
|
|
22
|
%
|
General and administrative
|
|
|
45.7
|
|
|
|
10
|
%
|
|
|
39.2
|
|
|
|
10
|
%
|
|
|
6.5
|
|
|
|
17
|
%
|
Research and development
|
|
|
16.2
|
|
|
|
4
|
%
|
|
|
14.5
|
|
|
|
4
|
%
|
|
|
1.7
|
|
|
|
12
|
%
|
Applied Biosystems Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
$
|
28.1
|
|
|
|
15
|
%
|
|
$
|
|
|
|
|
|
|
|
$
|
28.1
|
|
|
|
|
|
General and administrative
|
|
|
17.0
|
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
17.0
|
|
|
|
|
|
Research and development
|
|
|
17.5
|
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
17.5
|
|
|
|
|
|
Unallocated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
$
|
8.8
|
|
|
|
|
|
|
$
|
6.0
|
|
|
|
|
|
|
$
|
2.8
|
|
|
|
|
|
General and administrative
|
|
|
19.2
|
|
|
|
|
|
|
|
19.7
|
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
|
|
Research and development
|
|
|
4.0
|
|
|
|
|
|
|
|
4.1
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
Consolidated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
$
|
311.0
|
|
|
|
19
|
%
|
|
$
|
252.0
|
|
|
|
20
|
%
|
|
$
|
59.0
|
|
|
|
23
|
%
|
General and administrative
|
|
|
188.4
|
|
|
|
12
|
%
|
|
|
164.1
|
|
|
|
13
|
%
|
|
|
24.3
|
|
|
|
15
|
%
|
Research and development
|
|
|
142.5
|
|
|
|
9
|
%
|
|
|
115.8
|
|
|
|
9
|
%
|
|
|
26.7
|
|
|
|
23
|
%
|
Sales and Marketing. In 2008, sales and marketing
expenses increased $59.0 million or 23% compared to 2007.
Of the $59.0 million increase, $28.1 million resulted
from the acquisition of AB. The remaining $30.9 million
increase resulted primarily in increased salaries and bonuses of
$16.3 million, travel expense of $3.2 million,
increased infrastructure expense of $3.9 million,
unfavorable foreign currency impacts of $3.5 million and
$2.2 million from share-based compensation.
General and Administrative. In 2008, general and
administrative expenses increased $24.3 million or 15%
compared to 2007. Of the $24.3 million increase,
$17.0 million resulted from the acquisition of AB. The
remaining $7.3 million increase resulted from increased
salary and bonus expenses of $12.6 million, purchased
services of $3.5 million and depreciation expense of
$2.6 million, partially offset by $11.7 million in
decreased infrastructure expenses. We continue to pursue
programs and initiatives to improve our efficiency in the
general and administrative area. These programs focus in the
areas of process improvement and automation. We expect over time
that these actions will continue and further result in a decline
in our general and administrative expenses as a percent of sales.
Research and Development. Research and development
expenses for 2008 increased $26.7 million or 23% compared
to 2007. Of the $26.7 million increase, $17.5 million
resulted from acquisition of AB. The remaining $9.2 million
increase resulted primarily from an increase of
$7.2 million in salaries and bonus expenses and
$3.2 million in increased supplies expense partially offset
by $0.9 million of purchased services. Overall, gross
36
research and development expenses increased 23 percent year
over year as a result of our continued efforts to expand new
product development projects. We expect research and development
expenses to be in the range of
9-10% as a
percentage of sales as we continue efforts to drive growth
through new product development.
Purchased In Process Research and Development. As a
result of the Companys acquisitions in 2008, primarily
Applied Biosystems, the Company has incurred an expense of
$93.3 million for the year ended December 31, 2008.
This amount estimates the fair value, under the royalty relief
method, of various acquired in-process research projects that
have not yet reached technological feasibility and do not have
future alternative use as of the date of the merger.
Business Consolidation Costs. Business consolidation
costs for 2008 were $38.6 million, compared to
$5.6 million in 2007, and represent costs associated with
our acquisition efforts related to AB and to realign our
business and consolidation of certain facilities. Included in
these costs are various activities related to the acquisition
which were associated with combining the two companies and
consolidating redundancies. Also included in these expenses are
one time expenses associated with third party providers
assisting in the realignment of the two companies. We expect to
continue to incur business consolidation costs in 2009 as we
further consolidate operations and facilities of the newly
acquired AB and to realign the previously existing businesses.
Other
Income (Expense)
Interest Income. Interest income was $24.6 million
in 2008 compared to $28.0 million in 2007. The
$3.4 million decrease resulted primarily from a decrease in
the average yield of our investments in 2008 along with the
lower balance in cash and cash equivalents in the fourth quarter
of 2008 as a result of the purchase price paid for the AB
acquisition.
Interest income in the future will be affected by changes in
short-term interest rates and changes in cash balances, which
may materially increase or decrease as a result of acquisitions,
debt repayment, stock repurchase programs and other financing
activities.
Interest Expense. Interest expense was $43.0 million
for 2008 compared to $28.0 million for 2007. The primary
reason for the $15.0 million increase in interest expense
was interest incurred on the $2,400.0 million new debt
issued in November 2008 in conjunction with acquisition of
Applied Biosystems.
Other Income (Expense), Net. Other income, net, was
$5.7 million for 2008 compared to $0.3 million for
2007. The primary reason for the $5.4 million increase in
other income was foreign currency net gains of $4.0 million
and joint venture income of $1.6 million related to our
interest in the joint venture.
Provision for Income Taxes. The provision for income
taxes as a percentage of our pre-tax income was 80.6% for 2008
compared with 27.1% of our pre-tax income for 2007. The increase
in the effective tax rate was primarily attributable to US
income tax recognized in connection with the repatriation of
non-US retained earnings to help fund the AB acquisition and to
purchased in-process research and development costs at acquired
companies which were expensed for financial reporting purposes
but were not deductible for tax purposes.
Comparison
of Years Ended December 31, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ Increase/
|
|
|
% Increase/
|
|
(in millions)
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
BioDiscovery revenues
|
|
$
|
902.2
|
|
|
$
|
814.7
|
|
|
$
|
87.5
|
|
|
|
11
|
%
|
Cell Systems revenues
|
|
|
379.5
|
|
|
|
336.5
|
|
|
|
43.0
|
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,281.7
|
|
|
$
|
1,151.2
|
|
|
$
|
130.5
|
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BioDiscovery gross margin
|
|
|
70
|
%
|
|
|
68
|
%
|
|
|
|
|
|
|
|
|
Cell Systems gross margin
|
|
|
50
|
%
|
|
|
52
|
%
|
|
|
|
|
|
|
|
|
Total gross margin
|
|
|
56
|
%
|
|
|
53
|
%
|
|
|
|
|
|
|
|
|
37
Revenues
Revenues increased $130.5 million or 11% for 2007 compared
to 2006. The increase was primarily a result of
$59.7 million of increased volume and new product revenue,
$40.6 million in foreign currency translation, and
$29.8 million of price increases.
BioDiscovery (BD). BioDiscovery revenues increased
$87.5 million or 11% for 2007 compared to 2006. The
increase was primarily driven by $29.4 million in increased
volume and new product revenue, $28.6 million in increased
prices and a favorable impact of $28.9 million in foreign
currency translation.
Cell Systems (CS). CS revenues increased
$43.0 million or 13% for 2007 compared to 2006. The
increase was primarily a result of increased volume and new
product revenue of $30.3 million along with favorable
impact of $11.7 million in foreign currency translation.
Gross
Profit
Gross profit increased $107.6 million or 18% for 2007
compared to 2006. Gross profit for 2007 and 2006 included
approximately $0.5 million and $4.4 million,
respectively, of costs associated with the
write-up of
acquired inventory to fair market value as a result of a
business combination. In accordance with purchase accounting
rules, this acquired inventory was
written-up
to fair market value and subsequently expensed as the inventory
was sold. Amortization expense related to purchased intangible
assets acquired in our business combinations was
$98.7 million for 2007 compared to $110.7 million for
2006. The $12.0 million decrease was mainly due to
intangible assets acquired in prior periods being fully
amortized during the year. The primary drivers for the increase
in gross margin is related to $47.5 million in pricing and
volume increases, $22.1 million in productivity increases
and $26.4 million in favorable foreign currency translation.
BioDiscovery (BD). BioDiscovery gross margin increased 2%
to 70% for 2007 compared to 68% in 2006 primarily due to lower
operating costs, improved pricing and increased sales volume.
Cell Systems (CS). CS gross margin decreased 2% to 50%
for 2007 compared to 52% in 2006. Declines in gross margin were
primarily the result of higher operating expenses and declines
in sera pricing.
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
As a
|
|
|
|
|
|
As a
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
of Segment
|
|
|
Operating
|
|
|
of Segment
|
|
|
$ Increase
|
|
|
% Increase
|
|
(in millions)
|
|
Expense
|
|
|
Revenues
|
|
|
Expense
|
|
|
Revenues
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
BioDiscovery Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
$
|
185.1
|
|
|
|
21
|
%
|
|
$
|
172.8
|
|
|
|
21
|
%
|
|
$
|
12.3
|
|
|
|
7
|
%
|
General and administrative
|
|
|
105.2
|
|
|
|
12
|
%
|
|
|
93.2
|
|
|
|
11
|
%
|
|
|
12.0
|
|
|
|
13
|
%
|
Research and development
|
|
|
97.2
|
|
|
|
11
|
%
|
|
|
89.7
|
|
|
|
11
|
%
|
|
|
7.5
|
|
|
|
8
|
%
|
Cell Systems Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
$
|
60.9
|
|
|
|
16
|
%
|
|
$
|
54.5
|
|
|
|
16
|
%
|
|
$
|
6.4
|
|
|
|
12
|
%
|
General and administrative
|
|
|
39.2
|
|
|
|
10
|
%
|
|
|
30.2
|
|
|
|
9
|
%
|
|
|
9.0
|
|
|
|
30
|
%
|
Research and development
|
|
|
14.5
|
|
|
|
4
|
%
|
|
|
10.4
|
|
|
|
3
|
%
|
|
|
4.1
|
|
|
|
39
|
%
|
Unallocated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
$
|
6.0
|
|
|
|
|
|
|
$
|
5.1
|
|
|
|
|
|
|
$
|
0.9
|
|
|
|
|
|
General and administrative
|
|
|
19.7
|
|
|
|
|
|
|
|
26.7
|
|
|
|
|
|
|
|
(7.0
|
)
|
|
|
|
|
Research and development
|
|
|
4.1
|
|
|
|
|
|
|
|
4.2
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
Consolidated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
$
|
252.0
|
|
|
|
20
|
%
|
|
$
|
232.4
|
|
|
|
20
|
%
|
|
$
|
19.6
|
|
|
|
8
|
%
|
General and administrative
|
|
|
164.1
|
|
|
|
13
|
%
|
|
|
150.1
|
|
|
|
13
|
%
|
|
|
14.0
|
|
|
|
9
|
%
|
Research and development
|
|
|
115.8
|
|
|
|
9
|
%
|
|
|
104.3
|
|
|
|
9
|
%
|
|
|
11.5
|
|
|
|
11
|
%
|
38
Sales and Marketing. For 2007, sales and marketing
expenses increased $19.6 million or 8% compared to 2006.
The increase resulted primarily from increased salaries and
bonuses of $13.2 million, $4.5 million of additional
purchased services expenses and $6.0 million of foreign
currency translation impacts. This was partially offset by a
decrease in travel expenses of $3.9 million as well as a
decrease in supplies expenses of $1.4 million.
General and Administrative. For 2007, general and
administrative expenses increased $14.0 million or 9%
compared to 2006. The increase resulted primarily from increases
salaries and bonuses of $23.1 million, additional
depreciation expense of $4.7 million which was driven by
increased capital expenditures, $1.6 million in increases
of travel expenses and $2.1 million of foreign currency
translation impacts. This was partially offset by a decrease of
$7.0 in stock based compensation expense, $5.8 million in
purchased services expenses, $1.4 million in bad debt
expenses and $4.3 million in other expenses.
Research and Development. Research and development
expenses for 2007 increased $11.5 million or 11% compared
to 2006. The increase resulted primarily from $5.4 million
of salaries and bonus expenses, $1.4 million in increased
purchase services expenses, $1.4 million in other expenses
and $1.5 million in foreign currency translation expenses.
The increases were partially offset by a decrease of
$0.9 million in supplies expense. Overall, gross research
and development expenses increased 11 percent year over
year as a result of our continued efforts to drive growth
through new product development projects. We expect research and
development expenses to remain at this level as a percentage of
sales as we continue efforts to drive growth through new product
development.
Business Consolidation Costs. Business consolidation
costs for 2007 were $5.6 million, compared to
$12.5 million in 2006, and represent costs associated with
our efforts to realign our business and consolidation of certain
facilities. These costs consisted mainly of termination benefits
of certain employees involuntarily terminated. We expect to
continue to incur business consolidation costs in 2008 as we
further consolidate operations and facilities.
Other
Income (Expense)
Interest Income. Interest income was $28.0 million
in 2007 compared to $26.7 million in 2006. The
$1.3 million increase resulted primarily from an increase
in the average yield of our investments in 2007, partially
offset by the effect of lower investment balances due to the
payoff of the 2006
21/4% Convertible
Notes and the share repurchase program.
Interest Expense. Interest expense was $28.0 million
for 2007 compared to $32.2 million for 2006. The primary
reason for the $4.2 million reduction in interest expense
was the maturity of the 2006 2 1 /4% Convertible Notes in
the prior year which were not part of the 2007 expense.
Other Income (Expense), Net. Other income (expense), net,
for 2007 and 2006 was comparable at $0.3 million and
$0.5 million, respectively.
Provision for Income Taxes. The provision for income
taxes as a percentage of our pre-tax income was 27.1% for 2007
compared with 27.2% of our pre-tax income for 2006. The decline
in the effective tax rate was primarily attributable to an
increase in income earned in jurisdictions having lower tax
rates.
LIQUIDITY
AND CAPITAL RESOURCES
Operating Activities. Operating activities provided net
cash of $365.8 million during 2008 primarily from our net
income of $31.3 million plus net non-cash charges of
$355.3 million. Changes in operating assets and liabilities
provided a net decrease of $20.9 million in cash during the
period. Within the non-cash charges in operating activities, the
primary drivers were amortization of intangible assets of
$86.9 million, share based compensation of
$47.0 million, depreciation charges of $45.7 million
and acquired inventory fair market value adjustments of
$34.0 million. The primary drivers of cash proceeds from
changes in operating assets and liabilities were increases in
accrued expenses of $109.2 million and decreases in
inventories of $11.1 million which were offset by increases
in trade account receivable of $112.3 million, decreases in
accounts payable of $22.2 million, and a decrease in income
taxes payable of $9.9 million for a net decrease of
$20.9 million. The overall decrease in cash from operating
assets and liabilities is due to the acquisition of Applied
Biosystems and the operational nature of the
39
business. Sales peak in the final month of the quarter, which
drives up accounts receivable and reduces the amount of
inventory on hand. In conjunction with a reduction of inventory,
a corresponding decrease in accounts payable generally occurs.
As we acquired Applied Biosystems on November 21, 2008,
only the final portion of the quarter is reflected in the cash
flow from operations.
As a result of working capital improvement programs, we expect
to utilize our working capital more effectively in the future
resulting in higher inventory turnover and lower days sales
outstanding. Our working capital factors, such as inventory
turnover and days sales outstanding, are seasonal and, on an
interim basis during the year, may require an influx of
short-term working capital.
Investing Activities. Net cash used by investing
activities during 2008 was $2,889.7 million. The cash was
used for business combinations of $2,859.0 million and
purchases of property plant and equipment of $81.9 million
partially offset by securities available for sale of
$54.7 million.
For 2009, we expect to spend more on purchases of property,
plant and equipment compared to 2008, in the range of
$175-200 million which includes approximately
$50 million of integration related capital expenditures.
The spending will be driven in part by additional capital
equipment, information technology, and integration related
capital as a result of merger with Applied Biosystems.
In 2008, we completed the acquisitions of Applied Biosystems and
CellzDirect for total purchase prices of $4,587.5 million
and $57.3 million, respectively, of which
$2,765.2 million and $57.3 million, respectively, were
paid in cash. The results of operations were included from the
date of acquisition. Additionally, the Company completed two
other acquisitions, immaterial to our overall consolidated
financial statements for $30.3 million in cash
consideration. See Note 2 to the Notes to Consolidated
Financial Statements.
In 2007, we completed two acquisitions immaterial to our overall
consolidated financial statements. The net cash purchase price
of acquisitions in 2007 was $31.2 million, of which
$23.1 million related to acquisitions completed in 2007.
The results of operations were included from the date of
acquisition and were not material to our consolidated financial
results. See Note 2 to the Notes to Consolidated Financial
Statements.
In late 2006, we completed an acquisition immaterial to our
overall consolidated financial statements. The net cash purchase
price of acquisitions in 2006 was $44.0 million, of which
$15.1 million was related to the acquisition completed in
2006. The results of operations were included from the date of
acquisition and were not material to our consolidated financial
results.
