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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, 2009
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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 whether the registrant has submitted
electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
($229.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to
submit and post such
files). Yes [ ] 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 check mark 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, 2009 was $7,321,844,730.
The number of outstanding shares of the registrants common
stock as of February 24, 2010 was 180,826,916.
INCORPORATION
BY REFERENCE
Portions of the registrants proxy statement to be filed
with the SEC pursuant to Regulation 14A in connection with
the registrants 2010 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, 2009.
LIFE
TECHNOLOGIES CORPORATION
Annual Report on
Form 10-K
for the Fiscal Year Ended December 31, 2009
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 facts and 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
ITEM 1. Business
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 and commercial markets to accelerate
scientific exploration, leading to discoveries and developments
that better the quality of life. Our products are also used in
forensics, food and water testing and other industrial
applications.
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 AB or Applied
Biosystems) to form a new company called Life Technologies
Corporation. Life Technologies employs approximately
9,000 people, has a presence in more than 160 countries,
and possesses a rapidly growing intellectual property estate of
over 3,900 patents and exclusive licenses.
In September 2009, the Company announced a signed definitive
agreement to sell its 50% ownership stake in the Applied
Biosystems/MDS Analytical Technologies Instruments joint venture
and all assets and liabilities related to the Companys
mass spectrometry business to Danaher Corporation for
$450.0 million in cash, subject to a conventional working
capital adjustment. The transaction closed on January 29,
2010. The Company approximates that it will receive
$280.0 million of net cash proceeds after taxes upon
completion of the transaction.
The Company delivers a broad range of products and services,
including systems, instruments, reagents, software, and custom
services. Our growing portfolio of products includes innovative
technologies for capillary electrophoresis based sequencing,
next generation sequencing, PCR, sample preparation, cell
culture, RNA interference analysis, functional genomics
research, proteomics and cell biology applications, as well as
clinical diagnostic applications, forensics, animal, food,
pharmaceutical and water testing analysis. The Company also
provides our customers convenient purchasing options through
thousands of sales and service professionals,
e-commerce
capabilities and onsite supply center solutions.
The Company began operations as a California partnership in 1987
and incorporated in California in 1989. In 1997, the Company
reincorporated as a Delaware corporation. Our principal offices
are in Carlsbad, California.
The Companys 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
the website. These materials are available on the website as
soon as reasonably practicable after filing these materials
with, or furnishing them to, the Securities and Exchange
Commission.
Financial
Information About Our Segments and Geographic Areas
In 2009, in connection with the acquisition of AB and the
resulting reorganization, the Company has determined, in
accordance with The Financial Accounting Standards Board
(FASB) Accounting Standards Codification, or ASC, Topic 280,
Segment Reporting to operate as one operating segment. The
Company believes our chief operating decision maker (CODM) makes
decisions based on the Company as a whole. In addition to the
CODM making decisions for the Company as a whole, the divisions
within the Company share similar customers and types of products
and services which derive revenues and have consistent product
margins. Accordingly, the Company operates and reports as one
reporting segment. The Company will disclose the revenues for
each of its internal divisions in Item 7
Managements Discussion and Analysis of Financial
Condition and Results of Operations to allow the reader of
the financial statements the ability to gain transparency into
the operations of the Company. We have restated historical
divisional revenue information to conform to the current year
presentation.
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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, which begin on
page 58.
Description
of Our Business
Company
Overview
We are a global biotechnology tools company dedicated to helping
our customers make scientific discoveries and applying those
discoveries to 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 genomic
medicine, regenerative science, molecular diagnostics,
agricultural and environmental research, and 21st century
forensics. The Company employs approximately 9,000 people,
has a presence in more than 160 countries, and possesses a
rapidly growing intellectual property estate of over 3,900
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, clinical,
government and academic scientific professionals with
backgrounds in a wide range of scientific disciplines.
The Company offers many different products and services, and is
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 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, reagents and assays, 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
SOLiDtm
DNA sequencing systems and reagents, which are used to discover
sources of genetic and epigenetic variation, to catalog the DNA
structure of organisms, to verify the composition of genetic
research material, and to apply these genetic analysis
discoveries in markets such as forensic human identification and
clinical diagnostics.
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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 create 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
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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.
Researchers seeking to learn the causes of disease to develop
treatments have historically 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. For example, in the field of drug
development, studies in genomics and proteomics combined with an
understanding of drug action and efficacy can help to 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
Base
The Company divides its 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. The Company serves 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 the Company provides 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. The Company provides 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; 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 criminal
investigations, the exoneration of individuals wrongly accused
or convicted of crimes, identifying victims of disasters, and
paternity testing.
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While the Company does not believe that any single customer or
small group of customers is material to our business as a whole
or to our product segments, 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 or state and local governments.
Our
Products
As of the end of 2009, the Company divided products and services
into the following four divisions: Molecular Biology Systems,
(also referred to as MBS); Cell Systems, (also
referred to as CS); Genetic Systems, (also referred
to as GS) and Mass Spectrometry. The Mass
Spectrometry division was comprised of a 50% interest in a joint
venture that the Company acquired as a part of the AB
acquisition. The Company sold the Mass Spectrometry business to
Danaher Corporation on January 29, 2010. The Company
accounted for this investment using the equity method. Our share
of earnings or losses, including revenue, is included in other
income. The MBS division includes the molecular biology based
technologies including basic and real-time PCR, RNAi, DNA
synthesis, sample prep, transfection, cloning and protein
expression profiling and protein analysis. The CS division
includes all product lines used in the study of cell function,
including cell culture media and sera, stem cells and related
tools, cellular imaging products, antibodies, drug discovery
services, and cell therapy related products. The GS division
includes sequencing systems and reagents, including capillary
electrophoresis and the SOLiD system, as well as reagent kits
developed specifically for applied markets, such as forensics,
food and water safety and pharmaceutical quality monitoring.
Upon completion of the acquisition of AB in 2008, the Company
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.
The Company plans 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 the Company serves. The Company
expects to 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.
The Company recorded total backlog of $221.3 million at
December 31, 2009 for products with higher demand as well
as longer terms in contractual sales. The Company anticipates
that most of the orders included in backlog at December 31,
2009 will be delivered during the year ended December 31,
2010. Recorded backlog may not result in sales because of
cancellation or other factors.
Service
and Support
The Company generally provides 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
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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. The Company also offers service contracts
to our customers that are generally one to five years in
duration after the original warranty period. The Company
provides both repair services and routine maintenance services
under these arrangements, and also offers repair and maintenance
services on a time and material basis to customers that do not
have service contracts. Service in the United States and major
markets outside of the United States is provided by our service
staff. In some foreign countries, service may be provided
through third-party arrangements. In addition, we offer custom
services such as cell line development, custom media
modification, development of primers and custom assays. These
services are typically offered with limited warranties.
Research
and Development
The Company has a strong history of developing pioneering
technology through the combination of science and engineering.
The Company continues to build on that legacy by generating
innovative products across the scientific continuum of
discovery, development, and validation. In 2009, the Company
launched more than 1,000 new products in fields ranging from
genomic analysis to cell biology to human identification and
diagnostics. The Company invested $337.1 million,
$142.5 million and $115.8 million in research and
development in the years 2009, 2008 and 2007, respectively.
As of December 31, 2009, the Company had approximately
1,300 employees engaged in research and development
activities in the United States, Japan, Israel, Singapore,
India, and Norway. The Company also continues 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 the market leader and in
emerging growth areas in which we can leverage our expertise in
instrumentation, reagent and consumable solutions.
Sales
and Marketing
Our sales and marketing strategy 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 the Invitrogen
brand representing platform independent reagents. The channels
the Company uses to take these brands to market include a broad
commercial organization of approximately 3,000 employees in
more than 160 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. The Company has 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. The Company also advertises in numerous
print and web-based publications related to science and
industry, and we exhibit and present information at scientific
events worldwide.
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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 on the sales of products containing the
licensed materials or technology. These licenses also typically
impose obligations on us to market the licensed technology.
Although the Company emphasizes 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 the Company 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 the
Company retires the related product and the risk that the
third-party may lose patent protection. These risks are more
fully described under the heading Risks Related to the
Development and Manufacturing of our 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
the Company owns, and others are owned by third-parties and are
used by us under license. The Company has pursued a policy of
seeking patent protection in the United States 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. The
Company considers the protection of our proprietary technologies
and products in our product divisions 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.
The Company currently owns over 3,100 patents. Of this amount we
control over 1,300 patents in the United States, and over 1,800
in other countries. The Company also has exclusive rights to
another 810 patents. The Company also has numerous pending
patent applications both domestically 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. The
Company intends 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.
The Company also relies in part on trade secret, copyright and
trademark protection of our intellectual property. The Company
protects 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.
The Company is 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, the Company has
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, the Company 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 under the heading Risks Related to
Our Intellectual Property below.
Competition
The markets for our products are competitive and are
characterized by the application of advanced technologies. New
technologies in life sciences could make our products and
services obsolete unless the Company continues to develop new
and improved products and services and pursue new market
opportunities. Given the
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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. The Company believes 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,
the Company believes 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. The Company buys
materials for our products from many suppliers and the Company
has OEM arrangements with many third-parties for the
manufacturing of various products sold under our platform brand.
While there are some raw materials that the Company obtains from
a single supplier, we are not dependent on any one supplier or
group of suppliers for our business as a whole. Raw materials
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, including some products
that are intended for in vitro diagnostics, as well as the
manufacturing process of these products, are subject to
regulation under various portions of the United States Federal
Food, Drug and Cosmetic Act. In addition, a number of our
manufacturing facilities are subject to periodic inspection by
the United States Food and Drug Administration, or FDA, other
product-oriented federal agencies and various state and local
authorities in the United States. The Company believes 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 9001 or ISO 13485. Portions of our business subject to the
Federal Food, Drug and Cosmetic Act include certain 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.
The Company also voluntarily employs 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.
The Company is 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, the Company
is subject to various foreign regulations sometimes restricting
the importation or the exportation of animal-derived products
such as fetal bovine serum.
8
Employees
As of December 31, 2009, we had approximately
9,000 employees, approximately 3,960 of whom were employed
outside the United States. These numbers include part-time
employees. In addition, the Company employs 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. The Company faces competition in
this regard from other companies, research and academic
institutions, government entities and other organizations. None
of our domestic employees are subject to collective bargaining
agreements. The Company generally considers relations with our
employees to be good.
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 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 45) serves as
Chief Executive Officer of Life Technologies and as Chairman of
the Companys Board of Directors. Previously,
Mr. Lucier served as Chairman and Chief Executive Officer
of Invitrogen Corporation, which merged with Applied Biosystems
in November 2008 to form Life Technologies. The Company is
one of the largest providers of systems, biological reagents,
and services to life scientists around the world. The Company
aims to improve the human condition by enabling basic research,
accelerating drug discovery and development, and advancing
scientific exploration in areas such as regenerative science,
molecular diagnostics, agricultural and environmental research,
and 21st century forensics. Mr. Lucier has leveraged
his background in healthcare management to prepare the company
to participate in and shape the new era of personalized medicine.
Mr. Lucier serves as a Director of Biotechnology Industry
Organization, as well as the Chairman of the Board of Trustees
for the Sanford/Burnham Medical Research Institute, and a
Director for CareFusion Corporation, a publicly-traded medical
technology company. Mr. Lucier is actively involved at
San Diego State University as a distinguished lecturer.
Mr. Lucier received his B.S. in Engineering from
Pennsylvania State University and an M.B.A. from Harvard
Business School.
Joseph C. Beery (age 47) 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
(10) 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 44) 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 42) serves as President
of Commercial Operations of Life Technologies. From November
2006 to November 2008, Mr. Brust served as Senior Vice
President of Global Sales of Invitrogen Corporation, which
9
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 fifteen (15) years of sales, commercial
operations, marketing and general 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.
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 and BIOCOM, the
largest regional life science association in the world,
representing more than 550 member companies in Southern
California.
John A. Cottingham (age 55) 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 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 San Diego Chapter of the Association of
Corporate Counsel.
Peter M. Dansky (age 49) 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 twenty-three
(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 49) 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 twenty (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. Most recently,
Dr. Grossman 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. Dr. Grossman has authored
numerous scientific publications and holds more than seventy
(70) U.S. and foreign patents.
David F. Hoffmeister (age 55) serves as
Chief Financial Officer of Life Technologies. From October 2004
to November 2008, Mr. Hoffmeister served as Chief Financial
Officer and Senior Vice President 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 twenty (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 46) serves as Senior
Vice President of Global Human Resources and Internal
Communications 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
10
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 former board member of the
Biotechnology Institute.
John L. Miller (age 51) 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 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 53) 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 twenty-five
(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 41) 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 fourteen
(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 47) 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.
Mr. Stevenson has more than twenty (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. Mr. Stevenson serves on the Board of Trustees
of the Keck Graduate Institute.
ITEM 1A. Risk
Factors
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
11
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 4 of this
Form 10-K
for important limitations on these forward-looking statements.
Risks
Related to the Growth of Our Business
The
Company must continually offer new products and
services
The Company sells 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 and cost-effective
development and introduction of new products and services as
well as improvements to our existing products and services,
which address these evolving market requirements and are
attractive to customers. For example, if the Company does 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.
These facts require us to make appropriate investments in the
development and identification of new technologies and products
and services. As a result, the Company is continually looking to
develop, license and acquire new technologies and products and
services to further broaden and deepen our already broad product
and service line. Once the Company has 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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The
Company must be able to manufacture new and improved products to
meet customer demand on a timely and cost-effective
basis
The Company 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.
The
Company 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, the Company 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, the Company needs 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. While the integration is progressing
well, it is not yet complete. As a result, we must devote
significant management attention and resources to integrating
the diverse business practices and operations of the two
companies. The Company may encounter difficulties that could
harm the combined businesses, adversely affect our financial
condition, and cause our stock price to decline.
12
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.
The
Companys 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 the Companys 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
the Company paid for it;
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the Company could experience difficulty in integrating
personnel, operations and financial and other systems;
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the Company 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 the
Companys 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;
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in an acquisition, the Company may assume contingent liabilities
that become realized, 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; and
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we may have disagreements or disputes with the prior owners of
an acquired business, technology, service or product that may
result in litigation expenses and a distraction of our
managements attention.
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The
Company may not successfully manage its current and future
divestitures, and as a result, may not achieve some or all of
the expected benefits of such divestitures
On January 29, 2010, we completed the sale of our mass
spectrometry business to Danaher Corporation. In connection with
this sale, we entered into a transition services agreement and
other transactional and commercial agreements with Danaher
Corporation. We will rely on Danaher Corporation to satisfy its
payment and performance obligations under these agreements, and
any failure by Danaher Corporation to do so, could have an
adverse effect on our financial condition and results of
operations.
In addition, we continually evaluate the performance and
strategic fit of our businesses and may decide to sell a
business, product line or technology based on such an
evaluation. Divestitures, including the sale of our mass
spectrometry business, could involve additional risks, including
the following:
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difficulties in the separation of operations, services, products
and personnel;
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the diversion of managements attention from other business
concerns;
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the need to agree to retain or assume certain current or future
liabilities in order to complete the divestiture;
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the disruption of our business; and
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the potential loss of key employees.
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Any divestitures may result in significant write-offs, including
those related to goodwill and other intangible assets, which
could have an adverse effect on our results of operations and
financial condition. In addition, we may encounter difficulty in
finding buyers or alternative exit strategies at acceptable
prices and terms and in a timely manner. We may not be
successful in managing these or any other significant risks that
we encounter in divesting a business or product line, and as a
result, we may not achieve some or all of the expected benefits
of the divestiture.
The
Company faces 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 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 do so again 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.
The Company believes 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 has experienced a significant economic
downturn. If the economic downturn continues or worsens in the
businesses or geographic areas in which we sell our products
and/or
services, this 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
14
international economies may also cause our customers to reduce
their purchases. Changes in governmental banking, monetary and
fiscal policies to address 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 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
2009 were significantly lower. While the United States Federal
Stimulus package passed in 2009, temporarily increasing funding
for the NIH, this is a one-time event. 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 United
States 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 United States customers generally receive funds from
approved grants at particular times of the year, as determined
by the United States 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 sales 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
15
similar reasons, many larger customers, including the United
States 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
The Company believes 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, 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
United States Food and Drug Administration, or FDA, and
comparable agencies in other countries. 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 is 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
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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 the Company violates 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.
The
Company relies 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 the Company has 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, we 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, 2009, we had outstanding indebtedness of
approximately $3,101.8 billion. As of December 31,
2009, we also had availability of $235.7 million (net of
standby letters of credit of $14.3 million) under our
revolving credit facility.