Pursuant to the purchase agreements for certain prior year and
current year acquisitions, we could be required to make
additional contingent cash payments based on the achievement of
future gross sales of the acquired companies through 2010. The
agreements do not limit the payment to a maximum amount. During
the years ended 2008, none of contingent payments were earned or
paid for the achievement of future gross sales. The Company will
account for such contingent payments as an addition to the
purchase price of the acquired company in accordance with
SFAS 141, Accounting for Business Combinations.
There were no contingent cash payments based upon certain
research and development milestones or operating results of the
acquired companies as of December 31, 2008. During the year
ended 2008, none of contingent payments were earned or paid for
the achievement of operating results. During the year ended
2007, $2.0 million of contingent payments were earned and
paid for the achievement of operating results and
$51.5 million of contingent payments for operating results
have expired.
Financing Activities. Net cash provided by financing
activities totaled $2,301.4 million for 2008. The primary
drivers were $2,435.6 million from issuance of long term
obligations and $47.8 million in proceeds from stock issued
under employee stock plans. These cash inflows were offset by
fees paid on the issued term loan A and term loan B credit
facilities of $92.3 million and by repurchases of our
common stock of $105.2 million.
Term
Loan
On November 21, 2008, the Company entered into
$2,650 million of credit facilities consisting of:
(1) a revolving credit facility of $250 million;
(2) a term loan A facility of $1,400 million; and
(3) a term loan B facility of $1,000 million. The
Companys credit facilities are governed by a credit
agreement among the Company, Bank of
40
America, N.A., as Administrative Agent, Swing Line Lender and
L/C Issuer, UBS Securities LLC and Morgan Stanley Senior
Funding, Inc., as Co-Syndication Agents, DnB Nor Bank, ASA and
The Bank of Nova Scotia, as
Co-Documentation
Agents, and other lender parties thereto. The proceeds of the
term loan facilities, together with other sources, were used to
finance (1) the cash portion of the merger consideration
paid to stockholders of Applied Biosystems, (2) costs and
expenses related to the merger transactions, (3) the
repayment of, and termination of all commitments to make
extensions of credit under certain of the Companys and
Applied Biosystems existing indebtedness, which did not
include the Companys existing convertible notes and
certain other indebtedness, and (4) the Companys
ongoing working capital and general corporate purposes after the
merger. At the effective time of the merger, the Company
borrowed the entire amount available under the term loan
facilities. The debt facilities terminated in connection with
the entry into the Companys new credit facilities included
the Companys $250.0 million syndicated secured
revolving credit facility entered into on January 9, 2006
with Bank of America N.A. As of December 31, 2008, the
Company has issued $12.9 million in letters of credit
through the new revolving credit facility, and, accordingly, the
remaining credit available under that facility is
$237.1 million.
The credit agreement provides that loans under the the credit
facilities bear interest based on the London Interbank Offering
Rate (LIBOR) or, if the Company so elects, on Bank of
Americas prime lending rate (the Base Rate).
For the revolving credit facility and the term loan A, interest
is computed based on the Companys leverage ratio as shown
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Credit
|
Pricing Level
|
|
Total Leverage Ratio
|
|
LIBOR Rate
|
|
Base Rate
|
|
Commitment Fee
|
|
1
|
|
³
3.0:1
|
|
LIBOR + 2.50%
|
|
Base Rate + 1.50%
|
|
0.500%
|
2
|
|
< 3.0:1 but
³
2.5:1
|
|
LIBOR + 2.25%
|
|
Base Rate + 1.25%
|
|
0.375%
|
3
|
|
< 2.5:1 but
³
2.0:1
|
|
LIBOR + 2.00%
|
|
Base Rate + 1.00%
|
|
0.375%
|
4
|
|
< 2.0:1
|
|
LIBOR + 1.50%
|
|
Base Rate + 0.50%
|
|
0.250%
|
The Company, at its discretion, can elect borrowings based
either on Eurocurrency Rates or Base Rates. From the closing
date, November 21, 2008 to the date on which the
Administrative Agent receives a compliance certificate for the
first fiscal quarter ending of 2009, the pricing will be Pricing
Level 1. Term loan B bears interest at LIBOR plus
3.00% subject to a minimum LIBOR rate of 3.00% for the
first three years after the closing date, or, if the Company so
elects, at Base Rate plus 2.00%. In association with the term
loan agreement, the Company is required to swap three years of
$800.0 million in variable rate interest payments for fixed
rate interest payments within 90 days of the signing of the
agreement. Subsequent to December 31, 2008 and within the
90 day window, the Company has entered into interest rate swaps
to comply with this requirement.
The Company must repay 1.25% of the principal amount of the term
loan A in each quarter of 2009, 2.5% in each quarter of 2010 and
2011, 3.75% in each quarter of 2012 and 15% in each quarter of
2013, with the final payment of all amounts outstanding under
the term loan A facility, plus accrued interest, due on
November 21, 2013. The Company must repay in each quarter,
beginning with the quarter ended December 31, 2008, 0.25%
of the principal amount of the term loan B with the final
payment of all amounts outstanding under the term loan B
facility, plus accrued interest, due on November 21, 2015.
The Company can prepay the term loans without penalty. The
revolving credit facility will terminate and all amounts
outstanding thereunder, plus accrued interest, will be due on
November 21, 2013. During the year ended 2008, the Company
repaid principal of zero and $2.5 million for term loan A
and term loan B, respectively. Costs incurred to issue the debt
under the credit facility totaled $43.5 million for term
loan A, $41.0 million for term loan B, and
$7.8 million for the Revolving Credit Facility. The Company
amortized debt issuance costs of $0.8 million,
$0.8 million, and $0.2 million for term loan A, term
loan B, and the Revolving Credit Facility, respectively. As of
December 31, 2008, the unamortized balances of the issuance
costs were $42.6 million, $40.3 million, and
$7.6 million for term loan A, term loan B, and the
Revolving Credit Facility, respectively.
The Companys credit agreement requires the loans to be
prepaid with a portion of the net cash proceeds of non-ordinary
course sales or other dispositions of property and assets and
casualty proceeds, condemnation awards and certain other
extraordinary receipts, subject to exceptions. The portion of
such net cash proceeds to be applied to prepayments of loans
will be determined based on our leverage ratio, with 100% to be
applied if the leverage ratio is greater than or equal to 3.00x;
50% if the leverage ratio is less than 3.00x and greater than or
equal to 2.50x; and 0%
41
if the leverage ratio is less than 2.50x. Loans under the
Companys credit facilities will also be required to be
prepaid with 100% of the net cash proceeds from the issuance or
incurrence of new debt (other than certain debt permitted by the
credit agreement). These mandatory prepayments will be applied
to the repayment of the term facilities as the Company directs.
The credit agreement allows the Company to make certain
investments and share repurchases, subject to restrictions based
on leverage. If the Companys leverage ratio is greater
than or equal to 3.00x, the Company may spend up to
$500.0 million annually on acquisitions and share
repurchases in any fiscal year. If the Companys leverage
ratio less than 3.00x, there is no limit to investments in
acquisitions or share repurchases.
The credit agreement governing the Companys new credit
facilities contains financial maintenance covenants, including a
maximum leverage ratio and minimum fixed charge coverage ratio.
These financial maintenance covenants apply beginning with the
fiscal quarter ending March 31, 2009. Initially, the
Companys leverage ratio cannot exceed 4.25x. This maximum
leverage ratio reduces on a quarterly schedule to 3.75x by
December 31, 2009 and to 3x by December 31, 2010.
After December 31, 2010, the Companys leverage ratio
cannot exceed 3.00x. The Company will be also be required to
maintain a fixed charge coverage ratio of at least 1.75x. The
credit agreement also contains affirmative and negative
covenants applicable to the Companys and its subsidiaries,
subject to materiality and other qualifications and exceptions.
Obligations under the Companys credit agreement may be
declared immediately due and payable upon the occurrence of
certain events of default as defined in the credit agreement,
including failure to pay any principal when due and payable,
failure to pay interest within three business days after due,
failure to comply with any covenant, representation or condition
of any loan document or swap contract, any change of control,
cross-defaults, and certain other events as set forth in the
credit agreement, with grace periods in some cases.
The Companys obligations under the credit facilities are
guaranteed by each of the Companys domestic subsidiaries
and are collateralized by substantially all of the
Companys and its guarantor subsidiaries assets.
Secured
Loan
At December 31, 2008 the Company holds $35.6 million
in AAA rated auction rate securities with UBS Investment Bank.
Beginning in February 2008, auctions failed for the
Companys holdings because sell orders exceeded buy orders.
As a result of the failed auctions, the Company is holding
illiquid securities because the funds associated with these
failed auctions will not be accessible until the issuer calls
the security, a successful auction occurs, a buyer is found
outside of the auction process, or the security matures. In
August, 2008, UBS announced that it has agreed to a settlement
in principle with the Securities and Exchange Commission (SEC)
and other state regulatory agencies represented by North
American Securities Administrators Association to restore
liquidity to all remaining clients who hold auction rate
securities. UBS committed to repurchase auction rate securities
from their private clients at par beginning January 1,
2009. The Company is intended to have this settlement between
June 30, 2010 and July 2, 2012. Until UBS fully
redeems the Companys auction rate securities, UBS has
loaned to the Company at par without recourse with accrued
interest charged at the same rate as the yields earned on the
underlying securities. The UBS loan is collateralized by the
auction rate securities. For information on auction rate
securities, see Note 1 of the Notes to Consolidated
Financial Statements included in Item 8.
Convertible
Debt
On June 20, 2005, the Company sold
31/4% Convertible
Senior Notes due 2025 (the
31/4% Notes)
to certain qualified institutional investors at par value.
Including the exercise of the over-allotment option, the total
size of the offering was $350.0 million. After expenses,
net proceeds to the Company were $343.0 million.
Interest is payable on the
31/4% Notes
semi-annually in arrears beginning December 15, 2005. In
addition to the coupon interest of 3.25%, additional interest of
0.225% of the market value of the
31/4% Notes
may be required to be paid per six-month period beginning
June 15, 2011, if the market value of the
31/4% Notes
during a specified period is 120% or more of the
31/4% Notes
principal value. The
31/4% Notes
may be redeemed, in whole or in part, at the Companys
option on or after June 15, 2011, at 100% of the principal
amount plus any accrued and unpaid interest. In addition, the
holders of the
31/4% Notes
may require the Company to repurchase all or a portion of the
31/4% Notes
42
for 100% of the principal amount, plus any accrued and unpaid
interest, on June 15, 2011, 2015 and 2020 or upon the
occurrence of certain fundamental changes. Prepayment of amounts
due under the
31/4% Notes
will be accelerated in the event of bankruptcy or insolvency and
may be accelerated by the trustee or holders of 25% of the
31/4% Notes
principal value upon default of payment of principal or interest
when due for over thirty days, the Companys default on its
conversion or repurchase obligations, failure of the Company to
comply with any of its other agreements in the
31/4% Notes
or indenture, or upon cross-default by the Company or a
significant subsidiary for failure to make a payment at maturity
or the acceleration of other debt of the Company or a
significant subsidiary, in either case exceeding
$50.0 million.
The terms of the
31/4% Notes
require the Company to settle the par value of the
31/4% Notes
in cash and deliver shares only for the excess, if any, of the
conversion value (based on a conversion price of $49.13) over
the par value.
In February 2004 and August 2003, the Company issued
$450.0 million principal amount of
11/2% Convertible
Senior Notes (the Old
11/2% Notes)
due February 15, 2024 and $350.0 million principal
amount of 2% Convertible Senior Notes (the Old
2% Notes) due August 1, 2023 to certain qualified
institutional buyers, respectively. After expenses, the Company
received net proceeds of $440.1 million and
$340.7 million for the Old
11/2% Notes
and Old 2% Notes, respectively. Interest on the Old Notes
was payable semi-annually on
February 15th and
1st and
August 15th and
1st, for
the Old
11/2% Notes
and the Old 2% Notes, respectively. In addition to the
coupon interest of
11/2%
and 2%, additional interest of 0.35% of the market value of the
Old Notes may have been required to be paid beginning
February 15, 2012 and August 1, 2010, if the market
value of the Old Notes during specified testing periods was 120%
or more of the principle value, for the Old
11/2% Notes
and the Old 2% Notes, respectively. This contingent
interest feature was an embedded derivative with a de minimis
value, to which no value had been assigned at issuance of either
of the Old Notes or as of December 31, 2006 and 2005. The
Old Notes were issued at 100% of principal value, and were
convertible shares of common stock at the option of the holder,
subject to certain conditions described below, at a price of
$51.02 and $34.12 per share for the Old
11/2% Notes
and Old 2% Notes, respectively. The Old Notes were to be
redeemed, in whole or in part, at the Companys option on
or after February 15, 2012 (for the Old
11/2% Notes)
and August 1, 2010 (for the Old 2% Notes) at 100% of
the principal amount. In addition, the holders of the Old Notes
may require the Company to repurchase all or a portion of the
Old Notes for 100% of the principal amount, plus accrued
interest, on three separate dates per their issuance agreement.
The Old Notes also contained restricted convertibility features
that did not affect the conversion price of the notes but,
instead, placed restrictions on the holders ability to
convert their notes into shares of the Companys common
stock (conversion shares). Holders were able to convert their
Old Notes into shares of the Companys common stock prior
to stated maturity.
During December 2004, the Company offered up to
$350.0 million aggregate principal amount of
2% Convertible Senior Notes due 2023 (the New
2% Notes) in a non-cash exchange for any and all
outstanding Old 2% Notes, that were validly tendered on
that date. Approximately 98% or $342.4 million of the Old
2% Notes has been exchanged by their holders for New
2% Notes as of December 31, 2008.
During December 2004, the Company offered up to
$450.0 million aggregate principal amount of
11/2% Convertible
Senior Notes due 2024 (the New
11/2% Notes)
in a non-cash exchange for any and all outstanding Old
11/2% Notes,
that were validly tendered on that date. Approximately 99% or
$446.1 million of the Old
11/2% Notes
has been exchanged by their holders for New
11/2% Notes
as of December 31, 2008.
The New 2% Notes and New
11/2% Notes
(collectively the New Notes) carry the same rights and
attributes as the Old 2% Notes and Old
11/2% Notes
(collectively the Old Notes) except for the following: the terms
of the New Notes require the Company to settle the par value of
such notes in cash and deliver shares only for the excess, if
any, of the notes conversion value (based on conversion
prices of $34.12 and $51.02 for the New 2% Notes and New
11/2% Notes,
respectively) over their par values. As such,
EITF 90-19
and 04-8
required the Company to use the treasury stock equivalent method
to calculate diluted earnings per share, as if the New Notes
were outstanding since date of issuance, the date the Old Notes
were issued.
Costs incurred to issue the convertible notes totaled
$7.6 million for the
31/4% Notes,
$9.3 million for the Old
11/2% Notes,
and $9.3 million for the Old 2% Notes. Finance costs
(excluding legal and accounting fees) incurred to conduct the
exchange of the Old Notes totaled $1.8 million
($0.8 million related to the Old 2% Notes and
43
$1.0 million related to the Old
11/2% Notes).
These costs have been deferred and included in other assets in
the Consolidated Balance Sheets and amortized over the terms of
the respective debt using the effective interest method. At
December 31, 2008 and 2007, the unamortized balances of the
issuance costs were $22.6 million and $24.6 million,
respectively.
In the event of a change of control of the Company, the holders
of the
31/4% Notes,
Old Notes and New Notes each have the right to require the
Company to repurchase all or a portion of their notes at a
purchase price equal to 100% of the principal amount of the
notes plus all accrued and unpaid interest.
In July 2007, the Board approved a program authorizing
management to repurchase up to $500.0 million of common
stock over the next three years. Under the 2007 plan, the
Company repurchased 1.5 million shares at a total cost of
approximately $135.0 million during the year ended
December 31, 2007 and 1.2 million shares at a total
cost of approximately $100.0 during the year ended
December 31, 2008. The cost of repurchased shares are
included in treasury stock and reported as a reduction in
stockholders equity.
We are continuing to seek additional corporate and technology
acquisition opportunities that support our BioDiscovery, Cell
Systems, and Applied Biosystems platforms. While we cannot
predict the timing or size of any future acquisitions, or if any
will occur at all, a significant amount of our cash
and/or stock
may be used to acquire companies, assets or technologies. We
could also choose to fund any acquisitions, at least partly,
with new debt or stock. Our credit facilities contain
limitations on our ability to pay dividends, repurchase stock,
make acquisitions and incur debt.
As of December 31, 2008, we had cash and cash equivalents
of $335.9 million and long-term investments of
$45.3 million. Our working capital was $604.9 million
as of December 31, 2008 and includes restricted cash of
$112.4 million. Our funds are currently invested in
marketable securities, money market funds, corporate notes,
government securities, highly liquid debt instruments, time
deposits, and certificates of deposit with maturities of less
than three months. A majority of the Companys cash, cash
equivalents and long term investments are held in the United
States. Repatriation of funds outside of the United States are
subject to local laws and customs. As of December 31, 2008,
foreign subsidiaries in China, Japan, Norway, and India had
available bank lines of credit denominated in local currency to
meet short-term working capital requirements. The
U.S. dollar equivalent of these facilities totaled
$13.4 million, of which $0.3 million was outstanding
at December 31, 2008.
We expect that our current cash and cash equivalents, long-term
investments, and funds from operations and interest income
earned thereon will be sufficient to fund our current operations
through at least the first quarter of 2010. Our future capital
requirements and the adequacy of our available funds will depend
on many factors, including future business acquisitions, future
stock or note repurchases, scientific progress in our research
and development programs and the magnitude of those programs,
our ability to establish collaborative and licensing
arrangements, the cost involved in preparing, filing,
prosecuting, maintaining and enforcing patent claims and
competing technological and market developments. In 2008, the
Company generated $365.8 million from operating activities
and continues to expect to be able to in the future. We believe
a combination of the Companys cash generating abilities
from operations, future economic outlook and current financing
structure will allow the Company to continue operation without
interruption during the current economic environment.
Additionally, the Company believes under its term loan agreement
it would be able to obtain additional borrowing should the need
arise. However, the company believes this need is unlikely.
Restructuring
The Company has undertaken restructuring activities in
connection with the Applied Biosystems acquisition. These
activities, which have been accounted for in accordance with
Emerging Issues Task Force (EITF) Issue No. 95-3,
Recognition of Liabilities in Connection with a Purchase
Business Combination, and Statement of Financial Accounting
Standard (SFAS) No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, have primarily included
one-time personnel benefit costs, specifically severance costs
related to duplicative positions and change in control
agreements, to mostly manufacturing, finance and research and
development employees of Applied Biosystems and Life
Technologies. The restructuring plan does also include charges
associated with closure of certain leased facilities and other
one-time personnel benefit costs, specifically relocation costs.
The Company currently continues to finalize its restructuring
plan, and expects to complete the plan within a
44
year. The plan will likely cause material effect on the
Companys statements of operation and cash flows. As a
result of the plan, the Company expects to achieve operating
efficiencies in future periods related to salary and overhead
costs specifically related to its general and administrative and
research and development costs. As of December 31, 2008, the
company had recorded liabilities of approximately $69.1 million
related to this plan.
CONTRACTUAL
OBLIGATIONS
The following table summarizes our contractual obligations at
December 31, 2008 and the effect such obligations are
expected to have on our liquidity and cash flows in future
periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by
Period(1)
|
|
|
|
|
|
|
Less than
|
|
|
Years
|
|
|
Years
|
|
|
More than 5
|
|
|
|
|
(in thousands)
|
|
Total
|
|
|
1 Year
|
|
|
1-3
|
|
|
3-5
|
|
|
Years
|
|
|
All
Other(2)
|
|
|
Long-term
debt(3)
|
|
$
|
4,484,814
|
|
|
$
|
198,115
|
|
|
$
|
560,375
|
|
|
$
|
1,265,376
|
|
|
$
|
2,460,948
|
|
|
$
|
|
|
Capital lease obligations
|
|
|
559
|
|
|
|
|
|
|
|
173
|
|
|
|
162
|
|
|
|
224
|
|
|
|
|
|
Operating lease obligations
|
|
|
250,844
|
|
|
|
49,322
|
|
|
|
64,121
|
|
|
|
37,710
|
|
|
|
99,691
|
|
|
|
|
|
Licensing and purchase obligations
|
|
|
94,120
|
|
|
|
60,511
|
|
|
|
24,758
|
|
|
|
5,509
|
|
|
|
3,342
|
|
|
|
|
|
FIN 48 liability and
interest(2)
|
|
|
65,912
|
|
|
|
299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,613
|
|
Long-term purchase orders
|
|
|
48,491
|
|
|
|
48,467
|
|
|
|
4
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
Other obligations
|
|
|
9,764
|
|
|
|
6,642
|
|
|
|
1,869
|
|
|
|
234
|
|
|
|
1,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,954,504
|
|
|
$
|
363,356
|
|
|
$
|
651,300
|
|
|
$
|
1,309,011
|
|
|
$
|
2,565,224
|
|
|
$
|
65,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Pursuant to certain acquisitions completed in 2005 and 2007, we
could be required to make additional contingent cash payments
based on percentages of future gross sales of the acquired
company through 2010. The purchase agreement does not limit the
payment to a maximum amount. |
(2) |
|
As of December 31, 2008, the Companys unrecognized
tax benefits were $65.9 million. We were unable to
reasonably estimate the timing of FIN 48 liability and
interest payments in individual periods beyond twelve months due
to uncertainties in the timing of the effective settlement of
tax positions. |
(3) |
|
Term loan A and term loan B have variable interest rates. The
December 31, 2008 interest rates of term loan A and term
loan B, respectively, have been used to calculate future
estimated interest payments related to these items. See
Note 4 of the Notes to Consolidated Financial Statements
included in Item 8. |
CRITICAL
ACCOUNTING POLICIES
Revenue Recognition. We derive our revenue from the sale
of our products, services and technology. We recognize revenue
from product sales upon transfer of title of the product or
performance of services. Transfer of title generally occurs upon
shipment to the customer. We generally ship to our customers FOB
shipping point. Concurrently, we record provisions for warranty,
returns, and installation based on historical experience and
anticipated product performance. Revenue is not recognized at
the time of shipment of products in situations where risks and
rewards of ownership are transferred to the customer at a point
other than shipment due to the shipping terms, the existence of
an acceptance clause, the achievement of milestones, or some
return or cancellation privileges. Revenue is recognized once
customer acceptance occurs or the acceptance provisions lapse.
Service revenue is recognized over the period services are
performed. If our shipping policies or acceptance clause were to
change, materially different reported results would be likely.
In cases where customers order and pay for products and request
that we store a portion of their order for them at our cost, we
record any material up-front payments as deferred revenue in
current liabilities in the Consolidated Balance Sheets and
recognize revenue upon shipment of the product to the customer.
Deferred revenue totaled $118.2 million at
December 31, 2008.
We also enter into arrangements whereby revenues are derived
from multiple deliverables. In these revenue arrangements, we
record revenue in accordance with Staff Accounting Bulletin
(SAB) No. 104, Revenue Recognition and
Emerging Issues Task Force (EITF) Consensus Issue
00-21,
Revenue Arrangements with Multiple Deliverables and
related pronouncements. Specifically, we record revenue as the
separate elements are delivered to the customer if the delivered
item is determined to represent a separate earnings process,
there is objective and reliable evidence of the fair value of
the undelivered item, and delivery or performance of the
45
undelivered item is probable and substantially in our control.
For instruments where installation is determined to be a
separate earnings process, the portion of the sales price
allocable to the fair value of the installation is deferred and
recognized when installation is complete. We determine the fair
value of the installation process based on technician labor
billing rates, the expected number of hours to install the
instrument based on historical experience, and amounts charged
by third parties. We continually monitor the level of effort
required for the installation of our instruments to ensure that
appropriate fair values have been determined. Revenues from
multiple-element arrangements involving license fees, up-front
payments and milestone payments, which are received
and/or
billable in connection with other rights and services that
represent our continuing obligations, are deferred until all of
the multiple elements have been delivered or until objective and
verifiable evidence of the fair value of the undelivered
elements has been established. We determine the fair value of
each element in multiple-element arrangements based on the
prices charged when the similar elements are sold separately to
third parties. If objective and verifiable evidence of fair
value of all undelivered elements exists but objective and
verifiable evidence of fair value does not exist for one or more
delivered elements, then revenue is recognized using the
residual method. Under the residual method, the revenues from
delivered elements are not recognized until the fair value of
the undelivered element or elements has been determined.
Contract interpretation is normally required to determine the
appropriate accounting, including whether the deliverables
specified in a multiple element arrangement should be treated as
separate units of accounting for revenue recognition purposes,
and if so, how the price should be allocated among the
deliverable elements, when to begin to recognize revenue for
each element, and the period over which revenue should be
recognized.
We recognize royalty revenue (including upfront licensing fees)
when the amounts are earned and determinable during the
applicable period based on historical activity, and make
revisions for actual royalties received in the following
quarter. Materially different reported results would be likely
if any of the estimated royalty revenue were significantly
different from actual royalties received, however, historically,
these revisions have not been material to our consolidated
financial statements. For those arrangements where royalties
cannot be reasonably estimated, we recognize revenue on the
receipt of cash or royalty statements from our licensees. Since
we are not able to forecast product sales by licensees, royalty
payments that are based on product sales by the licensees are
not determinable until the licensee has completed their
computation of the royalties due
and/or
remitted their cash payment to us. In addition, we recognize
up-front nonrefundable license fees when due under contractual
agreement, unless we have specific continuing performance
obligations requiring deferral of all or a portion of these
fees. If it cannot be concluded that a licensee fee is fixed or
determinable at the outset of an arrangement, revenue is
recognized as payments from third parties become due. Should
information on licensee product sales become available so as to
enable us to recognize royalty revenue on an accrual basis,
materially different revenues and results of operations could
occur. Royalty revenue totaled $51.0 million,
$39.9 million and $26.8 million for 2008, 2007 and
2006, respectively.
In our BioReliance business, we recognized revenue from
commercial contracts, which were principally fixed-price or
fixed-rate, using the proportional performance method, except
for services that were generally completed within three days,
which are accounted for using the completed-contract method.
Proportional performance was determined using expected output
milestones.
Revenue recorded under proportional performance for projects in
process is designed to approximate the amount of revenue earned
based on milestones reached within the scope of the contractual
arrangement. We undertake a review of unbilled accounts
receivable from customers to determine that such amounts are
expected to become billable and collectible in all material
respects.
We recognize revenue from government contracts, which are
principally cost-plus-fixed-fee, in amounts equal to
reimbursable costs plus a pro-rata portion of the earned fee. We
provide for losses when they become known.
Shipping and handling costs are included in costs of sales.
Shipping and handling costs charged to customers is recorded as
revenue in the period the related product sales revenue is
recognized.
Use of Estimates. Our consolidated financial statements
are prepared in conformity with accounting principles generally
accepted in the United States, or GAAP. In preparing these
statements, we are required to use estimates and assumptions.
While we believe we have considered all available information,
actual results could affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at
the date of the
46
financial statements, and the reported amounts of revenues and
expenses during the reporting periods. Actual results could
differ from those estimates, especially in light of the current
economic environment. We believe that, of the significant
accounting policies discussed in Note 1 to our consolidated
financial statements, the following accounting policies require
our most difficult, subjective or complex judgments:
|
|
Ø
|
Allowance for doubtful accounts. We provide a reserve
against our receivables for estimated losses that may result
from our customers inability to pay. We determine the
amount of the reserve by analyzing known uncollectible accounts,
aged receivables, economic conditions in the customers
country or industry, historical losses and our customers
credit-worthiness. Amounts later determined specifically
identified by management to be uncollectible are charged or
written off against this reserve. To minimize the likelihood of
uncollectibility, customers credit-worthiness is reviewed
periodically based on external credit reporting services and our
experience with the account and adjusted accordingly. Should a
customers account become past due, we generally place a
hold on the account and discontinue further shipments to that
customer, minimizing further risk of loss. Bad debt expense is
recorded as necessary to maintain an appropriate level of
allowance for doubtful accounts. Additionally, our policy is to
fully reserve for all accounts with aged balances greater than
one year, with certain exceptions determined necessary by
management. The likelihood of a material loss on an
uncollectible account would be mainly dependent on deterioration
in the financial condition of that customer or in the overall
economic conditions in a particular country or environment.
Reserves are fully provided for all expected or probable losses
of this nature. Gross trade accounts receivables totaled
$595.5 million and the allowance for doubtful accounts was
$14.6 million at December 31, 2008. Historically, the
Companys reserves have been adequate to cover losses.
|
|
Ø
|
Inventory adjustments. Inventories are stated at lower of
cost or market. We review the components of our inventory on a
regular basis for excess, obsolete and impaired inventory based
on estimated future usage and sales. The Company generally fully
reserves for stock levels in excess of one years
expectation of usage. For those inventories not as susceptible
to obsolescence, the Company provides reserves when the
materials become spoiled or dated or specific to the inventory
as determined by management. In the event of a lower cost or
market issue arises, the Company will reserve for the value of
the inventory in excess of replacement cost. The likelihood of
any material inventory write-down is dependent on customer
demand, competitive conditions or new product introductions by
us or our customers that vary from our current expectations.
Gross inventory totaled $515.5 million and the allowance
for excess and obsolete and price impairment was
$95.5 million at December 31, 2008. Historically, the
Companys reserve has been adequate to cover its losses.
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Valuation of goodwill. We are required to perform a
review for impairment of goodwill in accordance with Statement
of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets (SFAS 142). Goodwill is
considered to be impaired if we determine that the carrying
value of the reporting unit exceeds its fair value. In addition
to the annual review, an interim review is required if an event
occurs or circumstances change that would more likely than not
reduce the fair value of a reporting unit below its carrying
amount. Examples of such events or circumstances include:
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a significant adverse change in legal factors or in the business
climate;
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a significant decline in our stock price or the stock price of
comparable companies;
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a significant decline in our projected revenue or earnings
growth or cash flows;
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an adverse action or assessment by a regulator;
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unanticipated competition;
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a loss of key personnel;
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a more-likely-than-not expectation that a reporting unit or a
significant portion of a reporting unit will be sold or
otherwise disposed of;
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the testing for recoverability under Statement 144 of a
significant asset group within a reporting unit; and
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recognition of a goodwill impairment loss in the financial
statements of a subsidiary that is a component of a reporting
unit.
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47
Assessing the impairment of goodwill requires us to make
assumptions and judgments regarding the fair value of the net
assets of our reporting units. Additionally, since our reporting
units share the majority of our assets, we must make assumptions
and estimates in allocating the carrying value as well as the
fair value of net assets to each reporting unit.
In accordance with our policy, we completed our most recent
annual evaluation for impairment of goodwill as of
October 1, 2008 and determined that no goodwill impairment
existed. Our evaluation included management estimates of cash
flow projections based on an internal strategic review. Key
assumptions from this strategic review included revenue growth,
and net income growth. This growth was based on increased sales
of new products as we expect to maintain our investment in
research and development, the effect and growth from business
acquisitions already consummated and lower selling, general and
administrative expenses as a percentage of revenue. Additional
value creators assumed included increased efficiencies in
working capital as well as increased efficiencies from capital
spending. The resulting cash flows were discounted using a
weighted average cost of capital of 11 percent. Operating
mechanisms to ensure that these growth and efficiency
assumptions will ultimately be realized were also proposed as
part of the internal strategic review and considered in our
evaluation. Our market capitalization at October 1, 2008
was also compared to the discounted cash flow analysis. The
Company did not perform a goodwill impairment analysis over the
value assigned as part of the Applied Biosystems acquisition due
to the timing in which the transaction occurred. The Company
does not believe any indicators of impairment exist from the
point of the date of the transaction, November 21, 2008 to
December 31, 2008.
Given market conditions which occurred during the third and
fourth quarter of 2008, the Company reviewed the Companys
goodwill for evidence of impairment and reconsidered the
estimates used in the goodwill impairment test from
October 1, 2008 to December 31, 2008. Based on the
review of the Companys operations and anticipated future
cash flows, there was no indicator the Companys goodwill
was impaired. Additionally, the Company embedded a sensitivity
analysis in the October 1 impairment analysis to take into
consideration changes in the market. This sensitivity analysis
included and increase in the weighted average cost of capital of
up to 16 percent as well as a reduction in the Company
terminal growth rates down to zero percent. Based on this
sensitivity analysis, there were no additional indicators of
impairment.
We cannot guarantee that when we complete our future annual or
other periodic reviews for impairment of goodwill that a
material impairment charge will not be recorded. Goodwill
totaled $3.9 billion at December 31, 2008.
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Valuation of intangible and other long-lived assets. We
periodically assess the carrying value of intangible and other
long-lived assets, which require us to make assumptions and
judgments regarding the future cash flows of these assets. The
assets are considered to be impaired if we determine that the
carrying value may not be recoverable based upon our assessment
of the following events or changes in circumstances:
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the assets ability to continue to generate income from
operations and positive cash flow in future periods;
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loss of legal ownership or title to the asset;
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significant changes in our strategic business objectives and
utilization of the asset(s); and
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the impact of significant negative industry or economic trends.
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If the assets are considered to be impaired, the impairment we
recognize is the amount by which the carrying value of the
assets exceeds the fair value of the assets. Fair value is
determined by a combination of third party sources and
discontinued cash flows. In addition, we base the useful lives
and related amortization or depreciation expense on our estimate
of the period that the assets will generate revenues or
otherwise be used by the Company. We also periodically review
the lives assigned to our intangible assets to ensure that our
initial estimates do not exceed any revised estimated periods
from which we expect to realize cash flows from the
technologies. If a change were to occur in any of the
above-mentioned factors or estimates, the likelihood of a
material change in our reported results would increase.
48
At December 31, 2008, the net book value of identifiable
intangible assets that are subject to amortization totaled
$2,372.4 million, the net book value of unamortized
identifiable intangible assets with indefinite lives totaled
$7.5 million and the net book value of property, plant and
equipment totaled $748.1 million.
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Valuation of Financial Instruments. We account our
financial instruments at fair value based on various accounting
literatures, including SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities,
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, and SFAS No. 157, Fair
Value Measurements. In determining fair value, we consider
both the credit risk of our counterparties and our own
creditworthiness. SFAS No. 157, which defines fair
value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements for financial
instruments effective January 1, 2008. The framework
requires for the valuation of investments using a three tiered
approach in the valuation of investments. For details on the
assets and liabilities subject to fair value measurements and
the related valuation techniques used, refer to Footnote 1
of the accompanying financial statements.