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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, 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
to 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.
The
Company 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.
The
Company 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
The Company 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,
18
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.
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
The Company is subject to federal, state and local taxes in the
United States 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.
The
Companys 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
The Companys 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.
The Companys 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
The Companys 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.
The Companys products are currently marketed in
approximately 160 countries throughout the world. Our
international revenues, which include revenues from our foreign
subsidiaries and export sales from the United
19
States, represented 61% of our product revenues in 2009, 56% of
our product revenues in 2008 and 53% of our product revenues in
2007. We 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 United States 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 the Companys revenues are
received in currencies other than the United States dollar,
which is our reporting currency. Most of our costs, however, are
incurred in United States dollars. While we have at times
attempted to hedge our net cash flows in currencies other than
the United States 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 United States 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
The
Company may not be able to effectively and efficiently protect
and enforce our proprietary technology
The Companys 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 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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The Company only seeks 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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The Companys 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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The
Company is 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 even 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 on the 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. From time to time, 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.
The Company is 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
The Company attempts 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
The Companys 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 are 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, however, that we will be able to maintain this insurance
at a reasonable cost and on reasonable terms. We also cannot
assure 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
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that is outside the scope of the 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 of the
following: 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.
ITEM 1B. Unresolved
Staff Comments
Not applicable.
ITEM 2. Properties
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 facilities:
|
|
|
|
|
Carlsbad, California (owned (land only) and leased)
|
|
|
Frederick, Maryland (owned and leased)
|
|
|
Grand Island, New York (owned and leased)
|
|
|
Madison, Wisconsin (owned and leased)
|
|
|
Brown Deer, Wisconsin (leased)
|
|
|
Eugene, Oregon (owned and leased)
|
|
|
Branford, Connecticut (leased)
|
|
|
Camarillo, California (leased)
|
|
|
Foster City, California (owned and leased)
|
|
|
San Carlos, California (leased)
|
|
|
Hayward, California (leased) (Closed October 2009)
|
|
|
Pleasanton, California (owned)
|
|
|
Norwalk, Connecticut (leased)
|
|
|
Washington, District of Columbia (leased)
|
|
|
Bedford, Massachusetts (leased)
|
|
|
Beverly, Massachusetts (leased)
|
|
|
Framingham, Massachusetts (leased)
|
|
|
Woburn, Massachusetts (leased)
|
|
|
Durham, North Carolina (leased)
|
|
|
Austin, Texas (leased)
|
|
|
Grand Prairie, Texas (leased)
|
23
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 facilities:
|
|
|
|
|
Glasgow area, Scotland (owned)
|
|
|
Paisley, Scotland (leased)
|
|
|
Oslo, Norway (owned (land only) and leased)
|
|
|
Auckland and Christchurch, New Zealand (owned and leased)
|
|
|
Shanghai and Beijing, China (leased)
|
|
|
Newcastle, Australia (owned and leased)
|
|
|
Darmstadt, Germany (leased)
|
|
|
Warrington, United Kingdom (owned and leased)
|
|
|
Rotterdam, Netherlands (leased)
|
|
|
Bleiswijk, Netherlands (leased)
|
|
|
Singapore (leased)
|
|
|
Tokyo, Japan (leased)
|
|
|
Narita, Japan (owned) (Closed in 2009)
|
|
|
Shanghai, China (leased)
|
In addition to the principal properties listed above, we lease
other properties in locations throughout the world, including
India, Japan, Taiwan, Hong Kong, Singapore, Thailand, 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 Branford, Connecticut; 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, 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.
ITEM 4. Submission
of Matters to a Vote of Security Holders
None.
24
PART II
ITEM 5. Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Market
and Stockholder Information
The Companys 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, 2009
|
|
|
|
|
|
|
|
|
Fourth quarter
|
|
$
|
52.70
|
|
|
$
|
45.30
|
|
Third quarter
|
|
|
48.46
|
|
|
|
39.49
|
|
Second quarter
|
|
|
41.92
|
|
|
|
30.50
|
|
First quarter
|
|
|
33.33
|
|
|
|
22.99
|
|
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
|
|
On February 24, 2010, the last reported sale price of our
common stock was $50.26. As of February 24, 2010, there
were approximately 4,812 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, 2009, 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.
25
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 BioPharmaceutical 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. We currently anticipate that we will retain all of
our future earnings for use in the development and expansion of
our business, debt repayment and 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 of Directors of the Company approved a
program authorizing management to repurchase up to
$500.0 million of common stock over the next three years,
of which $265.0 million remains open and available for
purchase at December 31, 2009. Under this plan, the Company
repurchased 1.2 million shares at a total cost of
approximately $100.0 million for the year ended
December 31, 2008. No shares have been repurchased
26
for the year ended December 31, 2009. The cost of
repurchased shares are included in treasury stock and reported
as a reduction in stockholders equity. The amount of stock
the Company is able to repurchase is limited by the covenants of
the debt financing associated with the Applied Biosystems merger.
|
|
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)
|
|
2009(1)
|
|
|
2008(1,2)
|
|
|
2007(1)
|
|
|
2006(1,3)
|
|
|
2005(1,4)
|
|
|
Revenues
|
|
$
|
3,280,344
|
|
|
$
|
1,620,323
|
|
|
$
|
1,281,747
|
|
|
$
|
1,151,175
|
|
|
$
|
1,079,137
|
|
Gross profit
|
|
|
1,824,725
|
|
|
|
940,752
|
|
|
|
715,887
|
|
|
|
608,331
|
|
|
|
549,535
|
|
Net income from continuing operations
|
|
|
144,594
|
|
|
|
4,356
|
|
|
|
106,238
|
|
|
|
53,188
|
|
|
|
102,348
|
|
Net income (loss) from discontinued operations
|
|
|
|
|
|
|
1,358
|
|
|
|
12,911
|
|
|
|
(266,808
|
)
|
|
|
10,561
|
|
Net income (loss)
|
|
|
144,594
|
|
|
|
5,714
|
|
|
|
119,149
|
|
|
|
(213,620
|
)
|
|
|
112,909
|
|
Earnings from continuing operations per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.82
|
|
|
$
|
0.05
|
|
|
$
|
1.13
|
|
|
$
|
0.52
|
|
|
$
|
0.99
|
|
Diluted
|
|
$
|
0.80
|
|
|
$
|
0.04
|
|
|
$
|
1.10
|
|
|
$
|
0.51
|
|
|
$
|
0.92
|
|
Earnings (loss) from discontinued operations per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
$
|
0.01
|
|
|
$
|
0.14
|
|
|
$
|
(2.60
|
)
|
|
$
|
0.10
|
|
Diluted
|
|
|
|
|
|
$
|
0.01
|
|
|
$
|
0.13
|
|
|
$
|
(2.52
|
)
|
|
$
|
0.09
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.82
|
|
|
$
|
0.06
|
|
|
$
|
1.27
|
|
|
$
|
(2.08
|
)
|
|
$
|
1.09
|
|
Diluted
|
|
$
|
0.80
|
|
|
$
|
0.05
|
|
|
$
|
1.23
|
|
|
$
|
(2.01
|
)
|
|
$
|
1.01
|
|
Current assets
|
|
$
|
1,796,164
|
|
|
$
|
1,612,171
|
|
|
$
|
1,090,484
|
|
|
$
|
740,604
|
|
|
$
|
1,079,234
|
|
Noncurrent assets
|
|
|
7,319,576
|
|
|
|
7,286,588
|
|
|
|
2,225,966
|
|
|
|
2,168,212
|
|
|
|
2,231,655
|
|
Current liabilities (including convertible debt)
|
|
|
1,385,723
|
|
|
|
1,007,242
|
|
|
|
234,413
|
|
|
|
228,086
|
|
|
|
468,148
|
|
Noncurrent liabilities (including convertible debt)
|
|
|
3,703,349
|
|
|
|
4,434,979
|
|
|
|
1,232,406
|
|
|
|
1,178,988
|
|
|
|
1,172,930
|
|
Total stockholders equity
|
|
|
4,026,668
|
|
|
|
3,456,538
|
|
|
|
1,847,125
|
|
|
|
1,736,146
|
|
|
|
2,170,084
|
|
|
|
|
(1) |
|
During 2009, 2008, 2007, 2006 and 2005 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. from November 21, 2008, the date of acquisition, and
the one-time purchase accounting charges associate with the
merger such as in-process research and development, which
affects the comparability of the Selected Financial Data. |
(3) |
|
In 2006, the FASB issued guidance under ASC Topic 718,
CompensationStock Compensation in which share based
payments are 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
from April 1, 2005, the date of acquisition, which affects
the comparability of the Selected Financial Data. |
27
ITEM 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations
OVERVIEW
The Company is 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 genomic medicine, regenerative
science, molecular diagnostics, agricultural and environmental
research, and 21st century forensics. In 2009, the Company
had sales of approximately $3,280.3 million, employed
9,000 people, had a presence in more than 160 countries,
and possessed a rapidly growing intellectual property estate of
over 3,900 patents and exclusive licenses.
The Companys 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.
The Company offers many different products and services, and is
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.
|
During 2009, we aligned our products and services into the
following four divisions: Molecular Biology Systems, Genetic
Systems, Cell Systems and Mass Spectrometry. The Mass
Spectrometry division was comprised of a 50% interest in a joint
venture that the Company acquired as a part of the AB
acquisition. The Company sold the Mass Spectrometry business to
Danaher Corporation on January 29, 2010. The Company
accounted for this investment using the equity method. Our share
of earnings or losses, including revenue, is included in other
income. The MBS division includes the molecular biology based
technologies including basic and real-time PCR, RNAi, DNA
synthesis, thermo-cycler instrumentation, cloning and protein
expression profiling and protein analysis. The CS division
includes all product lines used in the study of cell function,
including cell culture media and sera, stem cells and related
tools, cellular imaging products, antibodies, drug discovery
services, and cell therapy related products. The GS division
includes sequencing systems and reagents, including capillary
electrophoresis and the SOLiD system, as well as reagent kits
developed specifically for applied markets, such as forensics,
food safety and pharmaceutical quality monitoring. Upon
completion of the acquisition of AB in 2008, we commenced the
process
28
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.
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 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 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
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 basic research, drug discovery, and development of
diagnostic 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 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, and to various Standardized testing
environments such as human identification.
|
|
|
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 are focused on in-licensing technologies from
academic and government institutions, as well as biotechnology
and pharmaceutical companies.
|
29
|
|
|
|
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 September 2009, the Company announced a
signed definitive agreement to sell its 50% ownership stake in
the Applied Biosystems/MDS Analytical Technologies Instruments
joint venture and all assets related to the Companys mass
spectrometry business to Danaher Corporation for
$450.0 million in cash, subject to a conventional working
capital adjustment. The transaction closed on January 29,
2010. Included in the sale of the mass spectrometry business is
the ownership stake in the joint venture as well as selected
assets and liabilities directly attributable to the mass
spectrometry business. The Company approximates
$280.0 million of net cash proceeds after taxes upon
completion of the transaction. The joint venture generated pre
tax net income of $20.3 million and $1.6 million for
2009 and 2008, respectively. The results of operations for the
joint venture are presented as a single amount in the
other income/(expense) line in the Consolidated
Statements of Operations.
|
|
|
Ø
|
Utilize
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 160 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 consumable orders on a
same-day or
next-day
basis. We use this ability to provide convenient service to our
customers to generate additional sales.
|
|
|
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
|
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.
|
|
|
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 presence 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.
|
30
The Company anticipates 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 our
Risk Factors.
RESULTS
OF OPERATIONS
Comparison
of Years Ended December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2009
|
|
|
2008
|
|
|
$ Increase
|
|
|
% Increase
|
|
|
Molecular Biology Systems
|
|
$
|
1,581.6
|
|
|
$
|
736.2
|
|
|
$
|
845.4
|
|
|
|
115
|
%
|
Cell Systems
|
|
|
788.7
|
|
|
|
747.4
|
|
|
|
41.3
|
|
|
|
6
|
%
|
Genetic Systems
|
|
|
906.5
|
|
|
|
134.9
|
|
|
|
771.6
|
|
|
|
NM
|
|
Corporate and other
|
|
|
3.5
|
|
|
|
1.8
|
|
|
|
1.7
|
|
|
|
94
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
3,280.3
|
|
|
$
|
1,620.3
|
|
|
$
|
1,660.0
|
|
|
|
102
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross margin
|
|
$
|
1,824.7
|
|
|
$
|
940.8
|
|
|
$
|
883.9
|
|
|
|
94
|
%
|
Total gross margin %
|
|
|
56
|
%
|
|
|
58
|
%
|
|
|
|
|
|
|
|
|
Revenues
The Companys revenues increased by $1,660.0 million
or 102% for the year ended December 31, 2009 compared to
the year ended December 31, 2008. The increase in revenue
is driven primarily by an increase of $1,649.4 million due
to the acquisition of AB. The remaining year over year change in
revenue was due to increases of $49.1 million in volume and
pricing, partially offset by a decrease of $39.0 million in
unfavorable currency impacts including hedging.
As of January 1, 2009, we aligned our business under four
divisionsMolecular Biology Systems, Genetic Systems, Cell
Systems and Mass Spectrometry. The Mass Spectrometry division is
comprised of a 50% interest in a joint venture that the Company
acquired as a part of the AB acquisition. The Company accounted
for this investment using the equity method of accounting. Our
share of earnings or losses related to the joint venture,
including revenue and the related expenses, is included in other
income. The Molecular Biology Systems (MBS) division includes
the molecular biology based technologies including basic and
real-time PCR, RNAi, DNA synthesis, thermo-cycler
instrumentation, cloning and protein expression profiling and
protein analysis. Revenue in this division increased by
$845.4 million or 115% in 2009 compared to 2008. This
increase was driven primarily by $833.5 million from the
acquisition of AB and $29.8 million in increased volume and
pricing, partially offset by $17.9 million in unfavorable
currency impacts including hedging. The Cell Systems (CS)
division includes all product lines used in the study of cell
function, including cell culture media and sera, stem cells and
related tools, cellular imaging products, antibodies, drug
discovery services, and cell therapy related products. Revenue
in this division increased $41.3 million or 6% for 2009
compared to 2008. This increase was driven primarily by
$46.1 million from the acquisition of AB,
$13.5 million in increased volume and pricing, and
$0.9 million from acquisitions, partially offset by
$19.2 million in unfavorable currency impacts including
hedging. The Genetic System (GS) division includes sequencing
systems and reagents, including capillary electrophoresis and
the SOLiD system, as well as reagent kits developed specifically
for applied markets, such as forensics, food safety and
pharmaceutical quality monitoring. Revenue in this division
increased by $771.6 million for 2009 compared to 2008,
driven primarily by the acquisition of AB.
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.
31
Gross
Profit
Gross profit increased $883.9 million or 94% in 2009
compared to 2008. The increase in gross profit was primarily due
to the acquisition of AB as well as increased pricing on sales
as defined in the revenue movement, offset by an increase of
$195.7 million in purchased intangible assets amortization.
Amortization expense related to purchased intangible assets
acquired in our business combinations was $282.6 million
for 2009 compared to $86.9 million for 2008. The increase
was the result of the amortization of intangibles resulting from
the acquisition of AB. Gross profit for 2009 included an
increase of $18.5 million and $29.9 million of
deferred revenue adjustments and acquired inventory fair market
value adjustments as a result of the AB acquisition. 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.
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
As a
|
|
|
|
|
|
As a
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
of
|
|
|
Operating
|
|
|
of
|
|
|
$ Increase
|
|
|
% Increase
|
|
(in millions)
|
|
Expense
|
|
|
Revenues
|
|
|
Expense
|
|
|
Revenues
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
$
|
987.1
|
|
|
|
30
|
%
|
|
$
|
499.3
|
|
|
|
31
|
%
|
|
$
|
487.8
|
|
|
|
98
|
%
|
Research and development
|
|
|
337.1
|
|
|
|
10
|
%
|
|
|
142.5
|
|
|
|
9
|
%
|
|
|
194.6
|
|
|
|
137
|
%
|
Business consolidation costs
|
|
|
112.9
|
|
|
|
3
|
%
|
|
|
38.6
|
|
|
|
2
|
%
|
|
|
74.3
|
|
|
|
192
|
%
|
In-process research and development
|
|
|
1.7
|
|
|
|
NM
|
|
|
|
93.3
|
|
|
|
6
|
%
|
|
|
(91.6
|
)
|
|
|
(98
|
)%
|
Selling, General and Administrative. For the year ended
December 31, 2009, selling, general and administrative
expenses increased $487.8 million or 98% compared to the
year ended December 31, 2008. This increase was driven
primarily by $448.3 million related to the acquisition of
AB and an increase of $56.6 million in compensation,
bonuses and benefits, partially offset by a decrease of
$14.8 million in infrastructure costs.