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A derivative is an instrument whose value is derived from an
underlying instrument or index, such as interest rates, equity
securities, currencies, commodities or credit spreads.
Derivatives include futures, forwards, swaps, or option
contracts, or other financial instruments with similar
characteristics. Derivative contracts often involve future
commitments to exchange interest payment streams or currencies
based on a notional or contractual amount (e.g., interest rate
swaps or currency forwards).
The accounting for changes in fair value of a derivative
instrument depends on its nature of the derivative and whether
the derivative qualifies as a hedging instrument in accordance
with SFAS 133. Those hedging instruments that qualify for
hedge accounting are included as an adjustment to revenue, the
component of foreign currency risk the Company is hedging for.
Those hedges that do not qualify for hedging accounting are
included in non-operating income as investment activities.
Materially different reported results would be likely if
volatility of the currency markets was different, or the
Companys revenue forecasts were significantly different
from actual.
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Joint Venture. As part of the acquisition of Applied
Biosystems, the Company acquired a joint venture, Applied
Biosystems/MDS Analytical Technologies Instruments, in which the
Company is a 50% owner of. The Company accounts for its
investment in the joint venture using the equity method,
consistent with the guidance in APB No. 18, The Equity
Method of Accounting for Investments in Common Stock, based
on the circumstances where the Company is unable to unilaterally
influence the operating or financial decisions of the investee,
shares in the risks and rewards of all related business
activities and the joint venture is a stand alone legal entity.
The Companys portion of net income as a result of equity
in the joint venture was $1.6 million for the period ended
December 31, 2008. Total revenue for the joint venture
during this period was $68.7 million. Our share of earnings
or losses from its investment is shown in other income in
Consolidated Statements of Operations as a single amount in
accordance with APB 18. The Company currently accounts for its
assets and liabilities related to the joint venture in the
financial statement line item consistent with the underlying
asset or liability. The Company accounts for its net investment
in the equity of the joint venture under the equity method as
one line item under long term investments.
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Allocation of Purchase Price to Acquired Assets and
Liabilities in Business Combinations. The cost of an
acquired business is assigned to the tangible and identifiable
intangible assets acquired and liabilities assumed on the basis
of their fair values at the date of acquisition. We assess fair
value using a variety of methods, including the use of
independent appraisers, present value models, and estimation of
current selling prices and replacement values. Amounts recorded
as intangible assets, including acquired in-process research and
development, or IPR&D, are based on assumptions and
estimates regarding the amount and timing of projected revenues
and costs, appropriate risk-adjusted discount rates, as well as
assessing the competitions ability to commercialize
products before we can. Upon acquisition, we determine the
estimated economic lives of the acquired intangible assets for
amortization purposes, which is based on the underlying expected
cash flows of such assets. The Company assigns a fair value to
acquired assets and liabilities in a similar manner. Adjustments
to deferred revenue are recorded in accordance with Emerging
Issues Task Force Issue
01-3,
Accounting in a Business Combination for Deferred Revenue of
an Acquiree. Adjustments to inventory are based on the fair
market value of inventory and amortized into income based on the
period in which the
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49
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underlying inventory is sold. Goodwill is determined based on
the remaining unallocated purchase price. Actual results may
vary from projected results.
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Accrued merger- and restructuring- related costs. To the
extent that exact amounts are not determinable, we have
estimated amounts for direct costs of our acquisitions,
merger-related expenses and liabilities related to our business
combinations and restructurings in accordance with Financial
Accounting Standards Board Statement No. 146, Accounting for
Costs Associated with Exit or Disposal
Activities(SFAS 146) and Emerging Issues Task
Force Issue
95-3,
Recognition of Liabilities in Connection with a Purchase
Business Combination
(EITF 95-3).
Our accrued merger and restructuring related costs were
$69.1 million at December 31, 2008, the majority of
which we expect to pay during 2009. Materially different
reported results would be likely if any of the estimated costs
or expenses were different from our estimations or if the
approach, timing and extent of the restructuring plans adopted
by management were different.
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Litigation reserves. Estimated amounts for claims that
are probable and can be reasonably estimated are recorded as
liabilities in the Consolidated Balance Sheets. The likelihood
of a material change in these estimated reserves would be
dependent on new claims as they may arise and the favorable or
unfavorable outcome of the particular litigation. Both the
amount and range of loss on pending litigation is uncertain. As
such, we are unable to make a reasonable estimate of the
liability that could result from unfavorable outcomes in
litigation. As additional information becomes available, we will
assess the potential liability related to our pending litigation
and revise our estimates. Such revisions in our estimates of the
potential liability could materially impact our results of
operations and financial position.
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Insurance, environmental and divestiture reserves. We
maintain self-insurance reserves to cover potential property,
casualty and workers compensation exposures from current
operations and certain former business operations of Dexter
Corporation, which was acquired in 2000. These reserves are
based on actuarially determined loss probabilities and take into
account loss history as well as actuarial projections based on
industry statistics. We also maintain environmental reserves to
cover estimated costs for certain environmental exposures
assumed in the mergers with Applied Biosystems and Dexter
Corporation. The environmental reserves, which are not
discounted, are determined by management based upon currently
available information. Divestiture reserves are maintained for
known claims and warranties assumed in the merger with Dexter
Corporation. The product liability and warranty reserves are
based on management estimates that consider historical claims.
As actual losses and claims become known to us, we may need to
make a material change in our estimated reserves, which could
also materially impact our results of operations.
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Our insurance, environmental and divestiture reserves totaled
$13.2 million at December 31, 2008.
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Benefit and pension plans. We sponsor and manage several
retirement and health plans for employees and former employees,
and nonqualified supplemental benefit plans for select
U.S. employees. These supplemental plans are unfunded,
however, we have a rabbi trust which the assets may be used to
pay non-qualified plan benefits. Accounting and reporting for
the pension plans requires the use of assumptions for discount
rates, expected returns on plan assets and rates of compensation
increase that are used by our actuaries to determine our
liabilities and annual expenses for these plans in addition to
the value of the plan assets included in our Consolidated
Balance Sheets. Our actuaries also rely on assumptions, such as
mortality rates, in preparing their estimates for us. The
likelihood of materially different valuations for assets,
liabilities or expenses, would depend on interest rates,
investment returns, actual non-investment experience or
actuarial assumptions that are different from our current
expectations.
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Actual weighted average allocation of our plan assets or
valuation of our plan assets and benefit obligations may
fluctuate significantly year over year. These fluctuations can
be caused by conditions unrelated to our actuarial assumptions,
including shifts the global economic environment, market
performance and plan funding status. Unexpected unrealized gains
or losses in the plan assets or benefit obligation are reflected
in other comprehensive income in our Consolidated Balance Sheets
and amortized into income over the expected plan lives.
Our most significant pension plans are our qualified
U.S. pension plans, which constituted approximately 85% of
our consolidated pension plan assets and approximately 81% of
our projected benefit obligations as of
50
December 31, 2008. The accrual of future service benefits
for participants in our qualified U.S. pension plans were
frozen as of June 30, 2004. Effective in July 1, 2005,
the expected rate of compensation increase was no longer
factored into the determination of our net periodic pension
expense as the accrual for future service benefits was frozen.
A one percentage point increase or decrease in the discount rate
for our U.S. pension plans for the period ended
December 31, 2008 would decrease or increase our net
periodic pension expense by approximately $0.2 million.
Also, a one percentage point increase or decrease in the
expected rate of return on our pension assets for the period
ended December 31, 2008 would decrease or increase our net
periodic pension expense by approximately $2.0 million.
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Income taxes. Significant judgment is required in
determining our worldwide provision for income taxes. In the
ordinary course of a global business, there are many
transactions for which the ultimate tax outcome is uncertain.
Some of these uncertainties arise as a consequence of
intercompany arrangements to share revenue and costs. In such
arrangements there are uncertainties about the amount and manner
of such sharing, which could ultimately result in changes once
the arrangements are reviewed by taxing authorities. Although we
believe that our approach to determining the amount of such
arrangements is reasonable, no assurance can be given that the
final resolution of these matters will not be materially
different than that which is reflected in our historical income
tax provisions and accruals. Such differences could have a
material effect on our income tax provisions or benefits in the
period in which such determination is made.
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Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized. The
likelihood of a material change in our expected realization of
these assets depends on our ability to generate sufficient
future taxable income. Our ability to generate enough taxable
income to utilize our deferred tax assets depends on many
factors, among which are our ability to deduct tax loss
carryforwards against future taxable income, the effectiveness
of our tax planning strategies, reversing deferred tax
liabilities, changes in the deductibility of interest paid on
our convertible subordinated debt and any significant changes in
the tax treatment received on our business combinations. We
believe that our deferred tax assets, net of our valuation
allowance, should be realizable due to our estimate of future
profitability in the U.S. and foreign jurisdictions, as
applicable. Subsequent revisions to estimates of future taxable
profits and losses and tax planning strategies could change the
amount of the deferred tax asset we would be able to realize in
the future, and therefore could increase or decrease the
valuation allowance.
In June 2006, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation No.
(FIN) 48, Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109,
which supplements Statement of Financial Accounting Standard
(SFAS) No. 109, Accounting for Income
Taxes, by defining the confidence level that a tax position
must meet in order to be recognized in the financial statements.
In accordance with FIN 48, we regularly assess uncertain
tax positions in each of the tax jurisdictions in which we have
operations and account for the related financial statement
implications. Unrecognized tax benefits have been reported in
accordance with the FIN 48 two-step approach under which
the tax effect of a position is recognized only if it is
more-likely-than-not to be sustained and the amount
of the tax benefit recognized is equal to the largest tax
benefit that is greater than fifty percent likely of being
realized upon ultimate settlement of the tax position.
Determining the appropriate level of unrecognized tax benefits
requires us to exercise judgment regarding the uncertain
application of tax law. The amount of unrecognized tax benefits
is adjusted when information becomes available or when an event
occurs indicating a change is appropriate. Future changes in
unrecognized tax benefits requirements could have a material
impact on our results of operations.
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Segment Information. We provide segment financial
information and results for our BioDiscovery, Cell Systems, and
Applied Biosystems segments based on the segregation of revenues
and expenses used for managements assessment of operating
performance and operating decisions. Expenses shared by the
segments require the use of judgments and estimates in
determining the allocation of expenses to the three segments.
Different assumptions or allocation methods could result in
materially different results by segment. Also, we do not
currently segregate assets by segment as a significant portion
of our total assets are shared or non-segment assets which we do
not assign to our operating segments. We have determined that it
is not useful to assign our shared assets to the individual
segments.
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51
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Share-Based Compensation. Under our 2004 Equity Incentive
Plan (the 2004 Plan), we grant share-based awards to eligible
employees and directors to purchase shares of our common stock.
In addition, we have a qualified employee stock purchase plan in
which eligible employees may elect to withhold up to 15% of
their compensation to purchase shares of our common stock on a
quarterly basis at a discounted price equal to 85% of the lower
of the employees offering price or the closing price of
the stock on the date of purchase. The benefits provided by
these plans qualify as share-based compensation under the
provisions of Statement of Financial Accounting Standards
No. 123 (revised 2004), Share-Based Payment (SFAS
123R), which requires us to recognize compensation expense based
on their estimated fair values determined on the date of grant
for all share-based awards granted, modified or cancelled as of
January 1, 2006 (the effective date).
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For the year ended December 31, 2008, we recognized
$34.9 million and $12.0 million of compensation
expense for employee stock options (including stock options
assumed in business combinations) and purchase rights and
restricted stock units, respectively. At December 31, 2008,
there was $68.0 million and $28.3 million remaining in
unrecognized compensation cost related to employee stock options
and restricted stock units, respectively, which are expected to
be recognized over a weighted average period of 1.8 years
for both employee stock options and restricted stock units.
We estimate the fair value of share-based awards on the date of
grant using the Black-Scholes option-pricing method
(Black-Scholes method). The determination of fair value of
share-based awards using an option-pricing model requires the
use of certain estimates and assumptions that affect the
reported amount of share-based compensation cost recognized in
our Consolidated Statements of Income. These include estimates
of the expected term of share-based awards, expected volatility
of our stock price, expected dividends and the risk-free
interest rate. These estimates and assumptions are highly
subjective and may result in materially different amounts should
circumstances change and we employ different assumptions in our
application of SFAS 123R in future periods.
For share-based awards issued during the year ended
December 31, 2008, we estimated the expected term by
considering various factors including the vesting period of
options granted, employees historical exercise and
post-employment termination behavior and aggregation by
homogeneous employee groups. Our estimated volatility was
derived using a combination of our historical stock price
volatility and the implied volatility of market-traded options
of our common stock with terms of up to approximately two years.
Our decision to use a combination of historical and implied
volatility was based upon the availability of actively traded
options of our common stock and our assessment that such a
combination was more representative of future expected stock
price trends. We have never declared or paid any cash dividends
on our common stock and currently do not anticipate paying such
cash dividends. We currently anticipate that we will retain all
of our future earnings for use in the development and expansion
of our business and for general corporate purposes. Any
determination to pay dividends in the future will be at the
discretion of our Board of Directors and will depend upon our
results of operations, financial condition, financial covenants,
tax laws and other factors as the Board of Directors, in its
discretion, deems relevant. The risk-free interest rate is based
upon U.S. Treasury securities with remaining terms similar
to the expected term of the share-based awards.
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Product Warranties. We accrue warranty costs for product
sales at the time of shipment based on historical experience as
well as anticipated product performance. Our product warranties
extend over a specified period of time ranging up to two years
from the date of sale depending on the product subject to
warranty. The product warranty accrual covers parts and labor
for repairs and replacements covered by our product warranties.
We periodically review the adequacy of our warranty reserve, and
adjust, if necessary, the warranty percentage and accrual based
on actual experience and estimated costs to be incurred.
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RECENT
ACCOUNTING PRONOUNCEMENTS
For information on the recent accounting pronouncements
impacting our business, see Note 1 of the Notes to
Consolidated Financial Statements included in Item 8.
52
FOREIGN
CURRENCY TRANSLATION
We translate the financial statements of our
non-U.S. operations
into U.S. dollars for consolidation using end-of-period
exchange rates for assets and liabilities and average exchange
rates during each reporting period for results of operations.
Net gains or losses resulting from the translation of foreign
financial statements and the effect of exchange rate changes on
intercompany receivables and payables of a long-term investment
nature are recorded as a separate component of
stockholders equity. These adjustments will affect net
income only upon sale or liquidation of the underlying
non-U.S. investment.
Changes in foreign currency exchange rates can affect our
reported results of operations, which are reported in
U.S. dollars. Based on the foreign currency rate in effect
at the time of the translation of our
non-U.S. results
of operations into U.S. dollars, reported results could be
different from prior periods even if the same amount and mix of
our products were sold at the same local prices during the two
periods. This will affect our reported results of operations and
also makes the comparison of our business performance in two
periods more difficult. For example, our revenues for the year
ended December 31, 2008, were approximately
$1,620.3 million using applicable foreign currency exchange
rates for that period. However, applying the foreign currency
exchange rates in effect during the year ended December 31,
2007 to our
non-U.S. revenues
for 2008 would result in approximately $26.9 million less
revenue for that period. These changes in currency exchange
rates have affected and will continue to affect, our reported
results, including our revenues, revenue growth rates, gross
margins, income and losses as well as assets and liabilities. We
use derivatives to manage the currency exposure arising from
foreign currency transactions. See the Derivatives section for
additional information on accounting for derivatives.
As of December 31, 2008 and 2007, the Company had
$373.0 million and $122.7 million of accounts
receivable and $28.9 million and $18.5 million of
accounts payable, respectively, denominated in a foreign
currency, of which over 99% is denominated in the functional
currency of the legal entity which owns the accounts receivable
and accounts payable. As a result, the Company does not have any
material foreign currency risk exposure in the income statement
as a result of these accounts receivable and accounts payable,
as changes are run through the currency translation adjustment
in other accumulated comprehensive income. At December 31,
2008 and 2007, a hypothetical 1% change in foreign currency
rates against the US dollar would result in a reduction or
increase of $3.4 million and $1.0 million,
respectively, upon US dollar settlement of these foreign
currency net receivables and payables.
MARKET
RISK
We are exposed to market risk related to changes in foreign
currency exchange rates, commodity prices and interest rates,
and we selectively use financial instruments to manage these
risks. We do not enter into financial instruments for
speculation or trading purposes. These financial exposures are
monitored and managed by us as an integral part of our overall
risk management program, which recognizes the unpredictability
of financial markets and seeks to reduce potentially adverse
effects on our results.
Foreign Currency Transactions. We have operations in
Europe, Asia-Pacific and the Americas. As a result, our
financial position, results of operations and cash flows can be
affected by fluctuations in foreign currency exchange rates.
Some of our reporting entities conduct a portion of their
business in currencies other than the entitys functional
currency. These transactions give rise to receivables and
payables that are denominated in currencies other than the
entitys functional currency. The value of these
receivables and payables is subject to changes in exchange rates
because they may become worth more or less than they were worth
at the time we entered into the transaction due to changes in
exchange rates. Both realized and unrealized gains or losses on
the value of these receivables and payables were included in
other income and expense in the Consolidated Statements of
Operations. Net currency exchange gains (losses) recognized on
business transactions, net of hedging transactions, were
$8.3 million, $0.5 million and $(1.6) million for
the years ended December 31, 2008, 2007 and 2006,
respectively, and are included in other income and expense in
the Consolidated Statements of Operations.
The Company also has intercompany foreign currency receivables
and payables primarily concentrated in the euro, British pound
sterling, Canadian dollar and Japanese yen. Historically, we
have used foreign currency forward contracts to mitigate foreign
currency risk on these intercompany foreign currency receivables
and payables. At December 31, 2008 and 2007, we had
$740.5 million and $27.3 million, respectively, in
foreign currency forward
53
contracts outstanding to hedge currency risk on specific
receivables and payables. These foreign currency forward
contracts as of December 31, 2008, which settle in January
2009 through June 2009, effectively fix the exchange rate at
which these specific receivables and payables will be settled
in, so that gains or losses on the forward contracts offset the
losses or gains from changes in the value of the underlying
receivables and payables. The Company does not have any material
un-hedged foreign currency intercompany receivables or payables
at December 31, 2008 and 2007.
At December 31, the notional principal and fair value of
our outstanding foreign currency derivatives to hedge the value
of its foreign currency intercompany receivables and payables
were as follows:
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2008
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2007
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Notional
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Fair
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Notional
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Fair
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(in millions)
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Principal
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Value
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Principal
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Value
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Forward exchange contracts
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$
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740.5
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$
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(37.0
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$
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27.3
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(0.07
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The notional principal amounts provide one measure of the
transaction volume outstanding as of year-end and does not
represent the amount of our exposure to market loss. The
estimates of fair value are based on applicable and commonly
used pricing models using prevailing financial market
information as of December 31, 2008 and 2007. The amounts
ultimately realized upon settlement of these financial
instruments, together with the gains and losses on the
underlying exposures, will depend on actual market conditions
during the remaining life of the instruments.
Cash Flow
Hedges
The ultimate U.S. dollar value of future foreign currency
sales generated by our reporting units is subject to
fluctuations in foreign currency exchange rates. The
Companys intent is to limit this exposure from changes in
currency exchange rates through hedging. When the dollar
strengthens significantly against the foreign currencies, the
decline in the U.S. dollar value of future foreign currency
revenue is offset by gains in the value of the forward contracts
designated as hedges. Conversely, when the dollar weakens, the
opposite occurs. The Company uses foreign currency forward
contracts to mitigate foreign currency risk on forecasted
foreign currency sales which are expected to be settled within
next twelve months. The change in fair value prior to their
maturity was accounted for as cash flow hedges, and recorded in
other comprehensive income, net of tax, in the Consolidated
Balance Sheets according to SFAS 133. To the extent any
portion of the forward contracts is determined to not be an
effective hedge, the increase or decrease in value prior to the
maturity was recorded in other income or expense in the
consolidated statements of operations.
At December 31, the notional principal and fair value of
our outstanding foreign currency derivatives to hedge the value
of its foreign currency sales with third parties were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Notional
|
|
|
Fair
|
|
|
Notional
|
|
|
Fair
|
|
(in millions)
|
|
Principal
|
|
|
Value
|
|
|
Principal
|
|
|
Value
|
|
|
Forward exchange contracts
|
|
$
|
530.4
|
|
|
$
|
(16.5
|
)
|
|
$
|
|
|
|
$
|
|
|
During the year ended December 31, 2008, the Company
recognized immaterial net losses related to the ineffective
portion of its hedging instruments in other expense in the
Consolidated Statements of Operations. No hedging relationships
were terminated as a result of ineffective hedging or forecasted
transactions no longer probable of occurring. The Company
continuously monitors the probability of forecasted transactions
as part of the hedge effectiveness testing. As of
December 31, 2008, the fair value of foreign currency
forward contracts is reported in prepaid expenses or short term
accrued expense in the Consolidated Balance Sheet as
appropriate. The Company reclasses deferred gains or losses
reported in accumulated other comprehensive income into revenue
when the underlying foreign currency sales occur and are
recognized in consolidated earnings. The Company uses inventory
turnover ratio for each international operating unit to align
the timing of a hedged item and a hedging instrument to impact
the Consolidated Statements of Operations during the same
reporting period. At December 31, 2008, the Company expects
to reclass $17.5 million of net loss on derivative
instruments from accumulated other comprehensive income to
earnings during the next twelve months. At December 31,
2008, a hypothetical 1% change in foreign currency rates against
the U.S. dollar would result in a decrease or an increase
of $4.8 million in
54
the fair value of foreign currency derivatives accounted under
cash flow hedges. Actual gains or losses could differ materially
from this analysis based on changes in the timing and amount of
currency rate movements.
Commodity Prices. Our exposure to commodity price changes
relates to certain manufacturing operations that utilize certain
commodities as raw materials. We manage our exposure to changes
in those prices primarily through our procurement and sales
practices.
Interest Rates. Our investment portfolio is maintained in
accordance with our investment policy which defines allowable
investments, specifies credit quality standards and limits the
credit exposure of any single issuer. The fair value of our cash
equivalents, marketable securities, and derivatives is subject
to change as a result of changes in market interest rates and
investment risk related to the issuers credit worthiness
or our own credit risk. The Company uses credit default swap
spread to derive risk-adjusted discount rate to measure the fair
value of some of our financial instruments. At December 31,
2008, we had $493.7 million in cash, cash equivalents,
restricted cash and long term investments, all of which are
stated at fair value. Changes in market interest rates would not
be expected to have a material impact on the fair value of
$448.4 million of our cash, cash equivalents, and
restricted cash at December 31, 2008, as these consisted of
securities with maturities of less than three months. Any gains
or losses derived from the change in fair market value in cash,
cash equivalents, and restricted cash will not be recognized in
our statement of operations until the investment is sold or if
the reduction in fair value was determined to be a permanent
impairment. The Company accounts for $9.7 million of its
long term investment in the joint venture along with its equity
investments in non-public entities using the equity method thus
changes in market interest rates would not be expected to have
an impact on these investments. Gain or losses from the changes
in market interest rates in other long term investment of
$35.6 million will be recognized in our statement of
operations immediately, however $35.6 million of securities
and the put option would have a limited risk exposure to the
changes in market interest rates as such securities
interest rates are reset frequently. A 100 basis point
increase or decrease in interest rates would not be expected to
have a material impact on $35.6 million of our investments.
The Company entered into $2,650.0 million of credit
facilities in November 2008 in conjunction with merger with
Applied Biosystems, Inc. The amount of interest payment
fluctuates based on London Interbank Offered Rate or LIBOR. The
credit facilities consist of: (1) a revolving credit
facility of $250.0 million; (2) a term loan A facility
of $1,400.0 million; and (3) a term loan B facility of
$1,000.0 million. The credit agreement provides that loans
under the Companys revolving credit facility and term loan
A will bear interest at LIBOR plus a margin of 1.50% to 2.50%,
depending on leverage. The term loan B bears interest at LIBOR
plus a margin of 3.00%, subject to a minimum LIBOR rate of 3.00%
for the first three years beginning November 21, 2008. As
an alternative to interest based on LIBOR, the Company may elect
to use Bank of Americas prime rate instead of LIBOR. If
elected, the revolving credit facility and term loan A would
bear interest at that prime rate plus a spread of 0.50% to
1.50%, depending on leverage. If elected for term loan B,
interst would be determined based on the prime rate plus a
spread of 2.00%. During the year ended 2008, the Company repaid
principal of zero and $2.5 million for term loan A and term
loan B, respectively.
Should a change in interest rates occur, due to the nature of
the Companys variable rate debt, a 1% change in interest
rates would have a pretax impact of $24.0 million on
interest expense. To mitigate this risk, subsequent to
December 31, 2008, the Company entered into interest rate
swaps which effectively reduce the Companys exposure to
variations in interest rates.
OFF
BALANCE SHEET ARRANGEMENTS
The Company does not have any material off balance sheet
arrangements. For further discussion on the Companys
commitments and contingencies, refer to Footnote 6
Commitments and Contingencies in the notes to the
consolidated financial statements.
|
|
ITEM 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
See discussion under Market Risk in Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations.
55
|
|
ITEM 8.
|
Financial
Statements and Supplementary Data
|
Report of
Independent Registered Public Accounting Firm
To the Stockholders and the
Board of Directors of Life Technologies Corporation
We have audited the accompanying consolidated balance sheets of
Life Technologies Corporation as of December 31, 2008 and
2007, and the related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2008. Our audits
also included the financial statement schedule listed in the
Index at Item 15(c). These financial statements and the
financial statement schedule are the responsibility of Life
Technologies Corporations management. Our responsibility
is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Life Technologies Corporation
at December 31, 2008 and 2007, and the consolidated results
of its operations and its cash flows for each of the three years
in the period ended December 31, 2008, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule for the years
ended December 31, 2008, 2007 and 2006, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), Life
Technologies Corporations internal control over financial
reporting as of December 31, 2008, based on criteria
established in Internal ControlIntegrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 27, 2009 expressed
an unqualified opinion thereon.
San Diego, California
February 27, 2009
56
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
335,930
|
|
|
$
|
606,145
|
|
Short-term investments
|
|
|
|
|
|
|
60,703
|
|
Restricted cash and investments
|
|
|
112,387
|
|
|
|
4,445
|
|
Trade accounts receivable, net of allowance for doubtful
accounts of $14,649 and $8,211, respectively
|
|
|
580,907
|
|
|
|
192,137
|
|
Inventories, net
|
|
|
420,029
|
|
|
|
172,692
|
|
Deferred income tax assets
|
|
|
25,563
|
|
|
|
20,699
|
|
Prepaid expenses and other current assets
|
|
|
137,355
|
|
|
|
33,663
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,612,171
|
|
|
|
1,090,484
|
|
Long-term investments
|
|
|
45,344
|
|
|
|
753
|
|
Property and equipment, net
|
|
|
748,056
|
|
|
|
319,653
|
|
Goodwill
|
|
|
3,932,194
|
|
|
|
1,528,779
|
|
Intangible assets, net
|
|
|
2,379,861
|
|
|
|
286,521
|
|
Deferred income tax assets
|
|
|
|
|
|
|
53,642
|
|
Other assets
|
|
|
196,291
|
|
|
|
49,915
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
8,913,917
|
|
|
$
|
3,329,747
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
80,000
|
|
|
$
|
124
|
|
Accounts payable
|
|
|
204,279
|
|
|
|
85,625
|
|
Restructuring accrual
|
|
|
69,099
|
|
|
|
11,151
|
|
Deferred compensation and related benefits
|
|
|
231,851
|
|
|
|
74,765
|
|
Deferred revenues and reserves
|
|
|
81,166
|
|
|
|
10,969
|
|
Accrued expenses and other current liabilities
|
|
|
235,418
|
|
|
|
42,708
|
|
Accrued income taxes
|
|
|
105,429
|
|
|
|
9,071
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,007,242
|
|
|
|
234,413
|
|
Liabilities from discontinued operations
|
|
|
|
|
|
|
2,506
|
|
Long-term debt
|
|
|
3,503,589
|
|
|
|
1,150,700
|
|
Pension liabilities
|
|
|
201,833
|
|
|
|
28,428
|
|
Deferred income tax liabilities
|
|
|
638,275
|
|
|
|
102,373
|
|
Income taxes payable
|
|
|
65,128
|
|
|
|
27,093
|
|
Other long-term obligations, deferred credits and reserves
|
|
|
97,383
|
|
|
|
18,787
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
5,513,450
|
|
|
|
1,564,300
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock; $0.01 par value, 6,405,884 shares
authorized; no shares issued or outstanding
|
|
|
|
|
|
|
|
|
Common stock; $0.01 par value, 400,000,000 shares
authorized;189,629,084 and 107,038,497* shares issued,
respectively
|
|
|
1,896
|
|
|
|
1,083
|
|
Additional
paid-in-capital
|
|
|
4,343,485
|
|
|
|
2,424,154
|
|
Accumulated other comprehensive income (loss)
|
|
|
(98,807
|
)
|
|
|
112,454
|
|
Retained earnings
|
|
|
118,313
|
|
|
|
86,992
|
|
Less cost of treasury stock; 16,158,839 shares and
14,905,664 shares, respectively
|
|
|
(964,420
|
)
|
|
|
(859,236
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
3,400,467
|
|
|
|
1,765,447
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
8,913,917
|
|
|
$
|
3,329,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Adjusted to reflect a two-for-one stock split effective
May 27, 2008. |
See accompanying notes for additional information.
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Revenues
|
|
$
|
1,620,323
|
|
|
$
|
1,281,747
|
|
|
$
|
1,151,175
|
|
Cost of revenues
|
|
|
592,696
|
|
|
|
467,139
|
|
|
|
432,176
|
|
Purchased intangibles amortization
|
|
|
86,875
|
|
|
|
98,721
|
|
|
|
110,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
940,752
|
|
|
|
715,887
|
|
|
|
608,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
310,959
|
|
|
|
252,057
|
|
|
|
232,388
|
|
General and administrative
|
|
|
188,353
|
|
|
|
164,042
|
|
|
|
150,068
|
|
Research and development
|
|
|
142,505
|
|
|
|
115,833
|
|
|
|
104,343
|
|
Purchased in-process research and development
|
|
|
93,287
|
|
|
|
|
|
|
|
|
|
Business consolidation costs
|
|
|
38,647
|
|
|
|
5,635
|
|
|
|
12,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
773,751
|
|
|
|
537,567
|
|
|
|
499,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
167,001
|
|
|
|
178,320
|
|
|
|
108,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
24,595
|
|
|
|
27,961
|
|
|
|
26,687
|
|
Interest expense
|
|
|
(43,039
|
)
|
|
|
(27,967
|
)
|
|
|
(32,156
|
)
|
Other income, net
|
|
|
5,704
|
|
|
|
332
|
|
|
|
540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
(12,740
|
)
|
|
|
326
|
|
|
|
(4,929
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
154,261
|
|
|
|
178,646
|
|
|
|
104,063
|
|
Income tax provision
|
|
|
(124,299
|
)
|
|
|
(48,367
|
)
|
|
|
(28,304
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
29,962
|
|
|
|
130,279
|
|
|
|
75,759
|
|
Net income (loss) from discontinued operations (net)
|
|
|
1,359
|
|
|
|
12,911
|
|
|
|
(266,808
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss)
|
|
$
|
31,321
|
|
|
$
|
143,190
|
|
|
$
|
(191,049
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
0.31
|
|
|
$
|
1.39
|
|
|
$
|
0.74
|
|
Net income (loss) from discontinued operations
|
|
$
|
0.01
|
|
|
$
|
0.14
|
|
|
$
|
(2.60
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
0.32
|
|
|
$
|
1.53
|
|
|
$
|
(1.86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
0.29
|
|
|
$
|
1.35
|
|
|
$
|
0.72
|
|
Net income (loss) from discontinued operations
|
|
$
|
0.01
|
|
|
$
|
0.13
|
|
|
$
|
(2.52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
0.30
|
|
|
$
|
1.48
|
|
|
$
|
(1.80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in per share calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
99,229
|
|
|
|
93,372
|
|
|
|
102,786
|
|
Diluted
|
|
|
103,685
|
|
|
|
97,148
|
|
|
|
105,724
|
|
See accompanying notes for additional information.