Research and Development. For the year ended
December 31, 2009, research and development expenses
increased $194.6 million or 137% compared to the year ended
December 31, 2008. This increase was driven primarily by
$193.1 million related to the acquisition of AB and an
increase of $4.1 million in compensation, bonuses and
benefits, partially offset by $2.0 million in favorable
currency impacts.
Business Consolidation Costs. Business consolidation
costs for the year ended December 31, 2009 were
$112.9 million, compared to $38.6 million for the year
ended December 31, 2008, and represent costs associated
with our integration efforts related to AB and to realign our
business and consolidate certain facilities. The increase in
costs year over year is due to the ramp up of activities
performed in the integration post merger, which was completed in
November of 2008. 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 into the foreseeable future, albeit at a reduced amount,
as we further consolidate operations and facilities and realign
the previously existing businesses.
Purchased In-Process Research and Development. Purchased
in-process research and development costs were $1.7 million
for 2009 compared to $93.3 million in 2008. In 2008, in
association with the AB merger as well as some immaterial
acquisitions, the Company acquired and expensed in-process
research and development.
Other
Income (Expense)
Interest Income. Interest income was $4.7 million
for the year ended December 31, 2009 compared to
$24.6 million for the year ended December 31, 2008.
The decrease was primarily due to economic conditions leading to
lower interest rates available on invested cash balances and
lower cash balances invested.
32
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
$192.9 million for the year ended December 31, 2009
compared to $85.1 million for the year ended
December 31, 2008. The increase in interest expense was
primarily driven by the interest incurred on the
$2,400.0 million of term loans issued in November 2008 in
connection with the AB merger.
During the year ended December 31, 2009, the Company made
early principal repayments of $350.0 million on term loan
B, which resulted in the Company accelerating the write off of
$12.5 million of deferred financing costs attributable to
the principal repaid. The loss is separately identified in our
results from operations as an early extinguishment of
debt.
Other Income (Expense), Net. Other income, net, was
$9.4 million for the year ended December 31, 2009
compared to $5.7 million for the same period of 2008.
Included in 2009 was $20.3 million of income related to our
interest in the joint venture. The gain was offset by
$10.9 million in foreign currency losses and other
miscellaneous items.
Provision for Income Taxes. The provision for income
taxes as a percentage of pre-tax income from continuing
operations was 25.7% for the year ended December 31, 2009
compared with 96.1% for the year ended December 31, 2008.
The effective tax rate for 2009 is significantly lower than 2008
and is primarily attributable to the 2009 release of a valuation
allowance of $19.8 million, and in 2008, the recognition of
$60.6 million in United States income tax in connection
with the repatriation of
non-United
States retained earnings to help fund the AB acquisition and
$93.3 million of acquired purchased in-process research and
development costs which were expensed for financial reporting
purposes but were not deductible for tax purposes.
Comparison
of Years Ended December 31, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2008
|
|
|
2007
|
|
|
$ Increase
|
|
|
% Increase
|
|
|
Molecular Biology Systems revenues
|
|
$
|
736.2
|
|
|
$
|
583.6
|
|
|
$
|
152.6
|
|
|
|
26
|
%
|
Cell Systems revenues
|
|
|
747.4
|
|
|
|
652.2
|
|
|
|
95.2
|
|
|
|
15
|
%
|
Genetic Systems revenues
|
|
|
134.9
|
|
|
|
45.9
|
|
|
|
89.0
|
|
|
|
194
|
%
|
Corporate and other
|
|
|
1.8
|
|
|
|
|
|
|
|
1.8
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,620.3
|
|
|
$
|
1,281.7
|
|
|
$
|
338.6
|
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross margin
|
|
$
|
940.8
|
|
|
$
|
715.9
|
|
|
$
|
224.9
|
|
|
|
31
|
%
|
Total gross margin %
|
|
|
58
|
%
|
|
|
56
|
%
|
|
|
|
|
|
|
|
|
Revenues
Revenues increased $338.6 million or 26% for 2008 compared
to 2007. Of the $338.6 million increase in revenue, revenue
from the acquisition of AB accounted for 56% of the total
increase or $191.0 million. AB revenue accounted for
$98.0 million, $5.3 million, and $85.4 million of
the increase in the MBS, CS, and GS divisions, respectively. The
remaining $147.6 million of the Companys increase 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.
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. In accordance
with purchase accounting rules, the acquired
33
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 AB acquisition.
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
As a
|
|
|
|
|
|
As a
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
of
|
|
|
Operating
|
|
|
of
|
|
|
|
|
|
|
|
(in millions)
|
|
Expense
|
|
|
Revenues
|
|
|
Expense
|
|
|
Revenues
|
|
|
$ Increase
|
|
|
% Increase
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
$
|
499.3
|
|
|
|
31
|
%
|
|
$
|
416.1
|
|
|
|
32
|
%
|
|
$
|
83.2
|
|
|
|
20
|
%
|
Research and development
|
|
|
142.5
|
|
|
|
9
|
%
|
|
|
115.8
|
|
|
|
9
|
%
|
|
|
26.7
|
|
|
|
23
|
%
|
Business Consolidation Costs
|
|
|
38.6
|
|
|
|
2
|
%
|
|
|
5.6
|
|
|
|
NM
|
|
|
|
33.0
|
|
|
|
NM
|
|
In-process research and development
|
|
|
93.3
|
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
93.3
|
|
|
|
NM
|
|
Selling, General and Administrative. For 2008, selling,
general and administrative expenses increased $83.2 million
or 20% compared to 2007. Of the $83.2 million increase,
$45.1 million resulted from the acquisition of AB, and
$28.9 million resulted from increase salaries and bonuses.
The remaining increase of $9.2 million resulted primarily
from increased travel expense of $4.0 million, purchased
services of $3.6 million, $4.2 million of foreign
currency translation impacts, $3.2 million of rent and
utilities expenses, and $2.4 million of depreciation. This
was partially offset by a decrease in infrastructure costs of
$7.8 million.
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 the 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
research and development expenses increased 23% year over year
as a result of our continued efforts to expand new product
development projects.
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.
Purchased In-Process Research and Development. Purchased
in-process research and development costs were
$93.3 million in 2008 compared to none in 2007. These costs
were primarily attributable to the AB merger as well as some
immaterial acquisitions in which the Company acquired and
expensed in-process research and development expenses.
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.
34
Interest Expense. Interest expense was $85.1 million
for 2008 compared to $67.4 million for 2007. The primary
reason for the increase in interest expense was interest
incurred on the $2,400.0 million of term loans issued in
November 2008 in conjunction with acquisition of AB.
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 96.1% for 2008
compared with 23.7% of our pre-tax income for 2007. The increase
in the effective tax rate was primarily attributable to United
States income tax recognized in connection with the repatriation
of
non-United
States retained earnings to help fund the AB acquisition and
acquired purchased in-process research and development costs
which were expensed for financial reporting purposes but were
not deductible for tax purposes.
LIQUIDITY
AND CAPITAL RESOURCES
Our future capital requirements and the adequacy of our
available funds will depend on many factors, including future
business acquisitions, future stock or debt repayment or
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 light of the current market conditions
surrounding the credit market, the risk of the inability to
obtain credit in the market is a potential risk. We believe that
our annual positive cash flow generation and secured financing
arrangements allow the company to mitigate this risk and ensures
the company has the necessary working capital requirements to
fund continued operations. We intend to continue our strategic
investment activities in new product development, in-licensing
technologies and acquisitions that support our platforms. In the
event additional funding needs arise, we may obtain cash through
new debt or stock issuance, or a combination of sources.
In February 2010, the Company issued $1,500.0 million of
unsecured bonds in which the proceeds were used to pay down the
existing term loans. The Company believes based on its risk
profile, with strong cash generation and the history of paying
down debt in a timely manner, it will have the ability to raise
funding in the future through public and private markets.
However, the Company does not anticipate the need for additional
financing and expects to fund future operation through the
generation of cash from operations. In January of 2010, the
Company sold its 50% investment stake in the Applied
Biosystems/MDS Analytical Technology Instruments joint venture
for approximately $280.0 million in net cash proceeds after
taxes, which was used to further pay down the term loans. As a
result of the payment on the existing term loans, the Company
expects to accelerate the recognition of debt issuance cost
expense associated with the term loans. At December 31,
2009, the Company had $56.4 million of unamortized debt
issuance costs related to these term loans. The Company does not
believe the bond issuance or the sale of the joint venture will
materially alter its future cash flows.
The Company has, and expects to be able to continue to generate
positive cash flow from operations to fund both short term and
long term cash needs. Should changes in the Companys cash
needs occur, the Company could seek additional financing and
believes such financing would be obtained at reasonable rates.
Operating Activities. Operating activities provided net
cash of $714.5 million during 2009 primarily from net
income of $144.6 million plus net non-cash charges of
$656.2 million. Changes in operating assets and liabilities
provided a net decrease of $86.3 million in cash during the
period. Within the non-cash charges in operating activities, the
primary drivers were amortization of intangible assets of
$296.0 million, depreciation charges of
$115.7 million, acquired inventory fair market value
adjustments of $62.7 million, share based compensation of
$60.1 million, and non-cash interest expense of
$42.9 million resulting from the retrospective adoption of
a bifurcation requirement on our convertible debt as prescribed
by ASC Topic
470-20, Debt
with Conversion and Other Options. The primary drivers of
the cash decrease from changes in operating assets and
liabilities were a decrease in income taxes payable of
$122.8 million, an increase in trade accounts receivable of
$10.4 million, and an increase in other assets of
$6.1 million, which were offset by an increase in accrued
expenses and other current liabilities of $38.3 million, an
increase in accounts payable of $6.5 million, and decreases
in inventories of $11.8 million. The Company continued to
generate positive cash flows from operations due to the margin
earned on sales and the continued revenue growth throughout 2009.
35
As of December 31, 2009, we had cash and cash equivalents
of $596.6 million and short-term investments of
$10.8 million. Our working capital was $410.4 million
as of December 31, 2009 including restricted cash of
$40.7 million. Our funds are currently primary invested in
marketable securities, money market funds, and bank deposits
with maturities of less than three months. A majority of the
Companys cash and cash equivalents 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, 2009,
foreign subsidiaries in China, Japan, and India had available
bank lines of credit denominated in local currency to meet
short-term working capital requirements. The United States
dollar equivalent of these facilities totaled
$13.4 million, none of which was outstanding at
December 31, 2009.
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.
We believe our current cash and cash equivalents, investments,
cash provided by operations and interest income earned thereon
and cash available from bank loans and lines of credit will
satisfy our working capital requirements debt obligations and
capital expenditure for the foreseeable future.
The Company has undertaken restructuring activities in
connection with the merger of Applied Biosystems, which
primarily include one-time termination costs, such as severance
costs related to elimination of duplicative positions and change
in control agreements to mostly sales, finance, IT, research and
development, and customer services. The restructuring plan also
includes charges associated with the closure of certain leased
facilities and one-time relocation costs for the employees whose
employment positions have been moved to another location. 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 selling, general and
administrative and research and development costs. At
December 31, 2009, the Company had restructuring accruals
of $26.5 million pursuant to this plan, and payments are
expected to be fully paid in 2010, excluding payments related to
the unfavorable lease contracts as a result of the restructuring
plan which will run through 2011. Total restructuring
expenditures are estimated to be approximately
$147.9 million, of which $119.0 million were incurred
and recorded in the financial statements and $92.9 million
were paid since the inception of the plan. The Company expects
the restructuring activities to result in long term cost savings
in cost of goods sold as well as in selling, general and
administrative costs related to the efficiencies in procurement
and manufacturing as well as the reduction of redundant and
excess overhead. The Company expects long term cost savings in
excess of the costs to complete the plan.
The Companys pension plans and post retirement benefit
plans are funded in accordance with local statutory requirements
or by voluntary contributions. The funding requirement is based
on the funded status, which is measured by using various
actuarial assumptions, such as interest rate, rate of
compensation increase, or expected return on plan assets. The
Companys qualified pension plans are adequately funded at
December 31, 2009. Future contribution may change when new
information is available or local statutory requirement are
changed. Based on the actuarial estimates at December 31,
2009, the Company expects to contribute $23.5 million to
non-qualified pension plans during 2010, which has already been
funded in our rabbi trust to satisfy a significant portion of
these contribution requirements.
Investing Activities. Net cash used by investing
activities during 2009 was $258.0 million. The cash was
used for purchases of property, plant, and equipment of
$180.6 million, business combinations of
$55.0 million, and asset purchases of $31.3 million,
partially offset by cash received for a business divestiture of
$15.2 million.
For 2010, we expect to spend in the range of $150.0 million
to $175.0 million on purchases of property, plant and
equipment, which includes approximately $30.0 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.
During 2008, we completed the acquisition of Applied Biosystems
for a total purchase price of $4,564.4 million, of which
$2,738.9 million was paid in cash. The results of
operations were included from the date of acquisition. In
September 2009, the Company announced a signed definitive
agreement to sell its 50% ownership stake in the Applied
Biosystems/MDS Analytical Technologies Instruments joint venture
and all assets related to the Companys mass spectrometry
business to Danaher Corporation for $450.0 million in cash,
subject to a conventional working capital adjustment. Included
in the sale of the mass spectrometry business is the ownership
stake in the joint venture as well as selected assets and
liabilities directly attributable to the mass spectrometry
36
business. The Company approximates that it will receive
$280.0 million of net cash proceeds after taxes upon
completion of the transaction and the Company intends to use
such proceeds to pay down debt. For information on our business
combination accounting, see Note 2 of the Notes to
Consolidated Financial Statements and Note 14 for the
discussion of subsequent events.
During 2009, 2008 and 2007, the Company completed several
additional stock acquisitions that were not material
individually or collectively to the overall consolidated
financial statements and the results of operations. The Company
completed such acquisitions for the aggregate purchase price of
$81.6 million, $88.5 million, and $23.1 million
during 2009, 2008, and 2007, respectively, of which
$35.9 million, $88.5 million, and $23.1 million
were paid in cash during 2009, 2008, and 2007, respectively.
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 certain
technological milestones, patent milestones and the achievement
of future gross sales of the acquired companies. Some of the
purchase agreements the Company has entered into do not limit
the payments to a maximum amount, nor restrict the payment
deadlines. During the years ended 2009, none of the contingent
payments were earned or paid for the achievement of future gross
sales. During the year ended 2009, one of the contingent
payments, totaling $1.7 million, was earned for the
achievement of a certain technological milestone. For
acquisitions accounted for under SFAS 141, Business
Combinations, the Company will account for any such
contingent payments as an addition to the purchase price of the
acquired company. For acquisitions accounted for under ASC
Topic 805, Business Combinations, these obligations will be
accounted for at fair value at the time of acquisition with
subsequent revisions reflected in the Statement of Operations.
For the year ended December 31, 2009, $1.7 million of
the contingent payments earned has been added to the purchase
price accordingly.
Financing Activities. Net cash used by financing
activities totaled $242.3 million for 2009. The primary
drivers were $425.0 million in principal payments on
long-term obligations, partially offset by $171.2 million
in proceeds from stock issued in employee stock plans.
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 1.2 million shares at a total cost of
approximately $100.0 million during the year ended
December 31, 2008. The Company did not repurchase shares
during the year ended December 31, 2009. The cost of
repurchased shares are included in treasury stock and reported
as a reduction in stockholders equity.
The
Credit Agreement
In November 2008, the Company entered into a
$2,650.0 million credit agreement (the Credit Agreement)
consisting of a $250.0 million revolving credit facility, a
5-year term
loan A facility of $1,400.0 million, and a
7-year term
loan B facility of $1,000.0 million to fund a portion of
the cash consideration paid as part of the AB merger. The
remainder of the borrowing was used to pay for merger
transaction costs, to facilitate normal operations, and to
refinance the credit facility outstanding previous to the
merger. The Credit Agreement requires the Company to meet
certain financial covenants, including a maximum consolidated
leverage ratio and minimum fixed charge ratio, and includes
certain other restrictions, including restrictions limiting
acquisitions, indebtedness, stock repurchases, capital
expenditures and asset sales. The maximum leverage ratio reduces
on a quarterly schedule to 3.00x 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 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. However, the Companys maximum share
repurchases will be $500.0 million in any fiscal year.