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Retained
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Earnings
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in-
|
|
|
Deferred
|
|
|
Comprehensive
|
|
|
(Accumulated
|
|
|
Treasury Stock
|
|
|
Stockholders
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Income (Loss)
|
|
|
Deficit)
|
|
|
Shares
|
|
|
Amount
|
|
|
Equity
|
|
|
Income (Loss)
|
|
|
Balance at December 31, 2005
|
|
|
100,439
|
|
|
$
|
1,004
|
|
|
$
|
2,158,144
|
|
|
$
|
(16,023
|
)
|
|
$
|
(16,688
|
)
|
|
$
|
136,377
|
|
|
|
(5,331
|
)
|
|
$
|
(221,020
|
)
|
|
$
|
2,041,794
|
|
|
$
|
43,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issuances under employee stock plans
|
|
|
1,354
|
|
|
|
14
|
|
|
|
29,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,948
|
|
|
|
|
|
Tax benefit of employee stock plans
|
|
|
|
|
|
|
|
|
|
|
937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
937
|
|
|
|
|
|
Purchase of treasury shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,780
|
)
|
|
|
(349,992
|
)
|
|
|
(349,992
|
)
|
|
|
|
|
Issuance of restricted shares
|
|
|
|
|
|
|
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
184
|
|
|
|
|
|
Amortization of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
46,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,924
|
|
|
|
|
|
Reversal of deferred compensation upon adoption of FAS 123R
|
|
|
|
|
|
|
|
|
|
|
(16,023
|
)
|
|
|
16,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension liability, net of deferred taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,048
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,048
|
)
|
|
|
(9,048
|
)
|
Transition adjustment upon adoption of FAS 158, net of
deferred taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,366
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,366
|
)
|
|
|
(5,366
|
)
|
Unrealized loss on cash flow hedging instruments, net of
deferred taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(822
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(822
|
)
|
|
|
(822
|
)
|
Unrealized gain on investments, net of deferred taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,179
|
|
|
|
2,179
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,738
|
|
|
|
64,738
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(191,049
|
)
|
|
|
|
|
|
|
|
|
|
|
(191,049
|
)
|
|
|
(191,049
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
101,793
|
|
|
$
|
1,018
|
|
|
$
|
2,220,100
|
|
|
$
|
|
|
|
$
|
34,993
|
|
|
$
|
(54,672
|
)
|
|
|
(11,111
|
)
|
|
$
|
(571,012
|
)
|
|
$
|
1,630,427
|
|
|
$
|
(139,368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of accounting
changes(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,526
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,526
|
)
|
|
|
|
|
Common stock issuances under employee stock plans
|
|
|
5,148
|
|
|
|
51
|
|
|
|
133,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133,697
|
|
|
|
|
|
Tax benefit of employee stock plans
|
|
|
|
|
|
|
|
|
|
|
20,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,224
|
|
|
|
|
|
Purchase of treasury shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,737
|
)
|
|
|
(284,993
|
)
|
|
|
(284,993
|
)
|
|
|
|
|
Issuance of restricted shares, net of repurchases for minimum
tax liability
|
|
|
98
|
|
|
|
1
|
|
|
|
2,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58
|
)
|
|
|
(3,231
|
)
|
|
|
(565
|
)
|
|
|
|
|
Amortization of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
47,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,532
|
|
|
|
|
|
Pension liability, net of deferred taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,312
|
|
|
|
6,312
|
|
Amortization of cash flow hedging instruments, net of deferred
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(314
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(314
|
)
|
|
|
(314
|
)
|
Unrealized loss on investments, net of deferred taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
756
|
|
|
|
756
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,707
|
|
|
|
70,707
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143,190
|
|
|
|
|
|
|
|
|
|
|
|
143,190
|
|
|
|
143,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
107,039
|
|
|
$
|
1,070
|
|
|
$
|
2,424,167
|
|
|
$
|
|
|
|
$
|
112,454
|
|
|
$
|
86,992
|
|
|
|
(14,906
|
)
|
|
$
|
(859,236
|
)
|
|
$
|
1,765,447
|
|
|
$
|
220,651
|
|
Common stock issuances for business combination
|
|
|
80,835
|
|
|
|
808
|
|
|
|
1,821,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,822,354
|
|
|
|
|
|
Common stock issuances under employee stock plans
|
|
|
1,554
|
|
|
|
16
|
|
|
|
46,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,177
|
|
|
|
|
|
Tax benefit of employee stock plans
|
|
|
|
|
|
|
|
|
|
|
3,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,851
|
|
|
|
|
|
Purchase of treasury shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,198
|
)
|
|
|
(100,242
|
)
|
|
|
(100,242
|
)
|
|
|
|
|
Issuance of restricted shares, net of repurchases for minimum
tax liability
|
|
|
201
|
|
|
|
2
|
|
|
|
771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55
|
)
|
|
|
(4,942
|
)
|
|
|
(4,169
|
)
|
|
|
|
|
Amortization of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
46,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,990
|
|
|
|
|
|
Pension liability, net of deferred taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,545
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,545
|
)
|
|
|
(39,545
|
)
|
Unrealized loss on investments, net of deferred taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,434
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,434
|
)
|
|
|
(11,434
|
)
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(160,282
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(160,282
|
)
|
|
|
(160,282
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,321
|
|
|
|
|
|
|
|
|
|
|
|
31,321
|
|
|
|
31,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
189,629
|
|
|
$
|
1,896
|
|
|
$
|
4,343,485
|
|
|
$
|
|
|
|
$
|
(98,807
|
)
|
|
$
|
118,313
|
|
|
|
(16,159
|
)
|
|
$
|
(964,420
|
)
|
|
$
|
3,400,467
|
|
|
$
|
(179,940
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The aggregate adoption impact of
FIN 48 reflected for the year ended December 31, 2007.
|
See accompanying notes for additional information.
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
31,321
|
|
|
$
|
143,190
|
|
|
$
|
(191,049
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities, including effects of businesses
acquired and divested:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
45,677
|
|
|
|
37,357
|
|
|
|
41,219
|
|
Amortization of intangible assets
|
|
|
86,875
|
|
|
|
98,721
|
|
|
|
120,564
|
|
Impairment of goodwill
|
|
|
|
|
|
|
|
|
|
|
270,384
|
|
Amortization of premiums on investments, net of accretion of
discounts
|
|
|
|
|
|
|
36
|
|
|
|
(5,372
|
)
|
Amortization of deferred debt issuance costs
|
|
|
3,768
|
|
|
|
1,437
|
|
|
|
2,398
|
|
Amortization of inventory fair market value adjustments
|
|
|
33,957
|
|
|
|
471
|
|
|
|
3,117
|
|
Amortization of deferred revenue fair market value adjustment
|
|
|
7,136
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
46,990
|
|
|
|
47,532
|
|
|
|
46,755
|
|
Incremental tax benefits from stock options exercised
|
|
|
(18,538
|
)
|
|
|
(5,401
|
)
|
|
|
(3,071
|
)
|
Deferred income taxes
|
|
|
52,594
|
|
|
|
611
|
|
|
|
(40,011
|
)
|
Loss on disposal of assets
|
|
|
1,187
|
|
|
|
|
|
|
|
2,334
|
|
In-process research and development
|
|
|
93,287
|
|
|
|
|
|
|
|
|
|
Other non-cash adjustments
|
|
|
2,405
|
|
|
|
(850
|
)
|
|
|
5,217
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
(112,294
|
)
|
|
|
(3,078
|
)
|
|
|
(4,578
|
)
|
Inventories
|
|
|
11,076
|
|
|
|
(20,290
|
)
|
|
|
(12,132
|
)
|
Prepaid expenses and other current assets
|
|
|
1,676
|
|
|
|
(7,920
|
)
|
|
|
6,778
|
|
Other assets
|
|
|
1,624
|
|
|
|
(3,495
|
)
|
|
|
7,162
|
|
Accounts payable
|
|
|
(22,192
|
)
|
|
|
10,974
|
|
|
|
4,550
|
|
Accrued expenses and other current liabilities
|
|
|
109,169
|
|
|
|
9,699
|
|
|
|
(11,691
|
)
|
Income taxes
|
|
|
(9,936
|
)
|
|
|
14,570
|
|
|
|
(7,514
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
365,782
|
|
|
|
323,564
|
|
|
|
235,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of available-for-sale securities
|
|
|
(3,513
|
)
|
|
|
(60,703
|
)
|
|
|
|
|
Maturities of available-for-sale securities
|
|
|
54,692
|
|
|
|
8,878
|
|
|
|
306,728
|
|
Net cash paid for business combinations
|
|
|
(2,859,002
|
)
|
|
|
(31,288
|
)
|
|
|
(44,025
|
)
|
Net cash received for divesture
|
|
|
|
|
|
|
209,901
|
|
|
|
|
|
Reversion of benefit plan assets
|
|
|
|
|
|
|
|
|
|
|
26,639
|
|
Purchases of property and equipment
|
|
|
(81,886
|
)
|
|
|
(78,333
|
)
|
|
|
(61,085
|
)
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
|
|
|
|
10,645
|
|
Payments for intangible assets
|
|
|
|
|
|
|
|
|
|
|
(9,084
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(2,889,709
|
)
|
|
|
48,455
|
|
|
|
229,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances from lines of credit
|
|
|
|
|
|
|
547
|
|
|
|
|
|
Proceeds from long-term obligations
|
|
|
2,435,600
|
|
|
|
|
|
|
|
|
|
Principal payments on long-term obligations
|
|
|
(3,117
|
)
|
|
|
(2,595
|
)
|
|
|
(232,178
|
)
|
Issuance cost payments on long-term obligations
|
|
|
(92,260
|
)
|
|
|
|
|
|
|
|
|
Incremental tax benefits from stock options exercised
|
|
|
18,538
|
|
|
|
5,401
|
|
|
|
3,071
|
|
Proceeds from sale of common stock
|
|
|
47,825
|
|
|
|
138,395
|
|
|
|
29,948
|
|
Purchase of treasury stock
|
|
|
(105,184
|
)
|
|
|
(284,993
|
)
|
|
|
(349,992
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
2,301,402
|
|
|
|
(143,245
|
)
|
|
|
(549,151
|
)
|
Effect of exchange rate changes on cash
|
|
|
(47,690
|
)
|
|
|
10,478
|
|
|
|
15,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(270,215
|
)
|
|
|
239,252
|
|
|
|
(68,337
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
606,145
|
|
|
|
366,893
|
|
|
|
435,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
335,930
|
|
|
$
|
606,145
|
|
|
$
|
366,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes for additional information.
60
|
|
1.
|
BUSINESS
ACTIVITY, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
SIGNIFICANT ACCOUNTS
|
Business
Activity
Life Technologies Corporation is a global biotechnology tools
company dedicated to improving the human condition. Our systems,
consumables and services enable researchers to accelerate
scientific exploration, driving to discoveries and developments
that make life even better. We deliver a broad range of products
and services, including systems, instruments, reagents, and
custom services. Life Technologies business is focused on
three principal segments: BioDiscovery, Cell Systems, and
Applied Biosystems.
Principles
of Consolidation
The consolidated financial statements include the accounts of
Life Technologies Corporation and its majority owned or
controlled subsidiaries collectively referred to as Life
Technologies (the Company). All significant intercompany
accounts and transactions have been eliminated in consolidation.
For purposes of these Notes to Consolidated Financial
Statements, gross profit is defined as revenues less cost of
revenues and purchased intangibles amortization and gross margin
is defined as gross profit divided by revenues. Operating income
is defined as gross profit less operating expenses and operating
margin is defined as operating income divided by revenues.
Discontinued
Operations
Discontinued operations relate to the sale of the Companys
BioReliance business unit and the sale of BioSource Europe, S.A.
In April 2007, Life Technologies completed the sale of its
BioReliance subsidiary to Avista Capital Partners and received
net cash proceeds of approximately $209.0 million. No loss
on the sale was recorded in 2007. The results of operations for
BioReliance for the period from January through April 2007 and
the results for all prior periods are reported as discontinued
operations. Additionally, the Company finalized the sale of
BioSource Europe, S.A., a diagnostic business located in
Belgium, on February 1, 2007 to a private investor group in
Belgium for proceeds of $5.5 million. Net proceeds from
both divestitures less cash spent as part of the disposal
process were $209.9 million.
We have reclassified the consolidated financial statements for
all periods presented to reflect BioReliance and BioSource
Europe, S.A. as discontinued operations as these businesses meet
the criteria as a component of an entity under
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Accordingly, any operating
results of these businesses are presented in the Companys
Consolidated Statements of Operations as discontinued
operations, net of income tax, and all prior periods have been
reclassified. The components of discontinued operations for the
periods presented are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
(in thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net revenues
|
|
$
|
|
|
|
$
|
29,962
|
|
|
$
|
112,310
|
|
Cost of revenues
|
|
|
|
|
|
|
22,357
|
|
|
|
85,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
7,605
|
|
|
|
26,737
|
|
Operating expenses
|
|
|
|
|
|
|
(6,309
|
)
|
|
|
(23,555
|
)
|
Impairment of goodwill
|
|
|
|
|
|
|
|
|
|
|
(270,400
|
)
|
Non-operating income
|
|
|
857
|
|
|
|
6,547
|
|
|
|
399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from discontinued operations before income
taxes
|
|
|
857
|
|
|
|
7,843
|
|
|
|
(266,819
|
)
|
Income tax benefit
|
|
|
502
|
|
|
|
5,068
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from discontinued operations
|
|
$
|
1,359
|
|
|
$
|
12,911
|
|
|
$
|
(266,808
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
AS OF DECEMBER 31, 2008, 2007 AND 2006
The net liabilities of discontinued operations consisted of the
following:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
December 31, 2008
|
|
December 31, 2007
|
|
Accrued expenses and other current liabilities
|
|
|
|
|
|
|
2,506
|
|
|
|
|
|
|
|
|
|
|
Total liabilities of discontinued operations
|
|
$
|
|
|
|
$
|
2,506
|
|
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Concentrations
of Risks
Approximately $367.4 million, $343.3 million and
$337.9 million, or 23%, 28% and 30% of the Companys
product revenues during the years ended December 31, 2008,
2007 and 2006, respectively, were derived from university and
research institutions which management believes are, to some
degree, directly or indirectly supported by the
U.S. Government. If there were to be a significant change
in current research funding, particularly with respect to the
National Institute of Health, it could have a material adverse
impact on the Companys future revenues and results of
operations.
Segment
Information
The Company operates in three segments: BioDiscovery (BD), Cell
Systems (CS), and Applied Biosystems (AB). The Company has no
intersegment revenues that are material to the overall
consolidated financial statements. The Company does not
currently segregate assets by segment as a majority of the
Companys total assets are shared or considered non-segment
assets. The Company has determined that it is not useful to
assign its shared assets to individual segments. Based on the
aggregation criteria of Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information, the Companys
products and services within a segment share similar economic
characteristics, but are different from the economic
characteristics of the products and services of the others. As a
result of using the aggregation guidelines, there is no logical
subgrouping of products within either the segments.
Revenue
Recognition
We derive our revenue from the sale of our products, services
and technology. We recognize revenue from product sales upon
transfer of title of the product or performance of services.
Concurrently, we record provisions for warranty, returns, and
installation based on historical experience and anticipated
product performance. Discounts are recorded as sales reductions
concurrently with the applicable sale. Cash discounts are
recorded as sales reductions on our receipt of the sales
proceeds. Transfer of title generally occurs upon shipment to
the customer. We generally ship to our customers FOB shipping
point. Revenue is not recognized at the time of shipment of
products in situations where risks and rewards of ownership are
transferred to the customer at a point other than shipment due
to the shipping terms, the existence of an acceptance clause,
the achievement of milestones, or some return or cancellation
privileges. For sales with acceptance terms, revenue is
recognized once customer acceptance occurs or the acceptance
provisions lapse. Service revenue is recognized over the period
services are performed. In cases where customers order and pay
for products or services and request that we store a portion of
their order for them at our cost or perform services over a
period of time, we record any material up-front payments as
deferred revenue in accrued expenses and other current
liabilities in the Consolidated Balance Sheets and recognize
revenue upon shipment of the product to the customer. Deferred
revenue totaled $118.2 million at December 31, 2008.
62
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
AS OF DECEMBER 31, 2008, 2007 AND 2006
We also enter into arrangements whereby revenues are derived
from multiple deliverables. We record revenue as the separate
elements are delivered to the customer if the delivered item is
determined to represent a separate earnings process, there is
objective and reliable evidence of the fair value of the
undelivered item, and delivery or performance of the undelivered
item is probable and substantially in our control. We determine
the fair value of the installation process based on technician
labor billing rates, the expected number of hours to install the
instrument based on historical experience, and amounts charged
by third parties. We continually monitor the level of effort
required for the installation of our instruments to ensure that
appropriate fair values have been determined. Revenues from
multiple-element arrangements involving license fees, up-front
payments and milestone payments, which are received
and/or
billable in connection with other rights and services that
represent our continuing obligations, are deferred until all of
the multiple elements have been delivered or until objective and
verifiable evidence of the fair value of the undelivered
elements has been established. If objective and verifiable
evidence of fair value of all undelivered elements exist but
objective and verifiable evidence of fair value does not exist
for one or more delivered elements, then revenue is recognized
using the residual method.
We recognize royalty revenue (including upfront licensing fees)
when the amounts are earned and determinable during the
applicable period based on historical activity, and make
revisions for actual royalties received in the following
quarter. For those arrangements where royalties cannot be
reasonably estimated, we recognize revenue on the receipt of
cash or royalty statements from our licensees. In addition, we
recognize up-front nonrefundable license fees when due under
contractual agreement, unless we have specific continuing
performance obligations requiring deferral of all or a portion
of these fees. We have adopted the provisions of Statement of
Position (SOP)
97-2,
Software Revenue Recognition for license fees with
extended terms. Specifically, if it cannot be concluded that a
licensee fee is fixed or determinable at the outset of an
arrangement, revenue is recognized as payments from third
parties become due. Grant and royalty revenues were
$51.0 million, $39.9 million and $26.8 million in
2008, 2007 and 2006, respectively.
We recognize revenue from government contracts, which are
principally cost-plus-fixed-fee, in amounts equal to
reimbursable costs plus a pro-rata portion of the earned fee. We
provide for losses when they become known.
The Company undertakes a review of unbilled accounts receivable
from customers to determine that such amounts are expected to
become billable and collectible in all material respects.
Shipping and handling costs are included in costs of sales.
Shipping and handling costs charged to customers is recorded as
revenue in the period the related product sales revenue is
recognized.
Valuation
of Financial Instruments
The carrying amounts of financial instruments such as cash
equivalents, foreign cash accounts, accounts receivable, prepaid
expenses and other current assets, accounts payable, accrued
expenses and other current liabilities approximate the related
fair values due to the short-term maturities of these
instruments. The estimated fair value of the convertible notes
is determined by using observable market information and
valuation methodologies that correlate fair value with the
market price of the Companys common stock, and the
estimated fair value of the term loans and the secured loan is
determined by using observable market information. The fair
value of the Companys long term debt at December 31,
2008 and 2007 are as follows (see Note 5 for carrying
amounts):
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2008
|
|
|
2007
|
|
|
31/4% Convertible
Subordinated Notes (principal due 2025)
|
|
$
|
308,000
|
|
|
$
|
406,438
|
|
11/2% Convertible
Senior Notes (principal due 2024)
|
|
|
342,000
|
|
|
|
477,562
|
|
2% Convertible Senior Notes (principal due 2023)
|
|
|
332,128
|
|
|
|
504,875
|
|
Term A Loan (principal due 2013)
|
|
|
1,260,000
|
|
|
|
|
|
Term B Loan (principal due 2015)
|
|
|
927,675
|
|
|
|
|
|
Secured Loan
|
|
|
35,600
|
|
|
|
|
|
63
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
AS OF DECEMBER 31, 2008, 2007 AND 2006
Cash and
Cash Equivalents and Marketable Securities
The Company invests its excess cash in marketable securities,
money market funds, corporate notes, government securities,
highly liquid debt instruments, time deposits, and certificates
of deposit with original maturities of three months or less at
the date of purchase. These instruments are readily convertible
into cash. The Company has established guidelines that maintain
safety and liquidity. The Company considers all highly liquid
investments with maturity of three months or less from the date
of purchase to be cash equivalents.
All marketable debt and equity securities, other than auction
rate securities and the put option (as discussed below), are
categorized as available-for-sale and are stated at fair value,
with unrealized gains and losses, net of deferred income taxes,
reported in other comprehensive income affecting
stockholders equity. Auction rate securities and the put
option are categorized as trading securities and any realized
gains or losses are reported in other income or loss.
Investments consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(in thousands)
|
|
2008
|
|
|
2007
|
|
|
Short-term
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
$
|
|
|
|
$
|
60,703
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
|
|
|
|
|
60,703
|
|
Long-term
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
|
29,407
|
|
|
|
|
|
Put option
|
|
|
6,193
|
|
|
|
|
|
Equity securities
|
|
|
9,744
|
|
|
|
753
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments
|
|
|
45,344
|
|
|
|
753
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
45,344
|
|
|
$
|
61,456
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008, the Company holds
$35.6 million in AAA rated auction rate securities with UBS
Investment Bank. Auction rate securities are collateralized
long-term debt instruments that provide liquidity through a
Dutch auction process that resets the applicable interest rate
at pre-determined intervals, typically every 7 to 35 days.
The underlying assets of the auction rate securities we hold,
including the securities for which auctions have failed, are
student loans which are guaranteed by the U.S. government
under the Federal Education Loan Program. Beginning in February
2008, auctions failed for the Companys holdings because
sell orders exceeded buy orders. As a result of the failed
auctions, the Company is holding illiquid securities because the
funds associated with these failed auctions will not be
accessible until the issuer calls the security, a successful
auction occurs, a buyer is found outside of the auction process,
or the security matures. In August 2008, UBS announced that it
agreed to a settlement in principle with the Securities and
Exchange Commission (SEC) and other state regulatory agencies
represented by North American Securities Administrators
Association to restore liquidity to all remaining clients who
hold auction rate securities. UBS committed to repurchase
auction rate securities from their private clients at par
beginning January 1, 2009. The Company intends to have this
settlement occur between June 30, 2010 and July 2, 2012.
Until UBS fully redeems the Companys auction rate
securities, UBS will loan to the Company at par without recourse
and with accrued interest charges at the same rate as the yields
earned on the underlying securities that serve as collateral for
the loan. Because the Company has a right to sell its auction
rate securities to UBS, this right is considered to be a put
option, however, this put option does not meet the definition of
derivative under SFAS 133, Accounting for Derivative
Instruments and Hedging Activities, as auction rate
securities are not readily convertible to cash. Thus, this put
option will not be subsequently adjusted to fair value each
reporting period. To create accounting symmetry for the fair
value movement between auction rate securities and the put
option, the Company elected the fair value option for the put
option in accordance with SFAS 159, The Fair Value
Option for Financial Assets and Financial
LiabilitiesIncluding an amendment of FASB Statement
No. 115, upon the execution of the loan agreement with
UBS on the election date in November 2008. In addition,
64
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
AS OF DECEMBER 31, 2008, 2007 AND 2006
the Company elected a transfer of auction rate securities from
available-for-sale securities to trading securities in
accordance with SFAS 115, Accounting for Certain
Investments in Debt and Equity Securities, due to the nature
of the current market conditions and the Companys intended
holding period.
The Company anticipates that any future changes in the fair
value of the put option will be offset by the changes in the
underlying fair value of the related auction rate securities
with no material net impact to the Consolidated Statements of
Operations. The put option will continue to be measured at fair
value utilizing Level 3 inputs until the earlier of its
maturity or exercise. Upon transferring the auction rate
securities from available-for-sale securities to trading
securities, the Company reclassed $6.2 million out of
accumulative other comprehensive income, net of
$2.5 million of deferred tax assets, recognized
$6.2 million loss in other expense, and concurrently
recognized a $6.2 million gain in other income for the put
option. The Company did not record deferred taxes related to the
auction rate securities as the combination of the fair value of
the securities and the put option equal the Companys cost
basis. During the year ended December 31, 2008, the Company
did not recognize a net gain or loss related to the auction rate
securities and the related put option. The fair market value of
auction rate securities and the put option were
$29.4 million and $6.2 million, respectively, as of
December 31, 2008 and are reflected in long term
investments in the Consolidated Balance Sheets.
The amortized cost of debt securities is adjusted for
amortization of premiums and accretion of discounts to maturity.
The amortization and accretion, interest income and realized
gains and losses are included in interest income within the
Consolidated Statements of Operations. The cost of securities
sold is based on the specific identification method.
Maturities and gross unrealized gains (losses) for available for
sale securities at December 31, 2008 and 2007 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
2008
|
|
Maturity
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Estimated
|
|
(in thousands)
|
|
in Years
|
|
|
Cost
|
|
|
Gain (Loss)
|
|
|
Fair Value
|
|
|
Long-term
|
|
|
1 or more
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
$
|
9,744
|
|
|
|
|
|
|
$
|
9,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments
|
|
|
|
|
|
$
|
9,744
|
|
|
|
|
|
|
$
|
9,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Estimated
|
|
(in thousands)
|
|
Maturity
|
|
|
Amortized Cost
|
|
|
Gain (Loss)
|
|
|
Fair Value
|
|
|
Short-term
|
|
|
1 or less
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
|
|
|
|
$
|
60,703
|
|
|
|
|
|
|
$
|
60,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
|
|
|
|
|
60,703
|
|
|
|
|
|
|
|
60,703
|
|
Long-term
|
|
|
1 or more
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
753
|
|
|
|
|
|
|
|
753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments
|
|
|
|
|
|
|
753
|
|
|
|
|
|
|
|
753
|
|
Total investments
|
|
|
|
|
|
$
|
61,456
|
|
|
|
|
|
|
$
|
61,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no unrealized gains or losses as of December 31,
2008. During 2008, we determined that an equity investment was
impaired since its fair value is less than its cost. As a
result, a $2.6 million other than temporary impairment loss
was recognized in the fourth quarter of fiscal year 2008.
65
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
AS OF DECEMBER 31, 2008, 2007 AND 2006
The Company adopted SFAS 157, Fair Value Measurements,
which defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value
measurements for financial instruments effective January 1,
2008. The Company did not adopt the provisions of SFAS 157
for non-financial instruments in the current year due to the
deferral period provided by
FSP 157-2,
Effective Date of SFAS 157. The SFAS 157
framework requires the valuation of investments using a three
tiered approach in the valuation of investments. The statement
requires fair value measurement be classified and disclosed in
one of the following three categories:
Level 1: Unadjusted quoted prices in active markets that
are accessible at the measurement date for identical,
unrestricted assets or liabilities;
Level 2: Quoted prices for similar assets and liabilities
in active markets, quoted prices in markets that are not active,
or inputs which are observable, either directly or indirectly,
for substantially the full term of the asset or liability;
Level 3: Prices or valuation techniques that require inputs
that are both significant to the fair value measurement and
unobservable (i.e. supported by little or no market activity).
Exchange traded derivatives are valued using quoted market
prices and classified within Level 1 of the fair value
hierarchy. Level 2 derivatives include foreign currency
forward contracts for which fair value is determined by using
observable market spot rates and forward points adjusted by
risk-adjusted discount rates. The risk-adjusted discount rate is
derived by U.S. dollar zero coupon yield bonds for
corresponding duration of the maturity of derivatives, then
adjusted with a counter party default risk for the value of our
derivative assets or our credit risk for the value of our
derivative liabilities. Credit risk is derived by observable
credit default swaps (CDS) spread. Because CDS spread
information is not available for our Company, our credit risk is
determined by analyzing CDS spreads of similar size public
entities in the same industry with similar credit ratings. The
value of our derivatives discounted by risk-adjusted discount
rates represents the present value of amounts estimated to be
received for the assets or paid to transfer the liabilities at
the measurement date from a marketplace participant in
settlement of these instruments.
The valuation of money market funds based on Level 3
unobservable inputs consisted of recommended fair values
provided by our broker combined with internal analysis of
interest rate spreads and credit quality. As a result of having
unsecured commercial paper within the Reserve Primary Money
Market Fund (Fund), our assessment of the value of the
investment is that it is unlikely to fully recover in the
foreseeable future given the status of the Funds
underlying investments. Our investment in this asset is valued
using Level 3 inputs and significant management judgment.
This Fund is in the process of liquidating all remaining assets
and will complete this process in the next twelve months. The
final published net asset value (NAV) for this Fund was $0.97
per unit. Due to the Funds managements expectations
to liquidate at or above amortized cost, recent cash recoveries
from the fund, future expected proceeds and taking into
consideration the short-term nature of the Funds weighted
average maturity, management concluded that the $0.97 NAV per
unit last published was a reasonable fair value. The valuation
of Reserve Primary Money Market Fund as of December 31,
2008 was included in other current assets in the Consolidated
Balance Sheets.
All realized gains or losses related to financial instruments
whose fair value is determined based on Level 3 inputs are
included in other income. All unrealized gains or temporary
losses related to financial instruments whose fair value is
determined based on Level 3 inputs are included in other
comprehensive income. All other than temporary losses are
included in other income.
66
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
AS OF DECEMBER 31, 2008, 2007 AND 2006
The following table represents the financial instruments on the
financial statements of the Company subject to SFAS 157 and
the valuation approach applied to each class of security:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements on a Recurring Basis
|
|
|
|
|
|
|
at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Active Markets
|
|
|
Significant Other
|
|
|
Significant
|
|
(in thousands)
|
|
December 31,
|
|
|
for Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
Description
|
|
2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Money market funds
|
|
$
|
232,311
|
|
|
$
|
214,051
|
|
|
$
|
|
|
|
$
|
18,260
|
|
Bank time deposits
|
|
|
73,225
|
|
|
|
73,225
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
|
29,407
|
|
|
|
|
|
|
|
|
|
|
|
29,407
|
|
Put option
|
|
|
6,193
|
|
|
|
|
|
|
|
|
|
|
|
6,193
|
|
Derivative forward exchange contracts, net
|
|
|
(53,490
|
)
|
|
|
|
|
|
|
(53,490
|
)
|
|
|
|
|
Deferred compensation plan assets
|
|
|
25,530
|
|
|
|
25,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net assets subject to fair value measurements
|
|
$
|
313,176
|
|
|
$
|
312,806
|
|
|
$
|
(53,490
|
)
|
|
$
|
53,860
|
|
For those financial instruments with significant Level 3
inputs, the following table summarizes the activity for the year
ended December 31, 2008 by investment type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant
|
|
|
|
|
|
|
Unobservable Inputs (Level 3)
|
|
|
|
|
|
|
Auction
|
|
|
|
|
|
Money
|
|
|
|
|
(in thousands)
|
|
Rate
|
|
|
|
|
|
Market
|
|
|
|
|
Description
|
|
Securities
|
|
|
Put Options
|
|
|
Funds
|
|
|
Total
|
|
|
Beginning balance at January 1, 2008
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Transfers in to Level 3 from business combinations
|
|
|
|
|
|
|
|
|
|
|
46,369
|
|
|
|
46,369
|
|
Transfers in to Level 3
|
|
|
35,600
|
|
|
|
6,200
|
|
|
|
|
|
|
|
41,800
|
|
Total realized/unrealized gains (losses) Included in earnings
|
|
|
(6,193
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
(6,200
|
)
|
Purchases, issuances and settlements
|
|
|
|
|
|
|
|
|
|
|
(28,109
|
)
|
|
|
(28,109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at December 31, 2008
|
|
$
|
29,407
|
|
|
$
|
6,193
|
|
|
$
|
18,260
|
|
|
$
|
53,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amount of unrealized losses for the period included in
other comprehensive loss attributable to the change in fair
market value of related assets still held at the reporting date
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Foreign
Currency Risk and Hedging
The Company translates the financial statements of its
non-U.S. operations
using end-of-period exchange rates for assets and liabilities
and average exchange rates during each reporting period for
results of operations. Net gains or losses resulting from the
translation of foreign financial statements and the effect of
exchange rate changes on intercompany receivables and payables
of a long-term investment nature are recorded as a separate
component of stockholders equity. These adjustments will
affect net income only upon sale or liquidation of the
underlying
non-U.S. investment.
The cumulative translation adjustments included in accumulated
other comprehensive income (loss) reported as a separate
component of stockholders equity were a net cumulative
gain (loss) of $(30.1) million and $129.3 million at
December 31, 2008 and 2007, respectively.
Some of the Companys reporting entities conduct a portion
of their business in currencies other than the entitys
functional currency. These transactions give rise to receivables
and payables that are denominated in
67
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
AS OF DECEMBER 31, 2008, 2007 AND 2006
currencies other than the entitys functional currency. The
value of these receivables and payables is subject to changes in
currency exchange rates because they may become worth more or
less than they were worth at the time we entered into the
transaction due to changes in exchange rates. Both realized and
unrealized gains or losses in the value of these receivables and
payables are included in the determination of net income. Net
currency exchange gains recognized on business transactions, net
of hedging transactions, were $8.3 million and
$0.5 million for the years ended December 31, 2008 and
2007, respectively, and are included in other income in the
Consolidated Statements of Operations. To manage the foreign
currency exposure risk, we use derivatives for activities in our
non-U.S. subsidiaries.
Realized and unrealized gains or losses on the value of
financial contracts entered into to hedge the exchange rate
exposure of these receivables and payables are also included in
the determination of net income. These contracts, which settle
in January 2009 through June 2009, effectively fix the exchange
rate at which these specific receivables and payables will be
settled in, so that gains or losses on the forward contracts
offset the gains or losses from changes in the value of the
underlying receivables and payables. At December 31, 2008,
the Company had $740.5 million in foreign currency forward
contracts outstanding to hedge currency risk.
The Companys international operating units conduct
business in, and have a functional currency that differs from
the parent entity, and therefore, the ultimate conversion of
these sales to cash in U.S. dollars is subject to
fluctuations in foreign currency The Companys intent is to
limit this exposure from changes in currency exchange rates
through hedging. When the dollar strengthens significantly
against foreign currencies, the decline in the US dollar value
of future foreign currency revenue is offset by gains in the
value of the forward contracts designated as hedges. Conversely,
when the dollar weakens, the opposite occurs. The Companys
currency exposures vary, but are primarily concentrated in the
euro, British pound sterling, Japanese yen and Canadian dollar.
The Company uses foreign currency forward contracts to mitigate
foreign currency risk on forecasted foreign currency sales which
are expected to be settled within twelve months. The change in
fair value prior to their maturity is accounted for as cash flow
hedges, and recorded in other comprehensive income, net of tax,
in the Consolidated Balance Sheets according to SFAS 133,
Accounting for Derivative Investments and Hedging
Activities. To the extent any portion of the forward
contracts is determined to not be an effective hedge, the
increase or decrease in value prior to the maturity was recorded
in other income or expense in the Consolidated Statements of
Operations.
During the year ended December 31, 2008, the Company
recognized immaterial net losses related to the ineffective
portion of its hedging instruments in other expense in the
Consolidated Statements of Operations. No hedging relationships
were terminated as a result of ineffective hedging or forecasted
transactions no longer probable of occurring. The Company
continuously monitors the probability of forecasted transactions
as part of the hedge effectiveness testing. As of
December 31, 2008, the fair value of foreign currency
forward contracts are reported in prepaid expenses or short term
accrued expense in the Consolidated Balance Sheet as
appropriate. The Company reclasses deferred gains or losses
reported in accumulated other comprehensive income into revenue
when the consolidated earnings are impacted or when the
inventory was sold to unrelated parties for intercompany sales.
The Company uses an inventory turnover ratio for each
international operating unit to align the timing of a hedged
item and a hedging instrument to impact the Consolidated
Statements of Operations during the same reporting period. At
December 31, 2008, the Company expects to recognize
$17.5 million of net losses on derivative instruments
currently classified under accumulated other comprehensive
income to earnings during the next twelve months.