37
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 Agreement are
guaranteed by each of the Companys domestic subsidiaries
and are collateralized by substantially all of the
Companys and its guarantor subsidiaries assets. In
addition, the Credit Agreement contains affirmative and negative
covenants applicable to the Companys and its subsidiaries,
subject to materiality and other qualifications and exceptions.
Loans under the Credit Agreement 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:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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%
|
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%. The Company entered into interest rate swaps with the
notional amount of $1,000,0 million to to mitigate the risk
of rising interest rates and to comply with Credit Agreement
requirements.
For the year ended December 31, 2009, the interest on the
revolving credit facility and the term loan A was LIBOR plus
2.5% and the term loan B was at the Base Rate plus 2.0%, which
resulted in aggregate cash interest payments of
$95.3 million, net of hedging transactions.
The Company must repay 2.5% in each quarter of 2010 and 2011,
3.75% in each quarter of 2012 and 15% in each quarter of 2012
with the final payment of all amounts outstanding under the term
loan A facility, plus accrued interest, due on November 21,
2012. The Company must repay the remaining principal amount of
the term loan B due on November 21, 2015. The revolving
credit facility will terminate and all amounts outstanding
hereunder, plus accrued interest, will be due on
November 21, 2013. At December 31, 2009, The Company
has issued $14.3 million in letters of credit through the
revolving credit facility. The Company can prepay the term loans
without penalty. The Company repaid principal of
$70.0 million and $355.0 million for term loan A and
term loan B, respectively, for the year ended December 31,
2009, of which $350.0 million for term loan B was for the
early extinguishment of debt, which resulted in a write-off of
$12.5 million of unamortized deferred financing costs.
Costs incurred to issue the debt under the credit facility
totaled $43.8 million for term loan A, $41.3 million
for term loan B, and $7.8 million for the revolving credit
facility. The Company amortized debt issuance costs of
$10.5 million, $4.0 million, and $1.6 million for
term loan A, term loan B, and the revolving credit facility,
respectively. As of December 31, 2009, the unamortized
balances of the issuance costs were $32.4 million,
$24.0 million, and $6.0 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% if the leverage ratio is less than 2.50x.
Loans under the Credit Agreement 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.
At December 31, 2009, the Company is in compliance with all
of its debt covenants.
38
In February 2010, the Company issued $1,500.0 million in
unsecured bonds in which the proceeds were used to pay down the
term loans outstanding under the Credit Agreement. Additionally,
the Company sold its 50% investment stake in the Applied
Biosystems/MDS Analytical Technology Instruments joint venture
for approximately $280.0 million in net cash proceeds after
taxes, which was used to further pay down the term loans. The
Company expects to use the combination of the proceeds from the
bond offering and the joint venture sale to fully pay down the
term loans. As a result of the early repayment, the Company will
de-designate and terminate the outstanding interest rate swaps
as the underlying loans will no longer exist. The unsecured
bonds will be fixed rate long term bonds with three, five and
ten year maturity dates. The bond issuance will effectively
refinance the outstanding debt, and therefore, the Company does
not expect the net results of the transaction to materially
impact future results from operation or cash flows. Refer to
Note 14 related to subsequent events in the Notes to
Consolidated Financial Statements for more details on the
transaction.
Secured
Loan
At December 31, 2009, the Company holds $34.8 million
in auction rate securities with UBS Investment Bank (UBS).
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. During
the year ended December 31, 2009, UBS repurchased
$0.8 million auction rate securities at par from the
Company. The Company intends to have the settlement completed by
July 2012. Until UBS fully redeems the Companys auction
rate securities, UBS has provided a loan to the Company for the
par value of the auction rate securities with the underlying
auction rate securities as the collateral. The Company will be
charged interest on the loan equal to the interest earned on the
auction rate securities during this period. As a result, the
Company has access to cash associated with these auction rate
securities and does not believe there are liquidity concerns
associated with these instruments. For information on auction
rate securities, see Note 1 of the Notes to Consolidated
Financial Statements.
Convertible
Debt
At December 31, 2009, the Company has classified the
carrying value of $339.6 million on the 2% Convertible
Senior Note (2023 Note) in current liabilities according to the
respective indenture, which allows our Note holders to require
the Company to purchase all or a portion of the Notes at par
plus any accrued and unpaid interest at the earliest on
August 1, 2010. In the event that the holders do not
exercise such rights, the remaining balance of the Note will be
reclassified back to long-term debt. The Company anticipates
making this payment with the use of cash on hand and cash
generation from operating activities.
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
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
39
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 99% or $347.9 million of the Old
2% Notes have been exchanged by their holders for New
2% Notes as of December 31, 2009. Additionally, 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
$446.5 million of the Old
11/2% Notes
have been exchanged by their holders for New
11/2% Notes
as of December 31, 2009.
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, ASC Topic
470-20, Debt
with Conversion and Other Options and ASC Topic 200,
Earning Per Share 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
$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, 2009 and 2008, the unamortized balances of the
issuance costs were $4.6 million and $7.8 million,
respectively.
40
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.
CONTRACTUAL
OBLIGATIONS
The following table summarizes our contractual obligations at
December 31, 2009 and the effect such obligations are
expected to have on our liquidity and cash flows in future
periods.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
Convertible notes and other long-term debt
|
|
$
|
1,220,551
|
|
|
$
|
372,208
|
|
|
$
|
848,343
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Term loan A and term loan
B(3)
|
|
|
2,298,875
|
|
|
|
214,228
|
|
|
|
484,310
|
|
|
|
924,106
|
|
|
|
676,231
|
|
|
|
|
|
Capital lease obligations
|
|
|
9,412
|
|
|
|
2,317
|
|
|
|
5,085
|
|
|
|
1,879
|
|
|
|
131
|
|
|
|
|
|
Operating lease obligations
|
|
|
262,668
|
|
|
|
45,945
|
|
|
|
64,176
|
|
|
|
46,941
|
|
|
|
105,606
|
|
|
|
|
|
Licensing and purchase obligations
|
|
|
89,013
|
|
|
|
78,609
|
|
|
|
5,167
|
|
|
|
3,378
|
|
|
|
1,859
|
|
|
|
|
|
Uncertain tax liability and
interest(2)
|
|
|
114,222
|
|
|
|
16,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98,060
|
|
Other obligations
|
|
|
8,629
|
|
|
|
3,113
|
|
|
|
2,953
|
|
|
|
1,731
|
|
|
|
832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,003,370
|
|
|
$
|
732,582
|
|
|
$
|
1,410,034
|
|
|
$
|
978,035
|
|
|
$
|
784,659
|
|
|
$
|
98,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Pursuant to certain acquisitions, we could be required to make
additional contingent cash payments based on percentages of
future gross sales for products of acquired company, or
technical milestones without the restriction of the payment
deadline. |
(2) |
|
As of December 31, 2009, the Companys unrecognized
tax benefits were $114.2 million. We were unable to
reasonably estimate the timing of uncertain tax liabilities 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
weighted average interest rates of term loan A and term loan B
have been used to calculate future estimated interest payments
related to these items. See Note 5 of the Notes to
Consolidated Financial Statements included in Item 8. In
February 2010, the Company issued $1,500.0 million in
unsecured bonds and the proceeds were used to pay down the
existing term loans. See Note 14 to the Notes to
Consolidated Financial Statements for the discussion of
subsequent events. |
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 certain
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 could occur. 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 or long term liabilities, depending on the length of the
customer prepayment, in the Consolidated Balance Sheets and
recognize revenue upon shipment of the product to the customer.
Deferred revenue, which includes customer prepayments and
unearned service revenue, totaled $178.3 million at
December 31, 2009.
41
We also enter into arrangements whereby revenues are derived
from multiple deliverables. In these arrangements, we record
revenue in accordance with ASC Topic 605, Revenue
Recognition. 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 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 $122.4 million,
$51.0 million and $39.9 million for 2009, 2008 and
2007, respectively.
Revenue recorded under proportional performance for projects in
process is designed to approximate the amount of revenue earned
based on percentage of efforts completed within the scope of the
contractual arrangement. We undertake a review of these
arrangements to determine the percentage of the work that has
completed and the appropriate amount of revenue to recognize.
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 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
42
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
$601.9 million and the allowance for doubtful accounts was
$10.8 million at December 31, 2009. 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 current 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 competitors that vary from our
current expectations. Gross inventory totaled
$459.5 million and the allowance for excess and obsolete
and price impairment was $106.3 million at
December 31, 2009. Historically, the Companys reserve
has been adequate to cover its losses.
|
|
Ø
|
Valuation of goodwill. We are required to perform a
review for impairment of goodwill in accordance with ASC
Topic 805, Business Combinations. 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:
|
|
|
|
|
Ø
|
a significant adverse change in legal factors or in the business
climate;
|
|
|
Ø
|
a significant decline in our stock price or the stock price of
comparable companies;
|
|
|
Ø
|
a significant decline in our projected revenue or earnings
growth or cash flows;
|
|
|
Ø
|
an adverse action or assessment by a regulator;
|
|
|
Ø
|
unanticipated competition;
|
|
|
Ø
|
a loss of key personnel;
|
|
|
Ø
|
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;
|
|
|
Ø
|
the testing for recoverability described under ASC Topic 360,
Property, Plant, and Equipment of a significant asset group
within a reporting unit; and
|
|
|
Ø
|
recognition of a goodwill impairment loss in the financial
statements of a subsidiary that is a component of a reporting
unit.
|
43
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. Changes in the
assumptions are considered in the analysis, and the Company
performs an internal sensitivity analysis to further support the
Companys assessment.
In accordance with our policy, we completed our most recent
annual evaluation for impairment of goodwill as of
October 1, 2009 and determined that no goodwill impairment
existed. In this analysis, it was determined that no reporting
unit of the Company was at risk of impairment based on the
current assessment. Our evaluation included management estimates
of cash flow projections based on an internal strategic review.
Key assumptions from this strategic review included revenue
growth, future gross and operating margin growth, and the
Companys weighted cost of capital. This revenue and margin
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 from capital spending. The
resulting cash flows were discounted using a weighted average
cost of capital of 10 percent. Operating mechanisms to
ensure that these growth and efficiency assumptions will
ultimately be realized was also considered in our evaluation.
Our market capitalization at October 1, 2009 was also
compared to the discounted cash flow analysis.
We cannot guarantee our future annual or other periodic reviews
for impairment of goodwill will not result in an impairment
charge. Goodwill totaled $3,783.8 million at
December 31, 2009.
|
|
Ø |
Valuation of intangible and other long-lived assets. We
periodically assess the carrying value of intangible and other
long-lived assets, including capitalized in-process research and
development, 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:
|
|
|
|
|
Ø
|
the assets ability to continue to generate income from
operations and positive cash flow in future periods;
|
|
|
Ø
|
loss of legal ownership or title to the asset;
|
|
|
Ø
|
significant changes in our strategic business objectives and
utilization of the asset(s); and
|
|
|
Ø
|
the impact of significant negative industry or economic trends.
|
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.
At December 31, 2009, the net book value of identifiable
intangible assets that are subject to amortization totaled
$2,061.3 million, the net book value of unamortized
identifiable intangible assets with indefinite lives totaled
$10.3 million and the net book value of property, plant and
equipment totaled $829.0 million.
|
|
Ø |
Valuation of Financial Instruments. We account for our
financial instruments at fair value based on ASC Topic 820,
Fair Value Measurements and Disclosures and ASC Topic
815, Derivatives and Hedging. In determining fair value, we
consider both the credit risk of our counterparties and our own
creditworthiness. ASC Topic 820, Fair Value Measurements and
Disclosures, which defines fair value, establishes a
framework for measuring fair value and expands disclosures about
fair value measurements for financial instruments. The framework
requires for the valuation of investments using a three tiered
approach in the valuation of investments. The Company reviews
and evaluates the adequacy of the valuation techniques
periodically. In the current year, there have not been any
changes to the Companys valuation techniques. For details
on the
|
44
|
|
|
assets and liabilities subject to fair value measurements and
the related valuation techniques used, refer to Note 1 of
the Notes to Consolidated Financial Statements.
|
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 the nature of the derivative and whether
the derivative qualifies as a hedging instrument in accordance
with ASC Topic 815, Derivatives and Hedging. Those
hedging instruments that qualify for hedge accounting are
included as an adjustment to revenue or interest expense,
depending upon 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.
|
|
Ø
|
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. The Company accounts for its investment
in the joint venture using the equity method, consistent with
the guidance in ASC Topic 323 InvestmentsEquity Method
and Joint Ventures, 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
$20.3 million for the period ended December 31, 2009.
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 ASC Topic 323
InvestmentsEquity Method and Joint Ventures. The
Company accounts for non-operating and stand alone assets and
liabilities, which includes goodwill and intangibles associated
with the acquisition, of the joint venture in the long
term investment line in the Consolidated Balance Sheet.
Due to the nature of the joint venture, with sales, distribution
and service commingled with the Companys operations,
operating assets and liabilities specifically related to the
joint venture are commingled or inseparable. As a result, for
operating assets and liabilities the Company records these
assets in the functional operating asset and liability
classifications which represent the underlying asset or
liability and does not record these assets or liabilities in the
long term investment account. 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.
In September 2009, the Company announced a signed definitive
agreement to sell its 50% ownership stake in the Applied
Biosystems/MDS Analytical Technologies Instruments joint venture
and all assets related to the Companys mass spectrometry
business to Danaher Corporation for $450.0 million in cash,
subject to a conventional working capital adjustment. Included
in the sale of the mass spectrometry business is the ownership
stake in the joint venture as well as selected assets and
liabilities directly attributable to the mass spectrometry
business. The disposition of the joint venture generated
approximately $280.0 million in net cash proceeds after
taxes and the Company intends to use such proceeds to further
pay down debt. The transaction closed on January 29, 2010.
For information on our business combination accounting, see
Note 2 to the Notes to Consolidated Financial Statements
and Note 14 for the discussion of subsequent events.
|
|
Ø
|
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, which is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date, using a
variety of methods including an income approach such as a
present value technique or a cost approach such as the
estimation of current selling prices and replacement values.
Fair value of the assets acquired and liabilities assumed,
including intangible assets, in-process research and development
(IPR&D), and contingent payments, are measured based on the
assumptions and estimations with regards to the variable factors
such as the amount and timing of future cash flows for the asset
or liability being measured, appropriate risk-adjusted discount
rates, nonperformance risk, or other factors that market
participants would
|
45
|
|
|
consider. Upon acquisition, we determine the estimated economic
lives of the acquired intangible assets for amortization
purposes, which are based on the underlying expected cash flows
of such assets or per the Company policy. Adjustments to
inventory are based on the fair market value of inventory and
amortized into income based on the period in which the
underlying inventory is sold. Goodwill is an asset representing
the future economic benefits arising from other assets acquired
in a business combination that are not individually identified
and separately recognized. Actual results may vary from
projected results.
|
|
|
Ø
|
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 ASC Topic
420, Exit or Disposal Cost Obligations and Emerging
Issues Task Force Issue
95-3,
Recognition of Liabilities in Connection with a Purchase
Business Combination
(EITF 95-3)
in conjunction with the merger with Applied Biosystems and other
acquisitions consummated prior to January 1, 2009. Our
accrued merger and restructuring related costs were
$26.5 million at December 31, 2009, the majority of
which we expect to pay during 2010. Effective January 1,
2009, in the event the Company incurs the direct and indirect
costs related to business combinations and related
restructurings, the Company will expense such cost in the
periods in which the cost is incurred. Materially different
reported results would be likely if any of the estimated costs
or expenses were significantly different from actual or if the
approach, timing and extent of the restructuring plans adopted
by management were different.
|
|
Ø
|
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.
|
|
Ø
|
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 Applied
Biosystems and Dexter Corporation which were acquired in 2008
and 2000, respectively. These reserves are based on loss
probabilities and take into account loss history as well as
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.
|
Our insurance, environmental and divestiture reserves totaled
$11.3 million at December 31, 2009.
|
|
Ø |
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 domestic
employees. A majority of the Companys current employees
do not participate in these plans. 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. During the period ended December 31, 2009,
the weighted average discount rates we used to determine the
benefit obligation were 6.00%, 5.28%, and 5.60% for domestic,
foreign, and postretirement plans, respectively. The weighted
average discount rates we used to determine the net periodic
pension cost were 5.75%, 5.10%, and 5.90% for domestic, foreign,
and postretirement plans, respectively. The weighted average
long-term rates of expected return on plan assets were a range
of 5.75% to 8.00%, 5.27%, and 8.00% for domestic, foreign, and
postretirement plans, respectively. Our actuaries also rely on
assumptions, such as mortality rates, in preparing their
estimates for us. The liabilities for the pension plans and
postretirement plans are generally determined
|
46
|
|
|
using the unit credit method, which is to expense each
participants benefit under the plan as they accrue. The
discount rate is derived by using the yield curve consists of
spot interest rates at
1/2
year increments for each of the next 30 years based on
pricing and yield information for high quality corporate bonds
to have the present value of the pension or postretirement
benefit cash flows discounted by such yield curve matches the
pension liabilities as of the measurement date. The rate of
expected return on plan assets is an expected weighted average
rate of earnings on the funds, which is a blended rate of
historical returns and forward looking capital market
assumptions over next 20 years adjusted by taking into
account the benefits of diversification and rebalancing of the
funds. 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.
|
For 2010, the Company does not expect to have to fund our
qualified pension plans as these plans are sufficiently funded
such that contributions for 2010 are not required. Our
supplemental plans are unfunded, however, we have assets in a
rabbi trust which the assets may be used to pay certain
non-qualified plan benefits. The postretirement medial benefit
plan the Company assumed in conjunction with the acquisition of
Dexter is fully funded, and thus, no additional funding is
expected for 2010. The Company has other postretirement plans
which are unfunded, however, they are substantially funded by
insurance policies. During the year ended December 31,
2009, the Company contributed $25.8 million,
$10.2 million, and $6.3 million to domestic, foreign,
and postretirement plans, respectively. The aggregate current
liabilities relate to our domestic, foreign, and postretirement
plans were $23.5 million, $1.3 million, and
$5.1 million, respectively at December 31, 2009.