Concentration
of Credit Risk
The forward contracts used in managing our foreign currency
exposures have an element of risk in that the counterparties may
be unable to meet the terms of the agreements. We attempt to
minimize this risk by limiting the counterparties to a diverse
group of highly-rated domestic and international financial
institutions. In the event of non-performance by these
counterparties, the carrying values of our financial instruments
represent the maximum amount of loss we would have incurred as
of our fiscal year-end. However, we do not expect to record any
losses as a result of counterparty default. We do not require
and are not required to pledge collateral for these financial
68
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
AS OF DECEMBER 31, 2008, 2007 AND 2006
instruments. Other financial instruments that potentially
subject us to concentrations of credit risk are cash and cash
equivalents, short-term investments, and accounts receivable. We
attempt to minimize the risks related to cash and cash
equivalents and short-term investments by using highly-rated
financial institutions that invest in a broad and diverse range
of financial instruments. We have established guidelines
relative to credit ratings and maturities intended to maintain
safety and liquidity. Concentration of credit risk with respect
to accounts receivable is limited due to our large and diverse
customer base, which is dispersed over different geographic
areas. Allowances are maintained for potential credit losses and
such losses have historically been within our expectations. Our
investment portfolio is maintained in accordance with our
investment policy which defines allowable investments, specifies
credit quality standards and limits the credit exposure of any
single issuer. The Company does not use derivative financial
instruments for speculation or trading purposes nor for
activities other than risk management, and we are not a party to
leveraged derivatives. In addition, we do not carry any master
netting arrangements to mitigate the credit risk. The Company
continually evaluates the costs and benefits of its hedging
program.
Restricted
Cash and Related Liabilities
The Company had restricted cash of $112.4 million held in
Rabbi Trusts as of December 31, 2008. Of this
$112.4 million, $109.4 million was held in a Rabbi
Trust (the AB Trust) which was assumed by the Company upon the
closing of its merger with Applied Biosystems. The AB Trust
funds several non qualified pension plans of Applera Corporation
totaling $58.7 million and termination benefits totaling
$51.4 million. The funds are invested primarily in money
market accounts. The AB Trust remains in place for the term of
benefits payable, which in the case of non qualified pension
plans is the death of the participants or their designated
beneficiaries. The termination benefits funded by the AB Trust
are expected to be paid in full by January 2010. At
December 31, 2008, $109.4 million is included in
accrued expenses and deferred credits and reserves that are to
be funded by the AB Trust. The rabbi trust assets are subject to
the claims of the Companys creditors in the event of the
Companys insolvency. No further contributions are required
to be made to the AB Trust as of December 31, 2008.
Restricted cash also consists of $3.0 million and
$4.4 million at December 31, 2008 and 2007,
respectively and was held in a Rabbi Trust (the Trust). The
Trust, which was assumed by the Company upon the closing of its
merger with Dexter Corporation (Dexter) in 2000, funds
supplemental benefits for certain former employees of Dexter,
most of whom did not become employees of the Company. The funds
are invested primarily in money market accounts. The Trust is
irrevocable and remains in place for the term of benefits
payable, which in the case of certain supplemental retirement
benefits is the death of the participants or their designated
beneficiaries. At December 31, 2008, $2.5 million is
included in accrued expenses and deferred credits and reserves
that are to be funded by the Trust. No further contributions are
required to be made to the Trust.
Accounts
Receivable
The Company provides reserves against trade receivables for
estimated losses that may result from a customers
inability to pay. The amount is determined by analyzing known
uncollectible accounts, aged receivables, economic conditions in
the customers country or industry, historical losses and
customer credit-worthiness. Bad debt expense is recorded as
necessary to maintain an appropriate level of allowance for
doubtful accounts in general and administrative expense.
Additionally, our policy is to fully reserve for all accounts
with aged balances greater than one year, with certain
exceptions determined necessary by management. Amounts
determined to be uncollectible are charged or written off
against the reserve. To date such losses, in the aggregate, have
not exceeded managements estimates.
Inventories
Inventories are generally stated at lower of cost
(first-in,
first-out method) or market. Cost is determined principally on
the standard cost method for manufactured goods which
approximates cost on the
first-in,
first-out method. The Company reviews the components of its
inventory on a regular basis for excess, obsolete and impaired
69
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
AS OF DECEMBER 31, 2008, 2007 AND 2006
inventory and makes appropriate dispositions as obsolete
inventory is identified. Reserves for excess, obsolete and
impaired inventory were $95.5 million and
$46.0 million at December 31, 2008 and 2007,
respectively.
Inventories include material, labor and overhead costs in
addition to purchase accounting adjustments to
write-up
acquired inventory to estimated selling prices less costs to
complete, costs of disposal and a reasonable profit allowance.
Inventories consist of the following at December 31:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2008
|
|
|
2007
|
|
|
Raw materials and components
|
|
$
|
94,332
|
|
|
$
|
34,106
|
|
Work in process (materials, labor and overhead)
|
|
|
58,091
|
|
|
|
35,067
|
|
Finished goods (materials, labor and overhead)
|
|
|
204,858
|
|
|
|
103,519
|
|
Adjustment to write up acquired finished goods inventory to fair
value
|
|
|
62,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventories (net)
|
|
$
|
420,029
|
|
|
$
|
172,692
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment
We capitalize major renewals and improvements that significantly
add to productive capacity or extend the life of an asset. We
expense repairs, maintenance, and minor renewals and
improvements as incurred. We remove the cost of assets and
related depreciation from the related accounts on the balance
sheet when assets are sold, or otherwise disposed of, and any
related gains or losses are reflected in current earnings.
Leased capital assets are included in property and equipment.
Amortization of property and equipment under capital leases is
included with depreciation expense. We compute depreciation
expense of owned property and equipment based on the expected
useful lives of the assets primarily using the straight-line
method. We amortize leasehold improvements over their estimated
useful lives or the term of the applicable lease, whichever is
less.
Capitalized internal-use software costs include only those
direct costs associated with the actual development or
acquisition of computer software for internal use, including
costs associated with the design, coding, installation and
testing of the system. Costs associated with preliminary
development, such as the evaluation and selection of
alternatives, as well as training, maintenance and support are
expensed as incurred. At December 31, 2008 and 2007 the
Company has $94.9 million and $60.2 million,
respectively, in unamortized capitalized software costs. For the
years ended December 31, 2008, 2007 and 2006, the Company
amortized into expense $10.0 million, $9.7 million and
$4.9 million, respectively, related to capitalized computer
software costs.
Property and equipment consist of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
Useful Life
|
|
|
|
|
|
|
|
(in thousands)
|
|
(in years)
|
|
|
2008
|
|
|
2007
|
|
|
Land
|
|
|
|
|
|
$
|
127,197
|
|
|
$
|
19,623
|
|
Building and improvements
|
|
|
1-50
|
|
|
|
363,385
|
|
|
|
175,388
|
|
Machinery and equipment
|
|
|
1-10
|
|
|
|
304,389
|
|
|
|
164,318
|
|
Internal use software
|
|
|
1-10
|
|
|
|
124,305
|
|
|
|
92,771
|
|
Construction in process
|
|
|
|
|
|
|
71,641
|
|
|
|
65,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross property and equipment
|
|
|
|
|
|
|
990,917
|
|
|
|
517,847
|
|
Accumulated depreciation and amortization
|
|
|
|
|
|
|
(242,861
|
)
|
|
|
(198,194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment (net)
|
|
|
|
|
|
$
|
748,056
|
|
|
$
|
319,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
Goodwill represents the excess purchase price of net tangible
and intangible assets acquired in business combinations over
their estimated fair value. Goodwill is allocated to the
Companys segments based on the nature
70
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
AS OF DECEMBER 31, 2008, 2007 AND 2006
of the product line of the acquired entity. In accordance with
Statement of Financial Accounting Standards No. 141,
Business Combinations (SFAS 141) and
Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets
(SFAS 142), goodwill is tested for impairment on an annual
basis and earlier if there is an indicator of impairment.
Furthermore, SFAS 142 requires purchased intangible assets
other than goodwill to be amortized over their useful lives
unless these lives are determined to be indefinite.
The Company performs its goodwill impairment tests annually
during the fourth quarter of its fiscal year and earlier if an
event or circumstance indicates that impairment has occurred.
The Company utilized a combination of valuation methods
including a discounted cash flow analysis and the guideline
companies method to estimate the fair value of the reporting
unit. Based on this analysis, the Company determined that an
impairment does not exist at October 1, 2008, and as a
result, no impairment charge has been recorded during the year.
Changes in the net carrying amount of goodwill for the years
ended December 31, 2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cell
|
|
|
Applied
|
|
|
|
|
|
|
|
(in thousands)
|
|
BioDiscovery
|
|
|
Systems
|
|
|
Biosystems
|
|
|
Total
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
1,329,187
|
|
|
$
|
150,821
|
|
|
$
|
|
|
|
$
|
1,480,008
|
|
|
|
|
|
Purchase adjustments for resolution of income tax contingencies
|
|
|
(3,053
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,053
|
)
|
|
|
|
|
Earnout payments
|
|
|
791
|
|
|
|
|
|
|
|
|
|
|
|
791
|
|
|
|
|
|
Other adjustments
|
|
|
(4,773
|
)
|
|
|
59
|
|
|
|
|
|
|
|
(4,714
|
)
|
|
|
|
|
Goodwill acquired during the year
|
|
|
9,086
|
|
|
|
6,032
|
|
|
|
|
|
|
|
15,118
|
|
|
|
|
|
Foreign currency translation
|
|
|
40,629
|
|
|
|
|
|
|
|
|
|
|
|
40,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
1,371,867
|
|
|
$
|
156,912
|
|
|
$
|
|
|
|
$
|
1,528,779
|
|
|
|
|
|
Purchase adjustments for resolution of income tax contingencies
|
|
|
(203
|
)
|
|
|
(3,318
|
)
|
|
|
|
|
|
|
(3,521
|
)
|
|
|
|
|
Other adjustments
|
|
|
(486
|
)
|
|
|
|
|
|
|
|
|
|
|
(486
|
)
|
|
|
|
|
Goodwill acquired during the year
|
|
|
|
|
|
|
36,534
|
|
|
|
2,448,426
|
|
|
|
2,484,960
|
|
|
|
|
|
Foreign currency translation
|
|
|
(77,538
|
)
|
|
|
|
|
|
|
|
|
|
|
(77,538
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
1,293,640
|
|
|
$
|
190,128
|
|
|
$
|
2,448,426
|
|
|
$
|
3,932,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to goodwill acquired during the year were primarily as
a result of our acquisitions of Applied Biosystems and
CellzDirect. For details on our acquisitions, refer to the
Business Combination section in the footnotes to the
consolidated financial statements.
Other
Intangible Assets
Intangible assets are amortized using the straight-line method
over their estimated useful lives. Amortization expense related
to intangible assets for the years ended December 31, 2008,
2007 and 2006 was $86.9 million, $98.7 million and
$110.7 million, respectively. In conjunction with
acquisitions (see Note 2Business Combinations),
$93.3 million, zero and zero of the purchase price was
allocated to in-process research and development and expensed in
the Consolidated Statements of Operations for the years ended
December 31, 2008, 2007 and 2006, respectively.
71
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
AS OF DECEMBER 31, 2008, 2007 AND 2006
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
Weighted
|
|
|
Gross
|
|
|
|
|
|
Weighted
|
|
|
Gross
|
|
|
|
|
|
|
average
|
|
|
carrying
|
|
|
Accumulated
|
|
|
average
|
|
|
carrying
|
|
|
Accumulated
|
|
(in thousands)
|
|
life
|
|
|
amount
|
|
|
amortization
|
|
|
life
|
|
|
amount
|
|
|
amortization
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased technology
|
|
|
8years
|
|
|
$
|
1,094,295
|
|
|
$
|
(606,315
|
)
|
|
|
7years
|
|
|
$
|
771,748
|
|
|
$
|
(562,736
|
)
|
Purchased tradenames and trademarks
|
|
|
9years
|
|
|
|
314,312
|
|
|
|
(55,174
|
)
|
|
|
8years
|
|
|
|
83,158
|
|
|
|
(51,451
|
)
|
Purchased customer base
|
|
|
12years
|
|
|
|
1,472,925
|
|
|
|
(48,699
|
)
|
|
|
5years
|
|
|
|
51,203
|
|
|
|
(29,670
|
)
|
Other intellectual properties
|
|
|
5years
|
|
|
|
235,304
|
|
|
|
(34,238
|
)
|
|
|
6years
|
|
|
|
45,363
|
|
|
|
(28,545
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,116,836
|
|
|
$
|
(744,426
|
)
|
|
|
|
|
|
$
|
951,472
|
|
|
$
|
(672,402
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased tradenames and trademarks, and other
|
|
|
|
|
|
$
|
7,451
|
|
|
|
|
|
|
|
|
|
|
$
|
7,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated amortization expense for amortizable intangible assets
owned as of December 31, 2008 for each of the five
succeeding fiscal years is as follows:
|
|
|
|
|
(in thousands)
|
|
|
|
|
Years Ending December 31,
|
|
|
|
|
2009
|
|
$
|
293,390
|
|
2010
|
|
|
281,304
|
|
2011
|
|
|
273,666
|
|
2012
|
|
|
258,036
|
|
2013
|
|
|
246,015
|
|
Valuation
of Long-Lived Assets and Intangibles
The Company reviews long-lived assets and intangibles for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. We
periodically re-evaluate the original assumptions and rationale
utilized in the establishment of the carrying value and
estimated lives of its long-lived assets. The criteria used for
these evaluations include managements estimate of the
assets continuing ability to generate income from operations and
positive cash flow in future periods as well as the strategic
significance of any intangible asset in the Companys
business objectives. If assets are considered to be impaired,
the impairment recognized is the amount by which the carrying
value of the assets exceeds the fair value of the assets, which
is determined by applicable market prices, when available. There
was no impairment loss recognized for long-lived assets
(excluding goodwill) during the years ended December 31,
2008 and 2007.
Product
Warranties
We accrue warranty costs for product sales at the time of
shipment based on historical experience as well as anticipated
product performance. Our product warranties extend over a
specified period of time ranging up to two years from the date
of sale depending on the product subject to warranty. The
product warranty accrual covers parts and labor for repairs and
replacements covered by our product warranties. We periodically
review the adequacy of our warranty reserve, and adjust, if
necessary, the warranty percentage and accrual based on actual
experience and estimated costs to be incurred.
72
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
AS OF DECEMBER 31, 2008, 2007 AND 2006
Accrued
Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the
following at December 31:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2008
|
|
|
2007
|
|
|
Accrued hedge liabilities
|
|
$
|
58,602
|
|
|
$
|
|
|
Accrued royalties
|
|
|
50,794
|
|
|
|
21,829
|
|
Accrued pension
|
|
|
46,331
|
|
|
|
3,284
|
|
Accrued warranty
|
|
|
12,616
|
|
|
|
213
|
|
Accrued other
|
|
|
67,075
|
|
|
|
17,382
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses
|
|
$
|
235,418
|
|
|
$
|
42,708
|
|
|
|
|
|
|
|
|
|
|
Research
and Development Costs
Costs incurred in research and development activities are
expensed as incurred. Research and development costs incurred
for collaborations where there are specific product
deliverables, service meeting defined performances or other
design specifications, are recorded in cost of sales. During the
years ended December 31, 2008, 2007 and 2006 research and
development expenses in operating expense were
$142.5 million, $115.8 million and $104.3 million.
Accounting
for Share-Based Compensation
The Company accounts for share based compensation using
Statement of Financial Accounting Standards No. 123
(revised 2004), Share-Based Payment (SFAS 123R).
Under this method, share-based compensation cost is measured at
the grant date based on the estimated fair value of the award
and is recognized as expense over the employees requisite
service period for all share-based awards granted, modified or
cancelled as of January 1, 2006.
Income
Taxes
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes, using enacted tax rates in effect
for the year in which the differences are expected to reverse.
Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized.
Effective January 1, 2007, the Company adopted FASB
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48). FIN 48 prescribes a
more-likely-than-not threshold for financial statement
recognition and measurement of a tax position taken or expected
to be taken in a return. The cumulative effects of applying this
interpretation were to record a decrease of $1.5 million to
retained earnings, an increase of $2.7 million to net
deferred income taxes, a decrease to goodwill of
$1.1 million and an increase of $3.1 million to income
taxes payable in 2007 upon adoption.
Computation
of Earnings Per Share
Basic earnings per share was computed by dividing net income by
the weighted average number of common shares outstanding during
the period. Diluted earnings per share reflects the potential
dilution that could occur from the following items:
|
|
|
|
|
Convertible subordinated notes and contingently convertible
notes where the effect of those securities is dilutive;
|
|
|
Dilutive stock options; and
|
|
|
Unvested restricted stock
|
73
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
AS OF DECEMBER 31, 2008, 2007 AND 2006
Computations for basic and diluted earnings (loss) per share for
the years ending December 31, 2008, 2007 and 2006 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
Shares
|
|
|
|
|
(In thousands, except per share amounts)
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
29,962
|
|
|
|
|
|
|
|
|
|
Net income from discontinued operations, net of tax
|
|
|
1,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total basic earnings
|
|
$
|
31,321
|
|
|
|
99,229
|
|
|
$
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive stock options
|
|
|
|
|
|
|
2,248
|
|
|
|
|
|
ESPP
|
|
|
|
|
|
|
28
|
|
|
|
|
|
Unvested Restricted Stock
|
|
|
|
|
|
|
357
|
|
|
|
|
|
2% Convertible Senior Notes due 2023
|
|
|
97
|
|
|
|
1,746
|
|
|
|
|
|
11/2% Convertible
Senior Notes due 2024
|
|
|
38
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations plus assumed conversions
|
|
|
30,097
|
|
|
|
|
|
|
|
|
|
Net income from discontinued operations, net of tax
|
|
|
1,359
|
|
|
|
|
|