Our most significant pension plan is a qualified domestic
pension plan, which constituted approximately 82% of our
consolidated pension plan assets and approximately 72% of our
projected benefit obligations as of December 31, 2009. The
accrual of future service benefits for participants in the
qualified domestic pension plan 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 qualified domestic pension plans for the period ended
December 31, 2009 would decrease or increase our net
periodic pension expense by approximately $0.3 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, 2009 would decrease or increase our net
periodic pension expense by approximately $0.3 million.
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.
|
|
Ø |
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 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.
|
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
47
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
United States 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.
ASC Topic 740, Income Taxes defines the confidence level
that a tax position must meet in order to be recognized in the
financial statements. In accordance, 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 ASC Topic 740, Income Taxes
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.
|
|
Ø
|
Segment Information. In connection with the acquisition
of AB and the resulting reorganization, the Company has
determined in accordance with ASC Topic 280, Segment
Reporting to operate as one operating segment. The Company
believes our chief operating decision maker (CODM) makes
decisions based on the Company as a whole. In addition, the
Company shares the common basis of organization, types of
products and services which derive revenues, and the economic
environments. Accordingly, we believe it is appropriate to
operate as one reporting segment. The Company will disclose the
revenues for each of its internal divisions to allow the reader
of the financial statements the ability to gain transparency
into the operations of the Company. We have restated historical
divisional revenue information to conform to the current year
presentation.
|
|
Ø
|
Share-Based Compensation. 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 from legacy Invitrogen
and legacy AB may elect to withhold up to 15% and 10%,
respectively, 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 ASC Topic 718,
CompensationStock Compensation, 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, and the cumulative expense is adjusted by
modified or cancelled shares subsequently.
|
For the year ended December 31, 2009, we recognized
$36.8 million and $23.3 million of compensation
expense for employee stock options and purchase rights and
restricted stock units, respectively. At December 31, 2009,
there was $47.2 million and $51.2 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
and 2.3 years for employee stock options and restricted
stock units, respectively.
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 ASC Topic 718, CompensationStock
Compensation in future periods.
48
For share-based awards issued during the year ended
December 31, 2009, 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 United States Treasury securities with remaining terms
similar to the expected term of the share-based awards.
|
|
Ø |
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.
|
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.
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
We translate the financial statements of each foreign subsidiary
with a functional currency other than the United States dollar
into the United States 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
investment in foreign subsidiaries.
Changes in foreign currency exchange rates can affect our
reported results of operations, which are reported in United
States dollars. Based on the foreign currency rate in effect at
the time of the translation of our foreign operations into
United States 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, 2009, were approximately $3,280.3 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, 2008 to our
revenues generated by foreign subsidiaries whose functional
currency differ from the United States dollars for 2009 when
including the results of our hedging program would result in
approximately $39.0 million more revenue for that period.
These changes in currency
49
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.
Foreign
Currency Transactions
We have operations through legal entities 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. As of
December 31, 2009, the Company had $409.2 million of
accounts receivable and $41.0 million of accounts payable,
respectively, denominated in a foreign currency. The Company has
accounts receivables and payables denominated in both the
functional currency of the legal entity as well as receivables
and payables denominated in a foreign currency that differs from
the functional currency of the legal entity. For receivables and
payables denominated in the legal entitys functional
currency, the Company does not have financial statement risk,
and therefore does not hedge such transactions. For those
receivables and payables denominated in a currency that differs
from the functional currency of the legal entity, the Company
hedges such transactions to prevent financial statement risk. As
a result, a hypothetical movement in foreign currency rates
would not be expected to have a material financial statement
impact on the settlement of these outstanding receivables and
payables.
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 and (losses) recognized on business
transactions, net of hedging transactions, were
$(9.0) million, $8.3 million and $0.5 million for
the years ended December 31, 2009, 2008 and 2007,
respectively, and are included in other income and expense in
the Consolidated Statements of Operations. These gains and
losses arise from the timing of cash collections compared to the
hedged transactions, which can vary based on timing of actual
customer payments.
The Companys intercompany foreign currency receivables and
payables are 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, 2009 and 2008, the Company
had a notional principal amount of $1,497.9 million and
$740.5 million, respectively, in foreign currency forward
contracts outstanding to hedge currency risk on specific
intercompany and the third-party receivables and payables
denominated in a currency that differs from the legal
entitys functional currency. These foreign currency
forward contracts as of December 31, 2009, which settle in
January 2010 through May 2010, effectively fix the exchange rate
at which these specific receivables and payables will be
settled, 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, 2009 and 2008. Refer to Note 1
Financial Instruments in the notes to the
Consolidated Financial Statements for more information on the
Companys hedging programs.
The notional principal amounts provide one measure of the
transaction volume outstanding as of period end, but do not
represent the amount of our exposure to market loss. In many
cases, outstanding principal amounts offset assets and
liabilities and the Companys exposure is less than the
notional amount. The estimates of fair value are based on
applicable and commonly used pricing models using prevailing
financial market information. 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 United States 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 United States 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 ASC Topic 815,
Derivatives and Hedging. To the extent any portion of the
forward
50
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, 2009, 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
continually monitors the probability of forecasted transactions
as part of the hedge effectiveness testing. At December 31,
2009, the Company had a notional principal amount of
$689.1 million in foreign currency forward contracts
outstanding to hedge foreign currency revenue risk under ASC
Topic 815, Derivatives and Hedging, and the fair value of
foreign currency forward contracts is reported in other current
assets or other current liabilities 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, 2009, the Company expects
to reclass $7.5 million of net losses on derivative
instruments from accumulated other comprehensive income to
earnings during the next twelve months. At December 31,
2009, a hypothetical 10% change in foreign currency rates
against the United States dollar would result in a decrease or
an increase of $57.0 million in the fair value of foreign
currency derivatives accounted for 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, 2009, we had
$1,028.2 million in cash, cash equivalents, restricted
cash, short-term investments and long-term investments, all of
which approximated the fair value. Changes in market interest
rates would not be expected to have a material impact on the
fair value of $648.1 million of our cash, cash equivalents,
restricted cash, and short-term investments at December 31,
2009, as these consisted of highly liquid securities with
short-term maturities. The Company accounts for
$337.4 million of its long term investment in the joint
venture under the equity method and $8.0 million of its
long term investments in non-publicly traded companies under the
cost 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 our other long term
investment of $34.8 million would not be material. See
Note 1 in our Consolidated Financial Statements.
As of December 31, 2009, the Companys debt portfolio
was comprised of a combination of fixed and variable rate
borrowings. At issue date of November 2008, all of term loan A
and term loan B was subject to variable interest rates. In
January 2009, as required by the Credit Agreement and to
mitigate interest rate risk and resulting cash flow variability,
the Company entered into interest rate swap agreements that
effectively converted its variable rate interest payments to
fixed rate interest payments for $1,000.0 million of the
term loan A principal The interest rate swap agreements are
expected to settle in two parts, $300.0 million maturing in
January 2012 and $700.0 million maturing in January 2013.
Without the swap agreements, a hypothetical increase in the
underlying borrowing rate (LIBOR or base rate) of 100 basis
points would have changed interest payments on term loan A by
13.3 million and on term loan B by $6.4 million, based
on each loans principal balance at December 31, 2009,
respectively. However, as a result of these swap agreements, the
Company reduced the amount of term loan A principal subject to
interest rate risk to only $330.0 million. With the swap
agreements in place, an increase in the underlying borrowing
51
rate of 100 basis points would increase interest payments
on term loan A by $3.3 million. The changes in fair value
prior to their maturity of each interest rate swap agreement are
accounted for as cash flow hedges, and recorded in other
comprehensive income, net of tax, in the Consolidated Balance
Sheets according to ASC Topic 815, Derivatives and
Hedging. To the extent any portion of the swap agreements 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, 2009, there was no
recognized gain or loss related to the ineffective portion of
its hedging instruments in other income or 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 and
outstanding transactions as part of the hedge effectiveness
testing.
Fair
Value Measurements
ASC Topic 820, Fair Value Measurements and Disclosures
requires certain financial and non-financial assets and
liabilities measured at fair value using a three tiered
approach. The assets and liabilities which used level 3 or
significant unobservable inputs to measure the fair value
represent an insignificant portion of total Companys
financial positions at December 31, 2009.
$19.1 million was transferred out of level 3 for the
year ended December 31, 2009, of which $5.4 million
was due to the impairment of our holdings in the Reserve Primary
Money Market Fund (Fund), $12.9 million was due to
aggregate distributions of the Fund, and $0.8 million was
the settlements on auction rate securities with UBS. The Company
already received all expected distribution from the Fund and a
cash loan for the value of the auction rate securities from UBS
and therefore does not believe there is any credit risk on these
investments. For further discussion on the Companys fair
value measurements and valuation methodologies, refer to
Note 1 of the Notes to Consolidated Financial Statements.
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 Note 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.
52
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, 2009 and
2008, and the related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2009. 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, 2009 and 2008, and the consolidated results
of its operations and its cash flows for each of the three years
in the period ended December 31, 2009, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 5 to the consolidated financial
statements, the Company adopted FASB Accounting Standards
Codification Topic
470-20, Debt
with Conversion and Other Options, effective as of
January 1, 2009 and retroactively adjusted all periods
presented in the consolidated financial statements for this
change.
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, 2009, based on criteria
established in Internal ControlIntegrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 26, 2010 expressed
an unqualified opinion thereon.
San Diego, California
February 26, 2010
53
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
596,587
|
|
|
$
|
335,930
|
|
Short-term investments
|
|
|
10,766
|
|
|
|
|
|
Restricted cash and investments
|
|
|
40,721
|
|
|
|
112,387
|
|
Trade accounts receivable, net of allowance for doubtful
accounts of $10,809 and $14,649, respectively
|
|
|
591,058
|
|
|
|
580,907
|
|
Inventories, net
|
|
|
353,222
|
|
|
|
420,029
|
|
Deferred income tax assets
|
|
|
19,822
|
|
|
|
25,563
|
|
Prepaid expenses and other current assets
|
|
|
183,988
|
|
|
|
137,355
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,796,164
|
|
|
|
1,612,171
|
|
|
|
|
|
|
|
|
|
|
Long-term investments(includes $34,800 and $35,600 measured at
fair value, respectively)
|
|
|
380,167
|
|
|
|
490,853
|
|
Property and equipment, net
|
|
|
829,032
|
|
|
|
748,056
|
|
Goodwill
|
|
|
3,783,806
|
|
|
|
3,574,779
|
|
Intangible assets, net
|
|
|
2,071,607
|
|
|
|
2,291,767
|
|
Deferred income tax assets
|
|
|
106,562
|
|
|
|
|
|
Other assets
|
|
|
148,402
|
|
|
|
181,133
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
9,115,740
|
|
|
$
|
8,898,759
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
481,701
|
|
|
$
|
80,000
|
|
Accounts payable
|
|
|
237,250
|
|
|
|
204,279
|
|
Restructuring accrual
|
|
|
26,548
|
|
|
|
69,099
|
|
Deferred compensation and related benefits
|
|
|
244,625
|
|
|
|
231,851
|
|
Deferred revenues and reserves
|
|
|
129,035
|
|
|
|
81,166
|
|
Accrued expenses and other current liabilities
|
|
|
203,139
|
|
|
|
235,418
|
|
Accrued income taxes
|
|
|
63,425
|
|
|
|
105,429
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,385,723
|
|
|
|
1,007,242
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
2,620,089
|
|
|
|
3,396,420
|
|
Pension liabilities
|
|
|
155,934
|
|
|
|
201,833
|
|
Deferred income tax liabilities
|
|
|
693,256
|
|
|
|
674,215
|
|
Income taxes payable
|
|
|
118,084
|
|
|
|
65,128
|
|
Other long-term obligations, deferred credits and reserves
|
|
|
115,986
|
|
|
|
97,383
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
5,089,072
|
|
|
|
5,442,221
|
|
|
|
|
|
|
|
|
|
|
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; 196,297,725 and 189,629,084 shares issued,
respectively
|
|
|
1,963
|
|
|
|
1,896
|
|
Additional
paid-in-capital
|
|
|
4,784,786
|
|
|
|
4,508,259
|
|
Accumulated other comprehensive income (loss)
|
|
|
51,968
|
|
|
|
(98,807
|
)
|
Retained earnings
|
|
|
154,204
|
|
|
|
9,610
|
|
Less cost of treasury stock; 16,214,572 shares and
16,158,839 shares, respectively
|
|
|
(966,253
|
)
|
|
|
(964,420
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
4,026,668
|
|
|
|
3,456,538
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
9,115,740
|
|
|
$
|
8,898,759
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes for additional information.
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues
|
|
$
|
3,280,344
|
|
|
$
|
1,620,323
|
|
|
$
|
1,281,747
|
|
Cost of revenues
|
|
|
1,173,057
|
|
|
|
592,696
|
|
|
|
467,139
|
|
Purchased intangibles amortization
|
|
|
282,562
|
|
|
|
86,875
|
|
|
|
98,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,824,725
|
|
|
|
940,752
|
|
|
|
715,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
987,116
|
|
|
|
499,312
|
|
|
|
416,099
|
|
Research and development
|
|
|
337,099
|
|
|
|
142,505
|
|
|
|
115,833
|
|
Purchased in-process research and development
|
|
|
1,692
|
|
|
|
93,287
|
|
|
|
|
|
Business consolidation costs
|
|
|
112,943
|
|
|
|
38,647
|
|
|
|
5,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,438,850
|
|
|
|
773,751
|
|
|
|
537,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
385,875
|
|
|
|
167,001
|
|
|
|
178,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
4,698
|
|
|
|
24,595
|
|
|
|
27,961
|
|
Interest expense
|
|
|
(192,911
|
)
|
|
|
(85,061
|
)
|
|
|
(67,417
|
)
|
Loss on early extinguishment of debt
|
|
|
(12,478
|
)
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
9,362
|
|
|
|
5,704
|
|
|
|
332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(191,329
|
)
|
|
|
(54,762
|
)
|
|
|
(39,124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
194,546
|
|
|
|
112,239
|
|
|
|
139,196
|
|
Income tax provision
|
|
|
(49,952
|
)
|
|
|
(107,883
|
)
|
|
|
(32,958
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
144,594
|
|
|
|
4,356
|
|
|
|
106,238
|
|
Net income from discontinued operations (net)
|
|
|
|
|
|
|
1,358
|
|
|
|
12,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
144,594
|
|
|
$
|
5,714
|
|
|
$
|
119,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
0.82
|
|
|
$
|
0.05
|
|
|
$
|
1.13
|
|
Net income from discontinued operations
|
|
$
|
|
|
|
$
|
0.01
|
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.82
|
|
|
$
|
0.06
|
|
|
$
|
1.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
0.80
|
|
|
$
|
0.04
|
|
|
$
|
1.10
|
|
Net income from discontinued operations
|
|
$
|
|
|
|
$
|
0.01
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.80
|
|
|
$
|
0.05
|
|
|
$
|
1.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in per share calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
175,872
|
|
|
|
99,229
|
|
|
|
93,372
|
|
Diluted
|
|
|
181,415
|
|
|
|
103,685
|
|
|
|
97,148
|
|
See accompanying notes for additional information.
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Retained
|
|
|
|
|
|
Treasury Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
Earnings
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in-
|
|
|
Comprehensive
|
|
|
(Accumulated
|
|
|
|
|
|
|
|
|
Stockholders
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Deficit)
|
|
|
Shares
|
|
|
Amount
|
|
|
Equity
|
|
|
Income (Loss)
|
|
|
Balance at December 31, 2006
|
|
|
101,793
|
|
|
$
|
1,018
|
|
|
$
|
2,384,874
|
|
|
$
|
34,993
|
|
|
$
|
(113,727
|
)
|
|
|
(11,111
|
)
|
|
$
|
(571,012
|
)
|
|
$
|
1,736,146
|
|
|
$
|
(161,939
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 gain on investments, net of deferred taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
756
|
|
|
|
756
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,707
|
|
|
|
70,707
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119,149
|
|
|
|
|
|
|
|
|
|
|
|
119,149
|
|
|
|
119,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
107,039
|
|
|
$
|
1,070
|
|
|
$
|
2,588,941
|
|
|
$
|
112,454
|
|
|
$
|
3,896
|
|
|
|
(14,906
|
)
|
|
$
|
(859,236
|
)
|
|
$
|
1,847,125
|
|
|
$
|
196,610
|
|
Common stock issuances for business combination
|
|
|
80,835
|
|
|
|
808
|
|
|
|
1,821,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,822,353
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,714
|
|
|
|
|
|
|
|
|
|
|
|
5,714
|
|
|
|
5,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
189,629
|
|
|
$
|
1,896
|
|
|
$
|
4,508,259
|
|
|
$
|
(98,807
|
)
|
|
$
|
9,610
|
|
|
|
(16,159
|
)
|
|
$
|
(964,420
|
)
|
|
$
|
3,456,538
|
|
|
$
|
(205,547
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issuances for business combination
|
|
|
760
|
|
|
|
8
|
|
|
|
38,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,938
|
|
|
|
|
|
Common stock issuances under employee stock plans
|
|
|
5,771
|
|
|
|
58
|
|
|
|
172,090
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
(240
|
)
|
|
|
171,908
|
|
|
|
|
|
Tax benefit of employee stock plans
|
|
|
|
|
|
|
|
|
|
|
5,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,406
|
|
|
|
|
|
Purchase of treasury shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted shares, net of repurchases for minimum
tax liability
|
|
|
137
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(48
|
)
|
|
|
(1,593
|
)
|
|
|
(1,593
|
)
|
|
|
|
|
Amortization of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
60,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,102
|
|
|
|
|
|
Pension liability, net of deferred taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,090
|
|
|
|
30,090
|
|
Unrealized gain on cash flow hedges, net of deferred taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,006
|
|
|
|
3,006
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117,679
|
|
|
|
117,679
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144,594
|
|
|
|
|
|
|
|
|
|
|
|
144,594
|
|
|
|
144,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
196,297
|
|
|
$
|
1,963
|
|
|
$
|
4,784,786
|
|
|
$
|
51,968
|
|
|
$
|
154,204
|
|
|
|
(16,214
|
)
|
|
$
|
(966,253
|
)
|
|
$
|
4,026,668
|
|
|
$
|
295,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The aggregate adoption impact of
the requirement relates to uncertain tax positions prescribed by
ASC Topic 740, Income Taxes reflected for the year ended
December 31, 2007.
|
See accompanying notes for additional information.
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
144,594
|
|
|
$
|
5,714
|
|
|
$
|
119,149
|
|
Adjustments to reconcile net income to net cash provided by
operating activities, including effects of businesses acquired
and divested:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
115,691
|
|
|
|
45,677
|
|
|
|
37,357
|
|
Amortization of intangible assets
|
|
|
295,954
|
|
|
|
86,875
|
|
|
|
98,721
|
|
Amortization of premiums on investments, net of accretion of
discounts
|
|
|
|
|
|
|
|
|
|
|
36
|
|
Amortization of deferred debt issuance costs
|
|
|
31,847
|
|
|
|
5,633
|
|
|
|
3,250
|
|
Amortization of inventory fair market value adjustments
|
|
|
62,747
|
|
|
|
33,957
|
|
|
|
471
|
|
Amortization of deferred revenue fair market value adjustment
|
|
|
34,791
|
|
|
|
7,136
|
|
|
|
|
|
Share-based compensation
|
|
|
60,102
|
|
|
|
46,990
|
|
|
|
47,532
|
|
Incremental tax benefits from stock options exercised
|
|
|
(14,058
|
)
|
|
|
(18,538
|
)
|
|
|
(5,401
|
)
|
Deferred income taxes
|
|
|
18,252
|
|
|
|
36,177
|
|
|
|
(14,798
|
)
|
Loss on disposal of assets
|
|
|
7,920
|
|
|
|
1,187
|
|
|
|
|
|
In-process research and development
|
|
|
1,692
|
|
|
|
93,287
|
|
|
|
|
|
Adoption of FSP APB
14-1 debt
discount cost amortization
|
|
|
42,866
|
|
|
|
40,159
|
|
|
|
37,637
|
|
Other non-cash adjustments
|
|
|
(102
|
)
|
|
|
2,405
|
|
|
|
(850
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
(10,448
|
)
|
|
|
(112,294
|
)
|
|
|
(3,078
|
)
|
Inventories
|
|
|
11,808
|
|
|
|
11,076
|
|
|
|
(20,290
|
)
|
Prepaid expenses and other current assets
|
|
|
(3,576
|
)
|
|
|
1,676
|
|
|
|
(7,920
|
)
|
Other assets
|
|
|
(6,108
|
)
|
|
|
1,624
|
|
|
|
(3,495
|
)
|
Accounts payable
|
|
|
6,525
|
|
|
|
(22,192
|
)
|
|
|
10,974
|
|
Accrued expenses and other current liabilities
|
|
|
36,725
|
|
|
|
109,169
|
|
|
|
9,699
|
|
Income taxes
|
|
|
(122,751
|
)
|
|
|
(9,936
|
)
|
|
|
14,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
714,471
|
|
|
|
365,782
|
|
|
|
323,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Purchase of investments
|
|
|
(11,363
|
)
|
|
|
|
|
|
|
|
|
Net cash paid for business combinations
|
|
|
(55,036
|
)
|
|
|
(2,827,802
|
)
|
|
|
(31,288
|
)
|
Net cash paid for asset purchases
|
|
|
(31,251
|
)
|
|
|
(31,200
|
)
|
|
|
|
|
Net cash received for divestiture
|
|
|
15,239
|
|
|
|
|
|
|
|
209,901
|
|
Purchases of property and equipment
|
|
|
(180,631
|
)
|
|
|
(81,886
|
)
|
|
|
(78,333
|
)
|
Proceeds from sale of property and equipment
|
|
|
5,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(257,998
|
)
|
|
|
(2,889,709
|
)
|
|
|
48,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
(425,000
|
)
|
|
|
(3,117
|
)
|
|
|
(2,595
|
)
|
Issuance cost payments on long-term obligations
|
|
|
|
|
|
|
(92,260
|
)
|
|
|
|
|
Incremental tax benefits from stock options exercised
|
|
|
14,058
|
|
|
|
18,538
|
|
|
|
5,401
|
|
Proceeds from sale of common stock
|
|
|
171,238
|
|
|
|
47,825
|
|
|
|
138,395
|
|
Capital lease payments
|
|
|
(805
|
)
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
(1,832
|
)
|
|
|
(105,184
|
)
|
|
|
(284,993
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(242,341
|
)
|
|
|
2,301,402
|
|
|
|
(143,245
|
)
|
Effect of exchange rate changes on cash
|
|
|
46,525
|
|
|
|
(47,690
|
)
|
|
|
10,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
260,657
|
|
|
|
(270,215
|
)
|
|
|
239,252
|
|
Cash and cash equivalents, beginning of period
|
|
|
335,930
|
|
|
|
606,145
|
|
|
|
366,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
596,587
|
|
|
$
|
335,930
|
|
|
$
|
606,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes for additional information.
57
AS OF DECEMBER 31, 2009, 2008 AND 2007
|
|
1.
|
BUSINESS
ACTIVITY, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
SIGNIFICANT ACCOUNTS
|
Business
Activity
Life Technologies Corporation is 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. We deliver a broad range of
products and services, including systems, instruments, reagents,
and custom services.
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 The Financial
Accounting Standards Board (FASB) Accounting Standards
Codification, or ASC, Topic
205-20,
Discontinued Operations. 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)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
29,962
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
22,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
7,605
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
(6,309
|
)
|
Impairment of goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating income
|
|
|
|
|
|
|
857
|
|
|
|
6,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from discontinued operations before income taxes
|
|
|
|
|
|
|
857
|
|
|
|
7,843
|
|
Income tax benefit
|
|
|
|
|
|
|
501
|
|
|
|
5,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from discontinued operations
|
|
$
|
|
|
|
$
|
1,358
|
|
|
$
|
12,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
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 $655.8 million, $367.4 million and
$343.3 million, or 21%, 23% and 28% of the Companys
revenues during the years ended December 31, 2009, 2008 and
2007, respectively, were derived from university and research
institutions which management believes are, to some degree,
directly or indirectly supported by the United States
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
In connection with the acquisition of Applied Biosystems, Inc.
(AB) and resulting reorganization, the Company has determined it
operates as one operating segment in accordance with ASC
Topic 280, Segment Reporting. The Company believes our chief
operating decision maker (CODM) makes decisions based on the
Company as a whole. In addition, the divisions within the
Company share similar customers and types of products and
services which derive revenues and have consistent product
margins. Accordingly, the Company operates as one reporting
segment. The Company disclosed the revenues for each of its
internal divisions to allow the reader of the financial
statements the ability to gain transparency into the operations
of the Company in Item 7 Managements Discussion
and Analysis of Financial Condition and Results of
Operations. We have restated historical divisional revenue
information to conform to the current year presentation.
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. 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, which includes customer prepayments and
unearned service revenue, totaled $178.3 million and
$118.2 million at December 31, 2009 and 2008,
respectively.
We also enter into arrangements whereby revenues are derived
from multiple deliverables. In these arrangements, we record
revenue in accordance with ASC Topic 605, Revenue
Recognition. 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 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
59
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
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. 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. Royalty
revenue totaled $122.4 million, $51.0 million and
$39.9 million for 2009, 2008 and 2007, respectively.
Revenue recorded under proportional performance for projects in
process is designed to approximate the amount of revenue earned
based on percentage of efforts completed within the scope of the
contractual arrangement. We undertake a review of these
arrangements to determine the percentage of the work that has
completed and the appropriate amount of revenue to recognize.
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.
Fair
Value of Financial Instruments
The Company has certain financial instruments in which the
carrying value does not equal the fair value. 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 carrying amounts of financial instruments such as cash
equivalents, foreign cash accounts, accounts receivable, prepaid
expenses, 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.
60
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
The fair value and carrying amounts of the Companys long
term debt obligations at December 31, 2009 and 2008 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Carrying Amounts
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
31/4% Convertible
Senior Notes (principal due 2025)
|
|
$
|
400,750
|
|
|
$
|
308,000
|
|
|
$
|
336,481
|
|
|
$
|
328,114
|
|
11/2% Convertible
Senior Notes (principal due 2024)
|
|
|
472,500
|
|
|
|
342,000
|
|
|
|
409,858
|
|
|
|
391,924
|
|
2% Convertible Senior Notes (principal due 2023)
|
|
|
535,081
|
|
|
|
332,128
|
|
|
|
339,595
|
|
|
|
322,774
|
|
Term Loan A (principal due 2013)
|
|
|
1,313,375
|
|
|
|
1,260,000
|
|
|
|
1,330,000
|
|
|
|
1,400,000
|
|
Term Loan B (principal due 2015)
|
|
|
645,713
|
|
|
|
927,675
|
|
|
|
642,500
|
|
|
|
997,500
|
|
Secured Loan (principal due 2010)
|
|
|
34,800
|
|
|
|
35,600
|
|
|
|
34,800
|
|
|
|
35,600
|
|
For details on the carrying amounts of the long-term debt
obligations, refer to Note 5 Long-Term Debt.
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 maturities of three months or less from the
date of purchase to be cash equivalents.
Investments consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
Short-term
|
|
|
|
|
|
|
|
|
Bank deposits
|
|
$
|
10,766
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
|
10,766
|
|
|
|
|
|
Long-term
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
|
30,827
|
|
|
|
29,407
|
|
Put option
|
|
|
3,973
|
|
|
|
6,193
|
|
Equity securities
|
|
|
345,367
|
|
|
|
455,253
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments
|
|
|
380,167
|
|
|
|
490,853
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
390,933
|
|
|
$
|
490,853
|
|
|
|
|
|
|
|
|
|
|
The Company evaluates its investments in equity and debt
securities that are accounted for using the equity method or
cost method or that are classified as
available-for-sale
or
held-to-maturity
to determine whether an
other-than-temporary
impairment or a credit loss exists at period end for such
investments. At December 31, 2009, the aggregate carrying
amounts of cost method investments in non-publicly traded
companies, which approximated the fair value of the investments,
was $8.0 million. The assessment of fair value is based on
valuation methodologies using level 3 unobservable inputs,
which include discounted cash flows, estimates of sales proceeds
and appraisals, as appropriate. The investment in equity
securities of $337.4 million consisted of the
Companys joint venture investment which is accounted for
using the equity method and the Company believes this
approximates the fair value of the investment Refer to
Note 2Business Combinations in the footnotes to the
Consolidated Financial Statements for more information on the
Companys joint venture investment. The cost of securities
sold is based on the specific identification method.
During the year ended December 31, 2009, there were no
unrealized gains or losses recorded in accumulated other
comprehensive income and there were no gains or losses
reclassified out of accumulated other comprehensive
61
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
income to earnings as a result of the sales of
available-for-sale
securities. In addition, the Company did not recognize any net
gains or losses related to the trading securities for the year
ended December 31, 2009.
ASC Topic 820, Fair Value Measurements and Disclosures
requires the Company to establish a framework for measuring
fair value and expand disclosures about fair value measurements.
The Company adopted this requirement for financial assets and
liabilities measured at fair value on a recurring basis in the
year beginning January 1, 2008, and non-financial assets
and liabilities measured at fair value on a nonrecurring basis
in the year beginning January 1, 2009. The framework
requires for the valuation of assets and liabilities subject to
fair value measurements using a three-tiered approach and 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).
Assets
and Liabilities Measured at Fair Value on a Recurring
Basis
The following table represents the financial instruments
measured at fair value on a recurring basis on the financial
statements of the Company subject to ASC Topic 820 and
the valuation approach applied to each class of the financial
instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements 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
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Bank time deposits
|
|
$
|
10,766
|
|
|
$
|
10,766
|
|
|
$
|
|
|
|
$
|
|
|
Money market funds
|
|
|
101,310
|
|
|
|
101,310
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan assets
|
|
|
23,203
|
|
|
|
23,203
|
|
|
|
|
|
|
|
|
|
Assets-derivative forward exchange contracts
|
|
|
19,803
|
|
|
|
|
|
|
|
19,803
|
|
|
|
|
|
Auction rate securities
|
|
|
30,827
|
|
|
|
|
|
|
|
|
|
|
|
30,827
|
|
Put option
|
|
|
3,973
|
|
|
|
|
|
|
|
|
|
|
|
3,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
189,882
|
|
|
$
|
135,279
|
|
|
$
|
19,803
|
|
|
$
|
34,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities-derivative forward exchange contracts
|
|
|
21,138
|
|
|
|
|
|
|
|
21,138
|
|
|
|
|
|
Liabilities-derivative swap contracts
|
|
|
5,120
|
|
|
|
|
|
|
|
5,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
26,258
|
|
|
$
|
|
|
|
$
|
26,258
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, the carrying value of the financial
instruments measured and classified within Level 1 was
based on quoted prices and marked to market.
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. Level 2 derivatives also
include interest rate swap agreements for which fair value is
determined by using quoted active market prices adjusted by
risk-adjusted discount rates. The risk-adjusted discount rate is
derived by United States
62
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
dollar zero coupon yield bonds for the 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)
spreads. Because CDS spreads 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 Company held unsecured commercial paper within the Reserve
Primary Money Market Fund (Fund) which has been in orderly
liquidation subject to the supervision of the SEC. The most
recent net asset values (NAV) communicated by the Fund were
$0.97 per share in February 2009, however, under the terms of
the Plan of Liquidation adopted by the Fund, distributions are
to be made up to the amount of a special reserve to cover the
cost and possible liabilities associated with the liquidation.
Consequently Fund distributions are currently being made at
$0.92 per share. During the year ended December 31, 2009,
the Company recognized an
other-than-temporary
impairment of $5.4 million against the purchase price of
AB. The Company received its entire expected distribution based
on NAV of $0.92 per share on its investment as of
December 31, 2009. The investment in the Fund was valued
using Level 3 unobservable inputs throughout the year until
the completion of the distribution, which consisted of
recommended fair values provided by our broker combined with
internal analysis of interest rate spreads and credit quality.
As of December 31, 2009, the Company holds
$34.8 million in 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 largely guaranteed by the United States
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. During the year ended
December 31, 2009, UBS repurchased $0.8 million of
auction rate securities at par from the Company. The Company
intends to settle the remaining balance of $34.8 million by
July 2012. Until UBS fully redeems the Companys auction
rate securities, UBS has loaned the Company the par value of
$34.8 million without recourse and with accrued interest
charges at the same rate as the yields earned on the underlying
securities (which 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 ASC
Topic 815, Derivatives and Hedging, 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 ASC Topic 820, Fair Value
Measurements and Disclosures, upon the execution of the loan
agreement with UBS on the election date in November 2008. At the
same time, the Company elected a transfer of auction rate
securities from
available-for-sale
securities to trading securities in accordance with ASC Topic
320, InvestmentsDebt 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 Company has already been provided a loan for the
par value of the auction rate securities by UBS. The put option
will continue to be measured at fair value utilizing
Level 3 inputs
63
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
until the earlier of its maturity or exercise. During the year
ended December 31, 2009, 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 at December 31, 2009 and
December 31, 2008 are reflected in long term investments in
the Consolidated Balance Sheets.
For those financial instruments with significant Level 3
inputs measured on a recurring basis, the following table
summarizes the activity for the year ended December 31,
2009 by investment type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Unobservable Inputs (Level 3)
|
|
|
|
|
|
|
Auction
|
|
|
|
|
|
Money
|
|
|
|
|
|
|
Rate
|
|
|
|
|
|
Market
|
|
|
|
|
(in thousands) (unaudited)
|
|
Securities
|
|
|
Put Option
|
|
|
Funds
|
|
|
Total
|
|
|
Beginning balance at January 1, 2009
|
|
$
|
29,407
|
|
|
$
|
6,193
|
|
|
$
|
18,260
|
|
|
$
|
53,860
|
|
Transfers into Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total realized/unrealized gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
2,220
|
|
|
|
(2,220
|
)
|
|
|
|
|
|
|
|
|
Revalued as part of Applied Biosystems merger
|
|
|
|
|
|
|
|
|
|
|
(5,358
|
)
|
|
|
(5,358
|
)
|
Purchases, issuances and settlements
|
|
|
(800
|
)
|
|
|
|
|
|
|
(12,902
|
)
|
|
|
(13,702
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at December 31, 2009
|
|
$
|
30,827
|
|
|
$
|
3,973
|
|
|
$
|
|
|
|
$
|
34,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
All realized and unrealized gains or losses related to financial
instruments whose fair value is determined based on Level 3
inputs are included in other income, except that the
other-than-temporary
impairment of $5.4 million was written off against the
purchase price of AB.
Assets
and Liabilities Measured at Fair Value on a Nonrecurring
Basis
The non-financial assets and liabilities are recognized at fair
value subsequent to initial recognition when they are deemed to
be
other-than-temporarily
impaired. There were no material non-financial assets and
liabilities deemed to be
other-than-temporarily
impaired and measured at fair value on a nonrecurring basis for
the year ended December 31, 2009.
Foreign
Currency and Derivative Financial Instruments
The Company translates the financial statements of its foreign
subsidiaries 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
investment in a foreign subsidiary. 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 $86.7 million
and $(30.1) million at December 31, 2009 and 2008,
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 currencies other than the
entitys functional currency. The value of these
receivables and payables is subject to changes in currency
exchange rates from the point in which the transactions are
originated until the settlement in cash. 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 (losses) recognized on business
transactions, net of
64
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
hedging transactions, were $(9.0) million,
$8.3 million and $0.5 million for the years ended
December 31, 2009. 2008 and 2007, respectively, and are
included in other income in the Consolidated Statements of
Operations.
We use derivative financial instruments (primarily, foreign
currency forward contracts) to mitigate the risk of changes in
the value of receivables and payables denominated in a currency
other than the entitys functional currency. Realized and
unrealized gains or losses on these financial instruments
entered into to hedge the exchange rate exposure on receivables
and payables are also included in the determination of net
income as they have not been designated for hedge accounting
under ASC Topic 815, Derivatives and Hedging. These
contracts, which settle in January 2010 through May 2010,
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, 2009, the Company had a notional principal
amount of $1,497.9 million in foreign currency forward
contracts outstanding to hedge currency risk relative to our
foreign currency receivables and payables.
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 United States 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 ASC Topic
815, Derivatives and Hedging. 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, 2009, the Company had a notional principal
amount of $689.1 million in foreign currency forward
contracts outstanding to hedge foreign currency revenue risk
under ASC Topic 815, Derivatives and Hedging. During the
year ended December 31, 2009, the Company did not have any
material losses or gains 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. The Company
reclasses deferred gains or losses reported in accumulated other
comprehensive income into revenue when the consolidated earnings
are impacted, which for intercompany sales are when the
inventory is sold to a third-party. For intercompany sales
hedging, 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, 2009, the Company expects to recognize
$7.5 million of net losses on derivative instruments
currently classified under accumulated other comprehensive
income to revenue offsetting the change in revenue due to
foreign currency translation during the next twelve months.
The Company entered into interest rate swap agreements that
effectively convert variable rate interest payments to fixed
rate interest payments for a notional amount of
$1,000.0 million in January 2009, of which
$300.0 million of swap payment arrangements expire in
January of 2012 and $700.0 million of swap payment
arrangements expire in January of 2013. The Company has entered
into such swap arrangements to manage variability of cash flows
and interest expense related to the interest payments on a
portion of the Companys term loan A facility. 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 ASC
Topic 815, Derivatives and Hedging. To the extent any
portion of the swap agreements 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
65
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
Consolidated Statements of Operations. During the year ended
December 31, 2009, there was no recognized gain or loss
related to the ineffective portion of 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 underlying term
loan principal balance as part of the hedge effectiveness
testing.
The following table summarizes the fair values of derivative
instruments at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
Balance Sheet
|
|
|
|
|
Balance Sheet
|
|
|
|
(in thousands)
|
|
Location
|
|
Fair Value
|
|
|
Location
|
|
Fair Value
|
|
|
Derivatives instruments designated and qualified as cash flow
hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts
|
|
Other current assets
|
|
$
|
4,333
|
|
|
Other current liabilities
|
|
$
|
11,582
|
|
Interest rate swap contracts
|
|
Other assets
|
|
|
|
|
|
Other long-term obligations
|
|
|
5,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
4,333
|
|
|
|
|
$
|
16,702
|
|
Derivatives instruments not designated as cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts
|
|
Other current assets
|
|
$
|
15,470
|
|
|
Other current liabilities
|
|
$
|
9,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
15,470
|
|
|
|
|
|
9,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives at December 31, 2009
|
|
|
|
$
|
19,803
|
|
|
|
|
$
|
26,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the effect of derivative
instruments on the Consolidated Statements of Operations for the
year December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2009
|
|
|
|
Effective Portion
|
|
|
Ineffective Portion
|
|
|
|
|
|
|
Location of
|
|
Amount of
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
(Gain)/Loss
|
|
(Gain)/Loss
|
|
|
Location of
|
|
Amount of
|
|
|
|
(Gain)/Loss
|
|
|
Reclassified from
|
|
Reclassified from
|
|
|
(Gain)/Loss
|
|
(Gain)/Loss
|
|
|
|
Recognized in
|
|
|
AOCI into
|
|
AOCI into
|
|
|
Recognized in
|
|
Recognized in
|
|
(in thousands)
|
|
OCI
|
|
|
Income
|
|
Income
|
|
|
Income
|
|
Income
|
|
|
Derivatives instruments designated and qualified as cash flow
hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
3,515
|
|
|
Revenue
|
|
$
|
13,308
|
|
|
Other (income)/expense
|
|
$
|
*
|
|
Interest rate swap contracts
|
|
|
5,120
|
|
|
Interest Expense
|
|
|
|
|
|
Other (income)/expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
$
|
8,635
|
|
|
|
|
$
|
13,308
|
|
|
|
|
$
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
|
|
|
|
|
|
|
|
|
Year ended December 31, 2009
|
|
|
|
Location of
|
|
Amount of
|
|
|
|
(Gain)/Loss
|
|
(Gain)/Loss
|
|
|
|
Recognized in
|
|
Recognized in
|
|
|
|
Income
|
|
Income
|
|
|
Derivatives instruments not designated in cash flow hedges
|
|
|
|
|
|
|
Forward exchange contracts
|
|
Other income
|
|
$
|
(19,760
|
)
|
|
|
|
|
|
|
|
Total Derivatives
|
|
|
|
$
|
(19,760
|
)
|
|
|
|
|
|
|
|
|
|
|
* |
|
De minimus amount recognized in the hedge relationship. |
Concentration
of Credit Risk
Our derivatives instruments 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 asset position
carrying values of our financial instruments represent the
maximum amount of loss we could incur as of December 31,
2009. However, we do not expect to record any losses as a result
of counterparty default in the foreseeable future. We do not
require and are not required to pledge collateral for these
financial instruments. 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.
Other financial instruments that potentially subject us to
concentrations of credit risk are cash and cash equivalents,
investments, and accounts receivable. We attempt to minimize the
risks related to cash and cash equivalents and 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.
Restricted
Cash and Related Liabilities
The Company had restricted cash of $40.7 and $112.4 million
at December 31, 2009 and 2008, respectively. Of the
$40.7 million in restricted cash at December 31, 2009,
$40.1 million was held in a Rabbi Trust (the AB Trust)
which was assumed by the Company upon the closing of its merger
with AB. The AB Trust funds are available for the payment of
certain non-qualified pension plans and the termination benefits
the Company assumed as a result of the merger with AB. 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 fully paid
during 2010. The rabbi trust assets are subject to the claims of
the Companys creditors in the event of the Companys
insolvency. At December 31, 2009, the Company accrued
$36.7 million and $3.2 million related to
non-qualified pension plans and the termination benefits,
respectively, which are included in current liabilities and
pension liabilities, and restructuring accrual, respectively in
our statement of financial position. No further contributions
are required to be made to the AB Trust as of December 31,
2009.
67
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
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 selling, 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
inventory and makes appropriate dispositions as obsolete
inventory is identified. Reserves for excess, obsolete and
impaired inventory were $106.3 million and
$95.5 million at December 31, 2009 and 2008,
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)
|
|
2009
|
|
|
2008
|
|
|
Raw materials and components
|
|
$
|
87,369
|
|
|
$
|
94,332
|
|
Work in process (materials, labor and overhead)
|
|
|
52,307
|
|
|
|
58,091
|
|
Finished goods (materials, labor and overhead)
|
|
|
213,546
|
|
|
|
204,858
|
|
Adjustment to write up acquired finished goods inventory to fair
value
|
|
|
|
|
|
|
62,748
|
|
|
|
|
|
|
|
|
|
|
Total inventories (net)
|
|
$
|
353,222
|
|
|
$
|
420,029
|
|
|
|
|
|
|
|
|
|
|
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, 2009 and 2008 the
Company had $114.6 million and $94.9 million,
respectively, in unamortized capitalized software costs. For the
years ended December 31, 2009, 2008 and 2007, the Company
amortized into expense $19.6 million, $10.0 million
and 9.7 million, respectively, related to capitalized
computer software costs.
68
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
Property and equipment consist of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
Useful Life
|
|
|
|
|
|
|
|
(in thousands)
|
|
(in years)
|
|
|
2009
|
|
|
2008
|
|
|
Land
|
|
|
|
|
|
$
|
134,647
|
|
|
$
|
127,197
|
|
Building and improvements
|
|
|
1-50
|
|
|
|
397,052
|
|
|
|
363,385
|
|
Machinery and equipment
|
|
|
1-10
|
|
|
|
371,325
|
|
|
|
304,389
|
|
Internal use software
|
|
|
1-10
|
|
|
|
163,056
|
|
|
|
124,305
|
|
Construction in process
|
|
|
|
|
|
|
109,781
|
|
|
|
71,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross property and equipment
|
|
|
|
|
|
|
1,175,861
|
|
|
|
990,917
|
|
Accumulated depreciation and amortization
|
|
|
|
|
|
|
(346,829
|
)
|
|
|
(242,861
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment (net)
|
|
|
|
|
|
$
|
829,032
|
|
|
$
|
748,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
Goodwill represents the excess purchase price of net tangible
and intangible assets acquired in business combinations over
their estimated fair value. In accordance with ASC Topic 350,
IntangiblesGoodwill and Other, goodwill is tested for
impairment on an annual basis and earlier if there is an
indicator of impairment. Furthermore, purchased intangible
assets other than goodwill are 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 discounted cash flow analysis to estimate
the fair value of each reporting unit. The evaluation included
management estimates of cash flow projections based on an
internal strategic review. Key assumptions from this strategic
review included revenue growth, future gross and operating
margin growth, and the Companys weighted cost of capital.
The Company also used internal allocations of assets and
liabilities and Company specific discount rates to determine the
estimated value of each reporting unit. Based on this analysis,
the Company determined that an impairment does not exist at
October 1, 2009, additionally, no indicators of impairments
were noted through December 31, 2009 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, 2009 and 2008 are as follows:
|
|
|
|
|
(in thousands)
|
|
Total
|
|
|
Balance at December 31, 2007
|
|
$
|
1,528,779
|
|
Purchase adjustments for resolution of income tax contingencies
|
|
|
(3,521
|
)
|
Other adjustments
|
|
|
(486
|
)
|
Goodwill acquired during the year
|
|
|
2,484,960
|
|
Goodwill allocated to equity method investment
|
|
|
(357,415
|
)
|
Foreign currency translation
|
|
|
(77,538
|
)
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
3,574,779
|
|
|
|
|
|
|
Purchase adjustments of income tax considerations
|
|
|
(20,789
|
)
|
Other adjustments
|
|
|
148,162
|
|
Goodwill acquired during the year
|
|
|
31,156
|
|
Foreign currency translation
|
|
|
50,498
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
3,783,806
|
|
|
|
|
|
|
As the Company finalized its purchase price allocation related
to the AB acquisition in 2009, the Company made purchase
adjustments for certain income tax considerations, established
its restructuring plan, as well as finalized other miscellaneous
adjustments, driving the increase in other adjustments during
the year. In 2008, the change in goodwill was primarily driven
by the preliminary purchase price allocation associated with the
AB
69
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
acquisition. For details on our acquisitions, refer to
Note 2Business Combinations of 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 associated with product sales for the years
ended December 31, 2009, 2008 and 2007 was
$282.6 million, $86.9 million and $98.7 million,
respectively. According to ASC Topic 805, Business
Combinations, $2.8 million was capitalized as
in-process research and development acquired in business
combinations and assigned an indefinite life during the year
ended December 31, 2009. Such assets will be accounted for
as indefinite life intangible assets until completion of the
project or abandonment. In connection with acquisitions,
$1.7 million, $93.3 million and none 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, 2009, 2008 and 2007, respectively,
according to SFAS 141, Accounting for Business
Combinations. In addition, the Company recorded
$9.7 million and $0.8 million of amortization expense
in other income (expense) for year ended 2009 and 2008,
respectively, in connection with its joint venture investment.
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
Weighted
|
|
|
Gross
|
|
|
|
|
|
Weighted
|
|
|
Gross
|
|
|
|
|
|
|
average
|
|
|
carrying
|
|
|
Accumulated
|
|
|
average
|
|
|
carrying
|
|
|
Accumulated
|
|
(in thousands)
|
|
life
|
|
|
amount
|
|
|
amortization
|
|
|
life
|
|
|
amount
|
|
|
amortization
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased technology
|
|
|
7 years
|
|
|
$
|
1,109,976
|
|
|
$
|
(705,015
|
)
|
|
|
8 years
|
|
|
$
|
1,056,395
|
|
|
$
|
(605,864
|
)
|
Purchased tradenames and trademarks
|
|
|
9 years
|
|
|
|
307,785
|
|
|
|
(75,485
|
)
|
|
|
9 years
|
|
|
|
314,312
|
|
|
|
(55,174
|
)
|
Purchased customer base
|
|
|
12 years
|
|
|
|
1,423,383
|
|
|
|
(167,856
|
)
|
|
|
12 years
|
|
|
|
1,421,925
|
|
|
|
(48,344
|
)
|
Other intellectual properties
|
|
|
5 years
|
|
|
|
248,964
|
|
|
|
(80,396
|
)
|
|
|
5 years
|
|
|
|
235,304
|
|
|
|
(34,238
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,090,108
|
|
|
$
|
(1,028,752
|
)
|
|
|
|
|
|
$
|
3,027,936
|
|
|
$
|
(743,620
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased tradenames
|
|
|
|
|
|
$
|
7,451
|
|
|
|
|
|
|
|
|
|
|
$
|
7,451
|
|
|
|
|
|
In-process research and development
|
|
|
|
|
|
|
2,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated amortization expense for amortizable intangible assets
owned as of December 31, 2009 for each of the five
succeeding fiscal years is as follows:
|
|
|
|
|
(in thousands)
|
|
|
|
|
Years Ending December 31,
|
|
|
|
|
2010
|
|
$
|
283,853
|
|
2011
|
|
|
275,979
|
|
2012
|
|
|
256,802
|
|
2013
|
|
|
244,267
|
|
2014
|
|
|
204,734
|
|
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
70
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
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 material impairment
loss recognized for long-lived assets during the years ended
December 31, 2009, 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. At
December 31, 2009 and 2008, the outstanding balance of
product warranties was $12.6 million and
$12.6 million, respectively.
Accrued
Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the
following at December 31:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
Accrued hedge liabilities
|
|
$
|
21,138
|
|
|
$
|
58,602
|
|
Accrued royalties
|
|
|
57,399
|
|
|
|
50,794
|
|
Accrued warranty
|
|
|
12,586
|
|
|
|
12,616
|
|
Accrued other
|
|
|
112,016
|
|
|
|
113,406
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses
|
|
$
|
203,139
|
|
|
$
|
235,418
|
|
|
|
|
|
|
|
|
|
|
Research
and Development Costs
Costs incurred in research and development activities are
expensed as incurred. Research and development costs incurred
for collaborations which generate revenue 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, 2009,
2008 and 2007 research and development were $337.1 million,
$142.5 million and $115.8 million.
Accounting
for Share-Based Compensation
The Company accounts for share-based compensation under the
guidance prescribed by ASC Topic 718, CompensationStock
Compensation. The Company uses the Black-Scholes
option-pricing model (Black-Scholes model) to estimate the fair
value of share-based compensation cost at the grant date, which
is recognized as expense over the employees requisite
service period for all share-based awards granted and adjusted
by modification or cancellation as necessary.
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.
71
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
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 where the effect of those
securities is dilutive;
|
|
|
Dilutive stock options;
|
|
|
Unvested restricted stock; and
|
|
|
Dilutive Employee Stock Purchase Plan (ESPP)
|
Computations for basic and diluted earnings per share for the
years ending December 31, 2009, 2008 and 2007 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
Shares
|
|
|
|
|
(in thousands, except per share amounts)
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
144,594
|
|
|
|
175,872
|
|
|
$
|
0.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive stock options
|
|
|
|
|
|
|
3,372
|
|
|
|
|
|
ESPP
|
|
|
|
|
|
|
63
|
|
|
|
|
|
Unvested Restricted Stock
|
|
|
|
|
|
|
400
|
|
|
|
|
|
2% Convertible Senior Notes due 2023
|
|
|
170
|
|
|
|
1,693
|
|
|
|
|
|
31/4% Convertible
Subordinated Notes due 2025
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income plus assumed conversions
|
|
$
|
144,764
|
|
|
|
181,415
|
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potentially dilutive securities not included above since they
are antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
Antidilutive stock options
|
|
|
|
|
|
|
6,683
|
|
|
|
|
|
11/2% Convertible
Senior Notes due 2024
|
|
|
|
|
|
|
8,821
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
4,356
|
|
|
|
|
|
|
|
|
|
Net income from discontinued operations, net of tax
|
|
|
1,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total basic earnings
|
|
$
|
5,714
|
|
|
|
99,229
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
4,491
|
|
|
|
|
|
|
|
|
|
Net income from discontinued operations, net of tax
|
|
|
1,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total diluted earnings
|
|
$
|
5,849
|
|
|
|
103,685
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potentially dilutive securities not included above since they
are antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
Antidilutive stock options
|
|
|
|
|
|
|
4,420
|
|
|
|
|
|
31/4% Convertible
Subordinated Notes due 2025
|
|
|
|
|
|
|
7,124
|
|
|
|
|
|
72
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
Shares
|
|
|
|
|
(in thousands, except per share amounts)
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
106,238
|
|
|
|
|
|
|
|
|
|
Net income from discontinued operations, net of tax
|
|
|
12,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total basic earnings
|
|
$
|
119,149
|
|
|
|
93,372
|
|
|
$
|
1.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive stock options
|
|
|
|
|
|
|
2,036
|
|
|
|
|
|
ESPP
|
|
|
|
|
|
|
10
|
|
|
|
|
|
Unvested Restricted Stock
|
|
|
|
|
|
|
432
|
|
|
|
|
|
2% Convertible Senior Notes due 2023
|
|
|
109
|
|
|
|
1,222
|
|
|
|
|
|
11/2% Convertible
Senior Notes due 2024
|
|
|
38
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations plus assumed conversions
|
|
|
106,385
|
|
|
|
|
|
|
|
|
|
Net income from discontinued operations, net of tax
|
|
|
12,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total diluted earnings
|
|
$
|
119,296
|
|
|
|
97,148
|
|
|
$
|
1.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potentially dilutive securities not included above since they
are antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
Antidilutive stock options
|
|
|
|
|
|
|
6,316
|
|
|
|
|
|
31/4% Convertible
Subordinated Notes due 2025
|
|
|
|
|
|
|
7,124
|
|
|
|
|
|
Accumulated
Other Comprehensive Income
Accumulated other comprehensive income includes unrealized gains
and losses that are excluded from the Consolidated Statements of
Operations and are reported as a separate component in
stockholders equity. The unrealized gains and losses
include foreign currency translation adjustments, unrealized
gains or losses from hedging transactions, and pension liability
adjustments, net of tax.
Accumulated other comprehensive income (loss), net of taxes,
consists of the following at December 31,
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
Foreign currency translation adjustment
|
|
$
|
86,701
|
|
|
$
|
(30,978
|
)
|
Unrealized gains on hedging transactions
|
|
|
(8,428
|
)
|
|
|
(11,434
|
)
|
Pension liability adjustment
|
|
|
(26,305
|
)
|
|
|
(56,395
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
51,968
|
|
|
$
|
(98,807
|
)
|
|
|
|
|
|
|
|
|
|
Reclassifications
The Company has reclassified the historically presented
sales and marketing and general and
administrative expense classifications on the Statement of
Operations as one combined classification of selling,
general and administrative costs as this reflects the
underlying nature of the incurred costs.
In connection with the acquisition of Applied Biosystems, Inc.
(AB) and resulting reorganization, the Company has determined it
operates as one operating segment in accordance with ASC
Topic 280, Segment Reporting. The Company believes our chief
operating decision maker (CODM) makes decisions based on the
Company as a whole. In addition, the divisions within the
Company share similar customers and types of products and
services which derive revenues and have consistent product
margins. Accordingly, the Company operates as one reporting
segment. The Company disclosed the revenues for each of its
internal divisions to allow the reader of the financial
statements the ability to gain transparency into the operations
of the Company in Item 7 Managements Discussion
and Analysis of Financial Condition and Results of
Operations. We have restated historical divisional revenue
information to conform to the current year presentation.
73
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
Recent
Accounting Pronouncements
Since December 15, 2009, ASC Topic 715,
CompensationRetirement Benefits, provides for
additional disclosure and documentation surrounding benefit plan
assets and activities, including disclosures about investment
policies and strategies, categories of plan assets, fair value
measurements of plan assets, and significant concentrations of
risk. The guidance is effective for fiscal years ending after
December 15, 2009, with earlier application permitted. The
Company adopted this guidance in the fiscal year ended
December 31, 2009 without material impact on the
Companys financial results.
In October 2009, FASB issued Accounting Standards Update (ASU)
2009-14,
Revenue Arrangements Containing Software Elements,
updating ASC Topic 605, Revenue Recognition. This
guidance amends ASU
2009-13 to
exclude from its scope all tangible products containing both
software and non-software components that operate together to
deliver the products essential functionality. This
guidance is effective for revenue arrangements entered into or
materially modified in fiscal years beginning on or after
June 15, 2010, early adoption is permitted. The Company is
currently evaluating the impact on reported operating results
upon the adoption.
In October 2009, FASB issued ASU
2009-13,
Multiple-Deliverable Revenue Arrangements a Consensus of the
FASB Emerging Issues Task Force, updating ASC Topic 605,
Revenue Recognition. ASU
2009-13
requires multiple-deliverable arrangements to be separated using
a selling price hierarchy for determining the selling price of a
deliverable and significantly expands disclosure requirements of
such arrangements. The selling price for each deliverable will
be based on vendor-specific objective evidence (VSOE) if
available, third-party evidence if VSOE is not available, or
estimated selling price if VSOE and third-party evidence are not
available. Arrangement consideration will be allocated at the
inception of the arrangement to all deliverables using the
relative selling price method. The relative selling price method
allocates any discount in the arrangement proportionally to each
deliverable on the basis of each deliverables estimated
selling price. This guidance is effective for revenue
arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. Early adoption is
permitted. The Company is currently evaluating the impact on
reported operating results upon the adoption.
In June 2009, FASB issued The FASB Accounting Standards
Codificationtm
and the Hierarchy of Generally Accepted Accounting
Principlesa replacement of FASB Statement No. 162.
The Codification became the source of authoritative United
States generally accepted accounting principles (GAAP)
recognized by the FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the Securities and
Exchange Commission (SEC) under authority of federal securities
laws are also sources of authoritative GAAP for SEC registrants.
The Codification superseded all then-existing non-SEC accounting
and reporting standards and all other nongrandfathered, non-SEC
accounting literature not included in the Codification became
nonauthoritative. The Company adopted this guidance and the
Codification in the interim period beginning July 1, 2009
without material impact on the Companys financial results.
Since January 1, 2009, ASC Topic
470-20, Debt
with Conversion and Other Options has required that cash
settled convertible debt to be separated into debt and equity
components at issuance and a value to be assigned to each, which
impacted the accounting for the Companys
$1,150.0 million aggregate principal amount of convertible
notes that are currently outstanding. 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 expected life of the bond, with the
corresponding offset to additional paid in capital. Although
this adoption has no impact on the Companys actual past or
future cash flows, it requires the Company to record a
significant amount of non-cash interest expense as the debt
discount is amortized. As a result, there was a material adverse
impact on the results of operations and earnings per share upon
retrospective adoption in both the current year and prior year
results of operations. In addition, if our convertible debt is
redeemed or converted prior to maturity, any unamortized debt
discount would result in a loss on extinguishment. Refer to
Note 5, Long-Term Debt, for additional
discussion. The Company adopted this requirement in the period
beginning January 1, 2009.
74
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
Since January 1, 2009, ASC Topic 805, Business
Combinations has changed the required measurement of assets
and liabilities in a business combination in favor of a fair
value method consistent with the guidance provided in ASC
Topic 820, Fair Value Measurements and Disclosures (see
below). Additionally, the Topic requires a change in accounting
for certain acquisition related expenses and business
adjustments which no longer are considered part of the purchase
price. The Topic requires prospective application for all
acquisitions beginning with the date of adoption. Additionally,
the Topic changes the accounting for acquisition costs,
restructuring costs, in-process research and development and the
resolution of certain acquired tax items.
Since June 2008, ASC Topic 815, Derivatives and Hedging
has ratified the determination of whether an instrument or
embedded feature is indexed to an entitys own stock to
address whether certain instruments must be accounted for as
derivatives under the Topic and provided specific guidance for
an entity to consider if an embedded features is indexed to the
entitys own stock. The Company currently has outstanding
convertible debt with embedded features which are considered
indexed to the entitys own stock and as a stand alone
instrument would have been included in stockholders
equity, and therefore subject to a scope exception. The Company
adopted this guidance in the current year beginning
January 1, 2009, without material impact to the financial
statements as the embedded features continue to be considered
indexed to the Companys own stock under the guidance.
Since January 1, 2008, ASC Topic 820, Fair Value
Measurements and Disclosures has redefined fair value and
required the Company to establish a framework for measuring fair
value and expand disclosures about fair value measurements. The
Company adopted this requirement for financial assets and
liabilities measured at fair value on a recurring basis in the
year beginning January 1, 2008, and non-financial assets
and liabilities measured at fair value on a nonrecurring basis
in the year beginning January 1, 2009 without material
impacts.
Acquisitions
Merger
with Applied Biosystems, Inc.
On November 21, 2008, the Company completed the merger with
Applied Biosystems, Inc. (AB), formerly known as Applera
Corporation, under which the Company acquired all outstanding
shares of AB in a cash and stock transaction. AB is a global
leader in the development and marketing of instrument-based
systems, consumables, software, and services for academic
research, the life science industry and commercial markets. AB
commercializes innovative technology solutions for DNA, RNA,
protein and small molecule analysis. Customers across the
disciplines of academic and clinical research, pharmaceutical
research and manufacturing, forensic DNA analysis, and
agricultural biotechnology use ABs tools and services to
accelerate scientific discovery, improve processes related to
drug discovery and development, detect potentially pathogenic
microorganisms, and identify individuals based on DNA sources.
AB has a comprehensive service and field applications support
team for a global installed base of high-performance genetic and
protein analysis solutions. The merger enables the two companies
to broaden their customer offering to include a full range of
instruments, equipment, reagents, consumables and services.
At the effective time of the merger, each outstanding share of
AB stock was converted into the right to receive either a
combination of cash and shares of Life Technologies common stock
or all cash or all shares of Life Technologies common stock, in
each case subject to the election and allocation procedures
provided in the prospectus as selected by the shareholder. The
consideration was based on the 20 day weighted average
price of the Company immediately preceding the merger date.
Based on the weighted average closing price prior to the merger,
the ultimate consideration paid under Emerging Issues Task Force
(EITF) abstract
99-12,
Determination of the Measurement Date for the Market Price of
Acquirer Securities Issued in a Purchase Business Combination,
$22.25 per share with $1,801.8 million paid in stock
and $3,229.2 million paid in cash and $23.8 million
related to the exchange of AB stock options for Life
Technologies stock options.
75
LIFE
TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
Had the merger with AB been completed as of the beginning of
2008, the Companys pro forma results for the year ended
December 31, 2008 would have been as follows:
|
|
|
|
|
(in thousands, except per share data)
|
|
2008
|
|
|
Revenue
|
|
$
|
3,140,362
|
|
Operating income
|
|
|
294,189
|
|
Net income
|
|
|
54,067
|
|
Earnings per share:
|
|
|
|
|
Basic
|
|
$
|
0.31
|
|
Diluted
|
|
$
|
0.30
|
|
Basic weighted average shares
|
|
|
173,670
|
|
Diluted weighted average shares
|
|
|
177,779
|
|
The primary adjustments relate to the purchase accounting
impacts of the acquired intangible assets and increased debt
associated with the merger. The above pro forma information was
determined based on historical GAAP results adjusted for the
purchase price allocation and estimated related changes in
income associated with the merger with AB. Excluded from the pro
forma results are purchase accounting adjustments related to
in-process research and development, the fair market value
adjustment of inventory and deferred revenue as these
adjustments do not reflect ongoing operations. Additionally, the
Company excluded the impact of the expense associated with the
acceleration of equity vesting and discontinuation of hedging
relationships associated with the Applied Biosystems merger as
these adjustments do not reflect ongoing operations as if the
Companies merged on January 1, 2008.
The Company finalized the allocation of the purchase price
during the year ended December 31, 2009. The components of
the purchase price allocation for AB are as follows: